Title: DORIAN FOX and THE INVESTMENT CENTER, INC., a New Jersey Corporation, v. FRANK and MAUREEN TANNER;PATSY CLARK O'HEARN; and BARRY FITZGERALD,

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Cite as: 2004 WY 157, 101 P.3d 939

October 
Term, A.D. 2004

 
 
DORIAN 
FOX and THE INVESTMENT

CENTER, 
INC., a New Jersey Corporation,

 
 
Appellants

(Defendants),

 
 
v.

FRANK 
and MAUREEN TANNER;

PATSY 
CLARK O'HEARN; and BARRY

FITZGERALD,

 
 
Appellees

(Defendants).

 
 

Appeal 
from the DistrictCourtofNatronaCounty

The 
Honorable David B. Park, Judge

 
 

Representing 
Appellants:

Keith 
R. Nachbar, Casper, WY, and Craig S. Hilliard of Stark & Stark, P.C., 
Princeton, NJ.  
Argument by Mr. Hilliard.

 
 

Representing 
Appellees:

Thomas 
R. Smith and Frank R. Chapman of Beech Street Law Office, Casper, WY.  
Argument by Mr. Smith.

 
 
Before 
HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, 
JJ.

 
 
 
 
LEHMAN, 
Justice.

 
 

[¶1]      Dorian 
Fox (Fox) and The Investment Center, Inc. (TIC) appeal the district court's 
denial of their motion to dismiss Frank and Maureen Tanner's (the Tanners) 
allegations contained within the complaint.1  The district court concluded that 1) a 
court, rather than an arbitrator, should decide the threshold question of 
fraudulent inducement, and 2) the underlying contracts, which included 
arbitration agreements, were obtained through fraud.  Upon our review, we affirm. 

 
 
 
 
ISSUES

 
 
[¶2]      Fox and TIC set 
forth the following issues on appeal:

 
 
1.  Whether the district court erred in 
denying appellants' motion to stay proceedings and compel 
arbitration?

 
 
2.  Whether 
the district court erred in concluding that appellees' claims of fraudulent 
inducement were not arbitrable under Prima Paint Corp. v. Flood & Conklin 
Mfg., [388 U.S. 395,] 87 S. Ct. 1801, [18 L. Ed. 2d 1270] (1967), and its 
progeny?

 
 
3.  Whether 
the district court erred in finding that appellees' written agreement to 
arbitrate "all controversies or disputes" with TIC was procured through fraud 
and therefore unenforceable?

 
 

 
 
1.  Whether 
the district court erred in denying appellants' motion to stay proceedings to 
compel arbitration?

 
 
2.  Whether 
there are other reasons appearing in the record to affirm the district court's 
decision?

 
 
3.  Whether 
this matter should be dismissed for lack of appealable 
order?

 
 
 
 

 
 
[¶3]      On April 16, 
2001, the Tanners, Patricia Clark O'Hearn, and Barry Fitzgerald filed a 
complaint against Jeffrey Barber (Barber), Fox, and TIC alleging fraud, breach 
of contract, and negligence.2  In essence, the appellees allege they 
gave monies to Barber for investment purposes while Barber was employed as a 
stockbroker at TIC's Casper, 
Wyoming office, which Fox 
supervised.  After they did so, 
Barber converted the monies for his own purposes.  Fox and TIC denied they had any 
relationship with the Tanners whatsoever. 

 
 
[¶4]      Nevertheless, on 
June 25, 1999, Barber pled guilty to four counts of fraud, including that he had 
unlawfully obtained property from the Tanners.  In 1999, the Wyoming Secretary of State 
launched an investigation into TIC's activities.  Ultimately, the Secretary of State 
entered a Final Order including factual findings that TIC had failed to 
reasonably supervise Barber in its Casper office.  During this proceeding, TIC also entered 
into an Offer of Settlement admitting that it had failed to reasonably supervise 
Barber in its Casper office.  However, in both these documents, TIC 
explicitly neither admitted nor denied any liability for Barber's actions. 

 
 
[¶5]      During discovery 
in this action, the Tanners produced four separate Cash Account Agreement forms, 
which they had signed apparently at Barber's request in February of 1998.  Each of these forms contain the 
following language:

 
 

·        
Arbitration is final and 
binding on the parties.

 
 

·        
The parties are waiving 
their right to seek remedies in court, including the right to jury 
trial.

 
 
            
. . . . 

 
 
ArbitrationAll controversies or disputes between us 
of any kind shall be settled by arbitration.  Without limiting the foregoing, this 
arbitration agreement specifically applies to all controversies or disputes 
arising out of or relating to (1) any aspect of this account or any other 
account in which I now or in the future have or in the past had an interest; (2) 
transactions entered into prior, on, or subsequent to the date of this 
agreement; and (3) the construction, performance, or alleged breach of this or 
any other agreement entered into between us at any time. . . . The award of the 
arbitrators, or the majority of them, shall be final, and judgment upon the 
award rendered may be entered in any court, state, or federal, having 
jurisdiction.  I consent to the 
jurisdiction of the state and federal courts in the City of New York for the purpose 
of compelling arbitration, staying litigation pending arbitration, and enforcing 
any award of arbitrators.

