Opinion · Montana Supreme Court
Kloss v. Edward D. Jones & Co.
310 Mont. 123
- Type
- Opinion
- Court
- Montana Supreme Court
- Jurisdiction
- Montana
- Date
- 2002-06-13
- Topic
- general
“the scope or extent of the fiduciary obligation [] depends on the facts of the case” | Nelson, Cotter, Leaphart & Trieweiler, J.J., specially concurring
Citator
- Cited by
- 32 opinions
No. 00-507
i\: l i i E SI.jPREME CCOliR'r <IF THE STATE OF MON.fhNA
2002 MT 120
ALICE P. KLOSS,
Plarritlff and Xppclldi~t,
EDWARD D. JOXES & CO., a limited partnership,
and PAL'I. FIUSTED,
Defendants and Respondents.
APPEAL. FROM: District Court ofthe Eighth Judicial District,
In and for the County of Cascade,
The Honorable Julie Macek, Judge presiding.
COIJNSEId OF RECORD:
For Appellant:
Joseph C. Engel- 111, P.C.. Attorney at Law. Great Falls, blonta1ia
For Resl?ondcnts:
Robcrt F. James. Llgrin, Alexander, Zadiek & Higgins, Grcat Falls, Montana
For Atrticus (Montana Trial t.awyers :\ssociation):
Paul J. Pelit, Petit and Schultz, PI..LP. Missoula, Montana
Subm~tted Briefs October 11. ZOO1
on
Decided June 13, 2002
Filed:
justice Terry N.'1-ricweiicr dclivercd the Opinion of the C.;oul-t.
!Ti 'The Appellant, Alice P. I<loss7 opcricd fil-iancial services accounts with tile
l>efcndants, Edward D. Jones & Co. and Paul f-lusted, in 1992 and 1998. The agrcenicnt
between Kloss and Jones contained pre-dispute arbitration clauses. f t e r Kloss fileit a
conlplaint in the District Court for the Eighth Judicial District in Cascade County in which
she sought damages caused by llusted's wrol~gful
conduct, Jones filed a Motion to Compel
Arbitration. The District Court granted tile motion and Kloss appealed. Cl'hile the appeal
was pending, Jones located Kloss' 1998 brokerage agreement which was at issue ill the
District Court. This Court remanded this matter to the District Court for supplemental
findings of fact and conclusions of law bascd on the 1998 account agreement. Following ail
evidentiary hearing, the District C:ourt granted Jones' ?vlotiotl to Compel Arbitration. Kloss
now appeals fron~ order compelling arbitration. We reverse the order of the District
the
c:ourt.
72 Of the issues presented on appeal, we find the follow~ing be dispositive:
to
73 1. Did the District Clourt err when it concluded that the arbitration clauses contained
in the 1992 and 1998 Full Service Agreements were enforceable'?
:I4 2. Did the District Court err when it failed to consider whether Defendants owed
Kloss a tiducial-y duty to explain the arbitration agreement?
75
1 3. Did the District Court err when it denied Kloss' motion for attorney's fees and
costs'!
FACIUrli, BAC:KGROI_ND
76 The Appcilanr. Alice P.Kloss, is a 95 year old widow who was rekrred lo i>t.fc~rdant
Paul Hustcd in 1985. klusted llas been employed by Llefendant Edward 11. Jones & Co. in
Great Falls. Montana. as a stockbroker since 1981. Kloss opened a f~ill
service brokerage
with Jones on July 30, 1989, u-ltich permitted her to purchase securities and maintain
acco~lnt
a money market account.
'
1
7
#I Kloss established a living trust account with Jones in April of 1992. Like the 1089
account, the living trust account agreement contained a mandatory arbitration provision
which req~~ired "[alny controversy arising out of or relating to any of my accou~lts
that or
transactions cvith you, your officers, directors, agents and or!employees . . . shall be settled
by arbitration. . . ."
18
1 1x1 early 1098. Kloss went to I-lusted'soffice to discuss investment options for it bond
that had matured and Husted informed lier that she had quite a bit of money and shotild set
up a charitable trust ~vith bond proceeds. Husted then arranged for Kloss to meet with
her
an attorney, who drafted the documents which created an irrevocable cllaritable trust.
1
'9 On May 28, 1998, Kloss activated the charitable trust account by executing a
('ustomer Account Agreement for Full Service and Customer [Loan .4ccounts (hereinafter
1998 Agrecmc~lt).The 1998 Agreement also contained a pre-dispute arbitration clause but
was not signed by Kloss. Rather. Kloss signed a detachable signature card that
acknouleclgcd shc r e c c ~ ~ a copy ofthe 1098 Agreement and incorporated the Agreement's
ed
arbitration clause by reference:
3
'1-he Full Service Account and the Customer i.oa11 Account Agreements
contain a pre-disputc rirbitration clause that is incorporatcd by reference Gom
thc general accounr pro.tisions on pages i and 2. i i y n ~ y signature bciow, 1
acknot\-Icdgc that f have received a copy of !his ciocament.
llie agreements thernselvcs included the following explanations of rights waivcd by
submission of disputes to arbitration:
The 1992 "Customer ilccount i2greernents for Full Scr\ ice andCustomcr Loan
Accounts-General Account Provisions" contains a section as follows:
ARBITRATIOY
1. Arbitration is final and binding oti the parties.
2. 'The parties are waiving their right to seek ren~edies court, including the
in
right to jury trial.
3. Pre-arbitration discovery is generally more limited than and different from
court proceedings.
4. The arbitrators' awards is not required to include factual findings or legal
reasoning, and ally party's right to appeal or to seek modificatio~~ rulings by
of
the arbitrators is strictly limited.
5. The pailel of arbitrators will typically include a minority of arbitrators who
were or are affiliated with the securities industry.
7110 After the charrtable trust was executed, Husted selected and sold assets from Kloss'
living trust to fund the charitable trust. The asscts sold for approximately S352,000.00, which
fiusted deposited into a charitable rcmaii~der
trust in the name of Alice P. Kloss
1
611 In July 1998, Kloss began to have second tlioughts about the charitable trust. She
contacted Iicr ncp!ic\r, and requested that he come to 'Lloutana, \+here she gabe h ~ m
poser
of attot-neq and dec~ded revoke the charliable trust. She then obtainctl counsel and filed
to
a petition to rcvokc the charitable trust. After a hearing, Judge Kenneth Neill granted her
?;I2 KIoss then filed this complaint in the District Court for the Eighth Judicial District in
Cascade County ori i>ccitmbcx-28, i 9%. Kioss allegcd that Jones violatcd Montana szatutcs
rcgirrdiiig the sale of securities. was negligent, committed unfair and deceptive business
practices, breached its fiduciary obligations, and committed fraud. Kloss sought attorney
fees, costs, expenses, and taxes incurred from the creation and revocation of the charitable
tri~st.Jones filed a Motion to Compel Arbitration and Stay Proceedings on February 17,
9 9 Evidentiary hcarings were held on October 27, 1909, and February 1,2000.
'13 On June 12, 2000, the I-lonorable Marge Johnson entered an Order granting Jones'
Motion to Compel 'Arbitration and Stay Proceedings, in spite of her finding that Kloss had
not been probided M-itha copy of the 1992 Agreement. The 1998 Agreenient was not
discussed in Judge Johnson's decision.
