Court Opinion

ID: 9515018
Source: CourtListenerOpinion
Date Created: 2023-08-06 22:53:09.201355+00
Date Added: 2024-06-11T09:06:24.041555
License: Public Domain

KONENKAMP, Justice
(dissenting).
A.
[¶ 17.] Few rules are more settled than the one that requires appellate judges to limit themselves to reviewing issues the parties preserved below and raised on appeal. Here, the Court departs from that reliable process by raising its own challenge to the trial court’s decision. In doing so, the majority makes findings of fact and considers a question not broached in the trial court and not brought to us for decision.3 Moreover, to reverse the trial *808court in this case, the majority raises an affirmative defense on plaintiffs’ behalf. A claim that a contract is void or voidable is an affirmative defense that must be pleaded and proved by the party seeking to avoid the contract. Fees v. Mutual Fire and Auto. Ins. Co., 490 N.W.2d 55, 58 (Iowa 1992).4 See also American Property Services v. Barringer, 256 N.W.2d 887, 890 (S.D.1977).
[¶ 18.] The notion that appeals courts should address only the questions presented to them has a long and stable lineage. Indeed, the spirit of the appellate function abides within the bounds of the controversy under review, leaving for legislators and executives the broader questions the constitution empowers them to pursue. We should rarely “venture opinions regarding issues that have never been briefed, argued, or even adverted to in the course of the proceedings.” Seal-Flex, Inc. v. Athletic Track & Court Constr., 172 F.3d 836, 852 (Fed.Cir.1999) (Bryson & Newman, JJ., concurring). Certainly, we have held on occasion that a trial court may be affirmed on any theory, even one not raised. But it is unusual for an appellate court to conceive new arguments raised by neither side to justify reversing a trial court.5
[¶ 19.] It is not, of course, an inflexible rule that an appellate court will never consider issues not argued at trial.
There may always be exceptional cases or particular circumstances which will prompt a reviewing or appellate court, where injustice might otherwise result, to consider questions of law which were neither pressed nor passed upon by the court or administrative agency below.
Rules of practice and procedure are devised to promote the ends of justice, not to defeat them. A rigid and undeviating judicially declared practice under which courts of review would invariably and under all circumstances decline to consider all questions which had not previously been specifically urged would be out of harmony with this policy. Orderly rules of procedure do not require sacrifice of the rules of fundamental justice .... [Various] decisions ..., while recognizing the desirability and existence of a general practice under which appellate courts confíne themselves to the issues raised below, nevertheless do not lose sight of the fact that such appellate practice should not be applied where the obvious result would be a plain miscarriage of justice.
*809Hormel v. Helvering, 812 U.S. 552, 557-58, 61 S.Ct. 719, 721-22, 85 L.Ed. 1037, 1041 (1941).
[¶ 20.] In this commercial dispute between business parties, what fundamental injustice will occur if they are required to proceed to arbitration? And even if one were to concede that this is truly an exceptional case, requiring appellate court intercession, then, at the very least, in the interest of basic due process and simple fairness, we should give the adversely affected party here an opportunity to respond, or we should remand this new question to the trial court for further consideration.
[1121.] In our system of justice, litigants are entitled to notice that an issue is under consideration and to an opportunity to present evidence and argument. Unfortunately, the majority seems to see no need of any further contribution from the actual parties to this controversy. So much for the rule that if there is any doubt whether a case should be resolved by traditional judicial means or by arbitration, arbitration will prevail. Thunderstik Lodge, Inc. v. Reuer, 1998 SD 110, ¶ 14, 585 N.W.2d 819, 822 (citing Tjeerdsma v. Global Steel Bldgs., Inc., 466 N.W.2d 643, 645 (S.D.1991); City of Hot Springs v. Gunderson’s, Inc., 322 N.W.2d 8, 10 (S.D.1982)). And so much, too, for the proposition that failure to raise an issue at trial is considered a waiver.
B.
[¶ 22.] If the claim had been properly raised that the franchise agreement is void, then there is an established procedure in federal precedent for dealing with that question. It is uncontested that the Federal Arbitration Act (FAA) is the controlling law.6 In Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and Southland Corporation v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), the United States Supreme Court handed down definitive interpretations of the FAA. In Prima Paint, the Court held that a claim of fraud in the inducement of a contract “is for the arbitrators and not for the courts.” 388 U.S. at 400, 87 S.Ct. at 1804, 18 L.Ed.2d at 1275. In South-land, it declared that any state law that undercuts the enforceability of arbitration agreements violates the Supremacy Clause of the United States Constitution. 465 U.S. at 16, 104 S.Ct. at 861, 79 L.Ed.2d at 15-16.
[1123.] With Prima Paint and South-land in mind, we can now consider relevant state laws. SDCL 53-9-1 provides:
A contract provision contrary to an express provision of law or to the policy of express law, though not expressly prohibited or otherwise contrary to good morals, is unlawful.
Furthermore, SDCL 37-5A-6 provides:
No person may offer or sell any franchise in this state unless there is an effective registration statement on file in accordance with the provisions of this chapter or unless the franchise or transaction is exempted under §§ 37-5A-11 to 37-5A-14, inclusive.
It is uncontested that the franchise agreement here was completed and memorialized by a document signed by both parties only after the State of South Dakota had withdrawn the registration of Nature’s 10 as a franchisor.
