Dean Witter Reynolds, Inc. v. Shear

1990 OK 67, 796 P.2d 296, 61 O.B.A.J. 1946, 1990 Okla. LEXIS 76, 1990 WL 98173

• Court: Supreme Court of Oklahoma
• Decided: July 17, 1990
• Docket: 73947
• Status: Published

Opinions

OPALA, Vice Chief Justice.

The dispositive issue is whether, in the face of an enforceable choice-of-law provision by which New York law is to govern disputes arising out of the contract, a party can invoke Oklahoma’s fundamental law to challenge the validity of the same contract’s arbitration clause. We answer in the negative.

Dean Witter Reynolds, Inc., a securities dealer [broker], obtained an arbitration award against one of its customers, Warren Shear [customer], based on a commodities trading debt. Although the customer had signed a “Customer Agreement” providing that “[a]ny controversy ... shall be settled by arbitration,” ¹ he refused to participate in the nonjudicial dispute resolution process.

Pursuant to § 811 of the Uniform Arbitration Act² [15 O.S.1981 §§ 801 et seq.] the broker then brought this proceeding in the district court to transmute the award into an executable Oklahoma judgment. The customer resisted by asserting three defenses: 1) the arbitration award cannot stand because the broker — on notice of his refusal to arbitrate — failed to obtain a court order compelling him to do so, 2) the arbitration proceeding should have been dismissed in accordance with a rule of the New York Stock Exchange Board of Arbitration and 3) the arbitration clause itself is void under Art. 23, § 8, Okl. Const.³ Contending that no disputed issues of fact exist, the broker sought “summary judgment.” It was argued the customer could not avoid the effects of the arbitration process because, among other things, he failed to seek either a stay of the proceeding⁴ or vacation of the resulting award.⁵ The customer maintained that a summary adjudication is precluded by the existence of unresolved issues of fact.⁶

While Oklahoma law (the Uniform Arbitration Act) had been invoked to govern the process for converting the award into a judgment, both parties relied upon New York law in support of their respective positions. Indeed, the Customer Agreement does contain a choice-of-law provision which states that “this [contract] and its enforcement shall be governed by the laws of the State of New York.” After judgment to the broker, the customer appeals.

Corrective relief is sought on but a single contention — that both the choice-of-law provision as well as the arbitration clause itself are void under Art. 23, § 8, Okl. Const.⁷ The broker urges that we reject the customer’s call to invalidate the contractual terms in controversy because he failed to challenge below the enforceability of the choice-of-law provision. With the broker’s position we agree.⁸

Because neither the petition nor the answer ⁹ tenders a controversy over the validity of the contractual choice of law,¹⁰ we treat the summary judgment motion as a plea for judgment on customer’s failure to state a legal defense.¹¹ The customer made no attempt below to escape the binding effect of his prior assent to New York law’s application. He could have, but did not, call for a judicial analysis of any of the facts supportive of a choice-of-law challenge under the Restatement (Second) Conflict of Laws § 187.¹² The choice-of-law clause might have been avoided, had the Restatement standard been invoked, if {a) application of the chosen state’s legal system were “contrary to a fundamental policy” of the state with the materially greater interest in determining the question at hand and (b) the laws of the latter state would govern in the absence of an effective choice of law.¹³

As for the question whether Oklahoma law would have governed this controversy absent an effective choice of law, the “most significant relationship” test of the Restatement (Second) Conflict of Laws § 188 appears applicable.¹⁴ The factors the Restatement contemplates under this section are the places of contracting, negotiation, performance and subject matter, along with the parties’ “domicil, residence, nationality, place of incorporation and place of business.” Application of this test clearly calls for a judicial analysis with a view to determining which state has the most significant relationship with the parties and the transaction. The customer did not seek the trial court’s resolution of this matter.¹⁵

In sum, the customer did not timely challenge — by proper response to the “summary judgment” motion — the efficacy of the choice-of-law provision which made New York law controlling over all controversies arising from this contract. He thus cannot now invoke Oklahoma law to test the validity of the arbitration clause by the standards of this State’s fundamental law.

JUDGMENT AFFIRMED.

HARGRAVE, C.J., and HODGES, ALMA WILSON- and SUMMERS, JJ., concur. DOOLIN and KAUGER, JJ., concur specially. LAVENDER and SIMMS, JJ., concur in result.

1 . The terms of the arbitration clause in suit are: "Any controversy between you and the undersigned arising out of or relating to this contract or the breach thereof, shall be settled by arbitration in accordance with the rules, then obtaining of either the Arbitration Committee of the Chamber of Commerce of the State of New York, or the American Arbitration Association, or the Board of Arbitration of the New York Stock Exchange, as the undersigned may elect. If the undersigned does not make such election by registered mail addressed to you at your main office within five (5) days after receipt of notification from you requesting such election, then the undersigned authorize you to make such election in behalf of the undersigned. Any arbitration hereunder shall be before at least three arbitrators and the award of the arbitrators, or of a majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction." (Emphasis added.)

2 . The terms of 15 O.S.1981 § 811 provide:

“Upon application of a party to the agreement, the court shall confirm an award, unless within the time limits imposed herein grounds are urged for vacating or modifying or correcting the award, in which case the court shall proceed as provided in Sections 12 and 13 of this act.” (Emphasis added.)

3 . The terms of Art. 23, § 8, Okl. Const, are:

“Any provision of a contract, express or implied, made by any person, by which any of the benefits of this Constitution is sought to be waived, shall be null and void.” (Emphasis added.)

