In an opinion issued Tuesday, May 19, 2021, the Oklahoma Supreme Court overturned the decision of the Oklahoma Court of Civil Appeals and held that the defendant did not waive its right to arbitrate pursuant to a term in its contract with the plaintiff.
In Howell’s Well Service v. Focus Group Advisors, 2021 OK 25, No. 117804 (Okla. 2021), the Oklahoma Supreme Court addressed the issue of whether a defendant waived its right to compel arbitration by not including it as an affirmative defense in its responsive pleading. Alternatively, the Court also considered whether the defendant had waived its right to arbitrate according to the equitable balancing test as outline in Oklahoma Supreme Court precedent.
The Plaintiffs in Howell Well Servicers were investors at the Defendant investment firm. The agreement between Plaintiffs and Defendant contained an arbitration provision. The Plaintiff filed suit in May 2013—the specifics of which claims were not included in the appellate opinion—but did not serve Defendant until nearly one and a half years later. Defendant answered in February 2015, but did not raise the arbitration provision in its answer.
The case fell mostly silent for another seventeen months, at which time Defendant filed a motion to compel arbitration. A status conference was set regarding the motion, but was stricken in favor of mediation. Mediation ultimately failed, however, and the case date dormant for another two years until Plaintiffs against requested the setting of a status conference on Defendant’s motion to compel arbitration.
After a hearing on Defendant’s motion, the trial court held: 1) Defendants waived the right to arbitration by not raising in their Answer, and (2) the late assertion of the right would be prejudicial to the Plaintiffs. The Court of Civil Appeals affirmed the trial court and the Supreme Court granted Certiorari.
In reviewing on appeal, the Supreme Court firstly considered whether the Oklahoma pleading statutes required a defendant to plead the right to arbitrate as an affirmative defense in its responsive pleading. The Court looked to Oklahoma’s strong public policy in favor of arbitration, as well as Tenth Circuit case law applicable to the federal counterpart of the Oklahoma Uniform Arbitration Act. The Supreme Court further noted prior opinions from the same division of the Court of Civil Appeals which the Supreme Court read as running contrary to the Court of Civil Appeal’s holding in this case. All these considered, the Supreme Court held that Oklahoma law did not require Defendant to plead the arbitration provision in order to avoid waiver.
The Supreme Court secondly considered whether the Defendant waived its right to compel arbitration according to the equitable factors put forth by the Court of Civil Appeals in Northland Ins. Co. v. Kellogg, 1995 OK CIV APP 84, ¶ 8, 897 P.2d 1161, 1162. After applying the fact-intensive, six-factored balancing test to the facts at hand, the Court concluded that the Northland factors weighed against a finding of waiver by the Defendants. In so holding, the Supreme Court noted such things as the Defendant’s inactive role in the litigation, lack of discovery, lack of trial dates or scheduling order, and the Plaintiff’s own lengthy delays.
This decision by the Oklahoma Supreme Court on the first impression issue of the inclusion of a right to arbitrate within a responsive pleading indicates a refusal by the Court to read an additional requirement into the Oklahoma pleading statutes. Further, the application of the Northland factors indicates the Court’s approval of this equitable analysis in determining whether a party waived its right to arbitrate and confirms Oklahoma’s strong favor of arbitration.