August 20 2008
DA 07-0169
IN THE SUPREME COURT OF THE STATE OF MONTANA
2008 MT 300
PERRY POLZIN d/b/a MP LIVESTOCK TRUST,
Plaintiff and Appellee,
v.
APPLEWAY EQUIPMENT LEASING, INC.,
Defendant and Appellant.
APPEAL FROM: District Court of the Tenth Judicial District,
In and For the County of Judith Basin, Cause No. DV 05-09
Honorable E. Wayne Phillips, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Ward E. Taleff; Taleff Law Office, Great Falls, Montana
For Appellee:
Mark E. Westveer, Heather Perry; Hubble, Ridgeway, Unmack &
Westveer, Stanford, Montana
Submitted on Briefs: January 4, 2008
Decided: August 20, 2008
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 Appellant Appleway Equipment Leasing, Inc. (Appleway), appeals from the order
of the Tenth Judicial District Court, Judith Basin County, denying its motion to dismiss
on the basis of improper venue. We reverse.
¶2 We restate the issue on appeal as follows:
¶3 Did the District Court err by invalidating the forum selection clause of the parties’
agreement?
FACTUAL AND PROCEDURAL BACKGROUND
¶4 Appellee Perry Polzin (Polzin), a Montana resident, owns and operates the
trucking business MP Livestock Trust, located in Stanford, Judith Basin County,
Montana. Polzin often enters into lease-purchase agreements to obtain trucks for use in
his business. Appleway is a commercial class-eight truck and trailer financing and
leasing company with its principal place of business in Spokane, Washington. In
addition to class-eight truck and trailer leasing, Appleway also sells its own repossessed
trucks and trailers. When leasing equipment, Appleway uses a standard contract that
contains two parts: an agreement to purchase and a lease agreement. This allows the
buyer to purchase the equipment by making monthly lease payments in accordance with a
payment schedule contained in the lease agreement. The lease agreement contains a
forum selection and choice of law clause numbered “Section 4.24.” This section
provides:
Section 4.24 Venue and Governing Law. This Lease is made in
accordance with and shall be interpreted and governed by the laws of the
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State of Washington. If any Legal Action or other proceeding shall be
brought on or in connection with the Equipment or this Lease, the venue of
such Legal Action shall, at the option of the Lessor, be in any State and
County where any of the Equipment is then located, or in Spokane County,
Washington.
Over the past ten to fifteen years, Polzin has contracted with Appleway approximately
five times to lease trucks. The same standard contract containing Section 4.24 was used
each time.
¶5 In early 2005, Barry Kottke (Kottke), a territory salesperson for Appleway,
contacted Polzin and informed him of an available truck for sale. After discussing the
truck over the phone, Polzin and a friend traveled to Spokane to inspect the truck. The
asking price was $43,000 and Kottke informed Polzin that the truck had a new engine and
new tires. The new engine had a warranty passed on from a California company called
Chapa Diesel Repair (Chapa). As indicated on the purchase agreement, Polzin offered
$38,000. Because Polzin’s offer was lower than the asking price, Kottke went to the
manager for approval. On the day of the negotiation, the normal office manager, Mike
Klotz, was unavailable and instead the President of Appleway, Bradley T. Pring (Pring),
looked over the purchase agreement.
¶6 The purchase agreement has two handwritten notes both initialed by Pring with
“BTP.” The first handwritten note states: “[$]42,500, due to engine overhaul – BTP w/
warranty[.]” The second handwritten note states: “[$]41,500 BTP Best I can do[.]” The
second note is circled and the amount $41,500 is repeated at the bottom of the agreement,
which is dated February 14, 2005, and is signed by both Polzin and Kottke. In
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conjunction with the purchase agreement, and in order to finance the $41,500 purchase
price, Polzin signed an equipment lease. The lease contains a payment schedule and is
also dated February 14, 2005, but is signed by both Polzin and Pring. Polzin
subsequently drove the truck back to Montana and began sending lease payments to
Appleway in Spokane.