 
 
In addition, just before the signature blocks on each 
of the forms, the following language appeared:  "This agreement contains a pre-dispute 
arbitration clause at page 1 at paragraph 10."  

 
 
[¶6]      The forms were 
not signed by anyone other than the Tanners, although "The Investment Center, 
Inc." was printed at the top of each form next to a logo.  TIC's name and its New Jersey address also 
appeared on the forms immediately following the signature lines.  However, boxes on the forms designated 
for "Branch," "Account No.," and "For Office Use Only" were left blank. 

 
 
[¶7]      On September 23, 
2002, Fox and TIC filed their motion arguing that, based upon the arbitration 
language contained within the Cash Account Agreement forms, the Tanners' claims 
should be dismissed.  The Tanners 
responded to the motion with arguments that 1) dismissal was not a proper 
remedy, 2) Fox and TIC had previously denied the existence of any contracts 
between the parties, and 3) under Wyoming law any contract that may exist 
between the parties may be revoked on the basis of fraud.  In reply, Fox and TIC, in part, asserted 
that the Tanners had failed to raise a claim that they were fraudulently induced 
to agree to the arbitration provision.  
Finally, the Tanners submitted additional materials to the district 
court, including 1) a letter from TIC, enclosing a copy of the Secretary of 
State's Final Order, and advising the plaintiffs that they could make a claim 
for arbitration and a demand for settlement, 2) TIC's response to a 
subpoena in the Wyoming Secretary of State proceeding, and 3) responses of 
Fox and TIC to the plaintiffs' interrogatories.  Generally, the Tanners argued that the 
additional documentation showed that TIC had admitted to not properly 
supervising Barber, including his dealings with the Tanners, but that TIC still 
denied a formal customer relationship with the Tanners.

 
 
[¶8]      On March 20, 
2003, the district court sent its initial decision letter to the parties.  The letter indicated that after 
substantial review and analysis, the district court could not decide whether the 
Tanners' claims were arbitrable without holding a hearing to receive additional 
evidence concerning the agreements.  
Therefore, a hearing on the matter was set for July 18, 2003. 

 
 
[¶9]      Prior to hearing, 
the Tanners filed a brief partially arguing that Barber, Fox, and TIC were 
precluded from denying liability to the Tanners by the doctrine of collateral 
estoppel.  The Tanners' arguments 
were based on Barber's guilty plea to criminal charges involving the Tanners and 
the Secretary of State's conclusions that TIC failed to properly supervise 
Barber.  In response, Fox and Ralph 
J. DeVito, President of TIC, filed certified statements stating that neither Fox 
nor TIC had admitted to any liability in reaching settlement in the Secretary of 
State proceeding.  In addition, Fox 
and TIC filed a memorandum opposing the Tanners' collateral estoppel arguments 
and submitted the deposition transcripts of both the Tanners whereby the Tanners 
indicated that they had not been fraudulently induced to execute the 
agreements.  The Tanners then filed 
their reply and asserted for the first time that no consideration existed for 
the agreements. 

 
 
[¶10]   
Following the evidentiary hearing, the district court issued another 
lengthy decision letter.  After 
noting the unsettled and conflicting state of the law in the area, the district 
court concluded that the trend was toward requiring arbitration only when the 
parties clearly agreed to do so.  
The district court then ruled that because Barber had admitted that he 
obtained money from the Tanners fraudulently, it strained credulity that the 
Tanners would have contemplated or agreed to arbitrate any dispute that arose 
under the agreements.  Later, in 
another decision letter, the district court clarified that it found that 
paragraph 9 of the Settlement Offer in the Secretary of State proceeding 
admitting that TIC failed to reasonably supervise Barber in its Casper office 
was not only binding on TIC but also on Fox.  Therefore, the district court denied the 
motion of Fox and TIC.  This appeal 
followed. 

 
 
 
 
STANDARD OF 
REVIEW

 
 

[¶11]   When a matter has been the subject 
of an evidentiary hearing before the district court, we review the factual 
determinations under a clearly erroneous standard and the legal conclusions 
de novo. 
Odhinn v. 
State, 
2003 WY 169, ¶13, 82 P.3d 715, ¶13 (Wyo. 2003) (citing Union Pacific Railroad v. 
TronaValley Fed. Credit 
Union, 
2002 WY 165, ¶7, 57 P.3d 1203, ¶7 (Wyo. 2002)).

 
 
 
 
DISCUSSION

 
 
Dismissal 
for Lack of an Appealable Order

 
 
[¶12]   During the appeal process, the 
Tanners filed a motion to dismiss with this court.  This court denied the motion, without 
prejudice, allowing the Tanners to again address the issue in their appellate 
brief.   The Tanners now assert 
that, pursuant to W.R.A.P. 1.05, Fox and TIC have failed to appeal from a final 
appealable order.  The Tanners argue 
that the order appealed is an interlocutory order to which an application for a 
petition for writ of review under W.R.A.P. 13 applies.  Hence, the Tanners claim that because 
Fox and TIC failed to follow the procedural rules and requirements for a 
petition for a writ of review, this appeal should be 
dismissed.

