WASHINGTON —- In a case Justice Sonia Sotomayor called “easy to win,” Supreme Court justices Tuesday heard arguments on whether a subcontractor that didn’t sign the main contract with a foreign-owned company can use a legal concept called equitable estoppel to force arbitration in another country.
Justices seemed to be in agreement with Sotomayor while hearing oral arguments in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC.
In 2007, Outokumpu began building a steel factory in Calvert, Alabama. It contracted with F.L. Industries, known as Fives, for three metal rolling mills and required that arbitration, if needed, take place in Dusseldorf, Germany and proceed under German law. The contract covers Outokumpu, Fives and a list of subcontractors, including GE Energy Conversion France SAS.
GE Energy was contracted by Fives to build motors for the three mills. In 2014 the motors began to have problems and had failed by 2015 so Outokumpu sued GE Energy.
In court, GE Energy moved to compel arbitration under the contractual arbitration guidelines. Outokumpu responded that GE Energy, as a subcontractor, was not a direct signer of the contract and under international law, known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, it cannot force Outokumpu into arbitration.
“The only question before us is whether anything in the convention precludes an argument like that [of equitable estoppel] to be made under the Federal Arbitration Act, whether or not it might succeed,” said Justice Neil Gorsuch.
GE Energy argued that it is listed as a subcontractor in the original contract and therefore is eligible for forced arbitration, and that it is allowed to do so through equitable estoppel, a concept whereby the court will not grant relief to a party that has lied or acted in a false manner, causing harm to another party.
Arguing in support of GE Energy, Assistant to the Solicitor General Jonathan Ellis argued that the FAA does not prevent the use of equitable estoppel in a case like this.
“I guess the overarching point is that nothing in the Convention draws the sort of line that Respondent is trying to do. It can’t be the party line that they’ve pointed to.” said Ellis.
Outokumpu argued that the FAA prevents subcontractors from entering forced arbitration with a party through equitable estoppel. Under the FAA, “non-parties cannot enforce agreements in cases under the Convention,” said Outokumpu lawyer Jonathan Hacker.
“[GE Energy is] not a party to the arbitration clause because as we know, under international law, arbitration clauses are separable from the rest of the contract,” he said. However, Sotomayor appeared to take issue with this assertion, and asked Hacker repeatedly to show where in the contract it provided that subcontractors were parties excepted from arbitration.
Gorsuch furthered Sotomayor’s point.
“You’ve consented — this is the scope of your consent, we have to address, but the idea that you consented to something seems hard to dispute, isn’t it, as a matter of domestic law?” said Gorsuch.
The justices appeared inclined to decide in favor of GE Energy, which would set precedent allowing the use of equitable estoppel to compel arbitration by a non-signatory subcontractor.