I recently noted that Tamar Meshel, who is partly responsible for my arbitration addiction, did her best Meryl Streep imitation when I asked her to help me choose which arbitration decisions summarized on her Substack I should blog about. “I love them all equally,” she said, clutching a stack of opinions to her chest. “How can you ask me to choose?” When I told her I was writing about arbitration waiver cases, she did her second-best Meryl Streep imitation, singing, “Mamma Mia, here we go again!” and sent me this case, hot off the presses.
This time it is the Oklahoma Supreme Court weighing in on the waiver question, but the case has an added wrinkle because the agreement had an arbitration-specific anti-waiver provision.
Justice Jett, writing for Oklahoma Supreme Court in Merit Holdings, LLC v. International Bank of Commerce, begins by telling us that, although the underlying transaction is complex, the legal issue is straightforward – should this case proceed in litigation or arbitration? There was also a fraudulent inducement issue.
The facts are as follows. Defendant International Bank of Commerce (IBC) loaned funds to plaintiffs, a number of entities that we will refer to collectively as Merit. The purpose of the loan was to expand what became the Byford-Le Norman Auto Group (the Auto Group), but Merit contends that the Auto Group was a house of cards. Merit claimed to have discovered the Auto Group’s fraudulent practices only after Auto Group’s principal committed suicide in May 2020. Merit and IBC then restructured the loans, resulting in the October 2020 loan agreements, which are the basis of the motion to compel arbitration. Although there were subsequent agreements, the 2020 loan agreements contained an arbitration-specific anti-waiver clause and delegated all disputes regarding arbitrability to the arbiter. As of April 2023, IBC claimed that the outstanding principal balance on the loans exceeded $35 million.
Merit filed suit in June 2022, and IBC filed a motion to dismiss, and simultaneously a motion to compel arbitration, in October 2022. A lot happened before the trial court finally considered those motions. Merit twice moved for a temporary restraining order or injunction. There was some discovery. IBC sought attorneys’ fees. The trial court eventually held a hearing on pending motions. It granted IBC’s motion to dismiss in part but allowed most of the claims to proceed. It could not compel arbitration, because Merit had claimed that the loan agreements, including their arbitration provisions, were fraudulently induced. However, after an evidentiary hearing, the trial court granted IBC’s motion to compel arbitration.
Merit appealed, claiming, as relevant here, that IBC had waived its right to arbitrate. The Court of Civil Appeals reversed the trial court’s order, and IBC petitioned for certiorari. The Oklahoma Supreme Court granted the petition.
Like the other jurisdictions we have discussed in our previous posts on this topic here and here, Oklahoma applies a holistic approach to the question of whether a party had knowingly and voluntarily waived their right to arbitrate. Here, of course, the Court also had to consider the loan agreements’ arbitration-specific anti-waiver provision. That provision provided that IBC had to move to arbitrate within 180 days of being served. The provision further provided that neither “[a]ctive participation in any pending litigation” nor the “[u]se of self-help or ancillary and/or provisional judicial remedies” would operate as a waiver.
Here, IBC moved to compel arbitration 84 days after being served and it did so at the same time that it made its first substantive filing in the case. IBC’s other conduct, including its motion to dismiss and participation in discovery, defending against an injunction and seeking attorneys’ fees, were all permitted under the anti-waiver provision. As the conduct that is permitted under the anti-waiver provision cannot be considered as evidencing a voluntary relinquishment of the right to arbitrate, the remaining analysis under the Oklahoma test for waiver goes pretty quickly. There was no waiver here.
Although waiver was the only issue covered by the petition for certiorari, the Supreme Court exercised its discretion to address Merit’s other arguments. Merit argued that the loan agreements were induced through fraud, but under both federal and Oklahoma law, allegations that the entire agreement was induced through fraud must be decided by the arbiter. Here, Merit never alleges that it was fraudulently induced to arbitrate. Rather, it claims that its assent to the loan agreements in their entirety was induced through IBC’s fraudulent conduct. Moreover, the parties agreed to delegate matters of arbitrability to the arbiter, so even if Merit had claimed that it was only fraudulently induced into agreeing to the arbitration provision, it would have to take up that argument with the arbiter.
The rest of the opinion is taken up with challenges to the trial court’s rulings relating to evidence and discovery and need not concern us here. The Court vacated the Court of Civil Appeals ruling and affirmed the trial court’s grant of IBC’s motion to compel arbitration. Justice Kane filed a brief concurrence, providing a separate, statutory ground for the majority’s ruling on the waiver issue.
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