714 On July 6,2000, Kloss appealed to the Montana Supreme Court and filed her initial
brief. During the course of the appeal, however, Jones located the detached signature card
that acknowledged Kloss' receipt of the 1998 Agreement. Jones requested that the appeal be
stayed so that the District Court could make s~~pplemental
findings of fact and conclusions
of law based on the 1998 Agreement rather than the 1992 Agree~nent
which was the subject
of Judge Johnson's Order.
j! t 5 On January 9, 1001, we remanded this case to the District C:ourt for supple~nental
findings of fact and conclusions of law based on the 1WSAgreentent. bVe additionally
remanded Kloss' Motion for Attorney's Fees and Costs.
ti 10 The Ljistrict Court, the tiorlorabie Julie hlacck presiding, held an evidentiary hearing
oil granted
"tiarc11 20, 2001. On ktarch 26. 2001. thc District Court issucd an order wl~ick
the Defendant's Motion to Stay Proceedings and Compel Arbitration. 1 blay
0 1 7,2001, the
District Court issued an order denying Kloss' Motion for Attorney's Fees and Costs. Kloss
nom appeals from these orders. \Ve affirm rn part and rekerse in part the orders of the
District Court.
nIscLssroli
7 17 Did the District Court err when it concluded that the arbitration clauses contained in
tilc 1992 and 1098 Full Sen ice rlgrccn~ents
mcre enforceable'!
711 8 Both districtjiidges concluded, based on slightly different reasoning, that the identical
arb~trat~on
clauses found in the 1992 and 1908 contracts \\ere b ~ n d ~ n g should bc
and
e~~forccd
Before n c can rc.vle\n,the correctness of those conclus~ons, 1s necessary to set
it
forth the findings made by each district judge. 7'hose findings are not challcngcd on appeal
and arc. thcrcfore, assumed to be the determinative facts on which our opinion is based.
.ludge Johnson made the ihllow~ng
relevant findings:
7. The Full Service Agreement was drafted by Edward Jones. and printed on
an Edward Jones form. The document at issue is a form dated 12101.
8. Clients do not have any inp~it thc contents of the agreement. It is
on
presented to them as is for their signature and they must sign the agreement as
is if they ~vish open an account with the Defendants.
to
9. l'l'hile thcrc are certainly other investment brokers in Cireat Falls, no
evidence was presented which would lead me to believe blrs. Kloss had any
meaningful choice in accepting or rcjccting an arbitration pro~ision r such a
o
contract or that other stockbrokers offered contracts at that time for sirililar
ilccilu~~tswl-rich did not contain an arbitration provision. I have no reason to
belick-e that \+-as a fairly standard practice at that timc, and that she had no
iiot
meaningful choice regarding acceptance of the agreenient ifslie wishcd to
open an invcutntent account, which is what ! do bclicvc and find as a fact.
10. The arbitration provision is a unilateral provision of the brokerage houses
contained in a contract presented to clicnts as is with no meaningful
opportunity to negotiate its presence in the contract. . . . It is reasonable to
assume that such contracts commonly contain such a provision today,
regardless of the brokerage house with which a clicnt is dealing.
12. Mrs. Kloss hked and trusted Mr. Husted and expected that he would
expla~n her anyth~ng needed to know that \;\as s~gnlficant.
to she
13. She did have an opportunity to read the agreement before she signcd it,
and was capable of doing so, but did not do so, relying instead upon Mr.
tfustcd to advise her of the significant features of the agreernent.
14. Mr. Husted, in opening accounts, such as that which Mrs. Kloss opened
with him in 1992, explains what he believes to be the significant features from
an investment perspective, . . . .
15. Mr. Elusted did not consider the arbitration provision to be a significant
provision of the contract.
17. He [tIustcd] does not routinely explain and did not explain to Mrs. Kloss
the arbitration provision of the contract.
18. She did not read and \+as not aware of the arb~tratlonprohlsron ofthe
contract.
0 findings which arc relevant to our dec~sron:
Judge kfaceh made the follo\t~ng
22. 'I'he Full Service Agrcemcnt [ I 998 f\greenicnt]was drafted by and printed
on an Edward D. Joncs form.
23. Cilents do not have input on tile contenrs of said iiir~n.irciicnis wisir ro
open a f u l l service account with Defendant they must sign the agreement.
24. Kloss had the opportunity to read the terms of thc agreement behre she
signed it. 1<loss did not do so.
25. I-lusted's normal procedure in opening accounts, which he followed with
Kloss, is to explain what he believes to be the significant features oP the
perspective, . . . .
account fi-om an inx~est~netlt
26. tiusted did not consider the arbitration provision to be a significant
provision of the contract.
28. Husted does not routinely explain the arbitration provision to clients and
did not explain it to Kloss.
36. Eclmard I). Jones & Co. is engaged in interstate commerce.
q20 In spite of what she found to hc the facts, Judge Johnson concluded, based on our
decision in Clior v. Piper, JczJi-a?; & Hopbvood Itzc. (1993), 261 Mont. 143
,862 P.2d 26
, that
Jones had no obligation to espla~n Kloss the terms of its contract 1 ~ 1 ther and that men
to h
if the contract in question was a contract of adhesion. it *as not unenforceable because it was
bascd on the crlterla set forth in 11tetz v C S C;ITest11li-ect, 1099 ;L1T 63,
not unconsc~onable
293 k:lont. 512. 977 P.2d 989
. Judge Johnson did not draw any conclusion or make any
finding as to whether the arbitration provision was within Kloss' reasonable expectations.
721 Follontng her findings, J ~ ~ d Macek concluded that Jones hadno dut) to explain the
ge
terms of the contract h a d on ortr clec~s~on Cltor and that Kloss I S presumed to have read
in
anti understood the tenrrs of the contract. Judge btacck also concluded that the agreements
in question mere not contracts of adhesion because Kioss could have done business with
other brokerage houscs (.\/[acek niailc no finding lo contradict Johnson's finding that rl~c
agreelnents at other brokerage houses would also have included an arbitration provision) arid,
finally, Judge Macek concluded that elen if the agreements In questton uele contracts of
adhcsion, they \\ere not unenforceable because they were \tithin Kloss' reasonable
expectations and were not unconscionable pursuant to our decision in Iweii. Judge Macek
concluded that the arhitration provisions were within Kloss' reasonable expectations because
the} M cre included \t ith~n ' a,oreements
tht '
122 On appeal, Kloss argues that the arbitration clause was part of a contract of adhesion
and that xaiver of her constitutional right to jurq trial should not be presumed froni signing
a contract of adhesion. Jones contends that form contracts between securities brokers and
their clients arc not contracts of adhesion, nor are the arbitration cla~tses
contained in such
contracts unconscionable
723 In Irieti, we were presented tvith the issue of whether an arbitration provision in an
aci~~crtiscr's
yellow page directory agreement was enforceable and barred the advertiser's
direct action in district court. CVe concluded first of all that a district court's order compelliiig
arbitratior~ subject to ifc iliii'o review. liven. 7' 17 (cititig Zolezzi L L)CLIIE Witrei.Rqrlol<i.s,
is '
.
