On January 22, 2024, the Second Circuit held, in The Resource Group International Ltd. v. Chishti, that a forum selection clause in a settlement agreement can supersede a prior commercial agreement to arbitrate, even in the absence of an explicit waiver of the right to arbitration. This decision underscores the importance of carefully drafting forum selection clauses in employment and other agreements to avoid unintentionally overriding preexisting arbitration agreements.
Background
The Research Group International (TRGI) is a holding company that invests in technology companies. In 2005, TRGI received a large investment from a group of outside investors. As part of the investment, TRGI and its management—including then-chairman Muhammad Ziaullah Khan Chishti—entered a stock purchase agreement (SPA) with the outside investors. The SPA also included an arbitration provision providing that “[a]ll disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration.”
In 2021, Chishti resigned from his position as chairman. In connection with his departure, TRG Pakistan—a TRGI affiliate—repurchased shares held by Chishti and Chishti executed an agreement pursuant to which he agreed to release claims and not to commence litigation against TRGI and certain other parties. The release agreement provided for “the exclusive jurisdiction of the state and United States federal courts located in the state of New York” to resolve disputes, and expressly “supersede[d] all prior arrangements or understandings” among the parties.
In February 2023, Chishti initiated an arbitration against TRGI, TRG Pakistan, and several of its affiliates and directors (the TRGI Parties), as well as several other parties, claiming that the TRGI Parties had breached the SPA and their fiduciary duties to shareholders. In response, the TRGI Parties filed suit against Chishti in the Southern District of New York, seeking, among other relief, a preliminary injunction to stay the arbitration proceedings on the basis that the release agreement’s forum selection clause superseded the SPA’s arbitration agreement.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 for a preliminary injunction, concluding that “[the TRGI Plaintiffs] were unlikely to succeed on the merits of their claim[]” that the SPA’s arbitration agreement was unenforceable because the release agreement did not explicitly mention prior arbitration agreements, and therefore did not supersede it.
The Second Circuit vacated the district court’s decision. It held that “there is no requirement that [a] forum selection clause [definitively] mention arbitration.” Instead, “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause specifically precludes arbitration.” Thus, because the release agreement contained both a forum selection clause requiring that court in New York have “exclusive jurisdiction” over disputes between the parties, as well as a merger clause “supersed[ing] all prior arrangements or understandings,” the Second Circuit concluded that the district court should not have determined that the release agreement could not have superseded the preexisting arbitration agreement. Instead, the release agreement superseded the SPA’s arbitration agreement “as it relates to the subject matter of the Release Agreement.” The Second Circuit remanded the case to the district court to determine which claims, if any, were covered by the release agreement (and therefore no longer subject to arbitration) and which claims, if any, were not covered by the release agreement (and therefore still subject to arbitration under the SPA).
Implications
Chishti demonstrates that a forum selection clause may negate previous agreements to submit disputes to arbitration even if the forum selection clause makes no mention of arbitration. Parties should be careful in drafting multiple agreements not to inadvertently supersede preexisting arbitration agreements.