[¶ 24.] A contract is void ab initio “if it seriously offends law or public policy in contrast to a contract which is merely *810voidable at the election of one of the parties.” Black’s Law Dictionary 1574 (6th ed.1990). Although the “franchise” agreement was signed in violation of SDCL 37-5A-6 and is therefore “unlawful” according to SDCL 53-9-1, neither party has shown that it “seriously offends law or public policy” or has sought to have it declared void.
[¶ 25.] In Scanlon v. P & J Enterprises, the Michigan Court of Appeals had occasion to consider a similar question.7 182 Mich.App. 347, 451 N.W.2d 616, 617-(1990). In that case,
[a]ppellees sued appellants claiming that appellants had violated the Michigan Franchise Investment Law ... in connection with selling appellees their “Fantastic Sam’s” beauty parlor franchises. Appellees also alleged various common-law claims for breach of contract, fraud, negligence and tortious interference with a business relationship. Appellees sought rescission of the franchise agreements and monetary damages.
Id. In following the decision in Prima Paint, the Scanlon court concluded that “the federal courts have uniformly held that even a claim of fraud in the inducement of an entire contract containing an arbitration clause is to be referred to arbitration under the [FAA].” 451 NW2d at 618. Furthermore, the Florida Supreme Court, in Seifert v. U.S. Home Corp., noted that
the phrase “arising out of or relating to” the contract has been interpreted broadly to encompass virtually all disputes between the contracting parties, including related tort claims. See Southland Corp. v. Keating, 465 U.S. 1, 15 n. 7, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (involving claims for fraud, misrepresentation, breach of contract, breach of fiduciary duty, and violation of state franchise investment law); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (holding that contractual language “[a]ny controversy or claims arising out of or relating to this Agreement, or breach thereof’ is “easily broad enough to encompass” claim for fraud in inducement of contract). The addition of the phrase “relating to” to the phrases “arising out of’ or “under,” has been construed as broadening the scope of the arbitration provision. See American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir.1996) (characterizing phrase “arise out of or related to” as broad arbitration clause “capable of an expansive reach”).
750 So.2d 633, 637 (Fla.1999). All the claims advanced by plaintiffs fall under these principles.
[¶ 26.] To complete the analysis, we must turn to the distinction between “void” and “voidable” contracts. This distinction is relevant because the FAA requires that a court be “satisfied the making of the agreement for arbitration ... is not in issue.” 9 USC § 4. If the making of the agreement to arbitrate is placed in issue, the court must set the issue for trial. Sphere Drake Ins. Ltd. v. Clarendon Nat. Ins. Co., 263 F.3d 26, 30 (2nd Cir.2001). However, the party putting the arbitration agreement into issue must present “some evidence” in support of its claim before a trial is warranted. Id. (citing Interocean Shipping Co. v. Nat’l Shipping & Trading Corp., 462 F.2d 673, 676 (2nd Cir.1972)).
While the teachings of Interocean and Prima Paint may appear conflicting, *811they can be sensibly harmonized by understanding that their outcomes implicitly — if not explicitly — rely on the distinction between void and voidable contracts, a distinction already recognized in at least two other circuits.
Id. at 31. The Sphere Drake court then points out that Interocean provides a good example of a void contract, Prima Paint of a voidable contract. Id.
Under Interocean, a party alleging that a contract is void — and providing some evidence in support — is entitled to a trial on the contract’s arbitrability.... And, under Prima Paint, a party is not entitled to a trial on the arbitrability of a voidable contract unless the party alleges that the arbitration clause itself is voidable and provides some evidence in support of its allegation.
Id. at 31-32. The Sphere Drake court concludes the discussion as follows:
If a party alleges that a contract is void and provides some evidence in support, then the party need not specifically allege that the arbitration clause in that contract is void, and the party is entitled to a trial on the arbitrability issue pursuant to 9 USCA § 4 and the rule of Interocean. However, under the rule of Prima Paint, if a party merely alleges that a contract is voidable, then, for the party to receive a trial on the validity of the arbitration clause, the party must specifically allege that the arbitration clause is itself voidable. Accordingly, to defeat the arbitration clauses in the contracts at issue, Sphere Drake must allege that the contracts as a whole are void or that the arbitration clauses in the contracts are voidable. Of course, it is not enough for Sphere Drake to make allegations — Sphere Drake must also produce some evidence substantiating its claim. See Interbras Cayman Co. v. Orient Victory Shipping Co., S.A., 663 F.2d 4, 7 (2nd Cir.1981) (per curiam).
Id. at 32. In our case, plaintiffs never even argued — much less produced evidence to show — that the contract is void. Nor have they argued that the arbitration clause itself is voidable. Under these circumstances, we should presume that the arbitration portion of the contract between the parties is enforceable.
[¶ 27.] Our concern should not end at this point, however. Although it is an incorrect supposition that arbitration results in an inadequate remedy for parties who do not wish to arbitrate, we should look for assurance that adequate remedies are available through arbitration. As the Eleventh Circuit wrote in a similar case on choiee-of-forum clauses, we will declare an arbitration clause unenforceable “when the remedies available in [that forum] are so inadequate that enforcement would be fundamentally unfair.” Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1297 (11thCir.1998). Here, plaintiffs have produced no evidence to show that the remedies available to them under arbitration are inadequate or fundamentally unfair.
[¶ 28.] We should affirm the trial court’s ruling that this case be submitted to compulsory arbitration.
[¶ 29.] SABERS, Justice, joins this dissent.

