Outokumpu Stainless USA, LLC v. Converteam SAS

• Decision Date: 30 August 2018
• Docket Number: No. 17-10944,17-10944
• Citation: 902 F.3d 1316
• Parties: OUTOKUMPU STAINLESS USA, LLC, Sompo Japan Insurance Company of America, as subrogee of Outokumpu Stainless USA, LLC, Pohjola Insurance Limited, Aigel Europe Limited, as subrogee of Outokumpu Oyj, Tapiola General Mutual Insurance Company, as subrogee of Outokumpu Oyj, AXA Corporate Solutions Assurance SA UK Branch, as subrogee of Outokumpu Oyi, HDI Gerling UK Branch, as subrogee of Outokumpu Oyj, MSI Corporate Capital LTD., as sole Corporate Member of Syndicate 3210, as subrogee of Outokumpu Oyj, Royal & Sun Alliance, PLC, as subrogee of Outokumpu Oyj, Plaintiffs – Appellants, Sompo Japan Insurance Company of America, et al., Plaintiffs, v. CONVERTEAM SAS, a foreign corporation now known as GE Energy Power Conversion France SAS, Corp., Defendant – Appellee
• Court: U.S. Court of Appeals — Eleventh Circuit

902 F.3d 1316

OUTOKUMPU STAINLESS USA, LLC, Sompo Japan Insurance Company of America, as subrogee of Outokumpu Stainless USA, LLC, Pohjola Insurance Limited, Aigel Europe Limited, as subrogee of Outokumpu Oyj, Tapiola General Mutual Insurance Company, as subrogee of Outokumpu Oyj, AXA Corporate Solutions Assurance SA UK Branch, as subrogee of Outokumpu Oyi, HDI Gerling UK Branch, as subrogee of Outokumpu Oyj, MSI Corporate Capital LTD., as sole Corporate Member of Syndicate 3210, as subrogee of Outokumpu Oyj, Royal & Sun Alliance, PLC, as subrogee of Outokumpu Oyj, Plaintiffs – Appellants,Sompo Japan Insurance Company of America, et al., Plaintiffs,

v.CONVERTEAM SAS, a foreign corporation now known as GE Energy Power Conversion France SAS, Corp., Defendant – Appellee

No. 17-10944

United States Court of Appeals, Eleventh Circuit.

August 30, 2018

Devin Clarke Dolive, Eddie Travis Ramey, Burr & Forman, LLP, Birmingham, AL, Taylor Barr Johnson, Ricardo A. Woods, Burr & Forman, LLP, Mobile, AL, David Gerard Wanhatalo, Roberts Law Office, Birmingham, AL, for Plaintiff - Appellant OUTOKUMPU STAINLESS USA, LLC.

Joseph James Ferrini, James R. Swinehart, Kenneth Wysocki, Clausen Miller, PC, Chicago, IL, G. Randall Spear, Mark Edward Spear, Spear Spear and Hamby P.C., Mobile, AL, for Plaintiffs - Appellants SOMPO JAPAN INSURANCE COMPANY OF AMERICA, POHJOLA INSURANCE LIMITED, AIG EUROPE LIMITED, as subrogee of Outokumpu Oyj, TAPIOLA GENERAL MUTUAL INSURANCE COMPANY, AXA CORPORATE SOLUTIONS ASSURANCE SA UK BRANCH, HDI GERLING UK BRANCH, MSI CORPORATE CAPITAL LTD., ROYAL & SUN ALLIANCE, PLC.

Sara Anne Ford, Wesley B. Gilchrist, Mark Christian King, Amie Adelia Vague, Lightfoot Franklin & White, LLC, Birmingham, AL, for Defendant - Appellee COVERTEAM SAS.

Before TJOFLAT and JULIE CARNES, Circuit Judges, and BLOOM,^* District Judge.

BLOOM, District Judge:

This appeal requires us to examine seemingly interrelated—but actually quite separate—questions under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention" or "Convention"): (1) whether an action between a buyer and a sub-contractor of a seller "relates to" an arbitration agreement signed by the buyer and seller sufficient to establish federal subject matter jurisdiction, and (2) whether a non-signatory sub-contractor may compel arbitration against the buyer under that arbitration agreement. In following our sister circuits, we conclude that these inquiries require a bifurcated analysis. Beiser v. Weyler , 284 F.3d 665 (5th Cir. 2002) ; Sarhank Grp. v. Oracle Corp. , 404 F.3d 657 (2d Cir. 2005). Where jurisdiction is challenged on a motion to remand, the district court shall first perform a limited inquiry on the face of the pleadings and the removal notice to determine whether the suit "relates to" an arbitration agreement falling under the Convention under the factors articulated in Bautista v. Star Cruises , 396 F.3d 1289, 1294 n.7 (11th Cir. 2005). On a motion to compel arbitration, the district court must engage in a more rigorous analysis of the Bautista factors to determine whether the parties before the district court entered into an agreement under the meaning of the Convention to arbitrate their dispute.