 
 
[¶13]   Wyo. Stat. Ann. § 1-36-119 
(LexisNexis 2003) (emphasis added), which is a part of Wyoming's Uniform 
Arbitration Act, specifies:

 
 

(a)  An 
appeal may be taken from:

 
 
(i)  An 
order denying the application to compel 
arbitration;

(ii)  An 
order granting an application to stay arbitration;

(iii)  An 
order confirming or denying confirmation of an award;

(iv)  An 
order modifying or correcting an award;

(v)  An 
order vacating an award without directing a rehearing; or

(vi)  A 
final judgment or decree entered by the court.

 
 
(b)  The 
appeal shall be taken in the manner of a civil 
action.

 
 

Our 
rules of appellate procedure contain no explicit procedure for appealing a 
denial of an application to compel arbitration.  Additionally, this court has previously 
allowed a direct appeal from an order denying a motion to stay proceedings and 
compel arbitration in the case of Jackson 
State Bank v. Homar, 
837 P.2d 1081 (Wyo. 1992).  
Therefore, given the clear language contained within Wyo. Stat. § 
1-36-119, the lack of any specific procedural direction for appellate review of 
a denial of an application to compel arbitration, and our own case precedent, we 
do not find the Tanners' argument to be persuasive.

 
 
Arbitrability

 
 
[¶14]   Fox and TIC contend that the 
district court erred when it concluded that the Tanners' claims were not 
arbitrable.  Specifically, Fox and 
TIC argue that the district court had limited discretion when presented with an 
application to compel arbitration pursuant to Wyo. Stat. Ann. 
§ 1-36-104(a) (LexisNexis 2003).  
Section 1-36-104(a) provides:

 
 
Duty 
of court on application of party to arbitrate.

 
 
(a)  On 
application of a party showing an arbitration agreement and the opposing party's 
refusal to arbitrate, the court shall order the parties to proceed with 
arbitration.  If the opposing party 
denies the existence of the agreement to arbitrate, the court shall proceed 
summarily to determine the issue raised and shall order or deny arbitration 
accordingly.

 
 
Fox and TIC also heavily rely on the 
case of Jackson State Bank v. Homar, 837 P.2d  at 1085 and 1088, wherein 
we stated that the right to submit a dispute to arbitration is contractual; and, 
although no party is required to arbitrate a dispute unless the parties have 
bargained for this procedure as a method of resolve, a party should not be 
required to litigate disputes which are subject to an arbitration 
agreement.  In addition, we stated, 
at 1086, that arbitration is strongly embedded in the public policy of this 
state and is favored by this court as a voluntary method to settle disputes in 
an inexpensive and expeditious manner without resort to strict rules of law and 
the rigid formality of a tribunal.  
Fox and TIC additionally assert that Wyoming public policy favoring 
arbitration mirrors the policy of federal law evidenced through enactment of the 
Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq., and subsequent federal 
case law authority interpreting the FAA.  
Fox and TIC also contend that the FAA preempts conflicting state law, and 
state courts are bound to follow its substantive provisions.  

 
 
[¶15]   
Thus, Fox and TIC conclude that because the Tanners do not assert a claim 
of fraud in the inducement that specifically addresses the arbitration 
provision, itself, this matter should have been sent to arbitration pursuant to 
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967) (under the FAA, a general attack on a contract on 
the ground of fraud in the inducement is a severable claim that is referable to 
arbitration; only a claim of fraud in the inducement that is addressed to the 
arbitration provision, itself, should be adjudicated by the court rather 
than by an arbitrator).  Finally, 
Fox and TIC claim that the case of Spahr v. Secco, 330 F.3d 1266, 1272-73 
(10th Cir. 2003), highlighted the continued vitality of the holding 
in Prima Paint, when it stated:  

 
 
            
As noted, Prima Paint submits to arbitrators the resolution of a 
claim of fraud in the inducement of the entire contract, as contrasted with a 
claim of fraud in the inducement of the arbitration agreement itself.  Because the latter claim involves the 
"making" of an agreement to arbitrate under § 4 [of the FAA], it is for the 
court to resolve.  388 U.S. 403-04.  Courts may apply this rule with ease 
when a party challenges a contract on the basis that it was induced by fraud 
because it is conceivable either that (1) he or she was fraudulently induced to 
agree to a contract containing an arbitration agreement; or (2) he or she was 
fraudulently induced to agree to the arbitration provision in particular. 

 
 
[¶16]   
In response to these arguments, the Tanners rely upon the reasoning used 
by the district court in reaching its decision.  They contend that the district court was 
correct in noting that while the law in the area is unsettled, the "separability 
doctrine" espoused by Prima Paint has been modified by subsequent United 
States Supreme Court rulings and has been narrowly construed by the 
10th Circuit Court of Appeals.  
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995), Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996), Howsam v. Dean Witter 
Reynolds, Inc., 537 U.S. 79, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002), and 
Spahr v. Secco.  Essentially, 
the Tanners concur with the district court's assessment that these later 
authorities stand for the proposition that 1) courts may apply state law to 
determine the validity of the contract that contains an arbitration clause, 
provided that the court applies contract principles that apply to all contracts, 
and 2) an agreement to arbitrate may not be based upon implied consent, but only 
on a clear and unmistakable consent to arbitrate.

