• U.S. District Court for The Eastern District of New York Gives Priortiy to Forum Selection Clause Over Prior Arbitration Agreement
  • April 11, 2012 | Author: Donald N. Cohen
  • Law Firm: Greenberg Traurig, LLP - New York Office
  • The U.S. District Court for the Eastern District of New York recently held that a forum selection clause giving New York state and federal courts exclusive jurisdiction over disputes between two parties would supplant the parties’ prior arbitration agreement based on the parties’ status as FINRA members. Accordingly, FINRA members should carefully review their contracts with other FINRA members to ensure that dispute resolution clauses properly reflect the FINRA members’ interests.

    In Biremis Corp. v. Merrill Lynch, Pierce Fenner & Smith Inc., 2012 WL 760564 (E.D.N.Y. March 8, 2012), Plaintiff’s predecessor, Biremis LLC (Biremis), was a broker-dealer registered with the SEC and FINRA. Biremis entered into an agreement with Defendant Merrill Lynch to use Merrill Lynch’s online trading system. Paragraph 10 of the parties’ agreement provided that any disputes arising out of the agreement “shall be governed by and construed in accordance with the laws of the State of New York, whose state and federal courts shall have exclusive jurisdiction . . . .” On July 25, 2011, Merrill Lynch filed an arbitration claim with FINRA, alleging that Biremis owed it more than $1 million in outstanding execution charges. Merrill Lynch claimed that FINRA arbitration was appropriate based on the fact that, as a former FINRA member (Biremis had ceased operating as a brokerdealer), Biremis had agreed to arbitrate all disputes with other FINRA members. Biremis objected to FINRA’s jurisdiction to administer the arbitration and simultaneously commenced an action in the Eastern District of New York to enjoin Merrill Lynch from pursuing its FINRA claim. Merrill Lynch then moved to dismiss on the grounds that Biremis agreed to arbitrate the dispute or, alternatively, to stay the action pending arbitration.

    In ruling on the motion to dismiss, the court looked to Applied Energetics Inc. v. New Oak Capital Markets, LLC, 645 F.3d 522 (2d Cir. 2011). In Applied Energitics Inc., the court held that the subsequent language of a forum selection clause vitiated the parties’ prior agreement to arbitrate. The court reasoned that although both provisions directly conflicted with each other, the more recent and specific forum selection clause was to be enforced.

    The Biremis court reasoned that the mandatory language within the provision did not allow for the dispute to be arbitrated. The court found that it could not “simultaneously give effect to an arbitration agreement provision stating that ‘all disputes’ are to be arbitrated along with a contractual provision granting ‘exclusive’ jurisdiction over all disputes arising out of the parties’ Agreement to [litigate in] federal and state courts.” Accordingly, the Court nullified the parties’ arbitration agreement and denied Merrill Lynch’s motion to dismiss.