Lead Opinion
The plaintiffs are six couples, each of which was hopeful of adopting a child. The defendants are Adam J. Jeffery and his former law firm. It is alleged that Jeffery developed a pattern of collecting fees from couples wanting to adopt, in return for his assurances that a child would soon be available for adoption, replete with fictitious promises from non-existent birth mothers and status reports on imaginary pregnancies. When time passed and it become clear there were no babies to adopt the would-be parents filed suit in state court.
Their petitions seek rescission of the fee agreements, and damages for breach of contract, conversion, the tort of outrage, fraud and legal malpractice. Jeffery failed to respond to the petition and is in default, but ttle Law Firm successfully moved the trial court to dismiss the claims against it because the attorney-client contract contained a clause that future disputes would be resolved by arbitration.
On appeal the Court of Appeals directed the District Court to treat the motions to dismiss as motions to compel arbitration, and to enter appropriate orders compelling arbitration. We previously granted certiorari. We do not consolidate the appeals, but dispose of both by one opinion.
In the trial court the Law Firm (Jeffery had been an associate with the firm) filed motions to dismiss, and argued that the trial court lacked subject matter jurisdiction because of the arbitration clause in the fee agreements signed by the Plaintiffs. The trial court agreed and dismissed the suits. On appeal the plaintiffs argue that the arbitration provision in the contract is unconstitutional and contrary to public policy, and that the fee agreements containing the arbitration clause were induced by fraud. The Law Firm argues that its motions to dismiss for lack of subject matter jurisdiction were proper, and the trial court’s judgments should thus be affirmed. We conclude that the Law Firm’s challenge did not go to the jurisdiction of the court.
The plaintiffs arguments as to unconstitutionality and unenforceability of arbitration agreements generally in Oklahoma have been addressed by us in Rollings v. Thermodyne Industries, Inc.,
The right of the Law Firm to arbitration in this controversy arises from an agreement and is contractual in nature. See Shawnee Hospital Auth. v. Dow Construction,
We need not address under what circumstances a waiver of this right occurs, since the Law Firm did raise the defense in this case. But our recognition of this contractual right as an affirmative defense does show that the right does not fit within the category of a traditional challenge to a district court’s subject matter jurisdiction. This is because subject matter jurisdiction is not dependent upon the consent (or waiver) of a party, and a challenge to subject matter jurisdiction may be raised at any time in the course of the proceedings. Barrett v. Barrett,
This was explained in City of Muskogee v. Martin,
[T]he district court does have the authority to determine if the dispute presented is arbitrable. Thus, it would be clearly erroneous to state the district court is totally without “jurisdiction” when faced with a petition requesting declaratory relief and a dispute arising under a collective bargaining agreement.
Id.
The district court in this case has jurisdiction to determine if the dispute is arbitrable.
We conclude that the affirmative defense of arbitration was timely raised by the Law Firm. However, the motion seeking dismissal is appropriately considered to be a motion for summary judgment when it is based upon an affirmative defense with attached extra-record exhibits alleging statements of fact. We have said that in construing a provision of our Pleading Code we consider the federal counterpart from which it was derived. Gay v. Akin,
*914 There is considerable authority to the effect that the conversion provision applies to affirmative defenses raised on a Rule 12(b)(6) motion. When defendant’s motion to dismiss raises an affirmative defense that is not apparent on the face of the pleading and outside matter is presented and accepted, the courts generally will treat the motion as if it were one for summary judgment.
5A Wright & Miller, Federal Practice and Procedure: Civil 2d, § 1366 (1990), (Wright and Miller).
The United States Court of Appeals for the Tenth Circuit has followed this principle.
Of course, once the motion to dismiss is converted to one for summary judgment the moving party has a different burden: “Once the proceeding becomes one for summary judgment, the moving party’s burden changes and he is obliged to demonstrate that there exists no genuine issue as to any material fact and that he is entitled to a judgment as a matter of law.” Wright & Miller, at § 1366. The burden is the same using OHahoma’s procedure for summary judgment. Cinco Enterprises, Inc. v. Benso,
This brings us to the real issue in the ease: Does a showing of fraud in the inducement of the attorney-client contract defeat the enforcement of the arbitration clause in that contract?
Arbitration agreements are statutorily allowed by OHahoma’s Uniform Arbitration Act. 15 O.S.1991 §§ 801-818 (inclusive).
This act shall apply to a written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties. Such agreements are valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.
