Case Information
*1 04/03/2018 DA 17-0124
Case Number: DA 17-0124
IN THE SUPREME COURT OF THE STATE OF MONTANA
BEVERLY LENZ, DARINDA WILLIAMS, TERRANCE
BRADY, DEAN A. HOISTAD, LARRY VERVICK
and RICHARD W. HORTON,
Plaintiffs and Appellants,
v.
FSC SECURITIES CORPORATION, ROCKY MOUNTAIN
FINANCIAL ADVISORS, LLC, f/k/a ROCKY MOUNTAIN FINANCIAL, LLC, ERIC D. ROLSHOVEN and JOHN DOES 1-10,
Defendants and Appellees.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 15-725 Honorable Robert L. Deschamps, III, Presiding Judge COUNSEL OF RECORD:
For Appellant:
John M. Morrison, Linda Deola, Morrison Sherwood Wilson & Deola, PLLP, Helena, Montana
For Appellee:
Charles H. Carpenter, Carpenter Law Firm, Missoula, Montana (for Eric D. Rolshoven)
Kevin D. Feeback, Toole & Feeback, PLLC, Lincoln, Montana Edward S. Zusman, Amir Tadjedin, Ryan Probstfeld, Markun Zusman Freniere and Compton, LLP, Portland, Oregon *2 Submitted on Briefs: November 8, 2017 Decided: April 3, 2018 Filed:
__________________________________________ Clerk
Justice Dirk Sandefur delivered the Opinion of the Court.
¶1 Beverly Lenz, Darina Williams, Terrance Brady, Dean A. Hoistad, Larry Vervick, and Richard W. Horton (collectively Investors) appeal the order of the Montana Fourth Judicial District Court staying proceedings and compelling them to submit all asserted claims against FSC Securities Corporation (FSC) and Rocky Mountain Financial Advisors, L.L.C. (f/k/a/ Rocky Mountain Financial, L.L.C.), and Eric D. Rolshoven (collectively RMF) to arbitration. We affirm and restate the dispositive issues as:
1. Did the District Court erroneously conclude that Investors knowingly and voluntarily assented to the subject arbitration agrеements and validly waived their rights to full legal redress and jury trial?
2. Did the District Court correctly conclude that the subject arbitration agreements were not unconscionable?
BACKGROUND ¶2 FSC is a Delaware-chartered, Georgia-based corporation registered with the United States Securities and Exchange Commission (SEC) to provide interstate securities brokerage and investment advisory services. RMF is a Montana-registered, limited liability company, that was engaged in the business of providing licensed financial and securities brokerage services as registered representatives of FSC. Eric Rolshoven (Rolshoven) and broker Barry Hartman (Hartman) were agents of RMF, and registered representatives of FSC, doing business in Missoula, Montana. Invizeon was a Missoula-based corporation engaged in raising investment capital, purportedly to support businеss plans to aid in the marketing of various security-related technology products.
¶3 Between 2003 and 2014, on the recommendation of RMF brokers and advisors, a number of investors, including Investors, purchased securities in Invizeon Corporation through FSC. [1] In 2015, Invizeon failed, causing Investors to sustain substantial losses. Investors promptly sued FSC and RMF in the Montana Fourth Judicial District Court, alleging that FSC failed to adequately supervise its registered RMF representatives and that RMF wrongfully induced Investors to invest in Invizeon on various grounds including misrepresentation, fraud, and undisclosed self-dealing. Eight months into the litigation, FSC and RMF separately moved to stay proceedings and compel arbitration before the Financial Industry Regulatory Authority (FINRA). [2] Following briefing and oral argument on the motions, the District Court conducted a supplemental evidentiary hearing.
¶4 Over the course of multiple, day-long hearings, the District Court heard testimony from each Investor regarding his or her recollection of the specific contract documents and related circumstances. All Investors testified that they did not recall reading or receiving a standard-form FSC customer agreement that included a detailed arbitration agreement.
Each Investor described his or her educational background and prior investment experience. Though several Investors recalled receiving significant paperwork when they opened their RMF accounts, none recalled reading or receiving the customer agreement form. However, all Investors recalled seeing and reading an arbitration notice printed *5 above the signature block on the separate client application form. The Investors testified that they had no rеcollection of anyone at RMF advising them of the legal significance of the arbitration agreement.
