IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
PAUL CASAROTTO and PAMELA CASAROTTO,
Plaintiffs and Appellants,
and
DANIEL L. and DEB HUDSON, and D&D SUBWAY CORPORATION,
Defendants.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable John M McCarvel , ~ u d presiding.
: ~ e
COUNSEL OF RECORD:
For Appellant:
Grant D . Parker (argued) and Philip D. Tawney,
Mullendore, Tawney & Watt, Missoula, Montana
For Respondent:
Alan G . Schwartz (argued) and Ian E. Bjorkman,
Wiggin & Dana, New Haven, Connecticut
L. D. Nybo, Conklin, Nybo, Leveque & Murphy,
Great Falls, Montana
For Amici Curiae:
Lawrence Anderson, Attorney at Law, Great Falls,
Montana (Montana Trial Lawyers Association)
Michael A. Bowen and Michael G. McCarty,
Foley & Lardner, Milwaukee, Wisconsin
(International Franchise Association; Securities
Industry Association; Snap-On Tools Corporation)
Submitted: August 22, 1995
Decided: August 31, 1995
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Plaintiffs Paul and Pamela Casarotto filed this suit in the
District Court for the Eighth Judicial District in Cascade County
to recover damages which they claim were caused by the defendants'
breach of contract and tortious conduct. Defendants Nick Lombardi
and Doctor's Associates, Inc., (DAI) moved the District Court for
an order dismissing plaintiffs' complaint, or in the alternative,
staying further judicial proceedings pending arbitration of
plaintiffs' claims pursuant to a provision in DAI's franchise
agreement with plaintiffs which required that disputes "arising out
of or relating to" that contract be settled by arbitration. The
District Court granted defendants' motion, and ordered that further
judicial proceedings be stayed until arbitration proceedings were
completed in accordance with the terms of the parties' agreement.
Plaintiffs appealed from that order, and on December 15, 1994, we
reversed the order of the District Court and remanded this case to
that court for further proceedings. ,
Casarotto v. Lombardi (1994) 268
Mont. 369, 886 P.2d 931. Following this Court's decision, the
defendants petitioned the Supreme Court of the United States for a
writ of certiorari. That petition was granted, and on June 12,
1995, the United States Supreme Court ordered that the December 15,
1994, judgment of this Court be vacated, and remanded this case to
the Supreme Court of Montana for further consideration in light of
that Court ' s decision in Allied-Bruce Terminix Cos. v. Dobson (1995), 513 U.S .
-, 115 S. Ct. 834, 130 L. Ed. 2d 753. Having further considered
our prior decision in light of Dobson, we now reaffirm and reinstate
our prior opinion.
FACTUAL BACKGROUND
Paul and Pamela Casarotto entered into a franchise agreement
with DAI which allowed them to open a Subway Sandwich Shop in Great
Falls, Montana. DAI's franchise agreement included on page nine a
provision which required that controversies or claims related to
the contract shall be settled by arbitration in Bridgeport,
Connecticut. However, the franchise agreement did not include
notice on the front page to the effect that the contract was
subject to arbitration, as required by § 27-5-114(4), MCA.
The Casarottos filed this action in the District Court based
on their allegations that DAI breached its agreement with them,
defrauded them, and engaged in other tortious conduct, all of which
resulted in loss of business and the resulting damage.
DAI moved to dismiss the Casarottos' claim or to stay further
judicial proceedings pending arbitration pursuant to the
arbitration provision in its franchise agreement. The District
Court granted DAI's motion to stay further judicial proceedings
pursuant to 9 U.S.C. 5 3, which is part of the Federal Arbitration
Act found at 9 U.S.C. § § 1-15 (1988).
On appeal from the District Court's order, we considered
whether Montana's notice requirement was preempted by the Federal
Arbitration Act in light of the U.S. Supreme Court's recent
decision in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
University (1989), 489 U.S. 468, 109 S . Ct. 1248, 103 L. Ed. 2d 488.