 
 
[¶17]   
Accordingly, the Tanners argue that the district court appropriately 
applied established Wyoming contract law that fraud will vitiate a contract, 
Kendrick v. Barker, 2001 WY 2, ¶18, 15 P.3d 734, ¶18 (Wyo. 2001), and 
Snyder v. Lovercheck, 992 P.2d 1079, 1086 (Wyo. 1999), in denying the 
motion of Fox and TIC because Barber's fraud, which must be imputed to both Fox 
and TIC, provides a basis for not enforcing the agreements as they pertain to 
the Tanners' claims.  Additionally, 
the Tanners argue that the district court made a proper alternative finding that 
even if Barber's fraud was not imputed to Fox and TIC, then the agreements to 
arbitrate could not be used by them to force arbitration because Fox and TIC had 
1) denied knowledge of the Tanners, 2) stated that Barber had no authority to 
enter into any agreement on their behalf, 3) TIC never opened an account under 
the agreements, and 4) Fox and TIC never signed the agreements.  Finally, the Tanners contend that the 
district court appropriately determined that it should determine the fraud 
related issues because it was not clear that the Tanners had agreed to arbitrate 
the arbitrability issue.

 
 
[¶18]   
Upon our independent review, we affirm the district court's denial of the 
motion of Fox and TIC.  Initially, 
we recognize that the Court in First Options explicitly stated: 

 
 
            
When deciding whether the parties agreed to arbitrate a certain matter 
(including arbitrability), courts generally (though with a qualification we 
discuss below) should apply ordinary state-law principles that govern the 
formation of contracts.

 
 

First Options, 514 U.S.  at 944, 115 S. Ct.  at 1924, 131 L. Ed. 2d  at 993.  The United States Supreme 
Court later clarified this rule of law in Doctor's Associates, Inc.  
Therein, the Court stated at 517 U.S. 686-87, 116 S. Ct. 1656, 134 L. Ed. 2d 908-09 (emphasis added):

 
 
            
Section 2 of the FAA provides that written arbitration agreements "shall 
be valid, irrevocable, and enforceable, save upon such grounds as exist at law 
or in equity for the revocation of any contract." 9 U.S.C. § 2 
(emphasis added). Repeating our observation in Perry [v. Thomas, 
482 U.S. 483, 107 S. Ct. 2520, 96 L. Ed. 2d 426 (1987)], the text of § 2 declares that state law may be applied 
"if that law arose to govern issues concerning the validity, 
revocability, and enforceability of contracts generally." 482 U.S.  at 493, n.9. Thus, 
generally applicable contract defenses, such as fraud, duress, or 
unconscionability, may be applied to invalidate arbitration agreements without 
contravening § 2. See Allied-Bruce [Terminix Cos. v. 
Dobson], 513 U.S. [265,] at 281, [115 S. Ct. 834, 130 L. Ed. 2d 753 (1995)]; 
Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 
483-484, 104 L. Ed. 2d 526, 109 S. Ct. 1917 (1989); Shearson/American Express 
Inc. v. McMahon, 482 U.S. 220, 226, 96 L. Ed. 2d 185, 107 S. Ct. 2332 
(1987).

 
 
            
Courts may not, however, invalidate arbitration agreements under state 
laws applicable only to arbitration provisions. See Allied-Bruce, 
513 U.S.  at 281; 
Perry, 482 U.S.  at 493, n.9.  By enacting § 2, we have several times 
said, Congress precluded States from singling out arbitration provisions for 
suspect status, requiring instead that such provisions be placed "upon the same 
footing as other contracts."  
Scherk v. Alberto-Culver Co., 417 U.S. 506, 511, 
41 L. Ed. 2d 270, 94 S. Ct. 2449 (1974) (internal quotation marks omitted). 

 
 
[¶19]   
It is well established under Wyoming general contract law, which applies to 
all contracts, that fraud will vitiate a contract.  Kendrick v. Barker, ¶18; 
Snyder v. Lovercheck, 992 P.2d  at 1086.  It is undisputed that the Tanners allege 
that fraud occurred with respect to their interactions with Barber. 

 
 
[¶20]   
We conclude that the case of First Options also stands for the 
proposition that the waiver of access to the courts through an agreement to 
arbitrate may not be based upon implied consent, but only on a clear and 
unmistakable consent to arbitrate.  
Thus, in the First Options case, the United States Supreme Court 
upheld the court of appeals' determination that the dispute in that case was not 
arbitrable because the involved couple had not clearly agreed to submit the 
question of arbitrability to arbitration.  
In doing so, the Court stated:

 
 
            
This Court, however, has (as we just said) added an important 
qualification, applicable when courts decide whether a party has agreed that 
arbitrators should decide arbitrability: Courts should not assume that the 
parties agreed to arbitrate arbitrability unless there is "clear and 
unmistakable" evidence that they did so. AT&T Technologies [, 
Inc. v. Communications Workers, 475 U.S. 643], at 
649 [, 106 S.Ct 1415, 89 L. Ed. 2d 648, (1986)]; see [Steelworkers v.] Warrior & Gulf [Nav. 
Co., 363 U.S. 574], at 583, n.7, [80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)]. In this manner the law treats silence or ambiguity 
about the question "who (primarily) should decide arbitrability" 
differently from the way it treats silence or ambiguity about the question 
"whether a particular merits-related dispute is arbitrable 
because it is within the scope of a valid arbitration agreement"for in 
respect to this latter question the law reverses the presumption. See 
Mitsubishi Motors [Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614], at 626 [, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985)] ("[A]ny doubts 
concerning the scope of arbitrable issues should be resolved in favor of 
arbitration'") (quoting Moses H. Cone Memorial Hospital v. Mercury Constr. 
Corp., 460 U.S. 1, 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983)); Warrior 
& Gulf, supra, at 582-583.