¶5 FSC’s Senior Litigation Counsel Greg Curley (Curley) testified as to the standard FSC protocol followed by FSC representatives in opening brokerage accounts. Each FSC brokerage agreement consisted of a separate client application form, customer agreement form, signature page form, and an account worksheet generated and maintained by FSC’s computerized account management system. Whether viewed in electronic or hard-copy form, the transaction documents for each FSC brokerage agreement were readily identifiable by account name, number, and cross-referenced transaction forms identified by version reference. Initiating RMF representatives opеned each account through the FSC account management system by selecting the constituent transaction forms from a menu screen which then set up an electronic account record for each client. Upon initiation of each new client account, the system generated a hard copy of all initial transaction documents for client review and signature in the form of a single document print-out. Pursuant to standard FSC policy and procedure, RMF retained each client’s signed application signature form and provided a hard-copy of all transaction documents to the client.
¶6 The three-page customer agreement form contained detailed language explaining the arbitration process relative to litigation, stated the parties’ agreement to resolve any and аll disputes through binding arbitration, and declared that the agreement effected a waiver of the client’s litigation rights, including, inter alia , the right to a jury trial. Though FSC *6 did not require Investors to initial or sign the customer agreement form, the application signature page forms conspicuously referenced the customer agreement form as part of the agreements and conspicuously stated in bold-print directly above one of two customer signature blocks that:
The Customer Agreement contains a pre-dispute Arbitration Provision. This Provision is contained in this agreement and appears in bold print. I hereby acknowledge by my signature below, receipt of a copy of this agreement . (Emphasis added.) FSC did not require the initiating RMF representative to further discuss or explain the arbitration agreements with clients beyond the express language of the transaction forms.
¶7 Kay Hartman (Kay), wife of RMF broker and registered FSC representative Barry Hartman, assisted with clеrical duties, including preparing, printing, and providing account packets to clients upon opening of new accounts at RMF. Kay testified that she assisted with new accounts by obtaining and inputting client information into the FSC system. Kay also printed the various transaction documents for client review, verified social security numbers, and obtained client signatures. Kay testified that, if she had any reason to believe that a client did not receive or leave the office with copies of all transaction documents, it was her practice to mail copies to the client with a note to contact her or Mr. Hartman with any questions. Kay further testified that it was her standard practice to tell clients that the account application documents made them FSC clients and that the referenced customer agreement form provided for mandatory arbitration of any dispute related to the account. There is no evidence that any of the Investors ever questioned, objected to, or stated any concern about the arbitration provisions referenced in any of the FSC account documents. *7 Kay testified that she mailed complete transaction document packets to two of the Investors after signing.
¶8 Although the language of the customer agreements forms varied slightly over time, Curley testified that the arbitration agreement language remained substantially similar at all times pertinent. Inter alia , the customer agreement forms included the following arbitration agreement and disclosure in bold type:
Arbitration
1. Arbitration Disclosure
This agreement contains a pre-dispute arbitration clause. By signing an arbitration agreement the parties agree as follows: All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited.
The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration that in court proceedings.
The arbitrators do not have to explain the reason(s) for their award. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.
The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement.
2. Agreement to Arbitrate Controversies
You agree that any and all controversies which may arise between you, FSC, Pershing LLC, and/or any of FSC’s employees, agents, or officers concerning any account, transaction, dispute or the construction, performance, breach, or termination of this Agreement or any other *8 agreement, whether entered into prior to, on or subsequent to the date hereof, shall be determined and resolved by arbitration. Any arbitration under this Agreement shall be held under and pursuant to and governed by the Federal Arbitration Act, and shall be conducted before an arbitration panel convened by the American Arbitration Association or NASD Dispute Resolution. [3] You may also select any other national securities exchange’s arbitration forum in which FSC is legally bound tо arbitrate the controversy, including, where applicable, the Municipal Securities Rulemaking Board. Any arbitration pursuant to this Agreement shall be governed by the rules of the organization convening the arbitration panel. The award of the arbitrators, or a majority of them, shall be final, and judgment on the award may be entered in any court of competent jurisdiction. A party’s ability to have a court reverse or modify an arbitration award is very limited.
