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Drafting tip: Don’t let your forum-selection clause wipe out your arbitration provision

There’s a very real possibility that an exclusive forum-selection clause might be held to trump an arbitration clause in a prior or “background” agreement. For that reason, the Common Draft forum-selection clause makes it clear that the parties don’t intend that result.

At this writing there’s a split in the circuits on this point:

  • The Second and Ninth Circuits have held that an exclusive forum-selection clause does trump an arbitration provision. See Goldman, Sachs & Co. v. Golden Empire Schools Financing Authority, No. 13-797-cv (2d. Cir. Aug. 21, 2014), in which the appeals court affirmed a trial court’s grant of Goldman’s motion to enjoin FINRA arbitration, on grounds that the forum-selection clauses in the parties’ agreements superseded the arbitration provision (hat tip: Michael Oberman); see also Goldman, Sachs & Co. v. City of Reno, No. 13-15445, at part III-C, slip op. at 15-16, 19-28, 747 F.3d 733, 736 (9th Cir. 2014), where the appeals court reversed a denial of preliminary injunction and final judgment on the same grounds;
  • In contrast, the Fourth Circuit has held that an exclusive forum-selection clause does not trump an arbitration clause, on grounds that the forum-selection clause referred to litigation, not arbitration, and “we believe that it would never cross a reader’s mind that the [forum-selection] clause provides that the right to FINRA arbitration was being superseded or waived.” UBS Fin. Servs., Inc. v. Carilion Clinic, 706 F.3d 319, 329-30 (4th Cir. 2013); see also UBS Sec. LLC v. Allina Health Sys., No. 12–2090, 2013 WL 500373 (D. Minn. Feb. 11, 2013) (following Carilion Clinic).
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