In that case, the Supreme Court stated that:
The FAA contains no express pre-emptive provision,
nor does it reflect a congressional intent to occupy the
entire field of arbitration. But even when Congress has
not completely displaced state regulation in an area,
state law may nonetheless be pre-empted to the extent
that it actually conflicts with federal law--that is, to
the extent that it "stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress." Hines v. Davidowilz, 312 U.S. 52,
67, 61 S.Ct. 399, 404, 85 L.Ed.2d 581 (1941). The
question before us, therefore, is whether application of
Cal.Civ.Proc. Code Ann. § 1281.2 (c) to stav arbitration
under this contract in interstate commerce, in accordance
with the terms of the arbitration aqreement itself, would
undermine the qoals and policies of the FAA. We conclude
that it would not.
Volt, 489 U.S. at 477-78, 109 S. Ct. at 1255 (citation omitted;
emphasis added) .
Based on the cited language from Volt, we concluded that the
nature of our inquiry was whether Montana's notice requirement
found at 5 27-5-114(4), MCA, would "undermine the goals and
policies of the FAA." We concluded that it does not. Casarotto, 886
P.2d at 931. We explained our conclusion as follows:
Our conclusion that Montana's notice requirement
does not undermine the policies of the FAA is based on
the Supreme Court's conclusion that it was never
Congress's intent when it enacted the FAA to preempt the
entire field of arbitration, and its further conclusion
that the FAA does not require parties to arbitrate when
they have not agreed to do so. That Court held that the
purpose of the FAA is simply to enforce arbitration
agreements into which parties had entered, and
acknowledged that the interpretation of contracts is
ordinarily a question of state law. Volt, 489 U.S. at
474, 109 S.Ct. at 1253.
Presumably, therefore, the Supreme Court would not
find it a threat to the policies of the Federal
Arbitration Act for a state to require that before
arbitration agreements are enforceable, they be entered
knowingly. To hold otherwise would be to infer that
arbitration is so onerous as a means of dispute
resolution that it can only be foisted upon the
uninformed. That would be inconsistent with the
conclusion that the parties to the contract are free to
decide how their disputes should be resolved.
Montana's notice requirement does not preclude
parties from knowingly entering into arbitration
agreements, nor do our courts decline to enforce
arbitration agreements which are entered into knowingly.
Therefore, we conclude that Montana's notice statute
found at 5 27-5-114(4), MCA, would not undermine the
goals and policies of the FAA, and is not preempted by
9 U.S.C. § 2 (1988).
Casarotto, 886 P.2d at 938-39.
On January 18, 1995, subsequent to our decision in this case,
the U.S. Supreme Court decided Dobson. On June 12, 1995, the same
Court vacated our prior Casarotto decision and remanded the matter to
this Court for further consideration in light of the Dobson
decision.
In Dobson, the plaintiffs were the assignees of a contract with
Terminix for life-time protection against termites. They sued
Terminix in Alabama state court when they found their house
"swarming with termites." Terminix moved the court for a stay
pursuant to 5 2 of the Federal Arbitration Act (9 U.S.C. 5 2
(1988)) so that arbitration could proceed pursuant to a provision
for arbitration in the termite protection plan. The stay was
denied. The Supreme Court of Alabama upheld the denial on the
basis of Ala. Code § 8-1-41(3) (l993), which made written,
predispute arbitration agreements invalid and unenforceable. The
Alabama court concluded that its state statute was not preempted by
the Federal Arbitration Act because the connection between the
termite contract and interstate commerce was too slight.
In the court's view, the Act applies to a contract only
if "'at the time [the parties entered into the contract]
and accepted the arbitration clause, they contemplated
substantial interstate activity.'" Despite some
interstate activities (e.g., Allied-Bruce, like Terminix,
is a multistate firm and shipped treatment and repair
material from out of state), the court found that the
parties "contemplated" a transaction that was primarily
local and not "'substantially"interstate.
Dobson, 115 S . Ct. at 837 (citations omitted) .
Before addressing the issue presented, the Dobson majority
reiterated its conclusion that the purpose of the Federal
Arbitration Act was to "overcome judicial hostility to arbitration
agreements and that applies in both federal and state courts."
