An arbitration clause survived the termination of the underlying agreement even though the clause was not specifically referenced in the agreement’s survival clause, the U.S. Court of Appeals for the Sixth Circuit, in Cincinnati, has ruled in a case of first impression among the federal circuit courts. Huffman et al. v. Hilltop Cos., LLC, No. 13-3938 (6th Cir. Mar. 27, 2014). Relying on the strong federal policy favoring arbitration, the Court concluded the parties’ omission of the arbitration clause from the survival clause did not imply the arbitration clause had no post-termination effect. The Court reversed the district court’s denial of arbitration. The Sixth Circuit has jurisdiction over Kentucky, Michigan, Ohio, and Tennessee.

Background

Hilltop Companies, LLC, hired Cynthia Huffman as an independent contractor to review files of mortgage loans. Huffman worked for Hilltop from October 2011 through January 2013. Upon hire, Huffman and Hilltop entered into a Professional Services Contract Agreement (the “agreement”) that included an arbitration clause and a survival clause. The arbitration clause (paragraph 21) provided that any claim arising out of the agreement or its breach “shall be settled by binding arbitration administered by the American Arbitration Association. . . .” The agreement’s survival clause (paragraph 22) stated that paragraphs “4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 17, and 22 shall survive the expiration or earlier termination of this Agreement.” The enumerated clauses addressed the term of employment, compensation, termination, and client confidentiality, but excluded arbitration. The survival clause also did not list the agreement’s non-compete, survivability, or integration clauses.

Following the termination of her engagement, Huffman, on behalf of herself and similarly situated workers, sued Hilltop for alleged unpaid overtime in violation of the federal Fair Labor Standards Act and the Ohio Minimum Fair Wage Standards Act and alleged that Hilltop misclassified workers as independent contractors. 

Hilltop asked the district court to order arbitration. The district court denied the motion, ruling the arbitration provision did not survive termination of the agreement. Hilltop appealed.

Applicable Law

The U.S. Supreme Court recognized a “presumption in favor of post-expiration arbitration of matters unless negated expressly or by clear implication [for] matters and disputes arising out of the relation governed by contract.” The Supreme Court further explained that, with respect to agreements containing broadly worded arbitration clauses, “there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” 

Any doubts regarding the parties’ intentions should be construed in favor of arbitration.

Clause Survived

The appellate court noted that the issue of whether an arbitration clause survived an agreement’s termination where the clause was not referenced in a survival clause had not been decided by the circuit courts. 

Huffman argued the arbitration provision did not survive the agreement’s termination because legal doctrine dictates that any ambiguity in the agreement should be construed against Hilltop, the agreement’s drafter. The Court rejected this argument, finding this rule of contract construction did not rebut the strong presumption favoring arbitration.

Huffman next argued the Court should apply the rule of construction that where the parties expressly include certain terms in their agreement, they must have intended to exclude others that were not mentioned. Noting this argument “presented a trickier question,” the Court nevertheless found that when reading the agreement as a whole, “the parties did not clearly intend for the survival clause to be the exhaustive list of the provisions that would survive expiration of the agreement.” (For example, the non-compete, severability and integration clauses also were not included.) The Court pointed out the “difficulty in [Huffman’s] position” was that it was “just as plausible that the parties also intended the arbitration clause to survive.” It ruled Huffman failed to present “forceful evidence” sufficient to rebut the presumption in favor of arbitration. “[T]he parties’ omission of the arbitration clause in the survival clause did not clearly imply that the arbitration clause had no post-expiration effect and that the strong presumption in favor of arbitration controls,” the Court said. Accordingly, the Court reversed the denial of arbitration.

In light of Huffman, employers and their counsel should consider expressly listing an arbitration clause as being excluded from an agreement’s survival clause to avoid any ambiguity regarding its post-termination effect.