The customer agreement forms distinctly set forth the language of the arbitration agreement in bold print, separate from the other terms and conditions in the customer agreement. At hearing, each Investor acknowledged and authenticated his or her signature on at least one FSC account application. [4] After each account opening, FSC mailed periodiс account statements to each Investor that, inter alia , included a detailed notice including arbitration agreement language similar to that set forth in the original customer agreement form. [5] ¶9 On February 8, 2017, following supplemental post-hearing briefing, the District Court issued extensive findings of fact, conclusions of law, and an order compelling Investors to submit their claims to arbitration as provided in the FSC customer agreement forms. Based on the testimony of individual Investors, the court found that each Investor *9 received actual notice of the arbitration agreement. The court further found that all of Investors were highly educated and sophisticated market investors with extraordinary business acumen. The plaintiffs included a lawyer, a certified public accountant, two banking executives, and highly successful business people, all knowledgeable and experienced market investors. The court found that none of the investors were under any duress or “physical or emotional compulsion” and that there was no evidence or allegation that FSC or RMF induced Investors to enter into the subject brokerage agreements by duress, fraud, misrepresentation, or other unlawful conduct. [6]
¶10 Though the District Court determined that all agreements were non-negotiated contracts on terms dictated by FSC, the court further concluded that the standard-form contracts, including the arbitration agreements, were within the reasonable expectations of each client and were not oppressive, unconscionable, or contrary to public policy. The court found that each of the plaintiffs “signed at least one, and sometimes more than one, account opening document . . . confirm[ing that] ‘the Customer Agreement contain[ed] a pre-dispute Arbitration Provision’” and that each expressly acknowledged receipt of the customer agreement form by signature and through the following signature page advisory:
THE TRADITIONAL INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT PLAN (“ACCOUNT PLAN”) THAT ACCOMPANIES THIS ADOPTION AGREEMENT CONTAINS A PREDISPUTE ARBITRATION CLAUSE, WHICH MAY AFFECT RIGHTS UNDER THE PLAN. THE PREDISPUTE ARBITRATION CLAUSE IS LOCATED IN ARTICLE VIII, SECTION 11(i) ON PAGES 7 & 8 OF THE ACCOUNT PLAN. BY SIGNING THIS IRA ADOPTION AGREEMENT, I ACKNOWLEDGE THAT I HAVE READ THE PREDISPUTE *10 ARBITRATION CLAUSE, UNDERSTAND IT, AND AGREE TO BE BOUND BY IT.
The District Court found and concluded that no fiduciary relationship existed between FSC/RMF and any of the plaintiffs and, thus, FSC/RMF had no duty to further explain the legal significance of the arbitration agreements beyond their express written language. The court further found that all of the FSC transaction forms were “subject to regulatory approval” and that there was no evidence or assertion that the forms did not conform with applicable securities regulations.
¶11 Though the arbitration language in each account agreement differed slightly depending on the version the forms in use at time of execution, the District Court determined that the arbitration agreement language in each form was substantively similar, clear, and unambiguous. The court ultimately concluded that each Investor had knowingly and voluntarily executed a valid arbitration agreement and associated waiver of their Montana constitutional rights to full legal redress and a jury trial. [7] The court thus granted the motions of FSC and RMF and compelled the Investors to submit to binding arbitration before FINRA. Upon obtaining an order to stay proceedings pending appeal, six of the original eleven plaintiffs timely appeal.
STANDARD OF REVIEW
¶12 We review district court conclusions of law, and resulting orders compelling
arbitration, de novo for correctness.
Global Client Solutions, LLC v. Ossello
,
DISCUSSION ¶13 Investors assert that the District Court erroneously stayed litigation of their claims and compelled them to submit to arbitration on the asserted grounds that FSC and RMF failed to satisfy their burden of proving that Investors (1) knowingly entered into integrated contractual agreements providing for arbitration and (2) validly waived their Montana constitutional rights to full legal redress and jury trial. Investors further assert that the District Court erroneously cоncluded that the standard-form arbitration agreements were not unconscionable.