I. FACTUAL BACKGROUND

Plaintiff Outokumpu Stainless, LLC ("Outokumpu") operates a steel plant in Calvert, Alabama. The facility contains three "cold rolling mills," or CRMs, required for manufacturing and processing certain steel products. In November 2007, while the plant was still under construction, Outokumpu’s predecessor ThyssenKrupp Stainless USA LLC entered into three contracts with Fives (then F.L. Industries, Inc.) to provide three different sized CRMs ("Outokumpu-Fives Contracts" or the "Contracts"). The Outokumpu-Fives Contracts each contain an arbitration clause:

All disputes arising between both parties in connection with or in the performance of the Contract shall be settled through friendly consultation between both parties. In case no agreement can be reached through consultation after a maximum period of 30 days or as soon as one of the parties involved appeals for the arbitration tribunal the dispute shall be considered as failed and any such dispute shall be submitted to arbitration for settlement.

The arbitration clause further requires that the arbitration take place in Dusseldorf, Germany in accordance with the Rules of Arbitration of the International Chamber of Commerce and that the forum apply the substantive law of Germany.

The Contracts define Outokumpu as the "Buyer" and Fives as the "Seller," and state that "Buyer and Seller [are] also referred to individually as ‘Party’ and collectively as ‘Parties.’ " The Contracts further provide that: "When Seller is mentioned it shall be understood as Sub-contractors included, except if expressly stated otherwise." The Contracts define "Sub-contractor" as "any person (other than the Seller) used by the Seller for the supply of any part of the Contract Equipment, or any person to whom any part of the Contract has been sub-let by the Seller[.]" Appended to each Contract is a subcontractor list that enumerates the "Preferred Brands or Manufacturers" for Outokumpu and Fives; Defendant GE Energy Conversion France SAS ("GE Energy"), formerly known as Converteam SAS, is on that list.

Each CRM requires three motors, and Fives subcontracted with GE Energy to supply all nine motors. The motors were manufactured in France and delivered and installed in Alabama between 2011 and 2012. However, by June 2014, the motors began to fail. Despite inspections and emergency repairs, motors from all three of the CRMs failed by August 2015.

Outokumpu approached Fives about replacing or repairing the motors. Through correspondence between GE Energy and Fives, Outokumpu discovered that GE Energy, Fives, and a third company, DMS SA, had entered into a subcontractor agreement, the "Agreement for Consortial Cooperation," three weeks after the Outokumpu-Fives contracts were executed. The Consortial Agreement had "the aim of optimizing the chances of the parties to be awarded the project." Under the Consortial Agreement, GE Energy, Fives, and DMS agreed that "[a]ny and all stipulations of the [Outokumpu-Fives Contracts] shall apply mutatis mutandis to each party for its own scope of supply and services."

The Consortial Agreement in turn contains its own arbitration clause as follows:

The PARTIES shall endeavor to settle any dispute, controversy or claim arising out of or in connection with this AGREEMENT or with the [Outokumpu-Fives Contracts] or the breach, interpretation or validity of this Agreement amicably.

If not agreement settlement can be reached within a reasonable time, either PARTY may commence arbitration after serving a 15 days written notice to the other PARTY. Such dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The place of arbitration shall be Paris.

...

In the event a dispute occurs between [Outokumpu] and [Fives], which results in an arbitration proceeding under the [Outokumpu-Fives Contracts], [Fives] shall have the right to join the other PARTY into the arbitration proceedings with [Outokumpu] and the PARTY so joined hereby agrees that it shall be bound by the arbitral award, as long as the latter is given the opportunity to defend its interest in the arbitration procedure held under the [Outokumpu-Fives Contracts].

Under the Consortial Agreement, Fives was designated the "Leading Party" of the consortium and was tasked with representing the interests of the consortium.

II. THE DISTRICT COURT PROCEEDINGS

When Outokumpu was unable to resolve the issues related to the motors with GE Energy, Outokumpu and its insurers filed suit in the Circuit Court of Mobile, Alabama on June 10, 2016. GE Energy timely removed based on federal subject matter jurisdiction under 9 U.S.C. § 205 and diversity jurisdiction based on fraudulent joinder of Outokumpu’s insurers. Outokumpu and the insurers moved to remand, and GE Energy moved to dismiss and compel arbitration. Outokumpu also sought limited discovery regarding the Consortial Agreement. The district court denied the motion to remand and the motion for limited discovery, and granted the motions to compel and dismiss.

As to the motion to remand, the district court, adopting the magistrate’s report and recommendation, found removal proper under the New York Convention and the Federal Arbitration Act ("FAA") since this case "relates to" the arbitration agreement found in the Outokumpu-Fives Contracts and that arbitration agreement "fall[s] under the Convention." As to the motion to compel arbitration, the district court found that each of the four jurisdictional prerequisites under Bautista was met and no affirmative defense applied. Specifically, as to the first prerequisite, the district court found there was an "agreement in writing," signed by the Outokumpu and GE Energy, since Outokumpu signed the Contracts and GE Energy, as a sub-contractor, was not expressly excluded from the arbitration provision. The second prerequisite was not contested by the parties. As to the third and fourth prerequisite, the district court found that the arbitration agreement arose out of a legal commercial relationship between Outokumpu and Fives and that that relationship had some reasonable relationship with a foreign state. Accordingly, the district court granted the motion to compel and dismissed the action.

III. STANDARD OF REVIEW

We review de novo both the district court’s denial of the motion to remand and the district court’s grant of the motion to compel arbitration and dismiss. Escobar v. Celebration Cruise Operator, Inc. , 805 F.3d 1279, 1283 (11th Cir. 2015) (citing Bailey v. Janssen Pharmaceutica, Inc. , 536 F.3d 1202, 1204 (11th Cir. 2008) and Bautista , 396 F.3d at 1294 ). The same de novo standard applies to the district court...