 
 
            
But, this difference in treatment is understandable. The latter question 
arises when the parties have a contract that provides for arbitration of some 
issues. In such circumstances, the parties likely gave at least some thought to 
the scope of arbitration. And, given the law's permissive policies in respect to 
arbitration, see, e. g., Mitsubishi Motors, supra, at 626, 
one can understand why the law would insist upon clarity before concluding that 
the parties did not want to arbitrate a related matter. See [G. 
Wilner, 1] Domke [on Commercial Arbitration], § 12.02, p. 156 [(1993)] (issues 
will be deemed arbitrable "unless it is clear that the arbitration clause has 
not included" them). On the other hand, the former questionthe "who (primarily) 
should decide arbitrability" questionis rather arcane. A party often might not 
focus upon that question or upon the significance of having arbitrators decide 
the scope of their own powers. Cf. Cox, Reflections Upon Labor Arbitration, 72 
Harv. L. Rev. 1482, 1508-1509 (1959), cited in Warrior & Gulf, 363 U.S.  at 583, n. 7. And, given 
the principle that a party can be forced to arbitrate only those issues it 
specifically has agreed to submit to arbitration, one can understand why courts 
might hesitate to interpret silence or ambiguity on the "who should decide 
arbitrability" point as giving the arbitrators that power, for doing so might 
too often force unwilling parties to arbitrate a matter they reasonably would 
have thought a judge, not an arbitrator, would decide. Ibid. See 
generally Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 
219-220, 84 L. Ed. 2d 158, 105 S. Ct. 1238 (1985) (Arbitration Act's basic purpose 
is to "ensure judicial enforcement of privately made agreements to 
arbitrate").

 
 
. . . 

 

            
We conclude that, because the Kaplans did not clearly agree to submit the 
question of arbitrability to arbitration, the Court of Appeals was correct in 
finding that the arbitrability of the Kaplan/First Options dispute was 
subject to independent review by the courts

 
 

First Options, 514 U.S.  at 944-47, 115 S. Ct.  at 1924-25, 
131 L. Ed. 2d  at 994-95 (emphasis added).  
The United States Supreme Court subsequently expounded on this position 
in Howsam:  

 
 

            
This Court has determined that "arbitration is a matter of contract and a 
party cannot be required to submit to arbitration any dispute which he has 
not agreed so to submit."  Steelworkers v. Warrior & Gulf 
Nav. Co., 363 U.S. 574, 
582, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960); see also First Options, 514 U.S.  at 942-943. Although the Court 
has also long recognized and enforced a "liberal federal policy favoring 
arbitration agreements," Moses H. Cone Memorial Hospital v. Mercury Constr. 
Corp., 460 U.S. 1, 24-25, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983), it has made 
clear that there is an exception to this policy: The question whether the 
parties have submitted a particular dispute to arbitration, i.e., the 
"question of arbitrability," is "an issue for 
judicial determination unless the parties clearly and unmistakably provide 
otherwise." AT&T Technologies, Inc. v. Communications 
Workers, 475 U.S. 643, 
649, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986) (emphasis added); First 
Options, 514 U.S.  at 944. . . . 

 
 
            
Linguistically speaking, one might call any potentially dispositive 
gateway question a "question of arbitrability," for its answer will determine 
whether the underlying controversy will proceed to arbitration on the 
merits.  The Court's case law, 
however, makes clear that, for purposes of applying the interpretive rule, the 
phrase "question of arbitrability" has a far more limited scope. See 514 U.S.  at 942.  The Court has found the phrase 
applicable in the kind of narrow circumstance where contracting parties would 
likely have expected a court to have decided the gateway matter, where they are 
not likely to have thought that they had agreed that an arbitrator would do so, 
and, consequently, where reference of the gateway dispute to the court avoids 
the risk of forcing parties to arbitrate a matter that they may well not 
have agreed to arbitrate.

 
 

            
Thus, a gateway dispute about whether the parties are bound by a given 
arbitration clause raises a "question of arbitrability" for a court to 
decide. See id., at 
943-946 (holding that a court should decide whether the arbitration contract 
bound parties who did not sign the agreement); John Wiley & Sons, Inc. v. 
Livingston, 376 U.S. 543, 546-547, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964) 
(holding that a court should decide whether an arbitration agreement survived a 
corporate merger and bound the resulting corporation). Similarly, a 
disagreement about whether an arbitration clause in a concededly binding 
contract applies to a particular type of controversy is for the court. 
See, e.g., AT&T Technologies, supra, 475 U.S. 643, at 651-652 
(holding that a court should decide whether a labor-management layoff 
controversy falls within the arbitration clause of a collective-bargaining 
agreement); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241-243, 8 L. Ed. 2d 462, 82 S. Ct. 1318 (1962) (holding that a court should decide whether a 
clause providing for arbitration of various "grievances" covers claims for 
damages for breach of a no-strike agreement).