(Emphasis added).
This section, as well as its federal counterpart, states that an arbitration agreement is revocable upon those grounds that exist at law or in equity.
An analogous case is Moseley v. Electronic & Missile Facilities,
In the trial court the Plaintiffs relied upon 15 O.S.1991 §§ 52, 53
We recognized this rule in Long v. DeGeer,
Prima Paint is grounded on what is known as the separability doctrine: that the arbitration clause is a severable part of the contract. Thus where there are no allegations of fraud in the making of the specific agreement to arbitrate, that agreement to arbitrate is separable and stands apart from allegations of infirmities with the other provisions of the agreement. Holmes v. Coverall North America, Inc.,
The federal arbitration statute was derived from New York’s. Prima Paint,
The New York courts embraced the separability doctrine because of Prima Paint and because an unsupported allegation of fraud could cause delay by allowing its resolution by the New York Courts. Id. In other words, unsupported allegations of fraud would frustrate the parties’ intent to a speedy remedy by arbitration. One problem with this approach is that even where the separability doctrine is enforced there are still certain claims that may be made, including those that are unsupported, resulting in judicial adjudication and delay of arbitration. For example, allegations concerning the formation of the arbitration agreement itself must be judicially adjudicated prior to arbitration, even when it is ultimately determined that those allegations were insufficient. Holmes v. Coverall North America, Inc.,
In Tennessee the court concluded that the Prima Paint dissent agreed with policy as expressed by its state legislature in enacting that state’s arbitration statutes. City of Blaine,
A court must determine the existence of an arbitration agreement in the first instance. 12 O.S.1991 § 80. At this early stage the court is best suited to determine issues such as fraud. Justice Black stated that “courts have far more expertise in resolving legal issues which go to the validity of a contract than do arbitrators.” Prima Paint,
When examining the separability doctrine courts have explained that a statute similar to our § 802(A), as part of an arbitration act, makes arbitration agreements valid, enforeeable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract as applied to that arbitration agreement itself, and not the underlying contract. Quirk v. Data Terminal Systems, Inc.,
In Minnesota a party alleging fraudulent inducement in the contract containing an arbitration provision may seek rescission, but cannot seek rescission in part. Fouquette v. First American National Securities, Inc.,
We conclude that allegations of fraud in the inducement of an agreement to arbitrate must be resolved by the court prior to either compelling arbitration or dismissing the case. We also conclude that allegations of fraud in the inducement of the attorney-client contract or agreement generally, apart from the clause to arbitrate, must be resolved by the court prior to either compelling arbitration or dismissing the ease. This means that if Plaintiffs allege fraud in the inducement of the arbitration clause itself or
The Law Firm argues that Plaintiffs did not properly preserve their “fraud argument”, and did not present facts to support their claims in the trial court. In No. 81,275 the District Court did not consider Plaintiffs’ fraud claims in dismissing the suit. The stipulated narrative of the hearing states that the trial judge “having reviewed the agreements, without holding an evidentiary hearing regarding the Plaintiffs’ assertion of fraud and without ruling on the merits of the Plaintiffs’ claim of fraud, granted Belt’s Motion to Dismiss for Lack of Jurisdiction over the Subject Matter.” The trial court simply did not determine the sufficiency of Plaintiffs’ fraud claims.
The fraud claims were not disputed by Defendants in any filed instrument. Rather, at the hearing before the trial court “Defendant Belt stated that there was no evidence before the court concerning fraud and that Plaintiffs’ counsel had neither requested an evidentiary hearing no produced any evidence concerning fraud or any other grounds for revocation of the agreements.... ”
There were “statements of fact” raised by the Plaintiffs’ response in opposition to the motion to dismiss. They stated that the facts showed that the fee agreement containing the arbitration clause should be rescinded “under the circumstances that are present” because of “Jeffery’s fraud”, and because “the entire attorney-client relationship was based upon the perpetuation of that fraud....” On appeal the Plaintiffs also point to the fact that their petition alleging fraud was verified. Law Firm argues that the allegations in the pleadings and the statements made in the motion are insufficient to bring before the trial court the issue of fraud in the inducement of the arbitration clause, as opposed to fraud in the inducement of the contract generally.
We need not accept Law Firm’s invitation to review the sufficiency of Plaintiffs’ allegations. The trial court indicated to the Plaintiffs that its decision would be made apart from the fraud claims. In other words, the trial court considered that it was ruling on a motion to dismiss and not one for summary judgment. When a motion to dismiss is converted into one for summary judgment “all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by the rules for summary judgment.” 12 O.S.1991 § 2012(B). The Plaintiffs were not afforded this opportunity.
