I N THE SUPREME COURT O F THE S T A T E O F MONTANA
FRANCES J E A N VUKASIN ,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
D. A. DAVIDSON & C O . , a Montana Corp.,
and OSWALD AASERUD,
D e f e n d a n t s and A p p e l l a n t s .
A P P E A L FROM: ~ i s t r i c t o u r t of t h e E i g h t h ~ u d i c i a l i s t r i c t ,
C ~
I n and f o r t h e C o u n t y of C a s c a d e ,
T h e H o n o r a b l e T h o m a s M c ~ i t t r i c k , Judge p r e s i d i n g .
COrJNSEL O F RECORD:
For A p p e l l a n t :
K e i t h S t r o n g ; D o r s e y & ~ h i t n e y ,G r e a t F a l l s , M o n t a n a
J o h n G . C r i s t ; D o r s e y & W h i t n e y , ~ i l l i n g s ,M o n t a n a
( D . A. D a v i d s o n , I n c . )
P a u l R . H a f f e m a n ; C u r e , B o r e r & ~ a v i s ,G r e a t F a l l s ,
Montana (Aaserud)
For Respondent :
M i c h a e l J. B e s t ; B e s t Law offices, G r e a t Falls, M o n t a n a
S u b m i t t e d on B r i e f s : Dec. 1, 1 9 8 9
Decided: January 1 8 , 1 9 9 0
c)
Filed :
- 7
Clerk
Justice Fred J. Weber delivered the Opinion of the Court.
This is an appeal from an order by the District Court,
Eighth Judicial District, Cascade County, Montana, denying a
motion to stay proceedings in District Court. We reverse.
The controlling issue is the enforceability of an arbi-
tration clause between D.A. Davidson and its employee.
Ms. Vukasin began working for D.A. Davidson (Davidson)
on August 21, 1979. In 1985 Davidson began implementing
annual performance reviews which were completed in May of
each year. Ms. Vukasin signed these performance reviews in
May of 1985, 1986, and 1987. In the years 1986 and 1987, Ms.
Vukasin also received a bonus in May. In 1986 she received
this bonus on May 1, 1986, and the performance review was
signed on May 20, 1986. Both the 1986 and 1987 performance
reviews contained a statement directly above the employee
signature line, which provided:
EMPLOYMENT WITH D.A. DAVIDSON & CO. IS
SUBJECT TO ARBITRATION. Read carefully:
I acknowledge that items contained in
this Performance Review were reviewed
with me this date. I further acknowledge
that I may terminate my employment with
D.A. Davidson & Co. (the "Company") at
any time for whatever reasons just as the
Company may terminate my employment at
any time for whatever reasons. I also
acknowledge and agree that any contro-
versy between myself and the Company
arising out of my employment or the
termination of my employment with the
Company for any reason whatsoever shall
be determined by arbitration in accor-
dance with the rules and procedures of
the Arbitration Committee of the National
Association of Securities Dealers, Inc.,
or the American Arbitration Association
as I may elect or in the absence of any
election by me within five (5) business
days of the date of a written request by
the Company to make such election, as the
Company elects.
On December 12, 1988, Ms. Vukasin filed a complaint in
District Court against Davidson, alleging that an employee of
Davidson, Mr. Oswald Aaserud, assaulted her on April 30,
1988. She alleged that Mr. Aaserud requested that her son, a
former Davidson employee, meet him on Saturday, April 30, at
the Davidson offices. She accompanied her son to this meet-
ing. Upon entering the room, she alleged that Mr. Aaserud
stated, "I don't deal with mothers," then grabbed her by her
upper arms and shook her. In her complaint Ms. Vukasin
alleged assault and battery by Aaserud, and that he was
acting within the course and scope of his employment at the
time of the incident, thereby rendering Davidsan liable for
damages. She also alleged that Davidson was negligent in
hiring or retaining Aaserud as an employee. Ms. Vukasin
asserted damages in the form of mental and emotional dis-
tress, pain and s.uffering, loss of capacity to pursue her
established course of life, loss of wages, benefits, future
earning capacity, and past and present medical and therapy
expenses. Mr. Aaserud was also named as a defendant in the
suit.
On January 16 and 17, 1989, defendants filed motions to
dismiss for lack of jurisdiction or in the alternative, to
stay the proceedings in the District Court and to compel Ms.