IIIC.(9th Cir. 1086); 789 F.2d 1447
). C e ackno\vlcdged that pursuant to the Fecleral
V
Arbitration Act, ihund at 0 I,.S.C. $i;1-15 (1998), arbitration provisions found in contracts
affecting interstate cclnmcrcc are valid "save upon such grounds as exist at lam or in equity
for the revocation of any contract." ";ee 9 1.I.S.C. i 2 (1998j (zzui I I . I , ~ I I2 3 . C e also noted
; 1, V
(1
rhat nhtlc -
ecncralI> appitcabie contract la\\ defenses may be used to set astdc afhrtratron
sratcs niay not craft special ruies which only apply io arbitration proxisions Tor
agrccn~cnts;
the purpose of defeating arbitration. I~verz,71 26. Finally, wc stated that a generally
uhich ~ 1 1 not be enforced
applicable contract lam defense arises in contrasts of adhes~on 1
against the cvcakcr party when it is: (I) not within the reasonable expectations of said party,
or (2j within the reasonable expectations of the party, but, when considered in its contcxt, is
uiiduly oppressive, u~iconscionablc against public policy. Iwetz, 7 27. \Ve ultimately
or
concluded that the arbitration provision at isst~ein lwetl was unconscionable because it
lacked mutual~t). In other uords, U.S. West retained the right to proceed in distnct court
while Incii was prccludcd from doiiig so.
v 4 h contract of adhesion is a contract whose terms are dictated by one contracting party
to another who has no voice in its formulation. Corbin on Contracts, 3 1.4 at 13 j 1993). The
law pertaining to contracts of adhesion is not merely an academic exercise in which we
engage to resolve contract disputes. It is a recognition of the reality that contracts do not
always reflect terms that were bargained for at arnls length. lnstead, terms are sometimes
dictated by onc party to another who has no bargainlng power and no realistic options. The
law pertaining to contracts of adhesion recognizes that in ccrtain circumstances, traditional
assumptions associated with contract law are unfounded. Ifowever, determining that a
contract is a contract oladhesion is not the end of the inquiry in Montana. In Pa'nsscrge v.
£'t~zi~lerrtic~i-Riccl~e
.Seczrrities. Iric, (1986), 223 Mont. 601
727 P.2d 1298
_ w-e described
contracts of adhcsioft in the securities context and the circu~nstanccs
under which they arc
Contracts of adhesion arise x-hcn a standardized form of agrecnicnt. usually
drafted by the party having superior bargaining pclwcr; is presented to a party.
whose choice is either to accept or reject the contract without the opportunity to
negotiatc its terms. Herc, the inx~cstor faced with an industr?, wide practice of
is
including Arbitration Clauses in standardized brokerage contracts. As the
investor Faces the possibility ofbeing excluded from the securities market unless
he accepts a contract with such an agreement to arbitrate, such clauses come
within the adhesion doctrine. Ilowever, mere inequality in bargaining power
does not render a contract unenforceable, nor are all standardized contracts
unenforceable. As a consequence of cwrrent commercial realities, form forum
clauses will control, absent a strong showing it should be set aside. For such a
contract or clause to be void, it must fall within judicially imposed limits of
enforcement, 1t will not be enforced against the weaker party when it is : (1) not
within the reasonable expectations of said party or (2) within the reasonable
expectations of tlie party, but, wlien considered in its context, is unduly
oppressive, unconscionable, or against public policy. [Citations omitted.]
I'assc~ge, 223 Mont. at 66
,727 P.2d at 1301-02
(quotirzg Finkle attd Ross v. A.G. BrcXer Onribas. I:zc. (D.C.N.Y. 1935).622 F.Supp. 1505
, 151 1-12)
725 We enforced the arbitration agreclnents in I'assage because there was no evidence that
they were riot within the parties'reasonable expectation nor IT as there evidence that they were
unconscionable
"126 In Clzor,we were again called on to decide ivhether arbitration provisions in securities
agreements were contracts of adltcsion and, if so, nhcthcr the arbitration clause is
unconse~onabie.tVe concluded that the arbrtratron agleernent was not a contract of adhes~on
beca~isc consumcr had testlficd that she had brokerage agreements u ith other finns uhich
the
did not require hcr to arbitrate future disputes. LVe also held that tltc arbitration provision
was clearly within 'hor's reasonabic expectations based on her own testiiiioi~ythat sire
obligation to arbitrate bascd or1 her review of the agreement. Finally. ivc
wndersrood I~er
cmcluded that the broker in that ease had no obliga~ion explain the effect of the arbih-ation
to
clause because a ftduciary duty had not been established. We held that:
In the absence of discrctionaq authority by a stockbroker to buy and sell in a
customer's account, no fiduc~ary relat~onshlp created In a broker-customer
1s
relat~onship. Crrroi~onMobile Home Sales v Lel?~?z/rn Bros. K ~ ~ l Loeb (9th
zn
Cir. 1985), 769 F.2d 561
, 567. C%or,251 Mont. at 153,862 P.2d at 32
727 We conclude that both Passige and Chor are distinguishable, based on thelr facts,
from t h ~ s
case. First, based on Judge Johnson's findings which are neither appealed nor
contradicted by Judge Macek's findings, Kloss' agreements with Jones are clearly contracts
of adhesion. They were standardized forms prepared by Jones and presented to Kloss who
had no opportunity to negotiate the terms of the contracts if she chose to invest through
Jones. Fut-thermore, the arbitration clause was found by Judge Johnson to be an industry-
wide practice. Kloss would have been cxcluded from the securities market unless she
accepted the agreement to arbitrate.
*I28 Furthermore, unlike the Fdcts in P~rssogear~dClror, tlte District Court's findings
clearly establish that the arbitration provision by which Kloss waived her right of access to
this State's courts. her right to a jury trial, her right to reasonable discovery, her right to
findings of fact based on the evidence, and her right to enforce the law applicable to her case
by cvay of appeal were clearly not within Kloss' reasonable expectations. Kloss relied 01
1
Hustcd to explain to her anything in tile contract that was significant. fiusted, in fact,
admitted that his norn~al
practice when opening accounrs was to explain significani features
of the account to the investor. However, he did not explain the arbitration provision (a
provision by which Kloss waived at least two constitutional rights. i.e.. a right of access to
the courts pursuant to Article 11, Scction 16, and her right to a jury trial pursuant to Article
11, Section 26 of the Montana Constitution) to Kloss. Finally, based on the routine practice
between the parties, Kloss did not read the contract and was not alvare of the arbitration
provision in the contract.
129 Judge Maeck's conclusion that thc arbitration provision was within Kloss' reasonable
expectation simply because it was contained in the contract that she signed would defeat the
protections provided by principles of law pertaining to contracts of adhesion. lf the only
question was whether the written terms of a contract included the challenged provision,
reasonable expectations bvould never become an issue. Contracts of adhesion would always
be enforced based on their plain language without regard to what the consumer knew or
understood. 1-lowever;that is not the law pertaining to contracts of adhesion as previously
set forth in our prior decisions ~vhichapply to any contract.
