You need to file suit for a client, but the controlling contract has conflicting clauses providing for jurisdiction in both court and arbitration. How to proceed? That’s the question I faced recently.
Unfortunately, business contracts have sometimes been cobbled together carelessly, leaving discrepancies that can make their application unclear. The contract I encountered, which was not uncommon, had an ordinary provision providing that, “[a]ny controversies or disagreements arising out of, or relating to this Agreement or the breach thereof, shall be settled by arbitration.”
So far, all was standard. Regarding the sweeping scope of arbitration disputes under clauses such as this one, “[c]ourts have generally read the terms ‘arising out of’ or ‘relating to’ [in] a contract as indicative of an ‘extremely broad’ agreement to arbitrate any dispute relating in any way to the contract.” Pop Test Cortisol, LLC v. Merck & Co. (N.J. Super. App. Div., 2014) (finding all claims to be subject to arbitration), citing Griffin v. Burlington Volkswagen, Inc., 411 N.J. Super. 515, 518 (App. Div. 2010) (quoting Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 149 (App. Div. 2008)).
But the same contract also contained a clause providing that “any suit brought herein shall be brought in the state or federal courts for [the local jurisdiction].” Huh?
In researching the issue, what I found is that courts facing such dual provisions have sometimes harmonized them by viewing the role of the referenced court as being limited to compelling arbitration or enforcing arbitration awards. See, e.g., NS Holdings LLC Inc. v. American Int’l Grp. Inc. (No. SACV 10-1132) (C.D. Cal., 2010) (“provisions like the two at issue in this case do not conflict. . . . The service of suit provision should be interpreted, in view of the presumption favoring arbitration, as intended to facilitate enforcement of the arbitration clause”); Security Life Ins. v. Hannover Life Reassurance, 167 F.Supp.2d 1086, 1088 (D. Minn., 2001) (“[t]he reason for service of suit clauses is not to limit the arbitrability of claims, but to ‘obviate potential problems with obtaining jurisdiction over the parties’”); Gaffer Ins. v. Discover Reinsurance Co., 936 A.2d 1109 (Pa. Super. Ct., 2007) (“[t]hese provisions are entirely compatible with the arbitration provision when one recognizes that mandating arbitration as the mechanism for resolving disputes does not eliminate the possibility that the parties may in addition rely on the courts in some situations, e.g., to file actions to compel or enforce arbitration”).
Cases like the foregoing give rise to a substantial argument that arbitration will control most aspects of disputes arising from such agreements, especially to the extent the disputes touch on the merits. As with any contractual analysis, of course, the specific contractual language will govern in any particular case, but it is helpful to know that courts have considered how jurisdictional clauses should be resolved when they conflict.