Supreme Court Finds Foreign Third Parties Can Force Arbitration

WASHINGTON (CN) — The Supreme Court ruled unanimously Monday that an international compact does not prevent foreign companies from compelling arbitration in the United States when they are not a signatory to an agreement. 

The tangled arbitration dispute concerns several U.S. and foreign countries and the requirements of the so-called New York Convention, an international pact that requires the United States and 159 other countries to enforce arbitration agreements struck between companies in other member states. 

The U.S Supreme Court. (AP Photo/J. Scott Applewhite, File)

GE Energy Power Conversion France sought to compel arbitration in Alabama federal court after being sued by Outokumpu Stainless USA, the U.S. subsidiary of a large stainless steel producer based in Finland. 

Outokumpu’s predecessor had agreed to a deal for a French company now known as Fives ST Corp. to help build three stainless steel production mills in Alabama and Fives subcontracted work to GE Energy Power Conversion France. One of the motors GE Energy Power Conversion France installed failed, spurring the suit. 

A district court allowed GE France to compel arbitration, but the 11th Circuit reversed because GE France was not part of the arbitration agreement in the contracts between Fives and Outokumpu.

Writing for a unanimous Supreme Court on Monday, Justice Clarence Thomas found the New York Convention “is simply silent” on whether nonsignatories to an agreement can compel arbitration and that the convention is set up to allow domestic law to fill in its gaps. 

Furthermore, there is no evidence from when the convention’s text was drafted that it intended to prevent nonsignatories from compelling arbitration. 

“Nothing in the drafting history suggests that the convention sought to prevent contracting states from applying domestic law that permits nonsignatories to enforce arbitration agreements in additional circumstances,” Thomas wrote. 

That conclusion is strengthened by how courts in other countries that signed onto the New York Convention have applied the agreement, the justices found.  

The 11th Circuit will have to consider on remand whether any other considerations will allow GE France to compel arbitration. 

In a short concurring opinion, Justice Sonia Sotomayor cautioned that lower courts applying the court’s decision should be mindful that consent is a necessary and fundamental component of arbitration. 

A spokesperson for GE said the decision “is an important outcome for all businesses that conduct international commerce.”

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