The US Supreme Court has been asked to clarify the legal regime governing non-signatories to arbitration agreements under the Federal Arbitration Act. In particular, the Court is now asked to resolve whether state law principles of equitable estoppel apply to a claim to extend an arbitration agreement, or whether “federal common law” derived from a “pro-arbitration” statutory interpretation of the FAA applies. The US Supreme Court has already held in Arthur Andersen[1] and confirmed in GE Energy[2] that Chapter 1 of the FAA “does not ‘alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them).’” However, at least four intermediate appellate courts (US Circuit Courts) have nevertheless held that “federal common law” should apply to this question. A Supreme Court decision on this issue has a potentially large impact on the ability of non-signatories to arbitration agreements to seek relief under those agreements in US-seated arbitrations and wide-ranging implications on the route(s) available through determination of the legal standard to be applied.
Context
The US Supreme Court is often called upon to resolve discrepancies between legal positions amongst the intermediate appellate courts – colloquially referred to in the US as “Circuit Splits”. In the United States, matters of Contract Law are reserved for the individual states – there is no federal contract law. However, there currently exists a Circuit Split as to whether individual US state law provides the legal grounds and elements for a claim to extend an arbitration agreement based upon “equitable estoppel” for arbitrations seated within those States or whether – in the interests of consistency in promoting International Arbitration – a federal common law which allows a non-signatory to seek relief under a contract containing an arbitration clause is preferable and required by Chapter 2 of the Federal Arbitration Act.
In very short terms, the US Supreme Court’s decision in GE Energy “did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination.”[3] Certain US Federal Appellate Circuits have found that a “federal common law”, rather than state law of the seat of arbitration applied because those circuits were persuaded that “uniformity” of the law was of paramount importance in New York Convention cases and that cases arising under the New York Convention were “federal claims” for which the court should apply “federal substantive law”.[4] While accepting that this federal substantive law was to be informed by “ordinary contract and agency principles”, the Circuits have declined to apply a particular state law (including the law of the seat of the arbitration) to the question of extension of an arbitration agreement to a non-signatory on the basis of equitable estoppel.
The US Seventh Circuit’s Thinking
In the last weeks, one recent intermediate Appellate Court Decision has brought this issue to the forefront.[5] In Taewoo Kim, the US Court of Appeals for the Seventh Circuit rejected the reasoning of other Circuit decisions applying federal common law and instead held that:
“[The US Supreme Court decision in] Arthur Andersen requires us to enforce arbitration agreements under Chapter 1 of the Federal Arbitration Act like any other contract: according to rules of state law. It does not prescribe uniformity. […] Chapter 2 covers agreements between U.S. and foreign citizens, but that shouldn’t make a difference. International arbitration agreements may contain choice-of law clauses, which should be honored, but arguments from outside the text of an agreement (as Jump’s is) presumptively rest on the law of the forum state.”[6]
The Seventh Circuit noted the “split” between the Circuits, but restricted its discussion to the facts of the case before it and expressed scepticism on the need or ability to create “federal common law” in the context of International Arbitrations seated in the United States:
“There isn’t any federal interest that compels us to create federal common law. Some courts have justified their invention of equitable estoppel doctrines as necessary to implement a federal interest in encouraging arbitration. See, e.g., MS Dealer Service, 177 F.3d at 947. But Morgan v. Sundance, Inc., 596 U.S. 411, 417-19, 142 S. Ct. 1708, 212 L. Ed. 2d 753 (2022), tells us the opposite: that there isn’t a federal interest in promoting arbitration. The goal of the federal statute is enforcement of contracts, nothing more. This leads us back to Illinois’s doctrine of equitable estoppel, which requires reasonable reliance by the party invoking the arbitration agreement.”[7]
Our Thoughts
It is well recognised that the law applicable to the question of whether a non-signatory can avail itself of a contract which contains an arbitration clause has important implications on the potential for success. Arbitration practitioners often refer to the “pro-arbitration” policy enunciated in the Federal Arbitration Act and embodied by US Supreme Court precedent. However, there is no jurisprudential or legal reason to hold that ordinary and long-standing legal principles of a state’s contract law (including with respect to the ability for non-signatories to come under an arbitration clause) should be displaced for a new – still undetermined – federal common law. The potential that non-signatories to contracts may not be able to avail themselves of the arbitration agreement is not a reason to abandon long-standing principles of US state law. Based upon the US Supreme Court’s decisions in Arthur Andersen and GE Energy, it would be surprising for the US Supreme Court to abandon state law in favour of a new and undefined federal common law on equitable estoppel.
[1] Arthur Andersen LLP v. Carlisle, 556 U. S. 624, 630 (2009) (“Arthur Anderson”).
[2] GE Energy Power Conversion Fr. SAS. v. Outokumpu Stainless USA, 590 U.S. 432 (2020) (“GE Energy”).
[3] Setty v. Shrinivas Sugandhalaya LLP, 3 F.4th 1166, 1168 (9th Cir. 2021).
[4] Ibid.
[5] Taewoo Kim v. Jump Trading, 2026 U.S. App. LEXIS 24508 (7th Cir. 2026) (“Taewoo Kim”).
[6] Ibid, at [13-14].
[7] Taewoo Kim, at [16-17].
