NYLJ “Mandatory Forum Selection Clause in Settlement Agreement Supersedes Prior Arbitration Agreement”

By Thomas E.L. Dewey

When a seller on an e-commerce platform and the platform operator have entered into both a business services agreement with an arbitration clause and a later settlement agreement with a mandatory forum selection clause, where should subsequent disputes between the parties be heard? The answer may depend on whether the parties' dispute arises under the business services agreement, the settlement agreement, or both—and how the parties conducted themselves after commencing arbitration.

In PandaVida, Inc. v. Amazon.com Services LLC, Judge Gregory H. Woods of the Southern District of New York considered a petition to vacate and a cross-petition to confirm an arbitration award arising from this scenario. The arbitrator had found for Amazon on the seller's claims and on Amazon's counterclaims—including a finding that PandaVida, the seller, had breached the parties' settlement agreement—and awarded Amazon damages and attorneys' fees. Judge Woods analyzed three issues on the cross-petitions.

First, PandaVida argued that the arbitrator had exceeded his authority and that the award should be vacated because the settlement agreement superseded the business services agreement. The court largely rejected this argument and found that the arbitrator had only exceeded his authority as to Amazon's counterclaim for breach of the settlement agreement.

The court held that the settlement agreement's mandatory forum selection clause—which required disputes arising from or relating to that agreement to be litigated exclusively in Washington federal or state court—superseded the earlier business services agreement's arbitration clause.

Second, PandaVida argued that the arbitrator had manifestly disregarded the law, including by denying its request for reimbursement of storage fees and by awarding an "arbitrary" amount of damages. The court rejected that argument, finding at least a colorable basis for the arbitrator's rulings.

Third, the court considered next steps and decided not to fully vacate or confirm the award because it could not determine what portion of the awarded damages arose from the settlement agreement counterclaim that the arbitrator had decided improperly. The court ordered the parties to meet and confer on the path forward, including whether to remand the award to the arbitrator for clarification of the award's apportionment of damages.

Background

In 2015, PandaVida agreed to Amazon's Business Services Agreement (the BSA). The BSA set out Amazon's rights to withhold payments from sellers who engaged in fraudulent activity. The BSA also contained a broad arbitration clause, requiring "any dispute with Amazon or its Affiliates or claim relating in any way to this Agreement or your use of the Services" to be resolved through arbitration.

In 2021, Amazon identified fraudulent activity associated with accounts linked to Isaac and Madeline Lapidus, PandaVida's owners. Amazon deactivated the relevant accounts, sent a cease-and-desist letter, and then settled the dispute by entering into a settlement agreement (the Settlement Agreement) with the Lapiduses and their "business entities, agents, and associates" (the Lapidus Parties).

The Settlement Agreement described the specific accounts that were the subject of the dispute and stated that the parties wished to "finally resolve" all claims "arising out of or relating to" that dispute. The Lapidus Parties agreed not to use any Amazon account to engage in fraudulent conduct, while Amazon retained the right to take action for future violations.

Critically, the Settlement Agreement contained both a merger clause, stating that the Settlement Agreement "supersedes all prior negotiations and agreements, both written and oral, between the Parties with respect to this subject matter," and a mandatory forum selection clause, stating that the parties consented to the "exclusive jurisdiction" of Washington federal or state courts for "any dispute arising from or relating to" the Settlement Agreement.

In 2023, Amazon again flagged PandaVida and the Lapiduses for fraudulent activity—specifically, "inventory reimbursement abuse." Amazon permanently suspended PandaVida's seller account in February 2023 and declined to disburse further funds or return its inventory.

On Nov. 1, 2023, PandaVida filed a demand for arbitration before the American Arbitration Association. PandaVida asserted that Amazon had breached the BSA by refusing reimbursement, withholding funds and inventory, charging storage fees, and declining to reinstate its account. Amazon asserted counterclaims for breach of the BSA, breach of the Settlement Agreement, fraud, negligent misrepresentation, and violations of the Washington Consumer Protection Act (WCPA).

During the arbitration, PandaVida refused to participate in discovery and did not submit a pre-hearing brief or any evidence before the January 2025 evidentiary hearing. At the hearing's conclusion, PandaVida argued that the arbitrator lacked jurisdiction over Amazon's counterclaim for breach of the Settlement Agreement, asserting that the Settlement Agreement's forum selection clause and merger clause superseded the BSA's arbitration agreement as to that counterclaim.

In March 2025, the arbitrator issued an interim award in Amazon's favor on PandaVida's claims and on Amazon's counterclaims for breach of the Settlement Agreement, breach of the BSA, and violations of the WCPA. In April 2025, the arbitrator issued a final award, including $299,999.00 in damages, plus other amounts for exemplary damages under the WCPA, attorneys' fees, and costs.

PandaVida then filed a petition in the Southern District of New York to vacate the award, asserting that the arbitrator had exceeded his authority and acted in manifest disregard of the law. Amazon cross-petitioned to confirm the award.

The Court's Ruling on the Arbitrator's Authority

The court began by considering whether PandaVida had waived its objections to the arbitrator's authority. Based on PandaVida's initiation of the arbitration under the BSA and its failure to object to the arbitrator's authority to decide its own claims, most of Amazon's counterclaims, or the arbitrator's consideration of the Settlement Agreement in resolving PandaVida's claims, the court held that PandaVida had agreed to arbitrate those claims and counterclaims.