¶7 On June 22, 2005, the truck broke down outside of Glendive, Montana. Polzin
had the truck towed to North Dakota, where it was repaired. Polzin contacted Appleway
seeking repayment of the repair costs under the warranty. Appleway refused to pay any
costs associated with the repair, claiming that Polzin was informed at the time of sale that
the warranty was passed on from Chapa, located in Strathmore, California, and that
Polzin would have to contact Chapa regarding enforcement of the warranty. In October,
2005, Polzin filed a complaint in Judith Basin County, Montana, alleging breach of
contract because Appleway had “failed to perform under an express warranty which was
the basis of the bargain for the Agreement to Purchase contract . . . .” Appleway filed a
motion to dismiss for improper venue on January 20, 2006, arguing that, pursuant to
Section 4.24 of the equipment lease, the contract is governed by the laws of the State of
Washington and that “the venue of any legal action shall, at Appleway’s option, be in any
State and County where the equipment is located or in Spokane County, Washington.”
The District Court converted the motion to dismiss into a motion for summary judgment
and conducted a hearing.
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¶8 After the hearing, the District Court denied the motion to dismiss for improper
venue. In reliance on our decision in Keystone v. Triad Systems Corporation, 1998 MT
326, 292 Mont. 229, 971 P.2d 1240, the District Court concluded that forum selection
clauses are against Montana public policy, stating: “choice of forum clauses are void as
unconstitutional.” Pursuant to the Restatement (Second) of Conflict of Laws, § 187(2)(b)
(1971) (the Restatement), the District Court analyzed whether Montana had a “materially
greater interest” in the dispute than Washington – the State chosen by the parties. The
Court admitted that it was “unclear” whether it should undertake a “materially greater
interest” analysis or evaluate the clause on the basis of public policy. Applying the
Restatement § 188(2) factors, the District Court concluded that Montana had a materially
greater interest in the dispute. The court also determined that the choice of law clause
was invalid pursuant to public policy. Because the District Court determined that
(1) forum selection clauses violate Montana public policy and (2) Montana held a
materially greater interest in the dispute than Washington State, the District Court
concluded that the choice of law and forum selection clauses of the lease agreement were
void. Appleway appeals.
STANDARD OF REVIEW
¶9 Where a motion to dismiss is converted by the District Court into a motion for
summary judgment, the same standard of review applied to an appeal from a grant or
denial of summary judgment is used. We review a district court’s denial of summary
judgment de novo – applying the same criteria as the District Court pursuant to M. R.
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Civ. P. 56(c). Sherner v. Nat’l Loss Control Servs. Corp., 2005 MT 284, ¶ 23, 329 Mont.
247, ¶ 23, 124 P.3d 150, ¶ 23. Summary judgment is appropriate when there are no
genuine issues of material fact and the moving party is entitled to judgment as a matter of
law. M. R. Civ. P. 56(c); Sherner, ¶ 23.
DISCUSSION
¶10 Did the District Court err by invalidating the forum selection clause of the
parties’ agreement?
¶11 Appleway asserts that the District Court erred when concluding that forum
selection clauses are broadly unconstitutional and asserts that forum selection clauses are
indeed “enforceable in Montana.” Appleway argues that pursuant to § 28-3-102, MCA,
the choice of law clause in Section 4.24 is valid and the District Court erred by failing to
give Section 4.24 any effect.
¶12 Polzin argues that Section 4.24 must be analyzed pursuant to the “most significant
relationship” test adopted by this Court pursuant to the Restatement §§ 6, 188, and 187.
Polzin contends that such an analysis will result in the conclusion that “Montana has the
most significant relationship to the warranty dispute and application of Washington law .
. . would be contrary to the fundamental policy of Montana . . . .” Polzin asserts that
Section 4.24 “was not an effective choice by the parties” because “[n]either party to the
negotiation was familiar with the clause or even understood it.”
¶13 Section 4.24 contains two distinct parts: a choice of law clause and a forum
selection clause. The choice of law clause states: “This Lease is made in accordance with
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and shall be interpreted and governed by the laws of the State of Washington.” The
forum selection clause states:
If any legal Action or other proceeding shall be brought on or in connection
with the Equipment or this Lease, the venue of such Legal Action shall, at
the option of the Lessor, be in any State and County where any of the
Equipment is then located, or in Spokane County, Washington.
