Division 5, LLC v. Fora Financial Advance LLC

Background

Division 5 brought the action to stop collection of payments that Fora claimed were due under a merchant cash advance agreement executed in June 2023. The court had previously granted Division 5 a temporary restraining order and then a preliminary injunction preventing enforcement of the agreement.

The agreement contained an arbitration clause requiring individual arbitration of broadly defined disputes and waiving jury trials and class actions. It also contained a forum-selection provision stating that the parties consented to the exclusive jurisdiction and venue of federal and state courts in New York for controversies and claims related to the agreement or the parties’ relationship.

Fora moved to compel arbitration and dismiss the complaint. Division 5 argued that the arbitration clause conflicted with the forum-selection provision. Division 5 also argued that Fora’s arbitration request was premature and that Fora had not first attempted to resolve the dispute through good-faith negotiations. The court rejected those additional objections, explaining that the agreement required only that the parties wait 30 days if they could not resolve the dispute and did not require a good-faith offer.

Court’s Analysis

The court explained that an arbitration agreement is generally enforceable under the Federal Arbitration Act. The initial question was whether the parties agreed to arbitrate, followed by whether the dispute fell within the agreement’s scope and whether the agreement was enforceable.

The court concluded that the arbitration clause and the forum-selection provision could reasonably be interpreted together. It treated the forum-selection provision as identifying the New York courts in which court proceedings might occur—for example, proceedings to enforce the arbitration agreement, enforce an arbitration award, obtain other court remedies, or resolve claims not covered by arbitration. The provision did not necessarily require that every dispute be decided by a court rather than an arbitrator.

The court distinguished cases involving separate contracts in which a later forum-selection provision displaced an earlier arbitration clause. Here, both provisions appeared in the same agreement, so the court was required to make a reasonable effort to give both provisions effect. The court also distinguished cases whose forum-selection provisions expressly required that disputes be adjudicated or brought in specified courts.

Because the court compelled arbitration, it did not reach Fora’s substantive arguments supporting dismissal. The court ordered that the previously entered preliminary injunction remain in effect until modified or vacated by the court or by a properly appointed arbitrator.

Disposition

Fora’s motion to compel arbitration was granted. The action was stayed pending arbitration. The opinion did not decide Fora’s substantive arguments for dismissal.

Parties Affected

Division 5’s claims will proceed in arbitration rather than in the federal court action, subject to the agreement’s arbitration terms. Fora may pursue the arbitration, while the preliminary injunction remains in effect unless changed or vacated by the court or arbitrator.