Commercial Litigation and Arbitration

Arbitration — Presumption that Duty to Arbitrate Survives Contract — Ambiguity Resolved in Favor of Arbitrating

From West Liberty Foods, LLC v. Moroni Feed Co., 2010 U.S. Dist. LEXIS 125137 (S.D. Iowa Oct. 20, 2010):

The issue in this case is not whether the parties agreed to arbitrate in the first place; rather, the issue is whether the parties agreed that the obligation to arbitrate would end upon termination of the marketing agreement. "Even if the underlying [marketing] agreement was terminated . . . , such a termination does not necessarily release the parties from their obligations under that agreement, including the obligation to arbitrate." [Koch v. Compucredit Corp., 543 F.3d 460, 465 (8th Cir. 2008).] Federal courts have devised specific rules that control the determination of whether an arbitration clause survived termination of a contract. "[T]here is a 'presumption in favor of postexpiration arbitration of matters unless negated expressly or by clear implication.'" Id. (quoting Litton Fin. Printing v. NLRB, 501 U.S. 190, 204 (1991)). The Tenth Circuit, in addressing this issue, stated,

Under the federal common law of arbitrability, an arbitration provision in a contract is presumed to survive the expiration of that contract unless there is some express or implied evidence that the parties intend to override this presumption: "In short, where the dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication." Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery Workers Union, 430 U.S. 243, 255, 97 S. Ct. 1067, 51 L. Ed. 2d 300 (1977). Thus, when a dispute arises under an expired contract that contained a broad arbitration provision, courts must presume that the parties intended to arbitrate their dispute. This is so even if the facts of the dispute occurred after the contract expired. See id. (holding that claims for severance pay by workers who were discharged after their collective bargaining agreement expired were subject to the continuing force of the prior arbitration clause). The presumption in favor of continuing arbitrability, however, disappears in either of two situations: f irst, if the parties expressly or clearly imply an intent to repudiate post-expiration arbitrability, and second, if the dispute cannot be said to arise under the previous contract. See id. at 254-55.

[Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 781 (10th Cir. 1998)] (emphasis added). In a more general expression of the prevailing rule, 4 Am. Jur. Alt. Disp. Res. § 57 (2010), states,

Although it is created by contract, the duty to arbitrate does not necessarily end upon contract termination. Absent a clear intent to the contrary, the duty to arbitrate survives termination of the contract. It is presumed that parties intended that arbitration forum for dispute resolution provided in agreement will survive termination of agreement as to subsequent disputes arising thereunder, whether its cessation was result of expiration of its term, exercise of unilateral termination option, or breach. The termination of the contract prior to a demand for arbitration will generally have no effect on such demand, provided that the dispute in question either arose out of the terms of the contract or arose when a broad contractual arbitration clause was still in effect. However, the opposite is true where the parties have come to an express or implied agreement that the arbitration clause will not survive the termination of the contractual agreement.


If the language is found to be ambiguous, normally the Court would then look to other principles of contract construction to determine the parties' intent. Here, however, the Court must find a clear implication of an agreement that the arbitration clause would expire with the termination of the marketing agreement. *** Finding a clear implication in ambiguous language is not only illogical, but it is in tension with the general rule presuming post-expiration arbitration. However, this tension is relieved by the rule that instructs the Court to resolve any ambiguities in favor of arbitration. "[W]hen contract language is ambiguous or unclear, a 'healthy regard' for the federal policy favoring arbitration requires that 'any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'" Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1165 (8th Cir. 1984) (quoting Moses H. Cone Mem. Hosp., 460 U.S. at 24-25; see also, Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 798 (10th Cir. 1995) (noting that "to acknowledge the ambiguity is to resolve the issue" in favor of arbitrability). Therefore, the Court finds that this dispute must be referred to arbitration.

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