 
 
            
At the same time the Court has found the phrase "question of 
arbitrability" not applicable in other kinds of general 
circumstance where parties would likely expect that an arbitrator would 
decide the gateway matter. Thus "procedural' questions which grow out of the 
dispute and bear on its final disposition" are presumptively not for the judge, 
but for an arbitrator, to decide. John Wiley, supra, 376 U.S. 543, at 557 (holding that an 
arbitrator should decide whether the first two steps of a grievance procedure 
were completed, where these steps are prerequisites to arbitration). So, too, 
the presumption is that the arbitrator should decide "allegations of waiver, 
delay, or a like defense to arbitrability." Moses H.ConeMemorialHospital, 460 U.S.  at 24-25. 
Indeed, the Revised Uniform Arbitration Act of 2000 (RUAA), seeking to 
"incorporate the holdings of the vast majority of state courts and the law 
that has developed under the [Federal Arbitration Act]," states that an 
"arbitrator shall decide whether a condition precedent to arbitrability has been 
fulfilled." RUAA § 6(c) and comment 2, 7 U.L.A. 12-13 (Supp. 2002). And the 
comments add that "in the absence of an agreement to the contrary, issues of 
substantive arbitrability . . . are for a court to decide and issues of 
procedural arbitrability, i.e., whether prerequisites such as time 
limits, notice, laches, estoppel, and other conditions precedent to an 
obligation to arbitrate have been met, are for the arbitrators to decide." 
Id., § 
6, comment 2, 7 U.L.A., at 13 (emphasis added).

 
 

Howsam, 
537 U.S.  at 83-85, 123 S. Ct.  at 591-92, 
154 L. Ed. 2d  at 496-98 (emphasis added).

 
 
[¶21]   
Moreover, at least one legal scholar agrees with this analysis.  Richard C. Reuben, First Options, 
Consent to Arbitration, and the Demise of Separability: Restoring Access to 
Justice for Contracts with Arbitration Provisions, 56 S.M.U. L.Rev. 819 
(2003) (hereinafter Reuben).  In 
trying to rationalize the tension between the holding in Prima Paint, on 
the one hand, and the holdings of First Options and Howsam, on the 
other, Reuben remarks:

 
 

First Options explicitly rejects implied consent and its 
underlying rationale of efficiency, and instead insists on a "clear and 
unmistakable" intent to arbitrate in the contract issue.  Howsam provides further evidence 
that the Court is moving toward a posture of some form of actual consent.  While a more explicit statement from the 
Court would be helpful, lower courts should be mindful of this trajectory and 
proceed accordingly.

 
 
Reuben, at 873-74 (footnote omitted).  Reuben continues at 875-76 (footnotes 
omitted and emphasis added):

 
 
[T]he Court's unanimous opinions in both First 
Options and Howsam were grounded in the need for the law to support 
the parties' expectations and to prevent the possibility that a court "might too 
often force unwilling parties to arbitrate a matter they reasonably would have 
thought a judge, and not an arbitrator would decide."  Such reasoning leads logically only to 
one conclusion:  that courts 
should decide the validity of the container contracts, unless the parties 
clearly and unmistakably agree to allocate that function to the arbitrator.  Indeed, it borders on the absurd to 
suggest that a court troubled by such concerns would endorse a rule compelling 
into arbitration a party to a legally enforceable contract merely because of the 
presence of an arbitration provision in the otherwise unenforceable 
contract.

 
 
Reuben then concludes:

 
 
            
More recently, the Court appears to be moving toward a different 
approach; one emphasizing actual rather than implied consent, by insisting in 
First Options and Howsam that questions about whether parties have 
agreed to arbitrate are to be decided by courts, unless the parties clearly and 
unmistakably waive that right.  The 
tension between these two case [Prima Paint and First Options] is 
palpable, and calls for a determination by the Supreme Court as to which will 
prevail. The better view, the view supported by the text and legislative history 
of the Federal Arbitration Act, the view that enhances rather than diminishes 
rule of law values, the view that appears to be supported by all nine members of 
the current U.S. Supreme Court, is that First Options should 
prevail.  Carefully implemented to 
preserve arbitral competence-competence,[3] such a development would simplify and clarify 
this unnecessarily complicated area of law, assure the jurisdictional autonomy 
of arbitrators, fulfill rather than defeat the reasonable expectations of 
parties in arbitration, return the doctrine to the clear legislative intent of 
the FAA, and, in the end, restore access to justice for contracts with 
arbitration clauses.

 
 
Reuben, at 883.