¶14 Enacted in 1925 to offset “widespread judicial hostility to arbitration agreements,”
the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, mandates that arbitration agreements
involving interstate commerce are valid and enforceable “on equal footing with all other
contracts.”
Thompson v. Lithia Chrysler Jeep Dodge of Great Falls
,
Ct. 927, 941 (1983)). The FAA encompasses a discrete “body of federal substantive law
of arbitrability applicable to any arbitration agreement within the coverage of the Act.”
Perry
,
¶15 1. Did the District Court erroneously conclude that Investors knowingly and
voluntarily assented to the subject arbitration agreements and validly waived their rights to full legal redress and jury trial?
*13
¶16 Arbitration agreements are “valid, irrevocable, and enforceable” except “upon such
grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.
Arbitration agreements governed by the FAA are subject to all generally applicable state
law contract principles “such as fraud, duress, or unconscionability, but not by defenses
that apply only to arbitration or that derive their meaning from the fact that an agreement
to arbitrate is at issue.”
Concepcion
,
¶17
“The fundamental tenet of modern contract law is freedom of contract”―parties are
free to “agree to terms governing their private conduct as long as those terms do not conflict
with public laws.”
Arrowhead School Dist. No. 75 v. Klyap
,
¶18 All contracts must contain four essential elements: (1) identifiable parties capable
of contracting; (2) consent of the parties; (3) a lawful object; and (4) consideration. Section
28-2-102, MCA;
Kortum
, ¶ 18. Contract formation is based on the consent of the parties
and arbitration is a matter of consent.
Volt Information Sciences, Inc. v. Board of Trustees
of Leland Stanford Junior Univ
.,
There must be mutual assent or a meeting of the minds on all essential terms to form a binding contract. Consent is established when there has been an offer and an acceptance of that offer. More specifically, . . . in order to effectuate a contract there must be not only a valid offer by one party, but also an unconditional acceptance, according to its terms, by the other.
Keesun Partners v. Ferdig Oil Co., Inc.
,
¶19
In addition to compliance with generally applicable contract principles, arbitration
agreements must also comply with state constitutional standards generally applicable to
contracts.
Kortum
, ¶¶ 25-27. Arbitration agreements necessarily effect a waiver of a
party’s state and federal constitutional rights to full legal redress, jury trial, due process of
*15
law, and equal protection of law.
[9]
Kortum
, ¶ 26. The Montana constitutional rights to full
legal redress and jury trial are fundamental rights entitled to the highest level of
constitutional scrutiny and protection.
Kortum
, ¶¶ 25-26. A waiver of a fundamental
Montana constitutional right is valid only if made knowingly, voluntarily, and intelligently
under the totality of circumstances.
Kortum
, ¶¶ 26-27;
Park v. Montana 6th Jud. District
Ct.
,
¶20 Here, Investors do not dispute that they entered into the subject brokerage agreements based on mutual consent and consideration. Substantial evidence exists that the FSC brokerage contracts included a standardized client application form, an application form signature page, and a customer agreement form, inter alia . With minor variation, the signature page forms conspicuously, clearly, and unambiguously referenced a separate customer agreement form and conspicuously gave notice that the customer agreement form contained an arbitration agreement. Though generated and maintained in separate forms, the FSC system printed-out the application, customer agreement, and signature page forms in a single-document format for client review and signature. In both formats, the transaction documents clearly, conspicuously, and unambiguously stated and explained that the customer agreement form was an essential part of the contract terms to which Investors were assenting, the nature of arbitration in contrast to litigation, that all disputes arising from the agreement were subject to binding arbitration, and that the agreement effected a waiver of the rights to full legal redress and jury trial. The signature pаge form also clearly, conspicuously, and unambiguously stated and notified the signatory that, by signing, the client acknowledged receipt of a copy of the customer agreement form.
¶21 Though all but one of the plaintiffs proceeded without representation of counsel [10] and FSC/RMF indeed dictated the arbitration agreements with no opportunity for negotiation, substantial evidence manifests that all Investors were highly educated, experienced, knowledgeable, and sophisticated market investors. Substantial evidence indicates that the Investors were well aware of, and more than capable of understanding, the nature of arbitration, that all account-related disputes would be subject to arbitration, and that they were waiving their rights to full legal redress and jury trial. No evidence indicates that Investors’ assent tо the arbitration agreements was the product of non-disclosure, mistake, fraud, misrepresentation, coercion, or duress. There is similarly no evidence that RMF induced or otherwise lulled the Investors into believing that RMF or FSC would not enforce the arbitration agreement.