As to the Settlement Agreement counterclaim, the court held that PandaVida had not waived its objection to the arbitrator's authority to decide that counterclaim. PandaVida did not propound any meaningful argument on whether it had actually breached the Settlement Agreement, generally denied all allegations in its answer to Amazon's counterclaims, and did not submit a pre-hearing brief.

PandaVida only addressed the Settlement Agreement counterclaim when it twice raised a jurisdictional objection to the arbitrator deciding that counterclaim before the arbitrator issued the award. Under those circumstances, PandaVida's conduct did not imply an agreement to arbitrate whether it had breached the Settlement Agreement.

The court then held that the Settlement Agreement's mandatory forum selection clause superseded the BSA's arbitration clause regarding disputes arising out of or relating to the Settlement Agreement. As the court explained, an arbitration agreement is superseded by a later-executed agreement containing a forum selection clause if that clause "specifically precludes arbitration," although there is no requirement that the clause expressly mention arbitration.

The court found the Settlement Agreement's forum selection clause mandatory and all-inclusive as to claims of breach of the Settlement Agreement because it required the parties to submit "any dispute arising from or relating to" the Settlement Agreement to the "exclusive jurisdiction" of Washington federal or state courts.

The Settlement Agreement's merger clause confirmed this result by stating unambiguously that the Settlement Agreement "supersedes all prior negotiations and agreements, both written and oral, between the Parties with respect to this subject matter." The court therefore held that the arbitrator had exceeded his authority by resolving whether PandaVida was liable for breaching the Settlement Agreement.

However, the court held that it could not determine what portion of the damages award arose from that improperly decided counterclaim.

Because the arbitrator merely found that PandaVida's obligations under the Settlement Agreement were "in most cases duplicative" of its obligations under the BSA, and that damages under the WCPA "largely mirror[ed]" those under the other claims, the court was unable to confirm that no portion of the damages award flowed from the Settlement Agreement counterclaim. Thus, on the record before it, the court could not confirm or vacate the damages award in full.

The Court's Ruling on Manifest Disregard of the Law

The court also rejected PandaVida's argument that the entire award should be vacated for manifest disregard of the law. The court stated that awards are vacated under this doctrine in the Second Circuit only in "exceedingly rare instances" due to "egregious impropriety on the part of the arbitrator."

PandaVida advanced three grounds for manifest disregard: first, that the arbitrator lacked jurisdiction over the entire proceeding; second, that the arbitrator had misinterpreted the BSA, including by rejecting PandaVida's argument that it was entitled to reimbursement of storage fees; and third, that the damages award was arbitrary. The court rejected all three.

First, the court reiterated that PandaVida had waived its argument that the arbitrator lacked jurisdiction over the entire proceeding.

Second, the court found colorable grounds for the arbitrator's ruling that PandaVida was not entitled to reimbursement of storage fees. These included the facts that Amazon was entitled to withhold inventory under a policy incorporated into the BSA and that PandaVida had itself requested that Amazon retain inventory while the arbitration was pending.

Third, the court held that the arbitrator's damages calculation was not in manifest disregard of the law. PandaVida had not identified any governing legal principle that the arbitrator violated in calculating the amount. The court reiterated that even where an explanation for an award is "deficient," a court will confirm it if a justifiable ground can be inferred.

In this case, Amazon had asserted damages of $299,999.00 arising out of PandaVida's submission of invalid reimbursement invoices, and there was a colorable basis to conclude that at least some portion of that figure arose from counterclaims the arbitrator properly resolved. The court therefore held it could not vacate the entirety of the damages award for manifest disregard.

The Court's Ruling on Next Steps

Because the court was unable fully to resolve the cross-petitions, it ordered the parties to meet and confer on the way forward and to submit a joint letter identifying their positions. In particular, the court directed the parties to address whether remand to the arbitrator was appropriate to clarify the basis for the calculations underlying the damages award.

The court also directed the parties to address a discrepancy in the final award: the total award as calculated by the arbitrator appeared to differ from the sum of the discrete components, which the court understood might reflect the use of the requested rather than the awarded amount of attorneys' fees in the computation.

Conclusions

The court's decision provides guidance on the interplay between arbitration clauses and forum selection clauses.

Where parties execute a settlement agreement with a mandatory forum selection clause after entering into a business services agreement with an arbitration clause, the forum selection clause may supersede the obligation to arbitrate—even with no express mention of arbitration—if it covers "any dispute" arising from or relating to the settlement agreement and the settlement agreement's merger clause reflects the parties' intent to replace prior agreements on that subject matter.

The decision is also notable because it makes clear that a party does not waive its right to challenge an arbitrator's authority over a particular counterclaim merely by initiating the arbitration or by participating in the proceedings generally.

Where a party objects consistently and specifically to the arbitrator's jurisdiction over a discrete claim and refrains from engaging with the merits of that claim, the party may preserve its right to challenge the arbitrator's authority in court.

Parties entering into settlement agreements that resolve disputes arising under prior agreements with arbitration clauses should consider expressly addressing the relationship between forum selection clauses and any prior arbitration obligations.

Absent clear contractual language, courts will examine the text of a forum selection clause, any merger clause, and the parties' conduct in any subsequent arbitration to determine which forum will hear disputes arising after execution of the settlement agreement.

Christopher P. DeNicola, a counsel at the firm, assisted in the preparation of the article.