Vukasin to submit this action to arbitration. After consid-
eration of briefs, affidavits, and documentary evidence, and
after a hearing, the District Court denied the motions,
refusing to enforce the arbitration agreement. This appeal
by defendants followed.
The Uniform Arbitration Act, S 9 U.S.C. 1 et seq. qov-
erns the present dispute. Section 2 of that Act states:
A written provision in ... a contract
evidencing a transaction involving com-
merce to settle by arbitration a contro-
versy thereafter arising out of such
contract or transaction. .. shall be
valid, irrevocable and enforceable, save
upon such grounds as exist at law or in
equity for the revocation of any
contract.
This section was discussed in Southland Corp. v. Keatinq
(1984), 465 U.S. 1, 10, 104 S.Ct. 852, 850, 79 L.Ed.2d 1, 12,
as follows:
In enacting 5 2 of the federal Act,
Congress declared a national policy
favoring arbitration and withdrew the
power of the states to require a judicial
forum for the resolution of claims which
the contracting parties agreed to resolve
by arbitration.
Congress has thus mandated the enforce-
ment of arbitration agreements.
This Act was recently discussed by the Ninth Circuit in
Cohen v. Wedbush, Noble, Cooke, Inc. (9th ~ i r . 1988), 841
F.2d 282, as follows:
The Arbitration Act thus "reverse[sl
cent,uries of judicial hostility to arbi-
tration agreements," Scherk v.
Alberto-Culver Co., 417 U.S. 506, 510, 9
- 4
S.Ct. 2449, 2453, 41 L.Ed.2d 270 (1974),
placing such agreements "'upon the same
footing as other contracts,"' id. at 511,
94 S.Ct. at 2453 (quoting H.R.R~~. No.
96, 68th Cong., 1st Sess. 1,2 (1924)),
and requiring the courts to "rigorously
enforce" them. Dean Witter Reynolds,
Inc. - Byrd, 4 7 0 . S . 213, 221, 105
v.
S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985).
The Act creates "a body of federal
substantive law of arbitrability," en-
forceable in both state and federal
courts and preempting any state laws or
policies to the contrary. Moses - -H. Cone
- - v. Mercury Const. Corp., 460
Mem. Hosp.
U.S. 1, : 4
2 103 S.Ct. 927, 941, 74
L.Ed.2d 765 (1983); see Southland Corp.
- Keating, 465 U.S. 1, 10-12, 16, 104
v.
S.Ct. 852, 858-59, 861, 79 L.Ed.2d 1
(1984) . The availability and validity of
defenses against arbitration are there-
fore to be governed by application of
federal standards. See Bavma v. Smith
- A -
Barney, Harris Upham & Co., 784 F.2d
1023, 1024, (9th Cir. 1)
9.
26
Cohen, 841 F.2d at 285.
Davidson contends that Ms. Vukasin must submit her
dispute to arbitration, pursuant to the agreement which she
signed, and is precluded from bringing suit in district
court. Ms. Vukasin however, contends that she did not "know-
ingly" agree to arbitrate, and that there was no considera-
tion for her agreement to arbitrate. She contends that the
District Court has jurisdiction to determine the validity of
the arbitration clause, which she claims is invalid.
Davidson contends that the performance review was a valid
employment agreement for which there was consideration, and
that the arbitration clause cannot be severed from the entire
agreement.
The District Court considered affidavits by Ms. Vukasin
and two other Davidson employees. By affidavit Ms. Vukasin
states that she was told she received her bonus for the year
1986 because the company had a good year. She also states:
4. At no time was I told that I was
being given this money in exchange for
signing an arbitration agreement. I was
told that by signing the evaluation sheet
that I was in agreement with the way I
was evaluated as to the percentages and
that no one got the top percentile.
The affidavits by the other two employees state that they
were told they received the bonuses because Davidson had a
good year, and that they were never told that they were
signing the arbitration agreement in return for money.
Stuart Nicholson, a Davidson officer, states by affidavit
that the arbitration agreement was discussed, that signing it
was optional, but that those employees who signed received a
bonus.
The District Court determined that the acknowledgment
paragraph containing the arbitration clause was "not part of
a document purporting to be an employment contract . . ." It
also rejected as not persuasive the affidavit by Stuart
Nicholson. The court found that it had jurisdiction to
determine the validity of the arbitration agreement and that
it was invalid in its making because the agreement was not
bargained for and Ms. Vukasin did not knowingly enter it.
