Does Terminating the Contract = Terminating the Arbitration Clause?

By Leslie King O’Neal

Do Arbitration Clauses Have a “Shelf Life?”

What is the “shelf life” of an arbitration clause? If the underlying contract expires or is terminated, is the arbitration clause terminated also? Who decides if the arbitration clause is still valid—the court or the arbitrator?

A Long-Running Dispute Over Arbitration

The dispute between the Berkeley County School District and HUB International began in 2018 and still continues. The district court judge denied HUB’s motion to compel arbitration three times, and the 4^th Circuit reversed each of those orders. This post discusses the 4^th Circuit’s latest opinion on who decides whether the claims are subject to arbitration.

AAA Rules Delegate Arbitrability Issue to Arbitrator

The arbitration clause in HUB’s brokerage agreements incorporated the AAA Commercial Arbitration Rules. These rules provide that the arbitrator, not the court, decides arbitrability issues. The Berkeley court held that issues regarding the contracts’ termination were not “questions of contract formation” for a court to decide. Rather, these are questions of contract duration and scope, not formation.

Court Decides Existence of Arbitration Agreement

In Berkeley III the parties agreed there were valid contracts containing arbitration clauses incorporating the AAA Rules delegating arbitrability questions to the arbitrator. They disagreed whether the arbitration agreements covered the School Board’s claims.  The AAA Rules delegated this issue to the arbitrator.

Judge Exceeds Authority by Deciding Arbitrability

Despite the delegation clause, the district judge in Berkeley decided the School Board’s claims weren’t covered by the arbitration clauses. The Fourth Circuit reversed, based on the AAA Rules.[i]Following other courts’ decisions,[ii] the 4^th Circuit held that incorporating the AAA Rules constitutes “clear and unmistakable expression” of the parties’ intent to delegate arbitrability issues to the arbitrator.  The judge overstepped his authority in ruling on arbitrability of the School Board’s claims.

Do Arbitration Clauses Survive Contract Termination?

In some cases, yes. In Litton Fin. Printing v. NLRB[iii] the U.S. Supreme Court recognized a “presumption in favor of post-expiration arbitration of matters unless negated expressly or by clear implication.” This is sensible. If arbitration agreements terminated when contracts expired, parties would wait until the day after the expiration date to file suit, thus avoiding arbitration.[iv] One of the issues in Berkeley was whether the alleged fraudulent conduct occurred while the brokerage contracts were effective.

Disputes in Post-Expiration Arbitrations Must Arise from the Contract

However, to fall under the presumption, such post-expiration arbitrations must be disputes arising from the contract. In Ashbury Heights Capital v. FactSet Research Systems,[v] the court refused to compel arbitration of disputes arising after the contract expired.

“Survivor Clauses” May Change the Outcome

Some contracts contain “survivor” clauses, stating that certain contract provisions will survive the contract’s termination or expiration. Courts routinely enforce such clauses, compelling arbitration after contract termination.[vi]  Even bankruptcy discharge doesn’t necessarily terminate a contract’s arbitration provision.[vii]

Do Arbitration Clauses Last Forever?

The reported cases involving post-expiration arbitration have dealt with disputes occurring relatively soon after the contract ended.

However, one commentator believes “trouble lurks on the horizon,” foreseeing perpetual arbitration clauses requiring arbitration years or decades after the contract ended.[viii] Professor Horton sees the combination of survivor clauses, expansive language about who and what claims are covered by arbitration and delegation clauses as allowing companies to bind unwitting parties to arbitration and opt out of the court system almost entirely.[ix] However, Professor Horton notes, “most arbitral survivorship provisions do not unambiguously purport to be perpetual. They state only that the obligation to arbitrate ‘survives’ the container contract, not that it survives until the bitter end of the world.” Arbitrators must decide what constitutes a “reasonable time” for arbitration clauses to endure under survivor clauses.

 Proposed CA Legislation to Limit “Infinite Arbitration Clauses”

Tom Umberg (D-Santa Ana), a California state senator, proposed SB 82 to limit “infinite arbitration clauses.” https://consumerwatchdog.org/in-the-news/office-of-senator-tom-umberg-umberg-introduces-sb-82-to-end-infinite-arbitration-clauses/#:~:text=Arbitration%20clauses%20were%20traditionally%20limited%20to%20disputes,and%20be%20overly%20broad%20in%20their%20scope.,

Senate Bill 82, co-sponsored by the Consumer Attorneys of California, Consumer Watchdog, and the Consumer Federation of California aims to ensure that arbitration clauses between consumers and businesses apply only to the specific product or service covered by the agreement.

Takeaways

• Arbitration clauses can be enforceable after contract termination or expiration for disputes arising during the contract period.
• “Survivor clauses” may extend arbitration requirements indefinitely.
• If the arbitration clause incorporates AAA or JAMS rules, many courts hold this delegates arbitrability questions to the arbitrator.
• Arbitration clauses may extend to non-signatories and to claims beyond the contract (i.e. personal injury claims).

[i] Berkeley County School District v. HUB International https://law.justia.com/cases/federal/appellate-courts/ca4/24-1328/24-1328-2025-03-07.html

[ii] See, e.g., Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009); Terminix Int’l Co. v. Palmer Ranch LP, 432 F.3d 1327, 1332 (11th Cir. 2005); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005).

[iii] 501 U.S. 190 (1991) Litton Fin. Printing Div. v. NLRB | 501 U.S. 190 (1991) | Justia U.S. Supreme Court Center

[iv] See Huffman v. Hilltop Cos. LLC, 747 F.3d 391 (6^th Cir. 2014).

[v] No: A145806 (Cal. Ct. App. 8/16/16) (unpublished opinion) ASHBURY HEIGHTS CAPITAL, LLC v. FACTSET RESEARCH SYSTEMS INC., Cal: Court of Appeal, 1st Appellate Dist., 1st Div. 2016 – Google Scholar

[vi] See Hicks v. Comcast (termination of cable services did not terminate arbitration clause).

[vii] Crooks v. Wells Fargo, 312 F.Supp.3d 932 (bankruptcy discharge did not terminate arbitration clause).

[viii] David Horton, Infinite Arbitration Clauses, 168U. Penn. L. Rev. 633 (2020).http://PDF (scholarship.law.upenn.edu).

[ix] Id. at 688.

[x] Sup. Ct. N.J., Appellate Division, Docket No: A-1368-23.

See posts: Who’s Coming to Arbitration? Arbitrating with Non-Signatories. – The Construction ADR Toolbox and No Limits on Arbitration? – The Construction ADR Toolbox (discussing expansive arbitration clauses).