¶22 A party who executes a written contract is presumed to have read and understood
the contract and assented to its terms.
Woodruff v. Bretz
,
¶23 Here, under the totality оf the circumstances, the asserted fact that some or all Investors did not recall seeing or reading the customer agreement forms is insufficient to overcome the presumption that they read and understood the consequences of the clear and unambiguous language of the arbitration agreement in the customer agreement forms, particularly in light of the conspicuous signature page language affirmatively certifying their receipt of those forms. Moreover, substantial evidence affirmatively indicates that Investors received, were aware of, understood, and knowingly, voluntarily, and intelligently assented to the arbitration agreements and associated waivers of their rights to full legal redress and jury trial. Under the totality of the circumstances, we hold that the District Court correctly concluded that Investors knowingly, voluntarily, and intelligently assented to the subject arbitration agreements and validly waived their associated rights to legal redress and jury trial.
¶24 2. Did the District Court correctly conclude that the subject arbitration agreements
were not unconscionable?
¶25 The terms of an otherwise validly formed contract are unenforceable under
generally applicable contract principles if the terms are either contrary to public policy or
unconscionable.
Kortum
, ¶¶ 26-27. Over the years, we have needlessly complicated this
analysis by inconsistently defining equitable unconscionability and erroneously
interjecting the insurance-specific reasonable expectations doctrine into our generally
*19
applicable unconscionability analysis. Since 1986, we have repeatedly held that arbitration
agreements in otherwise validly formed contracts of adhesion are unenforceable only if not
within the “reasonable expectations” of the weaker party or nevertheless “unduly
oppressive, unconscionable, or against public policy.”
E.g.
,
Tedesco v. Home Savings Bank
Corp
.,
¶26 As a threshold matter, violation of public policy is an independent, generally
applicable ground for invalidating a contract provision, separate and distinct from equitable
*20
unconscionability or the reasonable expectаtions of
the weaker party.
See
§§ 28-2-102(3), -602, -603, and -701, MCA (requirement for lawful object as an essential
element for contract formation).
See also
,
e.g.
,
State Farm Mut. Auto Ins. v. Gibson
, 2007
MT 153, ¶ 11, 337 Mont. 509, 163 P.3d 387 (holding insurance anti-stacking provision
invalid as contrary to public policy).
[12]
In contrast,
in modern contract law,
unconscionability is a two-element equitable doctrine rendering an otherwise validly
formed contract or term unenforceable
[13]
if (1) the contract or term is a contract of adhesion
and (2) the contract or term unreasonably favors the stronger party or is unduly oppressive
to the weaker party.
Junkermeir, Clark, Campanella, Stevens, P.C. v. Alborn, Uithoven,
Reikenberg, P.C.
, 2016 MT 218, ¶ 33, 384 Mont. 464, 380 P.3d 747
; Day
, ¶ 8;
Kelker
,
¶ 29;
Fisher ex rel. McCartney v. State Farm Mut. Ins. Co.
,
¶27 However, whether viewed as stemming from the modern Uniform Commercial
Code,
see Leibrand
,
There is nothing in the record to indicate that the arbitration clause . . . was not within the parties’ reasonable еxpectations. Nor is there any evidence that the clause is oppressive or unconscionable.
Passage
,
¶28 While we have attempted to clarify the “‘reasonable expectation’ analysis” as a mere “subset of whether a contract is ‘unconscionable,’” Kelker , ¶¶ 18-19 (recharacterizing reasonable expectations of weaker party as an included consideration when determining whether terms of a contract of adhesion unreasonably favor stronger party rather than as an independent defect), we have continued to perpetuate confusion by inaccurately rеferencing unconscionability, unduly oppressive terms, and terms beyond the reasonable expectations of the weaker party as distinct grounds for determining that a contract of adhesion is unenforceable. See , e.g. , Tedesco , ¶ 32; Day , ¶ 11; Kelker , ¶ 18. Even more problematic in particular regard to arbitration agreements, we have failed to recognize the manifest incompatibility of the insurance-specific reasonable expectations doctrine as a generally applicable contract principle.