The document signed by Ms. Vukasin, entitled "Perfor-
mance Review Form," evaluated her performance as an employee
of Davidson for the period of May 31, 1986 to May 31, 1987.
It detailed specific performance ratings in six areas of
performance, and gave an overall performance rating, with
opportunity for suggested improvements in employee perfor-
mance. The document specified Ms. Vukasin's current salary
with a recommended salary increase directly related to her
overall performance rating. Next to the salary statement is
written "Bonus $ 349.99." The above-mentioned acknowledge-
ment containing the arbitration clause is then signed by both
Ms. Vukasin and her manager. The performance review spells
out a binding performance rating and a recommended salary
increase. It contains Ms. Vukasin's acknowledgement that she
has reviewed these items, and her acknowledgement that either
she or her employer may terminate employment at any time for
whatever reasons. This document is clearly a binding agree-
ment with regard to employment between Ms. Vukasin and her
employer. The arbitration clause is only a part of the
agreement with regard to her employment.
Having established that the arbitration clause was a
part of Ms. Vukasin's employment agreement, we now turn to
the issue of its enforceability. In the recent case of
Larsen v. Opie (Mont. 1989), 771 P.2d 977, 46 St.Rep. 660, we
discussed the enforceability of an arbitration clause in an
analogous context. In Larsen, an investor sued Piper,
Jaffray & Hopwood, and their broker for misrepresentation and
fraud in the inducement of signing option agreements and
margin contracts, which contained arbitration agreements.
Larsen contended that these option agreements and margin
contracts were void in their inception in that they were
fraudulently induced. He contended that if the agreements
were void, the arbitration clause could not be binding.
Larsen also contended that the arbitration clauses were not
binding since defendants did not specifically discuss these
clauses with him, and because they were not bargained for
agreements.
In analyzing the issue of whether the district court had
jurisdiction to determine the validity of the contracts, and
the arbitration clauses, this Court stated:
Section 4 of the [Uniform Arbitra-
tion] Act provides one of the few times
when a contract containing an arbitration
clause can be addressed by a court:
"A party aggrieved by the alleged fail-
ure; neglect, or refusal of another to
arbitrate under a written agreement for
arbitration may petition any United
States district court .... The court
shall hear the parties, and upon being
satisfied that the making of the agree-
ment for arbitration or the failure to
comply therewith is not in issue, the
court shall make an order directing the
parties to proceed to arbitration in
accordance with the terms of the agree-
ment ... - - making - - arbitra-
If the of the
tion agreement - - failure, neglect,
or the
- refusal to perform - - - be in
or the same
issue, - - -
the court shall proceed summarily
- - trial thereof
to the ." [Emphasis in
original. 1
The United States Supreme Court has
discussed the issue of who is to deter-
mine issues involving arbitration and the
Arbitration Act in Prima Paint Corp. v.
Flood & Conklin Mfg. Co. (1967), 388 u S
. .
395, 8 7 S.Ct. 1801,18.~d.2d 1270. The
Supreme Court looked to the Arbitration
Act for guidance, recalling that section
4 allows for judicial intervention in
cases where the validity of the arbitra-
tion clause is at issue.
"Under section 4, ... the federal court
is instructed to order arbitration to
proceed once it is satisfied that 'the
making of the agreement for arbitration
or the failure to comply [with the arbi-
tration agreement] is not in issue.'
Accordingly, if the claim is fraud in the
inducement of the arbitration clause
itself--an issue which goes to the 'mak-
ing' of the agreement to arbitrate--the
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." Prima Paint, 388
U.S. at 403-404, 87 S.Ct. at 1806, 18
L.Ed.2d at 1277.
The issue is the same here. There
is a question of whether the agreements
between Larsen and Piper, Jaffray &
Hopwood are void for fraud in the induce-
ment. Prima Paint has specifically held
that issues which address fraud in the
inducement are issues to be decided in
arbitration. Appellant here does dispute
the validity of the arbitration clause,
but only in connection with the contract
as a whole.
Larsen, 771 P.2d at 979-80.
In the present case, the same analysis applies. The
District Court only has jurisdiction if the issue is the
making of the arbitration portion of the agreement. If the
issue is the validity of the entire agreement, this must be
submitted to the arbitrators. See also Passage v.