'[30 We have also been asked to conclude on appeal that the arbitration provisions found
in Kloss' agreements with Jones are unconscionable. Ho\vever, having concluded that the
agrccmcnts wcre not within Jones' reasonable expectations, we need not reach the issue of
conscionability. Furthermore, as a guide to future litigants who raise the issue of
conscionability in the corltcxt of arbitration provisions, we take this opportunity to statc that
13
that issue cannot be decided ~vithout morc fuuiiy deveiopcd record. We hakc set forth the
a
factors to he considered in !wen, howe\,cr; a number of factual issues should be iiddrcssed
before tliose factors can be appropriately applied. For example:
I . Are potential arbitrators disproportionately employed in one or the other party's
field of business'?
2. Do arbitrators tend to favor "repeat players" as opposed to workers or consumers
who are unlikely to be involved in arbitration again? In other words, is there a tendency by
arbitrators to avoid decisions which will result in the loss of future contracts for their
sen~ices?
3. IVhat arc the filing fees for arbitration compared to the filing fees in Montana's
district courts?
4. What are arbitrators' fees? Do they make small claims prohibitive? Do they
discriminate against consumers or workers of modest means?
5. Are arbitration proceedings shrouded in secrecy so as to conceal illegal, oppressive
or wrongful business practices?
6. 7'0 what extent are arbitrators bound by the law?
7. To lvhat extent arc arbitrators bound by the facts'?
8. LVhat opportunity do claimants have to discover the facts necessary to prove a
claim such as a company's busincss practices'?
231 'Shcse are all issues which we consider relevant to the ultimate issue of whether an
arbitration provision in a contract of adhesion is oppressive or unconscionable. 7herefore,
14
we would advise future clainiants not to come to this Court with clainls of oppression or
unconscionability unless the record in regard to these issues has been adequately dcvcioped.
"2
;3 For these rcasons we conclude, based on generally applicable contract law defenses,
that the District Court erred when it concluded that the arbitration clauses contained in the
1992 and 1998 Full Service agreements were enforceable.
ISSUE 2
'133 Did the District Court err when it failed to consider whether Defendants owed Kloss
a fiduciary duty to explain the arbitration agreement?
(134 Kloss contends that the District Court erred~vhen found that the parties were dealing
it
at arms length and that the Defendants consequentlq- liad no obligation to explain the
arbitration provision. According to Kloss, Husted had a fiduciary relationship with Kloss
because he had the discretion to trade securities in her account. The Defendants argue that
Husted did not have tlle discretion to trade in Kloss' account and that Kloss misreads the
provision which she claims gave Husted discretionary authority.
735 Whcther KIoss and Elusted, as broker and client, enjoyed a fiduciary relationship is
highly fact intensive. "The question is not whether there is a Ciduciary duty, which there is
in every broker-custonler relationship; rather, it is the scope or extent of the fiduciary
obligation, which depends on the facts of the case." Ijztfi v. C~zt~nlier
(1989), 21 5 Cal. App. 3d 1517
, 1535, 264 Cstl.Rptr. 740, 752. In Chor, we held that although 3 30-10-3Ol(l),
MCA, may create an implied code of conduct for brokers, a violation of which may
constitute a breach of the duty the broker owes to a client, that duty is not necessarily
15
fiduciary in nature. "In the abscnce of discretionary auihoriry by a stockbrokcr to buy and
sel! i n a custun~cr'saccount, no fiduciary relationship is created in a broker-customer
relationship." Cltnr: 201 Mont. at 153, 862 P.2d at 32
. Therefore, pursuant to our analysis
in Cltor, a fiduciary relationship is created whenever a broker has discretion to buy and sell
in the client's account.
736 Here, Jones and Husted had discretion to buy and sell securities in Kloss' account
pursuant to the 1992 Agreement. Specifically, the "Liquidation of Collateral or Account"
section of the Agreement states:
You may sell any or all property held in any of my accounts and cancel any
open orders for the purchase or sale of any property ~ t t h o t notlee, 111 the
~t
ebent ormy death or whcneler in your discretion qou cons~der necessary for
it
your protection.
Furthermore. Kloss testified that Husted exercised that discretion when he selected and sold
securities from her account to fund the newly created charitable trust without consulting her
regarding which securities to sell.
737 Therefore, based on the plain language of the Agreement and Husted's selection and
sale of securities in Kloss' account, we conclude that Kloss and Husted had a fiduciary
relationship. In the words of Chief Judge Cardozo of the Court of Appeals of New York, a
fiduciary duty is "thc duty of the finest loyalty" and encompasses "[nlot honesty alone, but
the punctilio oS an honor the most sensitive." Mc.iitlr~~rd Sallizorz (l928)>249 K.Y. 458,
v.
4 3 - 6 4 ? 164 K.E. 545, 546. 131 light of the substantial fiduciary obligations owed to his
client, Hustcd should haveexplained the arbitration clause, a clause which effectively waived
the constitutional rights of a 95 year old widow with no bargaining power and a relative lack
of sophistication in such matters, fiowc~cr; the District Court fourid. Ziusted did no1
as
consider the arbitration provision to be a significant provision of the contract and thcrefore
did not explain ihe arbitration provision to Kloss. The irony of the Defendants' position is
not lost on this Court, as the supposedly insignificant arbitration provision they now seek to
enforce to the detriment of Kloss' constitutionally protected rights of access to court and trial
by jury is now squarely at the center of this appeal.
1138 We hold that Husted owed Kloss a fiduciary duty which included explaining the
consequences of the arbitration provision Jones now seeks to enforce. Accordingly, we
conclude that the District Court erred u-hen it failed to consider whether a fiduciary duty
existed.
ISSUE 3
7/39 Did the District Court err when it denied Kloss' motion for attorney's fees and costs?
Ti40 Kloss contends that the District Court erred when it denied the claim for the
opportunity to conduct discovery in an effort to prove that Kloss was entitled to attorney fees
based on Jones' untin~clydisclosure of the detachable signature card. That issue was
ranended to the District Court, which according to Kloss, should have made the
determination of whether she was entitled to attorney fees.
741 Jones responds that the District Court did not err when it denied discovery on the
attorney fee issue afiflcr reading the entire filc. including prior transcripts and court orders.
Jones contends that the D ~ s t r r Coun had the dtscrcrton to conciudc that fi~rthc~
c~ cc~dcnce
of
4 2 Attorney fecs and costs may be awarded uhen:
An attorney or party to any court proceeding M-ho, n the determination of the
i
court, multiplies the proceedings in any case unreasonably and vexatiously
may be required by the coui-t to satisfy persolially the excess costs, expenses,
and attorney fees reasonably incuired because of such conduct.
6 37-61-421, MCA.
'43 In its May 7, 2001. Order, the U~strrctCourt found that the Defendants did not
unreasonably or ~exatlouslynlulttply the proceedings. After revieming the record, we
conclude that thc District Court's finding mas not clearly erroneous. Conscqucntlq, we affint-r
the District Court's order denying the motion for attorney fees and costs.
'i44 This case is remanded to the District Court for fux-tiler proceedings consistent with this
opinion.
