Howell's Well Serv., Inc. v. Focus Grp. Advisors, LLC

• Decision Date: 18 May 2021
• Docket Number: 117,804
• Citation: 507 P.3d 623
• Parties: HOWELL'S WELL SERVICE, INC., an Oklahoma Corporation; D. Robinson; C. Robinson ; Sherman Jacquess; and Jack Kleckner, Plaintiffs/Appellees, and Leroy Burrows and Barbara Burrows, Plaintiffs, v. FOCUS GROUP ADVISORS, LLC, an Oklahoma Limited Liability Company; Jon Nettles; and Daniel Vise, Defendants/Appellants, and Bartnet, LLC, an Oklahoma Limited Liability Company; the Property Shoppe, Inc., an Oklahoma Corporation; Larry Joe Dearman; Homer Fitzgerald; and Marya Gray, Defendants.
• Court: Oklahoma Supreme Court

507 P.3d 623

HOWELL'S WELL SERVICE, INC., an Oklahoma Corporation; D. Robinson; C. Robinson ; Sherman Jacquess; and Jack Kleckner, Plaintiffs/Appellees,

and

Leroy Burrows and Barbara Burrows, Plaintiffs,

v.FOCUS GROUP ADVISORS, LLC, an Oklahoma Limited Liability Company; Jon Nettles; and Daniel Vise, Defendants/Appellants,andBartnet, LLC, an Oklahoma Limited Liability Company; the Property Shoppe, Inc., an Oklahoma Corporation; Larry Joe Dearman; Homer Fitzgerald; and Marya Gray, Defendants.

No. 117,804

Supreme Court of Oklahoma.

FILED MAY 18, 2021

Brad E. Hilton and Audra A. Drybread, Hilton Law Office, Skiatook, Oklahoma, for Howell's Well Service, Inc., D. Robinson, C. Robinson, Sherman Jacquess, Jack Kleckner, Leroy Burrows and Barbara Burrows.

Robert J. Bartz and Joe M. Fears, Barber & Bartz, Tulsa, Oklahoma, for Focus Group Advisors, LLC, Jon Nettles and Daniel Vise.

WINCHESTER, J.

¶1 We granted certiorari to address this first impression issue of whether the right to compel arbitration is waived when it is not raised as an affirmative defense in a responsive pleading. As discussed further herein, we hold it is not. Additionally, because we did not deem the failure to raise the arbitration defense in their answer fatal to the motion to compel, we must also address whether other factors exist which would constitute a waiver of the right. After balancing the facts in this matter as a whole, we find no waiver.

BACKGROUND

¶2 This controversy has its origin in investment relationships between the parties and the formal agreements pertaining to those relationships. Plaintiffs/Appellees are all investors and Defendant Focus Group Advisors, LLC is an investment advisory firm of which Defendants Nettles and Vise are members (Defendants/Appellants).¹ The remaining Defendants/non-Appellants are not a party to this appeal. The various claims pled by Plaintiffs/Appellees are not relevant to the issue herein which solely concerns the applicability of the arbitration provisions in the parties' agreements and the facts surrounding the request to enforce the right to arbitration.

¶3 Plaintiffs/Appellees filed suit on May 2, 2013, and over the course of the next twenty months, filed several amended petitions. After filing the initial petition, Plaintiffs/Appellees waited more than seventeen months before issuing summons on Defendants. Defendants/Appellants filed an entry of appearance and answer on February 12, 2015. Although the formal investment advisory agreements between the parties included arbitration provisions, Defendants/Appellants did not raise this fact in their answer.

¶4 Over the next seventeen months, very little activity occurred in the case until Defendants/Appellants filed a motion to compel arbitration and stay the case. None of the minimal case activity to date had been initiated by or involved Defendants/Appellants.² After the filing of the motion to compel arbitration, Plaintiffs/Appellees requested a scheduling conference which was set but later stricken and the case was stayed in order to allow the parties to pursue mediation. The mediation proved unsuccessful and the case sat dormant for nearly two years until Plaintiffs/Appellees filed a request for status conference. At the conference, the trial court set a briefing schedule for the motion to compel arbitration.³ Thereafter, the trial court held hearings on the motion to compel before denying the motion by order. The trial court held: (1) Defendants/Appellants waived the right to seek arbitration by not raising it as an affirmative defense in their answer; and (2) the late assertion of the right would be prejudicial to Appellees.

¶5 Defendants/Appellants appealed and the Court of Civil Appeals (COCA), Division III, affirmed the trial court's denial of the motion to compel arbitration. In its ruling, COCA relied solely on 12 O.S.Supp.2014, § 2008(C), which provides that all affirmative defenses must be raised in a defendant's responsive pleading and specifically enumerates "arbitration and award" as one such defense. Because Defendants/Appellants failed to raise the defense in their answer, COCA held the right to compel arbitration had been waived. COCA held this finding was dispositive of the case and, therefore, found it unnecessary to determine if there were other valid reasons for finding a waiver. Defendants/Appellants petitioned for, and this Court granted, certiorari.

