Shaffer v. Jeffery

• Citation: 1996 OK 47,915 P.2d 910
• Decision Date: 26 March 1996
• Docket Number: 83219,Nos. 81275,s. 81275
• Parties: Robert SHAFFER, Denise Shaffer, Danny L. Childers, Jane A. Childers, Randy Garland, Robin Garland, Brad Turner, Robin Turner, Randall P. Robinson, and Carolyn P. Robinson, Appellants, v. Adam J. JEFFERY, and John Lampton Belt d/b/a John Lampton Belt & Associates, Appellees. Thomas P. GORESEN and Virginia J. Goresen, Appellants, v. Adam J. JEFFERY, and John Lampton Belt d/b/a John Lampton Belt & Associates, Appellees.
• Court: Oklahoma Supreme Court

Page 910

915 P.2d 910

1996 OK 47

Robert SHAFFER, Denise Shaffer, Danny L. Childers, Jane A.

Childers, Randy Garland, Robin Garland, Brad

Turner, Robin Turner, Randall P.

Robinson, and Carolyn P.

Robinson, Appellants, v. Adam J. JEFFERY, and John Lampton Belt d/b/a John Lampton

Belt & Associates, Appellees.

Thomas P. GORESEN and Virginia J. Goresen, Appellants, v. Adam J. JEFFERY, and John Lampton Belt d/b/a John Lampton

Belt & Associates, Appellees.

Nos. 81275, 83219.

Supreme Court of Oklahoma.

March 26, 1996.

Murray E. Abowitz, Norman Lemonik Abowitz, Welch, and Rhodes, Oklahoma City, for Appellee John Lampton Belt, d/b/a John Lampton Belt & Associates in Cause Nos. 81275 and 83219.

Cheryl P. Hunter, Daniel L. Pulter, Hammons & Hunter, Oklahoma City, for Appellants in Cause Nos. 83219 and 81275.

SUMMERS, Justice.

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. ¹

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 the 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 plaintiff's arguments as to unconstitutionality and unenforceability of arbitration agreements generally in Oklahoma have been addressed by us in Rollings v. Thermodyne Industries, Inc., 910 P.2d 1030 (Okla.1996). We therein upheld the enforceability of voluntary agreements to submit future disputes to arbitration pursuant to the Oklahoma Arbitration Act. The contract provisions in dispute here fall into that category. ² But does an agreement to arbitrate deprive the district court of subject matter jurisdiction? The Law Firm argues that it does. We come to a different conclusion based upon the nature of the arbitration clause.

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, 812 P.2d 1351, 1353-1355 (Okla.1990) where we explained that contractual rights (including an arbitration clause) were superseded by a subsequent settlement agreement. The contractual right to compel arbitration has been treated as a defense to an action on the contract. Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 26 (2d Cir.1995). An agreement to arbitrate is treated as an affirmative defense by the Federal Arbitration Act. Morewitz v. West of England Ship Owners, etc., 62 F.3d 1356, 1364 (11th Cir.1995). Thus, a party may waive its contractual right to compel arbitration. ³

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, 878 P.2d 1051, 1054 (Okla.1994); Campbell v. Campbell, 878 P.2d 1037, 1044 n. 24 (Okla.1994). Additionally, a lack of subject matter jurisdiction results in dismissal. 12 O.S.1991 § 2012(F)(3). As opposed to this rule of dismissal, a district court has jurisdiction to compel or stay arbitration. 15 O.S.1991 § 803. The affirmative defense of an agreement to arbitrate is not the same thing as lack of subject matter jurisdiction.

This was explained in City of Muskogee v. Martin, 796 P.2d 337 (Okla.1990) where one party argued that the district court lacked jurisdiction because of an arbitration clause in a collective bargaining agreement. The court stated that:

[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. 796 P.2d at 344.

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, 766 P.2d 985, 990 n. 18 (Okla.1988). The federal rule allows raising affirmative defenses by a Rule 12(b)(6) motion to dismiss, but when extra-record factual materials are used in support of the motion it is converted to one for summary judgment under Federal Rule 56.

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. ⁴ We have similarly explained that a motion to dismiss pursuant to section 2012(B)(6) is converted to one for summary judgment when extra-record materials are submitted in support of the motion. Dyke v. Saint Francis Hospital, Inc., 861 P.2d 295, 299 n. 8 (Okla.1993). See also 12 O.S.1991 § 2012(B), (a motion for failure to state a claim upon which relief may be granted with attached extra-record exhibits is treated as a motion for summary judgment).

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 Oklahoma's procedure for summary judgment. Cinco Enterprises, Inc. v. Benso, 890 P.2d 866, 871 (Okla.1994); Indiana Nat. Bank v. State, Dept. of Human Services, 857 P.2d 53, 59 (Okla.1993).

This brings us to the real issue in the case: 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 Oklahoma's Uniform Arbitration Act. 15 O.S.1991 §§ 801-818 (inclusive). ⁵ At issue here is § 802(A), which in relevant part provides:

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. ⁶

An analogous case is Moseley v. Electronic & Missile Facilities, 374 U.S. 167, 83 S.Ct. 1815, 10 L.Ed.2d 818 (1963). Electronic Facilities sought to compel arbitration in accordance with provisions in its subcontractor agreements with Moseley. Id. 374 U.S. at 168, 83 S.Ct. at 1816. Moseley argued that both the subcontracts and the arbitration clauses contained were "procured through fraud." Id. 374 U.S. at 171, 83 S.Ct. at 1817-1818. The United States Supreme Court reasoned that "the issue of fraud should first be adjudicated before the rights of the parties under the subcontracts can be determined." Id. The Court said that "If (fraud is established) there can be no arbitration under the subcontracts." Id.

In the trial court the Plaintiffs relied upon 15 O.S.1991 §§ 52, 53 ⁷ for the proposition that they were...