Justices
18
Justice W. [Viliiam Leaphart spcciaiiy concurring.
735 i concur in the decision of the Court, I wriee separately to poi~rt an additional fdet
out
that 1 find significant in determining whether or not the waiwrs inherent in the arbitration
agreement were within Alicc Kloss's reasonable expectations.
746 The Court notes that the 1998 Agreement contained a pre-dispute arbitration clause
which was not signed by Kloss. Rather, Kloss signed a detachable signature card that
acknowledged she received a copy of the 1998 Agreement and incorporated the Agreement's
arbitration clause by reference. I would also add that the record indicates that the detachable
signature card was signed by Kloss before she was ever provided a copy of the Agreement.
The branch office administrator, Doana Ferderer, testified that she filled out thil Jones
account number, wrote Kloss's social security number on the form, wrote the type of
registration of the account, and tore the detachable card out of the brochure. Ferderer
testified that, "1 gave it to Alice and told Alice I need her signature right here. And for her
to please indicate her capacity." Ferderer then took the form back, gave Kloss the disclosure
statement, advised her that "these are the terms and conditions of opening up an Edward D.
Jones account, keep these for your records. We retain this copy for our home office."
$47 Although the detachable signature card states that the Agreement "contains a pre-
dispute arbitration clausel" it does not advise Kloss that in submitting to arbitration she
waives her right to access to the courts, her right to jury trial, her right to reasonable
discovery, her right to findings of fact based on the evidence and her right to enforce the law
applicable to her case by way of appeal. Unless, in advance of executing Zne signature card,
Kioss -*as advised of the t'act that an agreement to arbitrate effiictively waived the above
rights, it cannot be said that such waivers were within her reasonable expectations when she
signed. Reasonable expectations are, by their very nature? prospective; they are defined
before one enters into a contract, not after. Thus the terms and conditions governing the
account should have been provided to or explained to Kloss before having her execute the
signature card. Recognizing the routine practice between the parties, the Court notes that
Kloss did not read the contract. However, even if she had read the Agreement, it would not
have made any difference since it was not handed to her ui~til
after she signed the detachable
card.
Justice Jim Rice joins in the concurring opinion of Justice Leaphart.
Justrce James C luelson specially concurs
741: 1 cor?cur in our Opinion. Ho\vevcr: as mentioned brierly at 7%21. 27 and 3 of our
6
Opinion and at fi 47 of Justice Leaphart's concurrence. there is an additional rationale
supportii~g decision in this case--i.e., whether Kloss effectively w a i ~ e d rights to a
our her
trial bq jusy and to access to the courts' by executislg Jones's 1992 and 1998 standard-form
contracts. As far as I can determine, this is an issue of first impression in Montana.' It is nly
intention to develop this rationale further.
(149 Certainly, any person has the right to enter into an agreement which includes an
arbitration clause. Where the contract and the arbitration clause has been negotiated at
a m ' s - length between parties of equivalent sophistication and bargaining power, then there
1
I have limited my analysis and discussion to thesc two constitutiortal rights because
these are the two raised in this case. In saying that, I recognize, hotverer, that other constitutional
rights may be implicated in these sorts of cases, including the right to due process of law (Article
11, Section 17, Montana Constitution) and equal protection of the laws (Article 11, Section 4,
Montana Constitution). Moreover, as our Opinion points out. arbitration results in the loss of
certain procedural rights such as the right to engage in discovery and the right to have the
admissibility of evidence judged under the Montana Rules of Evidence. Additionally, the right to
judicial review of arbitration decisions is severely restricted--i.e. effectively there is no right of
appeal from these decisions.
' Jones relies on Passage v. Prudential-Bache Sec., 1t:c. (1986), 223 Mont. 60
, 727 13.2d i298; Lursen v. Opie (1989), 237 Mont. i08,77i P.2d 977; Kingston v. .A.lrtzeritrade, inc.,2000 MT 269
,302 Mont. 90
,12 P.3d 929
; and Southland v. Keating (1984).465 U.S. 1
,104 S.Ct. 852
, 79 L.Ed.2d I, in opposing Kloss's waiver argument. As to this Court's opinions, while we
upheld the arbitration agreements at issue in those cases on various grounds, we did not address
the argument raised here--i.e. whether the rights to trial by jury and access to the courts under
Articic IT, Section 26 and Article 11, Section 16: may be forfeited by contractual waiver that is
other than voluntar)~, knowing and intelligent. Similarly, the Supreme Court did not address the
waiver of the Seventh Amendment right to jury trial in Sourhlar?d. In fact: tile C.S. Supreme
Court has not addressed this argunlent in the context of any arbitration case.
is rro reason why such parties cannot also agree to settle disputes arising under the agreement,
outside the judicial process. If these sorts of parties determine that it serves their mutual
interests to waive their Montana constitutional rights of jury trial and access to the courts,
then they have the right to do so.
750 The contrary is also true. Where parties are not of equivalent sophistication and
bargaining power and where the agreement and the arbitration clause have not been
negotiated for at arm's-length, then it is appropriate--indeed, imperative--that courts closely
scr~~tinize process and any contract which results in one party forfeiting basic
any
constitutional guarantees to the advantage of the other party. That brings me to the case at
bar.
115 1 As stated in our Opinion, the parties here were not of equivalent sophistication and
bargaining power. The defendant, Jones, is one of this country's large financial corporations;
Kloss is an elderly widow. Jones is in the business of selling securities and investment
advice and services nation-wide; Kloss is an ordinary citizen with no apparent special
expertise in the stock market. Kloss did not negotiate at arnl's-length for the contracts at
issue. Rather, she was presented with typical, standard-forml take-it-or-leave-it contracts of
adhesion that, among other boiler-plate provisions, included arbitration clauses. Kloss did
not read the agreements but relied upon Jones's agent, Husted, to explain the significant terms
of'the agreements to her, as he had in past dealings. Furthermore, as Justice Leaphart points
out (and setting aside the question of whether Kloss would have understood the significance
o f what she was agreeing to) even if she had desired to read the contracts before signing,
Jones's execution procedures insured that s?x would not have that opportimiiy.
4;52 With that background, 1 next turn to .4rticle 11 of Montana's Constitution. The rights
included within this "Declaration of Rights" are "fundamental rights." Butte CornmurlifJ
C~iion Lewis (1986), 219 Mont. 426
,430:712 P.2d 1309, 1311
. Accord, Wailswortli v.
L'.
Stare (1996), 275 Mont. 287,299
,911 P.2d 1165, 1172
; State v. Tapson,2001 MT 292, f 15
,307 Mont. 428
, 7 15,41 P.3d 305
, 7 15. That means that these rights are significant
components of liberty, see Black's Law Dictionary, 7th Edition, p. 683, any infringement of
\vhich will trigger the highest level of scrutiny, and, thus, the highest level of protection by
the courts. FVadswortiz, 275 Mont. al 302, 91 1 P.2d at 1174 (citing G~llbrurldson Care).
v.
(1995), 272 Mont. 494,502
,901 P.2d 573,579
("The most stringent standard, strict scrutiny,
-
is irnposed when the action complained of interferes with the exercise of a fundamental right
. . .")). Thvo specific fundamental rights are implicated here. The first involves the right to
trial by jury.
