Reconciling Arbitration And Forum Selection Clauses

David Reif has the following interesting post in his November 13, 2020 “ADR Highlights”:

“Fintech Fund, F.L.P. v. Horne, 2020 U.S. App. LEXIS 35418 (5th Cir.) (Nov. 10, 2020) addresses how a court may reconcile potentially dueling arbitration and forum selection clauses. Fintech licensed its biometric technology to its U.K. affiliate, CrossVerify. Horne, the defendant here, was the former CEO of CrossVerify. Fintech alleges that Horne used his position to download confidential information and sued him under various trade secret statutes. While the issue before the Court of Appeals was whether the litigation should be dismissed either for lack of personal jurisdiction or under the doctrine of forum non conveniens, the court’s analysis required reconciliation of three portions of the parties’ contract. In Section 12(A) thereof, the parties agreed to a broad arbitration clause, covering essentially all disputes “except for any claims against [Fintech].” In Section 14, they agreed that “each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement or its subject matter or formation (including non-contractual disputes or claims), except as to claims against [Fintech].” In Section 12(D), they agreed that, if “the provisions for arbitration are invalidated or deemed unenforceable,” the case would be tried in Houston. Fintech argued that the conflict between Sections 12(A) and 14 meant that the two canceled each other out; that Section 14(D), therefore, became operative; and that Houston must be the venue for trial.

“The Court of Appeals, Owen, C.J., for a panel including Circuit Judges Jones and Stewart, applied English law, which the parties chose under their choice of laws provision. It interprets that law to require courts to “make every attempt to harmonize contractual provisions and . . . determine that two provisions are irreconcilable only as a ‘last resort.’” The court reconciles Section 12(A) and 14 by holding that the latter is only designed to provide a backup to deal with supervisory issues, such as filling a vacancy on the arbitral tribunal if there is no other provision for doing so or removing an arbitrator for misconduct. Thus, the court finds that there is no conflict between those provisions. As a result, both sections remain enforceable and there is no need to exercise the “rescue” position provided by Section 12(D), automatically placing the case in Texas. The Court of Appeals affirms the District Court’s dismissal of the case in favor of the Courts of England and Wales.

“In a routine analysis, the court goes on to hold that the dispute between the parties is within the scope of the arbitration clause.

“While the case applies English law, the underlying principle applies in the U.S.  Where a contract appears to have conflicting terms, a court must try to reconcile the two.  In the context of arbitration, Fintech opines, this is done by limiting the scope of disputes invested in the judiciary, leaving the heavy lifting to the arbitration.  Thus, both provisions serve a purpose.”

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