The Sixth Circuit Holds That an Arbitration Clause in an Expired Contract Still Applies

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Introduction
Does the duty to arbitrate survive the expiration of a contract? The United States Court of Appeals, Sixth Circuit recently held “yes.” The Sixth Circuit became the first federal appeals court to examine whether a contract’s arbitration clause continues to apply after the contract’s expiration, despite the arbitration clause not being listed in the survival clause.

In Huffman v. Hilltop Cos., LLC, 747 F.3d 391, 396-97 (6th Cir. 2014), the Sixth Circuit concluded—in light of the strong federal presumption in favor of arbitration—that the arbitration clause survived expiration of the contract because the parties did not clearly indicate that it was to expire with the contract.

The Facts and Procedural History of Huffman
In the district court, former employees of The Hilltop Companies (“Hilltop”) sued Hilltop alleging that it violated federal and state fair wage laws by requiring them to work overtime, but not compensating them accordingly. [1] The employees had each signed a Hilltop-drafted employment contract that included both an arbitration clause and survival clause, which listed half of the contract’s paragraphs but not the arbitration clause. [2] Hilltop attempted to compel arbitration arguing that the contract provided for arbitration of all disputes, even those that arose after the employment agreement expired. [3] The district court denied Hilltop’s motion to compel arbitration, stating that the arbitration clause “had no post-expiration effect because the ‘more specific survival clause that excludes arbitration from survival trumps the more general arbitration clause in the contract[.]’” [4]

Overturning the district court, the Sixth Circuit held that the contract’s arbitration clause survived the contract’s expiration because of the strong federal policy favoring arbitration and the absence of a clear intention by the parties to prevent survival of the arbitration clause beyond the expiration of the contract. [5]

Huffman’s Implications—Particularly for Oil and Gas Lease Disputes
The holding in Huffman has not yet been extended to other circuits. However, Huffman indicates that an arbitration clause is likely to survive the expiration of a contract unless the parties expressly provide otherwise. To avoid a contrary result, though, parties who favor arbitration should consider specifically listing their arbitration clause in the contract’s survival provision. In the alternative, or additionally, a short survivability provision could be included in the arbitration clause itself.

This case is particularly helpful for oil and gas producers who favor the arbitration of lease disputes because it provides a basis for compelling arbitration even when the owner/lessor alleges the lease has expired.  Lawsuits filed against natural gas producers have become increasingly common. For example, in Pennsylvania over the last several years, owners/lessors have filed a number of lawsuits seeking a judicial determination that gas leases have expired. In light of the costs and risks involved in lease dispute litigation, not to mention class action lease disputes, producers have begun including arbitration clauses in their oil and gas leases.

To avoid judicial adjudication of lease disputes where the owner/lessor alleges the lease has expired (whether after the primary term or the secondary term), it may be appropriate for the lease to include the arbitration clause in its survival provision and/or clearly state in the arbitration provision itself that it will survive termination of the lease.

As always, contracts and oil and gas leases should be reviewed by legal counsel with experience and competency in contract and oil and gas law and the law of arbitration.

Notes:
[1] Id. at 393.

[2] Id.

[3] Id. at 394.

[4] Id. (quoting Huffman v. Hilltop Cos., LLC, 2013 WL 3944478, *1 (S.D. Ohio July 31, 2013)).

[5] Id. at 398.

 

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