753 Article IIj Section 26 of Montana's Constitution guarantees that "[tlhe right of trial by
jury is secured to all and shall remain inviolate." That this constitutionally guaranteed right
of a jury trial is "fundamental" and. therefore. deserving of the highest level of court scrutiny
and protection is beyond argument. See, e.g, Siute v. LaMere, 2000 hlT 45,298 Mont. 358
,2 P.3d 204
(requiring procedural exactitude for impaneling jury); FVoii-/!ayev. won tuna Fourth
Jz~dic:ial
Disi. Coz~rt,
1998 MT 320
,292 Mont. 185
,972 P.2d 800
(striking statute that limited right to sequential jury trials as unconslitutionalj; Srate v. Duhiin,1998 MT 113
,289 MOIIE. 182.96 i P.2d i247 (requiring waiver of right to jury trial be evinced by written consent of both parties filed with the court in criminal proceedings); Hamrner v. Justice Court ofLewis Clark County (1986),222 Mont. 35
,720 P.2d 281
(abolishing prepayment of fees for
ui~d
civil jury trial as obstructive).
554 As we observed in LuMere, the importance of the right of trial by jury derives from
it having "developed in harmony with our basic concepts of a democratic society and a
representative government." Lahlere, 7 28 (citation omitted). "Since the time of the Magna
Carta, 'trial by jury has been prized as a shield against oppression . . . [and] the approaches
of arbitrary power."' Lubfere, 7 25 (citation omitted). This entitlement has heel1 "long
thought to be a safeguard against tyranny." LaMer-e, 7 28. The right to trial by jury is a
"jealously protected safeguard against government oppression." LaMei-e, 7 29. And, "[tlhe
guarantees of jury trial in the Federal and State Constitutions reflect a profound judgment
about the way in which the law should he enforced and justice administered." Lu,Were, 71 29
(eltation nrnitted) Or. ac Justice William Blackstone stated over two centuries ago.
[This right] is a privilege of the highest and most beneficial nature and our
most important guardian both of public and private liberty. Our liberties
cannot but subsist so long as this palladium remains sacred and inviolate, not
only from all open attacks, but also from all secret machinations which may
sap and undermine it.
Cor~lr~tct~tuties Laws ofEngland (1765), reprirzted in Volume 2 of In Defense of'Tr-ial
oiz the
bj Jlrq at 1 1 (J. Kendall Few. Amerlcan Jury Trial Foundat~on,1993)
4/55 Given the sacredness and inviolability of the fundarnentai right to trial by jury, any
coili-act protrision that openly or subtly causes the forfeiture of the exercise of this right must
be rigorously examined by the courts. This is all the more necessary wltcn such a contract
provision i s included in a standard-form contract of adhesion foisted upon unsophisticated
and unsuspecting ordinary citizens and small business people as part of the intercourse of
daily life. Indeed, the use of such contractual provisions is at one and the same time an "open
attack" on the right of jury trial and a "secret machination" causing forfeiture of that right that
13lackstone predicted would "sap and undermine" the right, and with that our "public and
private libert[ies]."
756 The second fundamental right at issue in the case at bar is the right of access to the
courts.
'157 Article 11, Section 16 of Montana's Constitution guarantees that "[clourts ofjustice
shall be open to every person, and speedy remedy afforded for every injury of person,
property, or character." In my view, this right is as much a fundamental right as is any other
iirticle 11 right. This is so not only because the right of access to the courts is included within
tile Constitution's Declaration of Rights, but also, and just as irnpor-tantly: without the right
of access to the courts, other Article I1 rights would have little protection from infringement
and, thus: little meaning. See, Butte Cornnlunily Union;219 Mont. at 430
,712 P.2d at 131
l- 13; iVkds'sworth,275 Mont. at 299
, 91 1 P.2d at 1172.
'i58 Constitutional rights that cannot he enforced are illusory. It is as if those rights cease
to exist as legal rights. Montanans' fundamental rights to a jury rriai, to due process and to
eqiial protection, among others; arc rendered meaningless absent the courts being able to
enforce these rights. Purely and simply. access to the courts guarantees that other Article 11
rights are something more than mere dreams and aspirations. Access to the courts giver real
ex~stence other fundamental rights. And, that makes access to the courts a titndanreiltal
to
right also, for uithout this right other rights have no meaning.
759 In this conclusion, I acknowledge that we have explicitly and inlplicitly held to the
contrary. See, Meeclz v. Hillhaven West inc. ( I 989), 238 Mont 21
,776 P.2d 488
; Peterson 1). Greut Falls School District (1 989),237 Mont. 376
,773 P.2d 3 16
; itliller v. Fallo~zCounty (1989),240 Mont. 241
,783 P.2d 419
; Bieber v. Broadrvulei- County (i988),232 Mont. 487
,759 P.2d 145
; Linder v. Snzith (1981),193 Mont. 20
,629 P.2d 1187
; Merchants Ass'n v. C'urlgcr (1979),185 Mont. 552
,606 P.2d 125
. Nohvithstanding, I do not see how these decisioiis can be squared with, much less continue to exist beside, this Court's jurisprudence holding that other Article I1 rights are fundamental rights. 760 This Court has stated repeatedly that a right is fundamental under Montana's Constitution if the right is either found in the Declaration of Rights or is a right ~vithout which other constitutionally guaranteed rights would have little meaning, Stale I>. Bird 2001 M T 2, I 25,308 Mont. 75
, tj 25,43 P.3d 266
, tj 25 (right to be present for all court
[
proceedings); in re Mentul Heultlz qfK.G.F., 2001 MT 140
,q 30,306 Mont. l , l / 30,29 P.3d
'[
485, 30 (right to effective assistance of coulzsel for involuntary commitment proceedings);
"
,Arrrlsirotzg v. Stute, 1999 MT 261
,qi 34:296 Mont. 361
.7 34.989 P.2d 364, 34
(righz to
3
privacy); and MElG v, Dept. qf.Environt?iental Quu/i&, 1999 RIT 248,q 56; 296 Mont. 207
- 7 56.988 P.2d 1236
,T 56 (right to a clean and healthful environment); State v. Clark. 1998 %IT 221, 22,290 Mont. 479
, 1 22,964 P.2d 766, 22
(right to confront and examine accusers); State v. Weaver,1998 MT 167
, j! 26,290 Mont. 58, f 26
,964 P.2d 7
13,y 26 (right to a unanimous verdict); Wadsworth;275 Mont. at 299
, 91 1 P.2d at 1 172 (right to pursue employment); Matter qf C.fI. (1984),210 Mont. 184, 201
,683 P.2d 931, 940
(right to physical liberty). We could never have enforced the fundamental rights litigated in these and in other cases where fundamental rights were at issue had access to the courts been denied in the first instance. Indeed, without access to the courts, these other fundainc~ltalrights ~vouldhave had no real existence; they would have been merely aspirations without substance. $61 The instant case and others we have constdered--Chat:261 Mont. 143
,862 P.2d 26
: Casai-otto,268 Mont. 369
,886 P.2d 93
1; Kejstone, Ztzc. v. Triad Systerrzs Co~poration,
1998 VT 326
.292 Mont 229
,971 P 2d 1240
; and Iwen, 1999 V T 63,293 Mont 512
,977 P.2d 989
--likewise demonstrate why the right of access to the courts must be protected as the
firndamental co~istitutional
right it is. These cases point inescapably to the conclusion that,
for their own obvious economic benefit, large national and multi-national corporations are
effect~\elyprivatizing an important segment of the civil justice systcm in this country by
including fine-print, non-negotiable, take-it-or-leave-it, mandatory, binding arbitration
clauses in their standard-form contracts.'