. Although the trial court entered no findings of fact on the legitimacy of the defendants’ franchise offering, the majority registers a litany of fact findings on this issue. In effect, the Court assumes that all plaintiffs' assertions are true. On appeal, plaintiffs submitted the following single issue: "Did the circuit court err in holding that defendants could enforce an arbitration clause, despite a waiver of arbitration rights, related to claims and defendants not implicated by a franchise agreement between the plaintiff and one of the defendants?” The briefs do not even mention the possibility, let alone argue, that the agreement was void or voidable.

. Until today, affirmative defenses have been considered waived unless the asserting party has affirmatively pleaded and proved them at trial. SDCL 15-6-8(c); Kier v. Kier, 454 N.W.2d 544, 546 (S.D.1990); Oesterling v. Oesterling, 354 N.W.2d 735, 736 (S.D.1984). Many cases have held that voidness, illegality, and invalidity of a contract are affirmative defenses. McCabe/Marra Co. v. Dover, 100 Ohio App.3d 139, 652 N.E.2d 236 (1995) (illegality or invalidity of a contract is an affirmative defense that must be pleaded and proved by the party seeking to avoid the contract); Rice v. James, 844 S.W.2d 64 (Mo.Ct.App.1992) (illegality of a contract is an affirmative defense that must be pleaded and proved by the party seeking to avoid the contract); MJR Corp. v. B & B Vending Co., 760 S.W.2d 4 (Tex.App.1988) (illegality of a contract is a defensive issue to be pleaded and proved by the defendant in a suit over breach of contract).

. Although plaintiffs' brief twice mentions the fact that the agreement was signed sifter South Dakota had withdrawn permission for Nature’s 10 to offer franchises, such passing references do not suffice to bring the issue before this Court. The issue must be presented, considered, and decided in the trial court. Cavic v. Pioneer Astro Indus., Inc., 825 F.2d 1421, 1425 (10th Cir.1987) (citation omitted). In our case, the trial court made no mention of this issue and understandably so because the issue was never broached.

. Because the franchise agreement was between South Dakota parties and out-of-state parties, the agreement affected interstate commerce and fre FAA governs. 9 USC §§ 1-14.

. The language of the arbitration clause under consideration in Scanlon was essentially the same as the one here.