Arbitration: Ninth Circuit Finds Presumption in Favor of Post-Termination Arbitration
Earlier this month, the Court of Appeals for the Ninth Circuit held that arbitration clauses survive termination of the contract that contains the clause unless the contract specifically says otherwise. Shivkov v. Artex Risk Sols., Inc., No. 19-16746, 2020 WL 5405687 (9th Cir. Sept. 9, 2020). The Ninth Circuit thus joined the Courts of Appeals for the First, Second, Sixth, Eighth, and District of Columbia Circuits in holding that there is a presumption in favor of post-termination arbitration. See Biller v. S-H OpCo Greenwich Bay Manor, LLC, 961 F.3d 502, 513 (1st Cir. 2020); Breda v. Cellco P'ship, 934 F.3d 1, 7 (1st Cir. 2019); Huffman v. Hilltop Cos., LLC, 747 F.3d 391, 395-96 (6th Cir. 2014); Wolff v. Westwood Mgmt., LLC, 558 F.3d 517, 520-21 (D.C. Cir. 2009); Koch v. Compucredit Corp., 543 F.3d 460, 465-66 (8th Cir. 2008); CPR (USA) Inc. v. Spray, 187 F.3d 245, 254-56 (2d Cir. 1999), abrogated on other grounds as explained in Accenture LLP v. Spreng, 647 F.3d 72, 76 (2d Cir. 2011).
In Shivkov, the plaintiffs and defendants entered into agreements containing arbitration clauses. Pursuant to the agreements, the defendants formed and managed insurance companies on behalf of the plaintiffs. The arrangement was intended to provide tax benefits to the plaintiffs, but instead led to IRS penalties. As a result of the penalties, the plaintiffs brought a putative class action alleging, inter alia, breach of fiduciary duty and RICO violations. The district court granted the defendants' motion to compel individual arbitration and dismissed the action; plaintiffs appealed. The Ninth Circuit affirmed the district court's decision dismissing the complaint.
The plaintiffs contended the arbitration clause was unenforceable because (1) the defendants breached a fiduciary duty to point out and fully explain the clause to plaintiffs; and (2) the arbitration clause did not survive the agreements' terminations. Applying state law, the Ninth Circuit found that the defendants did not owe a fiduciary duty with respect to the "purely commercial aspects of [the] relationship." The Ninth Circuit then held that the arbitration clause still bound the plaintiffs, notwithstanding termination of the agreements. The Ninth Circuit noted Supreme Court precedent in the collective bargaining context, which recognizes a "presumption in favor of postexpiration arbitration of matters unless 'negated expressly or by clear implication' [for] matters and disputes arising out of the relation governed by contract." Litton Financial Printing Division v. NLRB, 501 U.S. 190, 204 (1991). The Ninth Circuit adopted the same presumption for arbitration...