4 . The terms of 15 O.S.1981 § 803(B) authorize the district court to stay, under certain conditions, an arbitration proceeding. This subsection provides:

"B. On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no valid agreement to arbitrate. Such an issue shall be summarily tried. If the issue is resolved in favor of the moving party, the court may order a permanent stay of such proceeding. If the issue is resolved in favor of the opposing party, the court shall order the parties to proceed to arbitration." (Emphasis added.)

5 . The terms of 15 O.S.1981 § 812 prescribe the grounds upon which an arbitration award may be vacated. This subsection provides in pertinent part:

"A. Upon application of a party, the court shall vacate an award if:

"1. The award was procured by corruption, fraud or other illegal means;

"2. There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

“3. The arbitrators exceeded their powers;

“4. The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the requirements of this act, as to prejudice substantially the rights of a party; or

"5. There was no arbitration agreement and the issue was not adversely determined in proceedings under Section 3 [15 O.S.1981 § 803] of this act and the party did not participate in the arbitration hearing without raising the objection.

"B. The fact that relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.

"C. An application under this section shall be made within ninety (90) days after delivery of a copy of the award to the applicant. If predicated upon corruption, fraud or other illegal means, the application shall be made within ninety (90) days after such grounds are known or should have been known.

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“E. If the application to vacate is denied and no motion to modify or correct the award is pending, the court shall confirm the award.”

6 .According to the customer’s response to the broker’s quest for summary judgment, the factual issues which had remained unresolved and hence preclusive of any summary adjudication were: 1) whether the customer sufficiently notified the broker of his refusal to participate in the arbitration process, 2) whether the customer’s personal delivery of a letter to the arbitrators constitutes participation in that process and 3) whether the customer "requested and asserted prior to the arbitration hearing his right to a jury trial under Oklahoma law.”

We note that none of these issues is germane to any of the statutory grounds for vacating an arbitration award (see 15 O.S.1981 § 812(A), supra note 5) and that, in any event, the customer did not seek modification or correction of the broker’s award within the meaning of 15 O.S. 1981 § 812(E), supra note 5.

7 . See supra note 3.

8 . We need not address the broker's alternative argument that the invalidation of the arbitration and choice-of-law clauses, even if measured by the strictures of Oklahoma law, would in any event be of no consequence, because the Federal Arbitration Act [9 U.S.C. §§ 1 et seq.] pre-empts all state law. See in this connection Moses H. Cone Memorial Hosp. v. Mercury Const., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985); Securities Industry Ass’n v. Connolly, 883 F.2d 1114, 1123 (1st Cir.1989). Cf. Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468, 109 S.Ct. 1248, 1255-1256, 103 L.Ed.2d 488 (1989).

9 . In neither the customer’s answer nor his amended answer is the validity of the choice-of-law provision challenged; none of the allegations is directed to any of the factors contem- ' plated by the Restatement. See infra notes 12 and 14.

The customer’s pleadings state, in pertinent part:

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"... [the customer] ... advised ... Plaintiff ... and all members of the Arbitration Panel on separate occasions prior to the purported Arbitration Hearing that he would not agree to submit to the Arbitration proceedings.

”... [customer] ... by letter ... refused and has not to this date signed the ... Submission Agreement submitted to him for his approval and signature.

"... In refusing to submit to [arbitration] ... [customer] at all times made clear that because of allegations of his account having been churned ... he believed the matter should be adjudicated by a Court of record. "... [broker] ... over the [customer’s] objections ... and without using the procedures outlined in 15 O.S.1981 § 803, obtained the invalid award....

"... [customer] further alleges as an affirmative defense that under Oklahoma law the arbitration clause in the customer’s agreement is an implicit waiver of his constitutional right to a jury trial and is thus unenforceable.

”... [customer] further alleges ... that the arbitrators refused to dismiss the arbitration proceedings and refer the parties to the remedies provided by law even though ... [notice had been given] that he would not submit to the arbitration proceedings.... ”

10 . "Issues arise on the pleadings, where a fact or conclusion of law is maintained by one party, and controverted by the other. There are two kinds. First, of law; Second, of fact.” (Emphasis added.) 12 O.S.1981 § 552.

11 . Although Rule 4(/), Rules for District Courts, 12 O.S.Supp.1986, Ch. 2, App., appears to prohibit motions for judgment on the pleadings, it is proper to seek judgment — as a matter of law — when the petition tenders no fact issues and the answer fails to raise a legal defense. Judgments on the pleadings are still used in the federal-court system and appear to be authorized in Texas. Hittner and Liberato, Summary Judgments in Texas, 20 St. Mary's LJ. 243, 252 (1989); Fraser, The Petition Under the New Pleading Code, 38 Okl.L.Rev. 245, 252 (1985).

12 . The full text of the Restatement (Second) Conflict of Laws § 187 states:

“(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

"(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

"(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or

"(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

"(3) In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.” (Emphasis added.)

See also generally Annot.: Validity and effect of stipulation in contract to effect that it shall be governed by law of particular state which is neither place where contract is made nor place where it is to be performed, 16 A.L.R.4& 967.

13 . The customer should have tendered proof to support the factum of Oklahoma’s materially greater interest in the controversy than that of New York and the facts showing Oklahoma's more significant relationship to the transaction and to the parties. See Restatement (Second) Conflict of Laws § 188, infra note 14.

14 . The Restatement (Second) Conflict of Laws § 188 states:

“(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

"(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

“(a) the place of contracting,

"(b) the place of negotiation of the contract, "(c) the place of performance,

"(d) the location of the subject matter of the contract, and

"(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

“These contacts are to be evaluated according to their relative importance with respect to the particular issue.

"(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.” (Emphasis added.)

15 . Neither does the customer complain on appeal that summary judgment had been improperly given because material issues of fact remain unresolved.