 
 
[¶22]   
Finally, while Fox and TIC accurately quote the court in Spahr v. 
Secco, 330 F.3d 1266, 1273 (10th Cir. 2003), that case continues 
to explain the concept of arbitrability.  
A careful reading of that case evidences that the court emphasized the 
holding in First Options, that there can be no assumption of 
arbitrability and there must be a clear and unmistakable showing that the 
parties intended to arbitrate the issue of arbitrability.  Further, a broad arbitration provision 
does not provide, in and of itself, evidence of the parties' intentions.  Spahr, at 1270.  Spahr also draws a distinction 
between a challenge concerning the entire contract and a challenge to the 
arbitration clause within the contract.  
The court stated:

 
 
            
In Prima Paint, the Supreme Court held that, in the context of a 
fraud in the inducement challenge, the "making" of an agreement for arbitration 
is at issue when there is an independent challenge to the arbitration clause 
itself. 388 U.S.  at 403-04. In that case, the 
parties entered into a consulting contract that included a promise to arbitrate 
any controversy arising out of the contract. When one party sued to have the 
overall contract rescinded, alleging fraud in the inducement, the other party 
brought a motion in district court to stay the proceedings and compel 
arbitration. Affirming the district court's grant of a stay pending arbitration, 
the Second Circuit held that the "claim of fraud in the inducement of the 
contract generallyas opposed to the arbitration clause itselfis for the 
arbitrators and not the courts." Id. at 400. "Except where the parties 
otherwise intend[,] arbitration clauses as a matter of law are separable' from 
the contracts in which they are embedded, and . . . where no claim is made that 
fraud was directed to the arbitration clause itself, a broad arbitration clause 
will be held to encompass arbitration of the claim that the contract itself was 
induced by fraud," held the Second Circuit. Id. at 402.

 
 
            
Resolving a split among circuits, the Supreme Court held that a 
fraudulent inducement claim that goes to the entire contract must be resolved by 
an arbitrator. It concluded that § 4 of the FAA, which divests the court of 
jurisdiction "upon being satisfied that the making of the agreement for 
arbitration . . . is not in issue," provided the answer. Id. at 403. "[I]f 
the claim is fraud in the inducement of the arbitration clause itselfan issue 
which goes to the making' of the agreement to arbitratethe federal court may 
proceed to adjudicate it. But the statutory language does not permit the federal 
court to consider claims of fraud in the inducement of the contract generally." 
Id. at 
404. 

 
 
            
U.S. Bancorp argues that because Spahr's mental incompetence claim 
challenges the Cash Account Agreement generally, rather than the arbitration 
provision in particular, the district court should have stayed its proceedings 
and directed arbitration of that dispute under Prima Paint.  While we have not considered the scope 
of Prima Paint's applicability beyond claims of fraud in the inducement, 
other circuits have had occasion to do so. See, e.g., Primerica 
Life Ins. Co. v. Brown, 304 F.3d 469, 472-73 (5th Cir. 2002) (holding that 
the arbitrator is to decide a mental capacity defense that does not specifically 
relate to the arbitration agreement); Jeske v. Brooks, 875 F.2d 71, 75 
(4th Cir. 1989) (holding that unconscionability and lack-of-consideration 
defenses challenging the entire contract, rather than the arbitration clause 
itself, are for the arbitrator to decide); Unionmutual Stock Life Ins. Co. v. 
Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir. 1985) (same with 
mutual mistake and frustration of purpose); Merrill Lynch, Pierce, Fenner 
& Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir. 1981) (same with 
duress and unconscionability); Commonwealth Edison Co. v. Gulf Oil Corp., 
541 F.2d 1263, 1271 (7th Cir. 1976) (same with frustration of performance). In 
Unionmutual, the First Circuit concluded that "[t]he teaching of Prima 
Paint is that a federal court must not remove from the arbitrators 
consideration of a substantive challenge to a contract unless there has been an 
independent challenge to the making of the arbitration clause itself. The basis 
of the underlying challenge to the contract does not alter the . . . principle." 
774 F.2d  at 529.

 
 
            
In Primerica, the Fifth Circuit recently concluded that a mental 
capacity defense to a contract that contains an arbitration clause is "part of 
the underlying dispute between the parties," and must be submitted to the 
arbitrator. 304 F.3d  at 472. Relying on Prima Paint, the court held that 
"unless a defense relates specifically to the arbitration agreement, it must be 
submitted to the arbitrator as part of the underlying dispute." Id. We disagree, 
and hold that the rule announced in Prima Paint does not extend to a case 
where a party challenges a contract on the basis that the party lacked the 
mental capacity to enter into a contract.

 
 
            
As noted, Prima Paint submits to arbitrators the resolution of a 
claim of fraud in the inducement of the entire contract, as contrasted with 
a claim of fraud in the inducement of the arbitration agreement itself. Because 
the latter claim involves the "making" of an agreement to arbitrate under § 4, 
it is for the court to resolve. 388 U.S.  at 403-04. Courts may apply this 
rule with ease when a party challenges a contract on the basis that it was 
induced by fraud because it is conceivable either that (1) he or she was 
fraudulently induced to agree to a contract containing an arbitration agreement; 
or (2) he or she was fraudulently induced to agree to the arbitration provision 
in particular. We cannot say the same when a party raises a mental capacity 
challenge, as it would be odd indeed if a party claimed that its mental 
incapacity specifically affected the agreement to arbitrate. We conclude, 
therefore, that the analytical formula developed in Prima Paint cannot be 
applied with precision when a party contends that an entire contract containing 
an arbitration provision is unenforceable because he or she lacked the mental 
capacity to enter into the contract. Unlike a claim of fraud in the inducement, 
which can be directed at individual provisions in a contract, a mental capacity 
challenge can logically be directed only at the entire 
contract.

