Posted In: Litigation & Real Estate
RE&C In Review & Litigation Advisory Blog: Can Arbitration Clauses Apply Retroactively?
By Teresa G. Santin on December 10, 2020
Yes, it is possible for arbitration clauses to apply to claims that predate the contract containing the arbitration clause at issue. Retroactive application of an arbitration clause depends on the language of the arbitration provision and applicable substantive law.
Examine the language of the arbitration provision
In order to determine if an arbitration clause applies retroactively, first examine the language of the provision to determine whether the clause:
- states that it applies retroactively;
- states that it is to be interpreted broadly;
- specifically excludes certain disputes from arbitration; and
- applies to more than “any dispute or claim arising from or relating to the agreement,” such as disputes or claims arising from or relating to“services provided” or “dealings between the parties” or “the parties’ relationship” or “any controversy between the parties” or “your business.”
Determine applicable law
Examine the language of the applicable arbitration clause to determine what substantive law to apply. If the Federal Arbitration Act applies, then federal case law will be instructive to determine if an arbitration provision applies retroactively.
The U.S. Supreme Court and the Sixth Circuit require inferior tribunals to afford arbitration clauses “a general presumption of arbitrability and to resolve any doubts in favor of arbitration ‘unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.’” Watson Wyatt & Co. v. SBC Holdings, Inc., 513 F.3d 646, 650 (6th Cir. 2008). “This court has also stated that broadly written arbitration clauses must be taken at their word and extend to situations that fall within their purview.” Id.
If “an arbitration clause is broadly written, ‘only an express provision excluding a specific dispute,’ or ‘the most forceful evidence of a purpose to exclude the claim from arbitration,’ will remove the dispute from consideration by the arbitrators.” Id. citing Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 577 (6th Cir. 2003) (quoting AT & T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). See also Masco v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004).
In Watson Wyatt & Co., the Sixth Circuit held that the retroactive application of a broadly worded arbitration clause was proper. The clause at issue therein contained language that it applied to “any dispute or claim arising from or in connection with this agreement or the services provided by Watson Wyatt.” Id. at 649. While the district court found that retroactive application should not apply because the arbitration clause was silent on the subject, the Sixth Circuit reversed. Its opinion turned on the arbitration clause’s language that it applied to “any dispute or claim arising from or in connection with this agreement or the services provided by Watson Wyatt.” The arbitration provision there clearly applied both to claims arising from the agreement and claims arising from the services of Watson Wyatt.
Numerous federal courts have construed similar language in an arbitration clause, and have applied those clauses retroactively. E.g., Zink v. Merrill Lynch Pierce Fenner & Smith, Inc., 13 F.3d 330, 331-33 (10th Cir. 1993) (enforcing arbitration clause to dispute predating agreement, as clause provided for arbitration of any controversy arising out of “your business or this agreement”); Belke v. Merrill Lynch Pierce Fenner & Smith, Inc., 693 F.2d 1023, 1028 (11th Cir. 1982) (permitting arbitration of pre-agreement dispute under clause covering both disputes arising out of the agreement, and any controversy among the parties “arising out of [their] business”); see also Church v. Gruntal, 698 F.Supp. 465, 469 (S.D.N.Y. 1988) (finding arbitration clause did not apply retroactively, as clause only encompassed matters “arising out of or related to this contract” and did not explicitly include all matters relating to the parties’ relationship); Necchi S.p.A. v. Necchi Sewing Mach. Sales Corp., 348 F.2d 693, 698 (2d Cir. 1965) (finding arbitration clause did not apply retroactively, as clause only encompassed matters concerning the agreement containing the arbitration clause, and not the parties’ working relationship).
More recently, the Sixth Circuit reaffirmed its conclusions in Watson Wyatt, but also admonished that it will “not imply retroactivity where it is not contemplated in the contractual language” and “[t]he presumption of arbitrability, moreover, cannot bridge a textual gap.” Solo v. United Parcel Serv. Co., 947 F.3d 968, 973 (6th Cir. 2020).
Looking to Ohio state courts, case law is sparse on this issue. However, the Second District recently addressed it in Kettering Health Network v. Caresource, 2nd Dist. Montgomery No. 25928, 2014-Ohio-956. In that case, the parties had two agreements governing their relationship. At issue was whether claims arising from the earlier agreement were subject to the arbitration provision in the later agreement. The trial court analyzed the arbitration provision and the integration clauses, as well as parol evidence in light of some apparent ambiguity. The trial court found the arbitration clause to be broad, in that it covered “complaints, grievances or disputes arising between the parties.” Id. at ¶ 20. The earlier agreement contained an integration clause, however: “This Agreement … shall constitute the entire agreement between the parties regarding the subject matter hereof.” Id. at ¶ 21. But so did the later agreement: “This Agreement, Attachments, and Amendments hereto contain all the terms and conditions agreed upon by the parties and supersedes all other agreements, express or implied, regarding the subject matter hereof.” Id. The affidavits the court examined, which contained information about “past and current oversight and contract negotiations,” did not contain “‘the most forceful evidence of a purpose to exclude the claim from arbitration.’” Id. Thus, they failed to overcome “Ohio’s strong presumption in favor of arbitration.” Id. The Second District affirmed.
If you would like your arbitration clauses to cover all disputes between the parties at issue, including disputes predating the clause, it can be done. Likewise, if it is your intention to limit the applicability of arbitration to particular disputes, it can be done. Consult with your Brouse attorney to craft an enforceable arbitration clause suiting your needs, or to determine if your dispute is arbitrable.
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