466 P.3d 544
Okla.2020Background
- Broker ran an auction for Indian Springs Country Club; Purchaser was high bidder and immediately presented with a Purchase and Sale Agreement that contained a broad arbitration clause.
- Purchaser alleges its members were coerced into signing without time for legal review and later discovered serious course and title defects; Purchaser sent a rescission letter.
- Purchaser sued Seller and Broker in Tulsa County, claiming fraud, negligent misrepresentation, rescission, and that the contract is unenforceable.
- Defendants moved to dismiss and to compel arbitration; the district court granted those motions, relying on separability and the Federal Arbitration Act and/or the Oklahoma Uniform Arbitration Act (OUAA).
- The Court of Civil Appeals reversed and remanded to determine whether the transaction involved interstate commerce and whether Shaffer v. Jeffery remained controlling under Oklahoma law.
- The Oklahoma Supreme Court granted certiorari and held that OUAA §1857(C) (enacted 2005) assigns arbitrators the task of deciding whether a contract containing a valid arbitration agreement is enforceable, overruling Shaffer and affirming the district court's order compelling arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides fraudulent inducement to the entire contract containing an arbitration clause? | Court should decide because fraud vitiates the whole contract. | Arbitrator should decide under separability/OUAA §1857(C). | Arbitrator decides enforceability of the contract; arbitration compelled. |
| Does OUAA §1857(C) alter the prior Shaffer rule? | Shaffer remains controlling; legislature did not intend to overrule Shaffer. | §1857(C) changes the law and adopts separability; arbitrator decides contract enforceability. | §1857(C) amended the law and displaced Shaffer; legislative change mandates arbitrator decision. |
| Is the Federal Arbitration Act (FAA) required to compel arbitration here (interstate commerce)? | Transaction did not involve interstate commerce; FAA does not apply. | FAA need not be reached because Oklahoma law (OUAA §1857(C)) mandates arbitration consistent with separability. | Court did not need to resolve interstate commerce; Oklahoma law alone mandates arbitration. |
| Did Defendants waive the right to invoke the FAA or to challenge Shaffer? | Defendants waived or forfeited those arguments by prior conduct. | Issue preserved; defendants timely raised OUAA and federal-law arguments during proceedings. | Court found the issue preserved and reached the statutory-interpretation question. |
Key Cases Cited
- Shaffer v. Jeffery, 915 P.2d 910 (Okla. 1996) (prior Oklahoma rule that court resolves fraud-in-the-inducement to entire contract)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (established separability doctrine: arbitrator decides challenges to contract as whole)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitrability of contract validity is for arbitrator when arbitration clause is valid)
- Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. 17 (2012) (reaffirmed that attacks on contract validity generally go to arbitrator)
- Rogers v. Dell Computer Corp., 138 P.3d 826 (Okla. 2005) (discussed OUAA and interplay with separability principles)
- Okla. Oncology & Hematology P.C. v. US Oncology, Inc., 160 P.3d 936 (Okla. 2007) (standard of review for determination of existence of arbitration agreement)