Alternative Dispute Resolution I JUNE 18, 2014
Arbitration Clause Survives Expiration of Contract
The Hilltop Companies, LLC hired Cynthia Huffman and others to review files for mortgage loans originated by PNC Bank.
Plaintiffs later filed a class action in federal court. Plaintiffs claimed they regularly worked in excess of forty hours per week, but were not compensated at the overtime rate because Hilltop classified them as independent contractors. Hilltop filed a motion to dismiss and to compel arbitration. The district court denied Hilltop’s motion, and Hilltop appealed.
Each employment relationship was governed by a professional services agreement. The agreement contained an arbitration clause and a survival clause. The arbitration clause read in relevant part as follows:
21. ARBITRATION. Any Claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules and its Optional Procedures for Large, Complex Commercial Disputes. The. . . arbitration and all related proceedings and discovery shall take place pursuant to a protective order entered by the arbitrators that adequately protects the confidential nature of the parties’ proprietary and confidential information.
The survival clause read as follows:
22. SURVIVAL. Paragraphs 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 17, and 22 shall survive the expiration or earlier termination of this Agreement.
Note that the survival clause did not specifically list the arbitration clause.
The question on appeal was whether the agreement’s arbitration clause had post-expiration effect. The court of appeals noted that there is a strong federal policy in favor of arbitration, and the need for an arbitration provision to have post- expiration effect is intuitive, because if “the duty to arbitrate automatically terminated upon expiration of the contract, a party could avoid his contractual duty to arbitrate by simply waiting until the day after the contract expired to bring an action regarding a dispute that arose while the contract was in effect,” citing to Zucker v. After Six, Inc., 174 F. App’x944, 947-18 (6th Cir. 2006).
In light of the strong federal policy in favor of arbitration, any doubts as to the parties’ intentions regarding arbitration should be resolved in favor of arbitration.
Only strong evidence of a purpose to exclude the claim from arbitration can prevail. Whether the strong presumption in favor of arbitration applies post-expiration when an arbitration clause is not listed in a survival clause was one of first impression.
Plaintiffs argued that because Hilltop drafted the agreement, any ambiguity concerning whether the arbitration clause survived should be resolved in favor of the plaintiffs. Where ambiguity in agreements involving arbitration exists, however, the presumption in favor of arbitration applies.
Considering the contract as a whole—the survival clause and its relationship to the other clauses in the agreement—was the correct way to determine whether the parties unambiguously intended for the arbitration clause to expire with the contract.
The appeals court found that whether other provisions, besides those listed in the survival clause, were intended to survive expiration of the agreement was made clearer when considering other unlisted provisions.
It was at least plausible that the parties intended the arbitration clause to survive. That possibility, coupled with the strong presumption in favor of arbitration, supported Hilltop’s position.
Since Plaintiffs failed to produce evidence to rebut the presumption in favor of arbitration, the court of appeals held that the parties’ omission of the arbitration clause in the survival clause did not clearly imply that the arbitration clause had no post-expiration effect. Therefore, the strong presumption in favor of arbitration controlled.
Huffman v. The HilltopCompanies, LLC, 747 F.3d 391 (6th Cir. 2014).