This is even clearer in No. 83,219. In 83,219 Law Firm was before the same trial judge, and used its former motion and judgment of the trial court in support of its argument that the Plaintiffs’ suit should be dismissed for a lack of subject matter jurisdiction. Plaintiffs’ response included two affidavits alleging false representations by Jeffery. Both of these affidavits state that the clients agreed to the arbitration clause because of representations by Jeffery that they claim were fraudulent. These affidavits were not challenged by the Law Firm. The approved narrative statement on appeal shows that prior to the hearing on the motion the Plaintiffs’ twice requested a hearing to offer testimony on Jeffery’s representations and their effect on the arbitration provision.
In Hughes v. Fidelity Bank N.A,
We conclude that an agreement to arbitrate is voidable when either the arbitration provision of the agreement or the contract containing that agreement is fraudulently induced. The plaintiffs must be given the opportunity to prove the existence of the fraud they allege occurred. The opinions of the Court of Appeals in No. 81,275 and No. 83,219 are vacated, and the judgments of the District Court are reversed. Both proceedings are remanded to the District Court for further action consistent with this opinion.
Notes
. In the United States District Court for the Western District of Oklahoma Jeffery was convicted of three counts of mail fraud, five counts of wire fraud, and one count of money laundering. Cause W.D.Olda., No. CR-92-207-C. In an unpublished disposition on appeal the convictions were affirmed, the sentencing order vacated, and the case remanded for resentencing. U.S. v. Jeffery,
. One court has determined that in Oklahoma an arbitration clause in an attorney fee agreement could not be voided as a breach of attorney’s fiduciary duty towards the client. McGuire, Cornwell & Blakey v. Grider,
. See Leadertex, Inc. v. Morganton Dyeing & Finishing Corp.,
. State of Ohio v. Peterson, Lowry, Rail, Barber & Ross,
. The relevant provision of Oklahoma’s adopted Uniform Arbitration Act, 15 O.S.1991 §§ 801-818 and the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1988 ed. and Supp.) are nearly identical. See note 2 infra.
. Section 2 of the FAA (9 U.S.C. § 2) provides:
“A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refused, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
. Section 52 states: "A consent which is not free, is nevertheless not absolutely void, but may be rescinded by the parties in the manner prescribed by Article 5 of this chapter.” Section 53 states: "An apparent consent is not real or free when obtained through: 1. Duress. 2. Menace. 3. Fraud. 4. Undue influence, or, 5. Mistake."
. Appeal No. 83,219 has no briefs on appeal since it is governed by the procedure for Rule 1.203 of the Rules of Appellate Procedure in Civil Cases. Since the briefs in the trial court serve as the briefs on appeal the importance of including therein the proper argument with relevant authority cannot he overemphasized. Although neither Plaintiffs nor Defendants raised Prima Paint, both parties did raise 15 O.S. § 802 and Plaintiffs specifically raised a fraud argument and reliance upon § 802. We conclude that the fraud issue was preserved in this case. Appeal No. 81,275 has briefs on appeal because Law Firm's motion to dismiss was filed prior to October 1, 1993, and the Rule 1.203 procedure for summary judgments and dismissals does not apply.
. Long involved the sale of securities with arbitration according to the rules of either the American Arbitration Association or the Board of Arbitration of the New York Stock Exchange. Long.
. The federal arbitration act is applicable when interstate commerce is involved. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University,
. Wetzel was released for publication by order of the Court of Appeals and has persuasive effect but no precedential value. 12 O.S.1991 Ch. 15, App. 2, Rule 1.203.
. See U.S. Insulation, Inc. v. Hilro Construction Company, Inc.,
. George Engine Co., Inc. v. Southern Shipbuilding Corporation,
. We recognize that a claim of fraud in the inducement amounts to a claim that the contract is voidable rather than void. State Ins. Fund v. Brooks,
. This conclusion in Ateas was based upon several opinions from New York courts that predated Prima Paint. Ateas is still followed in Minnesota. Fouquette v. First American National Securities, Inc.,
Dissenting Opinion
dissenting.
I dissent from today’s holding that predis-pute arbitration clauses are enforceable under state law. For an explanation of my views, see Rollings v. Thermodyne Industries, Inc., Old.,
