September 05, 2014 Articles

Do Arbitration Clauses Survive Termination of the Contract?

By Clarence Westbrook

In October 2011, Hilltop hired Cynthia Huffman and a number of other employees to review the files of mortgage loans originated by PNC Bank. Each employee executed an employment agreement that contained both a broad arbitration clause and a survival clause. The survival clause included clauses detailing services essential to the job, the term of employment, compensation, termination, and client confidentiality. While the survival clause listed half of the agreement's 24 clauses, it did not list the arbitration clause. Other important clauses that were not referenced in the survival clause included the noncompete, severability, and integration clauses.

Huffman reviewed loan files to determine whether lawful procedures were followed during foreclosure and other proceedings. Until the end of her employment in January 2013, Huffman regularly worked in excess of 40 hours per week, but she was not compensated at the overtime rate because Hilltop had classified her as an independent contractor. Huffman asserted that Hilltop's classification was in error, and that the failure to compensate her and other similarly situated employees at the applicable overtime rate constituted violations by Hilltop of the Fair Labor Standards Act and the Ohio Minimum Fair Wage Standards Act.

The work-related grievances led Huffman to file a class action in federal court. Hilltop filed a motion to dismiss and compel arbitration. The district court denied Hilltop's motion, finding that the arbitration clause had no post-termination effect because the survival clause did not include the arbitration clause. The court based its decision on the doctrines of expressio unius est exclusion alterius, which provides that the express mention of certain contractual provisions is tantamount to intentional exclusion of the others, and contra proferentum, which provides that ambiguous terms should be interpreted against the drafter's (Hilltop's) interests. The decision was appealed.

Case of First Impression
In a case of first impression among the federal circuits, the Sixth Circuit addressed whether the strong federal presumption in favor of arbitration applies post-termination when the arbitration clause is not listed in the survival clause. Huffman v. Hilltop Cos., 747 F.3d 391 (6th Cir. 2014).

Contra proferentum. To answer that question, the court's first line of inquiry involved application of the doctrine of contra proferentum in the context of arbitration agreements. The court concluded that the Supreme Court's decision in Litton Financial Printing Division v. NLRB, 501 U.S. 190 (1991), was controlling. Where the ambiguity involves an arbitration agreement, the strong presumption in favor of arbitration trumps the doctrine of contra proferentum. To overcome the presumption, a party must present "the most forceful evidence of a purpose to exclude the claim from arbitration"; in other words, there must be a "clear implication" or "positive assurance" that the parties intended the arbitration clause to expire with the agreement. Huffman, 747 F.3d at 394–97.

Expressio unius. The second line of inquiry involved decisions by district courts in other circuits that have rejected similar expressio unius arguments made in the context of a broad arbitration clause that is not listed in the survival clause. See W. Liberty Foods, L.L.C. v. Moroni Feed Co., 753 F. Supp. 2d 881 (S.D. Iowa 2010) (holding that an arbitration clause did not expire despite its not being listed in the contract's survival clause). The district court in West Liberty Foods found that the agreement was ambiguous on the issue of whether the arbitration clause survived, and applied the strong presumption in favor of arbitration.

In the context of this case, the court found that ambiguity existed as to which other provisions, besides those listed in the survival clause, the parties intended to survive expiration of the agreement. This conclusion was based on the fact the survival clause did not reference important clauses such as the noncompete, severability, or integration clauses. Reasoning that it is illogical to conclude that upon expiration of the contract, the parties would not want these three provisions to survive, the court concluded that it is plausible to assume the parties intended for the arbitration clause to also survive. That possibility, coupled with the strong presumption in favor of arbitration, resulted in the court ruling in favor of Hilltop and arbitration of the dispute.

What Constitutes a "Clear Implication?"
The court went on to state that under different facts, the omission of an arbitration clause from a survival clause could satisfy the "clear implication" standard outlined in Litton. For example, if the survival clause listed 23 of the agreement's 24 clauses—all but the arbitration clause—that might constitute a clear implication, and yield a different result.

Conclusion
To avoid costly and time-consuming court proceedings, parties drafting agreements that include both a survival clause and a broadly worded arbitration clause should clearly state their intent as to whether the arbitration clause does or does not survive termination of the agreement.

Keywords: litigation, ADR, alternative dispute resolution, arbitration clause, survival clause, termination, ambiguity, expressio unius est exclusion alterius, contra proferentum