Second Circuit Rules that Employee Release Agreement’s Forum Selection Clause Overrides Prior Arbitration Agreement
February 21, 2024
On January 22, 2024, the Second Circuit held, in The Resource Group International Ltd. v. Chishti, No. 23-286 (2d Cir. Jan. 22, 2024), that a forum selection clause in a later settlement agreement could supersede a prior agreement to arbitrate, even without explicit language addressing arbitration. The ruling highlights the importance of precise drafting in contractual agreements, especially when multiple agreements are involved, to avoid unintentionally overriding preexisting arbitration agreements.
The case concerned Muhammad Ziaullah Khan Chishti’s resignation as chairman of The Resource Group International (TRGI) and a dispute with TRGI and its affiliates. Initially, a stock purchase agreement (SPA) between TRGI and outside investors included an arbitration provision. Upon Chishti’s departure, a release agreement was executed, containing a forum selection clause specifying New York courts’ jurisdiction and a merger clause expressly superseding all prior arrangements.
Chishti initiated arbitration against TRGI, prompting the TRGI Parties to seek a preliminary injunction in the Southern District of New York to halt arbitration on the basis that the release agreement’s forum selection clause superseded the SPA’s arbitration agreement. The district court denied the TRGI Parties’ request, reasoning that the release agreement did not explicitly mention prior arbitration agreements and therefore did not supersede the SPA’s arbitration agreement.
The Second Circuit reversed, holding that a forum selection clause could nullify previous arbitration agreements, even without express mention of arbitration, and that “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause specifically precludes arbitration.” Because the release agreement’s language contained both a forum selection clause granting exclusive jurisdiction to New York courts and a merger clause superseding prior arrangements, it was deemed sufficient to override the SPA’s arbitration clause.
Chishti highlights that a forum selection clause may negate previous agreements to submit disputes to arbitration, even if the clause does not mention arbitration. Parties should be cautious in drafting multiple agreements to avoid inadvertently superseding preexisting arbitration agreements.
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