A first-impression ruling on anti-waiver provisions. Lenders, take note
Oklahoma’s highest court just gave lenders a reason to look closely at how their arbitration clauses are drafted.
The Oklahoma Supreme Court ruled on October 6 that International Bank of Commerce did not waive its right to compel arbitration despite nearly two years of active litigation, in what the court called an issue of first impression involving anti-waiver provisions in loan agreements. The court vacated the Court of Civil Appeals’ reversal and affirmed the trial court’s order sending the case to arbitration.
The dispute traces back to the collapse of the Byford-Le Norman Auto Group. IBC Bank had loaned funds to a collection of entities - the Merit Entities - to expand the dealership network. After the group’s former operator died, the Merit Entities alleged the business was “a house of cards due to fraudulent business practices.” They restructured debt with IBC Bank through loan agreements executed in October 2020 containing arbitration provisions and arbitration-specific anti-waiver clauses.
The Merit Entities claimed they repaid more than $50 million. As of April 2023, IBC Bank alleged outstanding principal exceeded $35 million, not counting accrued interest.
The Merit Entities sued in June 2022. IBC Bank responded with a motion to dismiss and, the same day, an alternative motion to compel arbitration - preserving its arbitration rights from the first filing. Months of litigation followed. The Court of Civil Appeals found waiver. The Supreme Court saw it differently.
What mattered was the anti-waiver provision. The loan agreements stated that “active participation in any pending litigation” would not constitute waiver, so long as arbitration was requested within 180 days of service. IBC Bank filed its motion 84 days after being served.
Applying Oklahoma’s four-factor waiver test from Howell’s Well Service, modified by the US Supreme Court’s 2022 ruling in Morgan v. Sundance, every factor either favored IBC Bank or carried diminished weight. Filing motions to dismiss, conducting discovery, defending against injunctive relief - all permitted. The argument that IBC Bank should have sought a stay: “one cannot actively participate in litigation that is stayed,” the court wrote.
The court also rejected the claim that the Merit Entities were fraudulently induced to agree to the arbitration clause, finding the challenge targeted the loan agreements as a whole. Under the separability principle, that question goes to the arbitrator. All nine justices concurred.
For lenders drafting arbitration clauses, a well-written anti-waiver provision can preserve the right to compel arbitration after extensive litigation - but flagging that right from the very first filing is what made the difference here.