 
 
            
In the present case, although Spahr signed the Cash Account Agreement, 
which contains a promise to arbitrate "any controversy arising out of or 
relating to" the agreement, he contended below and continues to argue here that 
the overall agreement is unenforceable because he was mentally incompetent when 
he entered into the contract. We hold that Spahr's mental incapacity defense 
naturally goes to both the entire contract and the specific 
agreement to arbitrate in the contract. Therefore, Spahr's claim that he lacked 
the mental capacity to enter into an enforceable contract placed the "making" of 
an agreement to arbitrate at issue under § 4 of the FAA. In determining that the 
June 5, 1995, Cash Account Agreement was unenforceable, the district court acted 
within its authority under § 4. 

 
 

Spahr, at 
1271-73 (footnotes omitted and emphasis added).

 
 
[¶23]   
In this case, we do not find any undisputable evidence that the Tanners 
clearly and unmistakably consented to have this matter submitted to 
arbitration.  Also under 
Spahr, a broad provision to arbitrate all disputes arising out of or 
relating to the overall contract, as is the case here, does not provide the 
requisite clear and unmistakable consent to submit the question of arbitrability 
to an arbitrator.  Spahr, at 
1271.  In addition, the Tanners do 
not challenge the entire contract, but rely upon it, in part, with respect to 
their claims against Fox and TIC.  
Rather, they contest the validity of the arbitration provision within the 
contract.  Thus pursuant to 
Spahr and its related predecessor cases of First Options and 
Howsam, the issue remains one of arbitrability or a "gateway dispute" 
which should be properly determined by a court and not an arbitrator.  We further agree with the astute 
analysis of the district court, when it stated:

 
 
[T]here is little logic in deciding that an 
arbitrator should decide a matter and then have him determine that the contract 
by which he is vested with this authority is void.  As Mr. Reuben noted in his article, it 
would, "border on the absurd [to compel] into arbitration a party to a legally 
unenforceable contract merely because of the presence of an arbitration 
provision in the otherwise unenforceable contract." Reuben, supra at 
876.  Finally, the Court agrees with 
the Court in Shaw v. Kuhnel & Assoc., 698 P.2d 880, 882 (N.M. 1985), 
that courts are best suited to determine issues of fraud in the inducement, not 
arbitrators.  Courts are governed by 
procedural and evidentiary rules and are subject to review by appellate 
courts.  Arbitration proceedings are 
more informal, and substantive and procedural rules are not necessarily 
applied.  Reuben, supra at 
822; Riverton Valley Electric Ass'n v. Pacific Power & Light Co., 391 P.2d 489, 495 (1964).  Review of 
arbitration proceedings is very narrow.  
W.S. §1-36-114(a).  In 
effect, the institutional competency of a court, especially in regards to issues 
of common law contract formation (i.e. fraud), is greater than that of 
arbitrators.

 
 
[¶24]   
Finally, Fox and TIC argue that even assuming that Barber defrauded the 
Tanners by ultimately taking their money, there was no proof whatsoever that 
Barber ever fraudulently induced the Tanners to agree to arbitration.  Fox and TIC rely on the Tanners' 
testimony given at deposition to support this contention and also to support 
their ultimate conclusion that the district court's finding of fraud in the 
inducement of the arbitration provision used within the agreements was clearly 
in error and should be summarily reversed.  
Apparently in making this argument, Fox and TIC again argue that the 
district court should have applied the holding in Prima Paint Corp. v. Flood 
& Conklin Mfg., that, under the FAA, a general attack on a contract on 
the ground of fraud in the inducement is a severable claim that is referable to 
arbitration, and only a claim of fraud in the inducement that is addressed to 
the arbitration provision, itself, should be adjudicated by the court rather 
than by an arbitrator.

 
 
[¶25]   
We do not find this argument compelling.  In particular, our review of the record 
does not uncover a finding by the district court that fraud in the inducement of 
the arbitration provision used within the agreements occurred.  Rather, the district court merely 
recognized that the Tanners had alleged within the complaint that Barber 
defrauded the Tanners by ultimately taking their money.  As such, it was appropriate for the 
district court to assess such an issue during the further development of the 
case as opposed to sending this determination on to an arbitrator.  In any event, even assuming that the 
district court relied upon a finding that Barber had fraudulently induced the 
Tanners into arbitration in making its decision on the subject motion, we find 
such reliance to be inconsequential.  
As explained in detail above, we hold that there are numerous other 
substantive reasons to uphold the district court's denial of the motion of Fox 
and TIC.

 
 
 
 
CONCLUSION

 
 

[¶26]   Given 
those reasons set forth above, the actions of the district court are affirmed. 

 
 

FOOTNOTES

1The district court converted the 
motion into a motion to compel arbitration and stay proceedings pending 
arbitration pursuant to Wyo. Stat. Ann. § 1-36-104(c) (Lexis Nexis 2003), 
applicable state and federal law, and the specific language used within the 
subject arbitration clauses. 

 
 

2Ms. O'Hearn, Mr. Fitzgerald, and Mr. 
Barber are not parties to this appeal.

3Reuben defines the doctrine of 
competence-competence, or kompetenz-kompetenz, which is most 
familiar in the international or comparative commercial arbitration context, as 
generally referring to the independent authority of the arbitrator to decide the 
limits of his or her own jurisdiction. Reuben, at 836.