Arbitration Pitfalls – Failing to Specify Duration

Arbitration Series – Part 2 of 3:  Arbitration clauses are often contained in purchase and sales agreements, underwriting agreements, earn-in agreements, and other contracts covering specific transactions or limited to a specific performance period. See prior post. Parties may have intended the arbitration clause to only cover disputes concerning the performance or interpretation of the contract. However, parties who incorporate broad arbitration clauses in their contracts, such as clauses calling for arbitration of any dispute “arising out of,” “related to” or “connected with” the agreement, may be forced to arbitrate post-contract disputes they did not intend to arbitrate.

Federal courts have held an arbitration clause in a contract is presumed to survive the expiration of the contract. Newmont U.S.A. Ltd. v. Insurance Co. of North America, 615 F.3d 1268 (10th Cir. 2010); Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775 (10th Cir. 1998). The Tenth Circuit governing most of the Rocky Mountain states has held that this presumption in favor of continuing arbitrability will only disappear in two situations:

     1) if the parties expressly or clearly imply an intent to repudiate post-expiration arbitrability, or
     2) if the dispute cannot be said to arise under the previous contract.

In Riley, the Tenth Circuit held that to “arise under” a contract means the dispute involves rights which “to some degree” have vested or accrued during the life of the contract and merely ripened after termination, or the dispute relates to events which have occurred “at least in part” while the agreement was still in effect. 157 F.3d at 781.

Given the strong presumption in favor of arbitration, any implied intent to repudiate post-expiration arbitrability must be clear. Several courts, for example, have found the presumption in favor of arbitration applies even though only certain provisions in the contract survive closing or termination of the contract and the arbitration clause is not listed as one of the provisions that survive. In Huffman v. Hilltop Companies, LLC., 747 F.3d 391 (6th Cir. 2014), for example, the court held an arbitration clause covering any claim arising out of or related to an agreement was broad and gave rise to the presumption of arbitrability, even though the arbitration clause was not listed among those provision that survived the termination of the contract. The court ruled the strong presumption in favor of arbitration applied absent an indication that the parties clearly intended for the survival clause to serve as an exhaustive list of the provisions that would survive expiration of the agreement. See also, W. Liberty Foods, L.L.C. v. Moroni Feed Co., 753 F.Supp.2d 881, 885 (S.D.Iowa 2010) (holding that an arbitration clause did not expire despite the fact that it was not listed in the contract’s survival clause). These courts have reasoned that if the parties had intended to extinguish the arbitration provision upon the termination of the agreement they could have done so expressly.

When parties negotiate the terms of an arbitration clause, they should consider whether they want to arbitrate disputes between them after the contract is completed or terminates. If the parties intend to limit arbitration to disputes that arise during contract performance, they should pay careful attention to the language of their arbitration clause and include express language narrowly describe the scope of disputes that will be subject to arbitration and specifying any durational limitation on their agreement to arbitrate.