Second Circuit Review: The Resource Group International v. Chishti

Litigation of counsel Martin Flumenbaum and firm Chairman Brad Karp’s latest Second Circuit Review column, “The Resource Group International v. Chishti,” appeared in the February 28 issue of the New York Law Journal. The authors discuss The Resource Group International, in which the Second Circuit vacated and remanded a district court order denying a motion for a preliminary injunction that would have stayed a pending arbitra­tion.

Ordinarily under the Federal Arbitration Act, an interlocutory appeal is not permitted on orders declining to enjoin arbitration. However, such an appeal is permitted for an arbitration proceeding under New York law. In The Resource Group International, the Second Circuit held that it had juris­diction to review the matter, noting that the stock purchase agreement in question between the parties in the case stated that arbitration would be governed by New York law. The Second Circuit’s opinion illustrates an unusual exception to the Erie doctrine, which requires that federal courts hearing lawsuits not involving a federal question should apply state law on substantive issues and federal law on procedural issues. Additionally, observing that a merger clause in a subsequent agreement between the parties potentially obviated the arbitration clause in the stock purchase agreement, the appellate court held that the plaintiffs were likely to succeed on the merits, and that forced arbitration of inarbitrable claims may constitute an irreparable harm to the plaintiffs. The decision warns that merger clauses in agreements may inadvertently obviate pre-existing agreements to arbitrate.

Litigation associate Michael Pisem assisted in the preparation of this column.

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