Dobson, 115 S . Ct. at 835. The Court then went on to conclude that
the language in 5 2 of the Act which applied its provisions to any
"contract evidencing a transaction involving commerce" had broader
significance than the words of art "in commerce," and therefore,
covered more than persons or activities "within the flow" of
interstate commerce. Dobson, 115 S. Ct. at 839. The Court held
that the word "involving," like "affecting," signaled an intent on
the part of Congress "to exercise Congress's commerce power to the
full," Dobson, 115 S. Ct. at 841, and secondly that the Act's
preemptive force applies to transactions which, in fact, involve
interstate commerce, even though a connection to interstate
commerce may not have been contemplated by the parties at the time
they entered into the agreement. For these reasons, the judgment
of the Supreme Court of Alabama was reversed. Dobson, 115 S . Ct. at
843.
After careful review, we can find nothing in the Dobson
decision which relates to the issues presented to this Court in
this case. Our prior Casarotto decision did not involve state law
which made arbitration agreements invalid and unenforceable. Our
state law simply requires that the parties be adequately informed
of what they are doing before they enter into an arbitration
agreement. Our decision did not involve an analysis of what was
meant by "involving commercew or "affecting commerceu or "in
commerce." We assumed, in the Casarotto decision, that the
transaction with which we were concerned involved interstate
commerce, and that any state law which frustrated the purposes of
the Federal Arbitration Act would be preempted.
Finally, there is no suggestion in the Dobson decision that the
principles from Volt on which we relied have been modified in any
way. To our knowledge, it is still the law, therefore, that state
law is only preempted to the extent that it "stands as an obstacle
to the accomplishment and execution of the full purposes and
objectives of Congress." Volt, 489 U.S. at 477, 109 S. Ct. at 1255
(citing Hinesv. Davidowitz (1941), 312 U.S. 52, 67, 61 S. Ct. 399, 404,
85 L. Ed. 2d 581).
While the Dobson decision does include a discussion extolling
the virtues of arbitration as a "less expensive alternative to
litigation," Dobson, 115 S. Ct. at 843 (apparently based on input
from the American Arbitration Association), and while that
conclusion is at odds with facts set forth in Justice Trieweiler's
concurring opinion to our earlier decision, the concurring opinion
was not the basis for our decision.
For these reasons, we conclude, after thorough review of our
earlier decision in light of the U.S. Supreme Court's decision in
Dobson, that the decisions are not inconsistent, and therefore, that
there is no basis for modifying or reversing our earlier opinion.
We reaffirm and reinstate our opinion dated December 15, 1994, in
the above matter, and remand this case to the District Court for
further proceedings consistent with this opinion.
We concur:
Chief Justice
Justice W. William Leaphart, specially concurring.
Justice John C. Harrison was in the majority in this Court's
initial decision in Casarotto v. Lombardi (1994), 268 Mont. 369,
886 P.2d 931. Justice Harrison has since retired. As the
successor to Justice Harrison, it is incumbent on me to review that
decision in light of the remand from the United States Supreme
Court. Having reviewed the Casarotto decision, I specially concur
with the Court's conclusion that Montana's notice requirement in §
27-5-114(4),MCA, does not undermine the goals and policies of the
FAA and is not preempted by 9 U.S.C. § 2 (1988). I have also
reviewed the United States Supreme Court's decision in Allied-Bruce
Terminix Cos. v. Dobson (1995), 115 S.Ct. 834, 130 L.Ed.2d 753, and
I see no reason why the principles enunciated in that decision
should have any effect upon this Court's decision in Casarotto.