762 These are the adhesion contracts &at ordinar): citizens and small busir~ess
people must
accept if they want to acquire what most would consider to be basic and necessary services
and products--household appliances? residential leases, rental cars, pest extermination,
banking services, office and business equipment, phone service: consumer product
warranties, household and commercial insurance, employment, credit cards, consumer and
small business financing and medical attention, for example. Likewise, these are the
A cursory review of the literature will reveal not only the substantial and growing
support for my conclusion but also will provide citations to a multitude of cases which detail the
horror stories of corporate abuse of ordinary citizens and small business people by way of the
inclusion of mandatory arbitration clauses in contracts of adhcsioil. See, e.g., Jean R. Sternlight,
.lf(lndutot;vBinding .Arbitratioiz and the Deinise ofthe Seven111Anzerzdment Right to a JUT Trial
(2001), 16 Ohio St. J. on Disp. Resol. 669
; Margaret M. Harding, The Redefinition ojArbitvarion by Tizose with Superior Bargaiizing Power (1999),1999 Utah L. Rev. 857
; Katherine Van Wezel Stone, Rustic Jzistice: Communiq a d Coercion Under the Federal Arbitration Act;77 N.C. L. Rev. 93
1 (1999); Reginald Alleyne, Statutory Discritninarion Claims: Right "Waived" and Losr
in the Arbitration Forum (1996), 13 Hofstra Lab. L.J. 381, to name just a few.
That said, there is also little point railing against the prcsent state of the law "favoring"
H.
arbitration. See, ~Woses Cone ibfemoriul Hasp. v. M e r c u ~Const.Corp. (1983), 460 U.S. 1
,
>
103 S.Ct. 927
,74 L.Ed.2d 765
. I will note, however, that arbitration, historically, was designed as a method of alternative dispute resolution between merchants of equal sophistication and bargaining power (see Jerold S. Auerbach, Justice JVithout Law? 101-1 14 (1983); Ian I<. MacNeil, An~ericar~ Arbitvatiorz L a ~ j15-25 (1992)); that during the deliberations leading up to the passage of the Federal Arbitration Act (FAA), the proponents, drafters and sponsors--Senator Walsb from Montana, among others--were extremely concerned that the inclusion of arbitration clauses in adhesion contracts be voluntary because of the conconlitant loss of the right ofjury trial and court access (see, the excellent discussion of this point in Allstar Hornes. Inc. v. LVater:r ( I 997*Ala.). 71 ! So.2d 9224 (Cook, J. concurring): and that. with due all deference to the Supreme Court of the United States, Justices Thomas's and Scalia's criticism of Southlaizd and its progeny and their conclusion that these cases should be overruled to the extent that they apply the FAA in state court proceedings is dead right. See, Allied-Bruce Ertrtiriii Con~panies f~obsorzv. (1995), 513 U.S. 265
,283, 115 S.Ct. 834
: 844,130 L.Ed.2d 753
(Scalia, J. and Thomas, J.,
dissenting).
adhesiotl contracts that, as in the case subjudice, ordinary citizens and small business people
are compelled to sign if tiley want to paaicipate in the national!giobal ecar:orny, the profits
of u h ~ c hfuel the very existence and growth of these same national and multi-nattonal
corporations (and the clection and re-election of their benefactors in government).
Bankruptcy Judge Janies S. Sledge, Jr. recently brought this point home. He observed:
Ask any reasonable man on the street, i.e.[,] a consumer, if lie thinks it is fair
that he is barred from access to the courts when he has a claini based on a form
contract which contains an arbitration clause and he uill respond wlth a
resounding "No!" . . The reality that the average consumer frequently loses
hislher constitutional rights and right of access to the court when helshe buys
a car, a household appliance, insurance policy. recelves medical attent~on or
gets a job rises as a putrid odor which is ovenvhelmlng the body politic.
In re Kizepp, 229 B.R. 82 1,827
(Bankr. N.D. Ala. 1999). t63 In short, without access to the courts, there is no way to safeguard the other tundamental rights guaranteed by Article I1 of Montana's Constitution. Indeed, to the extent that those rights cannot be protected by the courts, Montana's Declaration of Rights is little more than a collection of eloquent, hut unenforceable, words. Access to the courts is a fundamental right, and our cases that hold to the contrary are wrong. 7\64 That said, my objective here is not to provide an analysis for challenging the reasoning of Meech, Linder and their progeny. Rather, my point is that where fundamental constitutional rights are involved--liere, the right of a trial by jury and, in my opinion, access to the courts--the law is eminently clear that the waiver of such rights will not he lightly presumed. Stnte v. Oklarzd ( I 997),283 Mont. 10, 15
, 941 P.2d 43 1,434
(presuming er
oi' cous?sel fron~ silevlt record is impert~lissibiej; State v. Lucer-o (1 9681, 1 S 1 MCJII~. 1,
a 53
538,445 P.2d 73
1,735 (stating courrs indulge every reasonable presumption against wait-er
of constihtional rights). A waiver of a hndamental right must be proved to have been made
voltlntari!y. knowingly and intelligently--typically by the party seeking the waiver. Bird, 71
7
35-36; Tupsoiz, 7 25; Lucero, 15 1 Mont, at 538,445 P.2d at 735. For a fundamental right to
be effectively waived, the individual must be informed of the consequences before personally
consenting to the waiver. Duhliiz, 7 22; State v. Allisoiz (19441, 116 Mont 352,360
,153 P.2d 141, 145
. And, the waiver will be narrowly construed. Stare v. Tieclrinurzn (1978), 178 Moilt. 394,402,584 P.2d, 1284, 1298
.
965 In applying these well-settled principles of law iirr the context of the issue presented
here, a reviewing court must consider a totality of overlapping and non-exclusive factors
itlcluding: whether there were any actual negotiations over the waiver provision; whether the
clause was included on a take-it-or-leave-it basis as part of a standard-form contract; whether
the waiver clause was conspicuous and explained the consequences of the provision (e.g.
waiver of the right to trial by jury and right of access to the courts); whether there was
disparity in the bargaining power of the contracting parties; whether there was a difference
in business experience and sophistication of the parties: whether the party charged with the
waiver was represented by counsel at the time the agreement was executed; ~vhether
economic; social or practical duress coinpelled a party to execute the contract (e.g. where a
consumer needs phone service and the only company or companies providing that service
require execution of a11adhesion contract with a binding arbitration clause beihre senice will
he extended); whether the agreement was actuaaiiy signed or the waiver provision separately
initialed: whether the waiver- clause was ambiguous or misleading; and whether the party
with the superior bargaining power lulled the inferior party into a belief that the waiver
would not be enforced.