Prudential-Bache Securities, Inc. (1986), 223 Mont. 60, 69,
727 P.2d 1298, 1303, cert. denied, 480 U.S. 905 (19871,
("Issues which go to the formation of the contract as a whole
may properly be decided by an arbitrator").
Ms. Vukasin's contentions that there was no considera-
tion for her agreement to arbitrate, and that she was not
told that her bonus was in exchange for her agreement to
arbitrate assumes that the arbitration clause is severable
from the entire agreement. We find no merit to this assump-
tion. "[Wlhere the agreement to arbitrate is integrated into
a larger unitary contract, the consideration for the contract
as a whole covers the arbitration clause as well." W.1,.
Jorden & Co., Inc. v. Blythe Industries, Inc. (1988), 702
F.Supp. 282, 284. Accord Sarnoff v. American Home Products
Corp. (7th Cir. 1986), 798 F.2d 1075 (court rejected argument
that a choice of law provision which was part of a larger
contract was not enforceable because it was not separately
bargained for, stating that this argument erroneously "as-
sumes that every provision in a contract must have a sepa-
rately bargained for and stated consideration"); Kroblin
Refrigerated Xpress, Inc. v. Pitterich (3rd Cir. 1986), 805
F.2d 96, 108-09 (consideration for entire sales agreement
acted as consideration for non-competition agreement which
was integral part of sales agreement). We conclude that the
validity of the arbitration clause is not severable from the
validity of other parts of the employment agreement. Since
the District Court has no jurisdiction to determine the
validity of the entire agreement, any such issues must be
submitted to arbitrators.
Ms. Vukasin also contends that the allegation of assault
is outside the scope of the arbitration clause since this is
not an area one would expect to be encompassed by an arbitra-
tion agreement. However, the clause which Ms. Vukasin signed
requires her to arbitrate:
any controversy between myself and the
Company arising out of my employment or
the termination of my employment with the
Company for any reason whatsoever.
Courts have held similar broad arbitration provisions to
encompass tort claims. In Zolezzi v. Dean Witter Reynolds,
Inc., (9th Cir. 1986), 789 F.2d 1447, 1449-50, the court held
that Zolezzi had agreed to arbitrate intentional tort claims
of defamation and invasion of privacy which involved events
occurring one year after he quit working for Dean Witter when
he had agreed to arbitrate "any controversy . . . arising out
of the employment or termination of employment" he had with
Dean Witter. In Aspero v. Shearson American Express, Inc.
(6th Cir. 1985), 768 F.2d 106, 109, cert. denied, 474 U.S.
1026 (1985), the court held that an ex-employee's claims of
defamation, invasion of privacy, and intentional infliction
of emotional distress against Shearson were within the scope
of a clause requiring the arbitration of "any controversy
. . . arising out of the employment or termination of employ-
ment. " In McGinnis v. E .F. Hutton and Co. , Inc. (6th Cir.
1987), 812 F.2d 1011, the court held that allegations of
outrageous conduct, breach of contract, and retaliatory
discharge were arbitrable where clause required arbitration
of "any controversy ... arising out of the employment or
termination of employment."
In Moses H. Cone Hospital v. Mercury Const. Corp.
(1982), 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d
765, 785, the United States Supreme Court emphasized that
"questions of arbitrability must be addressed with a healthy
regard for the federal policy favoring arbitration," further
stating:
Section 2 is a congressional declaration
of a liberal federal policy favoring
arbitration agreements, notwithstanding
any state substantive or procedural
policies to the contrary. The effect of
the section is to create a body of feder-
al substantive law of arbitrability,
applicable to any arbitration agreement
within the coverage of the Act.
The Arbitration Act establishes that, as
a matter of federal law, any doubts
concerning the scope of arbitrable issues
should be resolved in favor of arbitra-
tion, whether the problem at hand is the
construction of the contract language
itself or an allegation of waiver, delay,
or a like defense to arbitrability.
In the present case, the incident occurred on Davidson's
premises, involved a Davidson employee, and culminated in Ms.
Vukasin terminating her employment with Davidson. The
present dispute arises out of the termination of her employ-
ment. We conclude that the present controversy is clearly
subject to the arbitration agreement. We reverse the order
by the District Court and direct the court to grant
defendants ' motions to stay the proceedings pending
arbitration.
We Concur:
A. T P
- -
Chief Justice
.
Justices
fby