In Dobson, the United'States Supreme Court held that the FAA
preempts anti-arbitration state statutes which invalidate
arbitration agreements. Section 27-5-114(4), MCA, cannot be
characterized as anti-arbitration nor does it invalidate
arbitration agreements. On the contrary, it is one section of
Montana's Uniform Arbitration Act which specifically recognizes
arbitration agreements: "A written agreement to submit an existing
controversy to arbitration is valid and enforceable except upon
such grounds as exist at law or in equity for the revocation of a
contract. Section 27-5-114(1), MCA. The notice requirement of
subsection (4) merely protects the consumer by requiring that
notice of an arbitration provision be conspicuously placed on the
front page of the contract. This does not undermine the pro-
arbitration policy of the FAA. Rather, it furthers the policy of
meaningful and consensual arbitration by helping ensure that the
consumer who signs what is most often a nonnegotiated, form
contract, knowingly agrees to arbitration in the event of a
dispute. I see no inconsistency between Dobson and our decision in
Casarotto and I specially concur in the Court's decision to
reaffirm and reinstate its December 15, 1994 opinion.
Justice Karla M. Gray, dissenting.
I dissent from the Court's opinion and order and its
reinstatement of its prior opinion in this case. My dissent is
based on the procedures used by the Court in addressing the United
States Supreme Court's vacating of our earlier opinion and
remanding for our reconsideration based on its decision in Allied-
Bruce Terminix Cos. v. Dobson ( 1 9 9 5 ) , 115 S.Ct. 834, 130 L.Ed.2d
753. 1 also dissent from the Court's conclusion that nothing in
the Dobson case relates to the issues presented to this Court. In
dissenting, I also reaffirm and reinstate my earlier dissent in
this case.
A remand for reconsideration to this Court from the United
States Supreme Court is an uncommon occurrence for which we have no
procedural rules or practices in place. Counsel for the parties
were left without guidance as to how they should proceed in order
to be heard during this phase of the case. Counsel for the
defendants/respondents requested the opportunity to brief the
issues raised by the United States Supreme Court's remand and to
present oral argument. Without so much as a mention of this
request, the Court apparently denies it. While one can only
speculate on the reasons for such an implicit decision, one must
assume that the Court is simply unwilling to consider any analysis
that would require a change in the result it remains determined to
reach, I cannot join in such an arrogant and cavalier approach to
this important case on remand from the United States Supreme Court.
More importantly, I disagree with the Court's conclusion that
nothing in Dobson relates to the issues before us. While I agree
that the substantive issue addressed at length in Dobson is not
before us here, I read more importance into the early language in
Dobson than does the Court. In Dobson, the United States Supreme
Court reiterates the fundamental premise of the Federal Arbitration
Act by citing to Volt, the very case which this Court erroneously
interprets and on which it premises its erroneous decision, for the
proposition that "the basic purpose of the Federal Arbitration Act
is to overcome courts1 refusals to enforce agreements to
arbitrate.l1 Dobson, 115 .
S .Ct at 838; citing Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ.
(1989), 489 U.S. 468, 474. The Supreme Court goes on to say that
" C l othing significant has changed in the 10 years subsequent to
n
Southland; no later cases have eroded Southland's authority [ . I "
Dobson, 115 S.Ct. at 839. It is this latter statement on which I
believe we must focus in reconsidering our decision here. The
Court refuses to do so.
I continue to believe that this Court erroneously interprets
Volt, which was decided by the Supreme Court five years after
Southland. Volt is clearly distinguishable on its facts from the
case before this Court and cannot properly serve as a basis for the
result the Court reaches. Volt is neither inconsistent with, nor
a retrenchment from, Southland, as this Court suggested in its
earlier opinion and suggests again today. This is the message I
take from the Supreme Court's statement in Dobson that "no later
cases have eroded Southland's authority;" this is the portion of
this Court's earlier opinion to which I believe the Supreme Court
was directing our attention on remand.
For the reasons stated in my earlier dissent, it is my view
that application of Montana's notice statute is preempted by the
Federal Arbitration Act in this case because application of that
statute undercuts, undermines and renders unenforceable the
parties' agreement to arbitrate. This view is entirely consistent
both with Southland and with a proper interpretation of m.
Therefore, I dissent from the Court's opinion and order and
reinstate my prior dissent in this case.
Chief Justice J.A. Turnage and Justice Fred J. Weber join in the
foregoing dissent of Justice Karla M. Gray.
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