STANDARD OF REVIEW

¶6 The trial court's denial of a motion to compel arbitration is to be reviewed de novo. Thompson v. Bar-S Foods Co., 2007 OK 75, ¶ 9, 174 P.3d 567, 572 ; Sparks v. Old Republic Home Prot. Co., 2020 OK 42, ¶ 14, 467 P.3d 680, 685. The determination of whether a party waived its right to compel arbitration is a mixed question of law and fact: "The review of whether the trial court applied the correct legal standards is a de novo review for correctness ... while the review of the trial court's determination of the existence of facts supporting waiver is deferential in nature." Northland Ins. Co. v. Kellogg , 1995 OK CIV APP 84, ¶ 5, 897 P.2d 1161, 1162.

DISCUSSION

¶7 Our courts recognize the strong public policy favoring arbitration of disputes. Okla. Oncology & Hematology, P.C. v. U.S. Oncology, Inc., 2007 OK 12, ¶ 13, 160 P.3d 936, 947. Arbitration agreements are statutorily allowed by Oklahoma's amended version of the Uniform Arbitration Act (OUAA), 12 O.S.2011, §§ 1851 - 1881. Parties' agreements to bind themselves to mandatory arbitration are generally looked upon with favor as a shortcut to substantial justice with a minimum of court interference. Long v. DeGeer , 1987 OK 104, ¶ 5, 753 P.2d 1327, 1328.

¶8 Over the years, we have recognized that arbitration agreements are designed to preclude court intervention into the merits of disputes when arbitration has been provided for contractually and any doubts concerning the arbitrability of a particular dispute should be resolved in favor of coverage. See Voss v. City of Oklahoma City, 1980 OK 148, ¶ 5, 618 P.2d 925, 928 ; City of Muskogee v. Martin , 1990 OK 70, ¶ 8, 796 P.2d 337, 340. Although a party may waive its contractual right to compel arbitration, such waiver "is not easily inferred" and the party asserting waiver has a heavy burden of proof to overcome the strong presumption in favor of arbitration. Willco Enters., LLC v. Woodruff, 2010 OK CIV APP 18, ¶¶ 15,19, 231 P.3d 767, 772 ; Hill v. Ricoh Ams. Corp. , 603 F.3d 766, 775 (10th Cir. 2010).

¶9 Defendants/Appellants contend that COCA has (1) incorrectly decided a question of substance not previously determined by this Court and (2) has issued a published decision in conflict with a prior published decision made by the same division, Willco Enterprises, LLC v. Woodruff, 2010 OK CIV APP 18, 231 P.3d 767. See Okla. Sup. Ct. R. 1.178(a), 12 O.S.Supp.2019, ch. 15, app. 1. Specifically, Defendants/Appellants argue: (1) Section 1856(A) of the OUAA requires the right to compel arbitration to be raised by motion and COCA erroneously relied upon 12 O.S.2011, § 2008 to find waiver; and (2) Plaintiffs/Appellees failed to meet their burden of proving Defendants/Appellants' actions in the underlying litigation weigh in favor of waiver.

I. Arbitration as an Affirmative Defense

¶10 In support of their right to compel arbitration by motion, Defendants/Appellants contend that there is no requirement under the OUAA that arbitration must be raised in a responsive pleading. Instead, Defendants/Appellants point to § 1856(A) of the OUAA which specifically states that "an application for judicial relief under the Uniform Arbitration Act must be made by application and motion to the court and heard in the manner provided by law or rule of court for making and hearing motions." 12 O.S.2011, § 1856(A).

¶11 COCA countered this contention with the Oklahoma Pleading Code provisions governing affirmative defenses which provide that when "pleading to a preceding pleading, a party shall set forth affirmatively" any of the affirmative defenses enumerated in § 2008. 12 O.S.Supp.2014, § 2008. COCA contends that § 2008(C)(2) specifically delineates "arbitration and award" as an affirmative defense which must be pleaded and that § 2008(C)(20) provides a catch-all for defenses by providing for "[a]ny other matter constituting an avoidance or affirmative defense."

¶12 We agree with Defendants/Appellants that the reliance on § 2008 in this matter is misplaced. Even though we have not previously interpreted the statute as it relates to the "arbitration and award" provision, its nearly identical federal counterpart has been addressed. In Hill v. Ricoh Ams. Corp. , 603 F.3d 766 (10th Cir. 2010), the Tenth Circuit conclusively found that the term "arbitration and award" means an affirmative defense that a claim has already been resolved by an award in arbitration, not whether the parties claims should be adjudicated in court or through arbitration. Thus, federal courts have held that the right to compel arbitration is not waived by the failure to assert it as a defense in the answer. Id. at 771 (citing Forms, Inc. v. Am. Standard, Inc., 550 F. Supp. 556, 557 (E. D. Pa. 1982) (party seeking arbitration did not waive its right to arbitrate by not raising it as a defense in its answer), aff'd , 725 F.2d 667 (3d Cir. 1983) (unpublished table decision); Mapes v. Chevron USA Prods. Co., 237 F. Supp.2d 739, 745 (S. D. Tex. 2002) (same); Lee v. Grandcor Med. Sys., Inc., 702 F. Supp. 252, 254 (D. Colo. 1988) (same); 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1270, at 562 (3d ed. 2004) (arbitration-and-award provision in Rule 8(c)(1) applies only if "the dispute has already been resolved by an arbitration and award.")).

¶13 Any other interpretation would contradict both the OUAA, which specifically provides for arbitration rights to be raised by motion (without mention of responsive pleadings) as well as Oklahoma's strong public policy favoring arbitration of disputes. COCA's...