766 Returning to the record before us, there is no evidence to support a conclusion that
Kloss knowingly and intelligently waived her rights to trial by jury and access to the courts
whet1 she executed Jones's standard-form contracts containing the arbitration clauses. There
is no evidence that Kloss negotiated for any provision in the contracts much less the
arbitration clauses. There is no indication in the record that Kloss had counsel when she
signed the agreements. And, it can hardly be argued that Kloss was on the same level of
sophistication and expertise as that of Jones's agent, Husted: nor did she have any degree of
equal bargaining power.
Tr67 What the record does demonstrate, however, is that Kloss is an ordinary citizen of
advanced years; that she did not read the agreements: that she was not given the opportunity
to read the agreements (which, however, did contain an explanation of the consequences of
the arbitration clause); and that Jones's agent, upon whom Kloss had historically relied to
explain tile significant parts of agreements presented to her, neither pointed out the existence
of the arbitration clauses nor explained that the clauses w~ould her from exercising her
bar
fundamental constitutionaf rights of access to Montana's courts and to a trial by jury. The
record i s clear. Kloss did not valu~ltaiily,
knowingly and intelligently waive her fundamer~lal
rights of trial by jury and access to the courts on the facts presented here.
co~?stiturionai
768 It i s to the corlsequetrces of this ineffective waiver that i next turn.
"I9 The United States Supreme Court has held that the Federal Arbitration Act (FAA)
preempts those state laws which invalidate and are "applicable only to arbitration provisions."
,ilIicd-Bruce Tertninix Cornparties 1. Dobson (1995), 513 U.S. 265,281
,115 S.Ct, 834,843
,
)
130 L.Ed.2d 753
. The Court has stated that in adopting Section 2 of the F4A Congress precluded states from singling out arbitration provisions for suspect status. Rather, according to the Court, such provisions must be placed "upon the same footing as other contracts." Scfierk iz Alberto-Cultier Co. (1974),417 U.S. 506
, 51 1,94 S.Ct. 2449, 2453
,41 L.Ed.2d 270
.
670 The Supreme Court has also held, however, that if a state law governs issues
concerning the validity, revocability and enforceability of contracts in general--see, Perry v.
Tl~onzas
(1987), 482 U.S. 483,492, n. 9
,107 S.Ct. 2520,2527, n. 9
,96 L.Ed.2d 426
--then generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreetnents without contravening Section 2 of the FAA. Docroric.A.;rocint~~s L>. Cnsnrotfo (1996), 517 tJ.S. 6 8 1 687.116 S.Ct. 1652, 1657
. 134
lilr.,
L.Ed.2d 902 (citing Allied Brace, 513 U.S. at 281
, 1 15 S.Ct. at 843; Rodriguez de Qtiijas v.
Express, Irz. (1989), 490 U.S. 477,483-84
;109 S.Ct. 1917, 1921-22
,
Slieui.son;iAnzericn~z
Expi-ess, Inc., V . Mcilfaho~
104 L.Ed. 2d 526
; S/1eurson~~in2nzericun (1987),482 U.S. 220,226
, I07 S.Gt. 2332?2331,96 L,Ed 2d lY5j. 7 In this regard -Montana has long subscribed to the rule that contractual waivers of constitutional rights must be evaluated in that light and by the tests applicable to the waiver of constitutional rights. .bfc~y Figgins (19XO),186 Mont. 383, 394
,607 P.2d 1
132. 1138.
v.
In ,ZIuy, we recognized the general rule that parties could contract in advance to submit to in
pei-sonunt j jurisdiction of a given court--there, Colorado. Nonetheless, we refused to uphold
that sort of coniract provision where the Colorado caul-t was unable to exercise b persorramr
r
jurisdiction consistent with due process. We reasoned that the contract provision amounted
to a forfeiture of the constitutional right of due process, and that there was no "clear waiver"
because the party charged with the waiver could not have known that the agreement he
signed subjected him to the jurisdiction of the Colorado courts. In reaching this collclusion
we pointed out that there was nothing in the agreement that specified the jurisdiction as to
~vhic11 charged party waived his constitutional due process rights. Muy, 186 Mont. at 394
,
the
607 P.2d at 1138
(citing Fuentes v. Shevin (1972), 407 U.S .67,95,92 S.Ct. 1983
,200L.32 L.Ed.2d 556
(The right of jury trial is fundamental and courts indulge every reasonable
presumption against waiver.)).
y2 Quoiing Telephoizic; Inc. v. Roset~hlzr~n
(1975)- 88 N.M. 532
,543 P.2d 825
: 830, we
observed that, " '[aln agreement to waive this constitutional right must be deliberately and
understandingly made, and the language relied upon to constitute such a waiver must clearly,
unequivocally and unambiguously express a waiver of this right.' " ,%fay; Mont. at 394,
186
607 P.2d at 1138-39
. We then \\ent on to state that:
To accept the respondent's argument that the defc~idanthere contractually
consented to be sued in Coiorado would be to give the respondent carit:
blanche to use contracts of adhesion to establish a right to sue defendants
wherever would be most convenient to respondents, and least convenient to
defendants. The contractual provisions purporting to waive in personam
jurisdiction are unreasonable and unenforceable.
;tfqv, 186 Mont. at 395
,607 P.2d at 1139
Ti73 Similarly, but with a contrary result, we upheld a provision whereby a party contracted anay his right to the statutory exoneration of his suretyshtp because the waiver of rights did not involve "a constitutional right, nor a waiver in violation of'public policy." Mantuna Bank q/'Cit-cle, IYA., v. Ralph ~Wejers Son, Inc. (1989),236 Mont. 236, 241
.769 P.2d 1208
,
&
774 As discussed above, Montana law generally applicable to the waiver of constitutional
rights, requires that the waiver will not be lightly presumed; that it must he proved to have
been made voluntarily, knowingly and intelligently--typically by the party seeking the waiver:
and that it will be narrowly construed. See 7 64 infra. Importantly, Montana applies these
same principles in cases where there is a purported contractual waiver of constittitional
rights. Such a contractual waiver " 'must be deliberately and understandingly made, and the
language relied upon to constitute such a waiver must clearly, unequivocally and
orthis right.' " May, 186 Mont. at 394
,607 P.2d at 1138
-
una~nbiguouslyexpress a ~vaiver
175 In this case, as already noted. there is no evidcnce tn the record before us that Kloss
vo!uiltarily, knowingly and intelligently xvaived her fundamenrai constitutional rights to a
jury bial and to access lo the courts when she signed Jones's standard-form contracts. Rather,
the record demonstrates the conha~y.
Thus, Kloss's purported waiver of her rights to a jury
trial and of access to the COUITS was not an effective waiver in a constitutional sense.
'176 That being the case, and under principles of Montana law generally applicable to all
contracts. Kloss's contract with Jones cannot be enforced, at least to the extent of the
arbitration clause.
"
7 .4ccordingly, for the reasons set forth in our Opii~ion in this separate Opiniour, I
and
concur
Justices Terry N. Trieweiler, W. William Leaphart and Patricia 0 . Cotter join in the
f0Rg0jlig concurrence.
Justices