Where a contract contains both a choice of law clause and a forum selection clause, we
first determine whether the choice of law clause is valid. Keystone, ¶ 9. Unfortunately,
the District Court missed this threshold question and blurred the issues.
¶14 We recently reaffirmed our reliance on the Restatement §§ 6, 187, and 188 for
determining the validity of choice of law clauses in Modroo v. Nationwide Mutual Fire
Insurance Company, 2008 MT 275, ¶ 50, 53 Mont. __, ¶ 53, __ P.3d __, ¶ 53. We
explained that pursuant to the Restatement we will apply the “law of the state chosen by
the parties to govern their contractual rights” unless
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.
Modroo, ¶ 54 (quoting Restatement § 187(2)(b)). In sum, we refuse to apply the law of
the state chosen by the parties if three factors are met: (1) but for the choice of law
provision, Montana law would apply under § 188 of the Restatement; (2) Montana has a
materially greater interest in the particular issue than the parties chosen state; and (3)
application of the chosen state’s law would contravene a Montana fundamental policy.
Modroo, ¶ 54.
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¶15 Here, the District Court considered only factors two and three. The court began its
analysis with the second factor of the conflicts-of-law analysis and in reliance on the
Restatement § 188(2), determined that Montana had a materially greater interest in the
dispute. The court next concluded that the choice of law provision was void per public
policy. The court explained that because public policy “upholds a Montana citizen’s
right to seek redress in Montana courts . . . [,] choice of forum clauses are void as
unconstitutional.” While this conclusion is, in and of itself, an incorrect conclusion of
law, see Milanovich v. Schnibben, 2007 MT 128, ¶ 11, 337 Mont. 334, ¶ 11, 160 P.3d
562, ¶ 11 (explaining that forum selection clauses “are prima facie valid and should be
enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under
the circumstances” (internal quotation omitted)), we need not explain this error in depth
because the court first erred by failing to apply factor one of the three factor conflicts-of-
law analysis – whether Montana law would apply if Section 4.24 was not in the contract.
¶16 When determining whether Montana law would apply absent the parties choice of
law, we rely, see Modroo, ¶ 55, on the Restatement § 188, which provides:
(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.
In turn, Restatement § 6(1) states that “[a] court, subject to constitutional restrictions, will
follow a statutory directive of its own state on choice of law.” Montana law provides that
a “contract is to be interpreted according to the law and usage of the place where it is to
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be performed or, if it does not indicate a place of performance, according to the law and
usage of the place where it was made.” Section 28-3-102, MCA.
¶17 Appleway contends that performance under the contract is synonymous with
“payment” and therefore, the “place of performance” is Washington – where the lease
payments were sent, citing McGregor v. Svare, 151 Mont. 520, 445 P.2d 571 (1968).
Polzin asserts that the place of performance is Stanford, Montana, because the underlying
dispute is “enforcement of the warranty” and “the subject matter of the warranty, the
Truck, is licensed and insured in Stanford, Montana.” Polzin also points to other facts
such as the Truck’s Montana registration in support of his argument.
¶18 Despite the parties’ arguments, a review of the contract reveals that it does not
indicate a place of performance. Accordingly, pursuant to our statutory directive, when
the contract does not indicate a place of performance, we apply “the law and usage of the
place where it was made.” Section 28-3-102, MCA. Here, the contract was negotiated
and entered into in Spokane, Washington. This means that absent a choice of law
provision in the contract, our statutory directive would require application of Washington
law. Therefore, we answer the first question in the conflicts-of-law analysis in the
negative. In turn, this ends our conflicts-of-law analysis as we conclude that the parties’
choice of law is effective.
¶19 Accordingly, the District Court erred when denying the motion for summary
judgment. Washington law recognizes forum selection clauses as valid, see Voicelink
Data Servs. v. Datapulse, Inc., 937 P.2d 1158, 1162 (Wash. App. 1997), and the contract
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clearly states that venue of any legal action shall be, at the option of the lessor, in any
state and county where the equipment is located or in Spokane County, Washington.
Appleway chose Spokane County as the venue for this legal action and therefore the
Montana venue is improper.
¶20 Next, Polzin reasserts the alternative argument he raised in the District Court that
the agreement is a contract of adhesion and therefore invalid. We concluded in
Milanovich that forum selection clauses are “prima facia valid” and will be enforced
unless the resisting party can show that the clause is unreasonable under the
circumstances. Milanovich, ¶ 11. A forum selection clause is “unreasonable and
unenforceable if the agreement is not ‘deliberately and understandingly made,’ and if the
contractual language does not ‘clearly, unequivocally and unambiguously express a
waiver’ of personal jurisdiction.” Milanovich, ¶ 11 (citing May v. Figgins, 186 Mont.
383, 394, 607 P.2d 1132, 1138-39 (1980)). Evidence that the clause is a contract of
adhesion supports the conclusion that the clause is unreasonable under the circumstances.
See Milanovich, ¶13. This is because adhesion contracts generally occur “when a party
possessing superior bargaining power presents a standardized form of agreement to a
party whose choice remains either to accept or reject the contract without the opportunity
to negotiate its terms.” Zigrang v. U.S. Bancorp Piper Jaffray, Inc., 2005 MT 282, ¶ 14,
329 Mont. 239, ¶ 14, 123 P.3d 237, ¶ 14.
¶21 In those circumstances, we will not enforce a contract clause against the weaker
party if the clause is: “(1) not within the reasonable expectations of said party, or
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(2) within the reasonable expectations of the party, but, when considered in its context, is
unduly oppressive, unconscionable or against public policy.” Iwen v. U.S. West Direct,
1999 MT 63, ¶ 27, 293 Mont. 512, ¶ 27, 977 P.2d 989, ¶ 27 (internal quotation omitted).
“When determining whether a contract is one of adhesion, we focus on the nature of the
contracting process . . . .” Iwen, ¶ 28.
¶22 Polzin argues that he “did not reasonably expect that only Appleway could
determine where an action could be filed.” However, in its order the District Court
referenced several case specific considerations that convince us otherwise. First, Polzin
has been in the trucking business for nearly twenty years and has often entered into lease-
purchase agreements to obtain trucks for use in his business. Over the past fifteen years,
Polzin has contracted with Appleway at least four other times to lease trucks. The same
standard equipment lease containing Section 4.24 was used each time. Accordingly, it
was reasonable for Polzin to expect that Section 4.24 would appear in the current and
fifth lease. Failure to read and understand a clear and unambiguous agreement, absent
mistake, is not a defense to its enforcement. See Schlemmer v. N. Central Life Ins. Co.,
2001 MT 256, ¶ 16, 307 Mont. 203, ¶ 16, 37 P.3d 63, ¶ 16; Morrison v. Higbee, 204
Mont. 515, 520, 668 P.2d 1025, 1027 (1983). Second, as in Milanovich, ¶ 13, the
handwritten notes on the purchase agreement indicate that this contract was negotiated.
The price was set at $43,000 and Polzin offered $38,000. After more negotiating the
parties settled on a sale price of $41,500. This negotiation process mitigates the
possibility that the agreement is an adhesion contract as it demonstrates Polzin’s use of
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legitimate bargaining power. Third, this is not an instance where Polzin had no other
option except to sign the contract.
¶23 Polzin argues that even if he should have reasonably expected the forum selection
clause, the clause is void because “Montana law is clear that forum selection clauses are
void as against public policy.” As previously noted, forum selection clauses are not
presumptively void as against public policy. See Milanovich, ¶ 11. Accordingly this
argument also fails. Polzin offers no evidence that Section 4.24 is unreasonable under the
circumstances here. Consequently, he has not met his burden as the “resisting party.”
Milanovich, ¶ 11.
¶24 In sum, the forum selection clause is valid and Appleway had the option of
changing the venue of the proceeding to either Spokane, Washington, or where the
equipment was located. Therefore, the District Court erred by denying Appleway’s
motion to dismiss for improper venue.
¶25 Reversed.
/S/ JIM RICE
We concur:
/S/ PATRICIA COTTER
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS
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