¶29 Contrary to our attempt to merge the reasonable expectations doctrine with equitable
unconscionability, they are two wholly separate and distinct legal concepts.
See Fisher
,
¶¶ 41-44 (separately analyzing whether standard-form insurance contract provision
violated public policy, was within reasonable expectations of the weaker party, or was
*23
unconscionable). As first recognized in
Transamerica Ins. Co.
,
§§ 28-2-905(1) and 28-3-303, MCA (resort to extrinsic evidence to construe clear and unambiguous contract language prohibited―intent of parties to written contract must “be ascertained from the writing alone if possible”). Thus, the reasonable expectations doctrine is incompatible as a generally applicable contract principle, particularly in regard to FAA-governed arbitration agreements.
¶30 However, without reference to the reasonable expectations of the weaker party and to the extent not arbitration-specific, the non-exclusive Kortum factors remain relevant considerations, inter alia , to whether a valid waiver of applicable Montana constitutional rights has occurred and whether the terms of a contract of adhesion are equitably unconscionable under the totality of the circumstances in a particular case. Day , ¶ 11; Kelker , ¶¶ 20-24 (citing Highway Specialties , ¶ 16, and 7 Arthur Linton Corbin, Corbin on Contracts , § 29.4 (Joseph M. Perillo ed., rev. 2017)); Kortum , ¶¶ 26-27. Thus, clarifying our oft-stated rule from Passage and its progeny: (1) the reasonable expectations doctrine is not a generally applicable contract principle; (2) whether the terms of a contract of adhesion are unduly oppressive to the weaker party is a relevant consideration of equitable unconscionability rather than a separate concept; and (3) the Kortum factors remain relevant to whether a valid waiver of applicable Montana constitutional rights has occurred and whether a contract or term of adhesion is unconscionable.
¶31 Applied here, the standard-form FSC arbitration agreements were unquestionably
contracts of adhesion. Whether a contract term of adhesion unreasonably favors the
stronger party or is unduly oppressive to the weaker party, is a mixed question of fact and
law under the totality of circumstances surrounding the execution of the contract. In
*26
addition to the non-exclusive
Kortum
factors, other relevant considerations may include,
inter alia
, whether the disputed term was common in prior dealings between the parties,
whether the weaker party carefully reviewed the agreement, and whether the stronger party
personally explained the nаture and consequences of the disputed term.
Woodruff
, ¶ 15;
Kloss
, ¶ 28. However, absent a fiduciary relationship or other special relationship of trust
and reliance, securities brokers and advisors have no duty to further explain the legal
consequences of a clear, explicit, and conspicuous arbitration agreement.
Chor
, 261 Mont.
at 149-53,
¶32 As in our foregoing analysis of the sufficiency of Investors’ waiver of their Montana
constitutional rights, the
Kortum
factors similarly indicate that the FSC arbitration
agreements were not unreasonably favorable to FSC/RMF or unduly oppressive to
Investors. As manifest in this case, standard-form arbitration agreements are common, if
not pervasive, in securities brokerage contracts.
See
,
e.g.
,
Passage
,
¶33 Finally, there is substantial, uncontradicted evidence that the FSC brokerage
agreement forms were subject to regulatory oversight and approval by the federal SEC and
FINRA. There is no evidence or allegation that they did not comply with applicable SEC
regulations. “Agreements to arbitrate disputes in accordance with SEC-approved
procedures are not unconscionable as a matter of law.”
Chor
,
CONCLUSION ¶34 We hold that the District Court’s findings of fact arе supported by substantial evidence and not clearly erroneous. We hold that the District Court correctly concluded that Investors knowingly, voluntarily, and intelligently assented to the terms of the standard-form arbitration agreements and validly waived their associated Montana constitutional rights to full legal redress and jury trial. We hold further that the District Court correctly concluded that the standard-form FSC arbitration agreements were not unconscionable. Therefore, we hold that the District Court correctly compelled Investors *28 to submit their claims against FSC and RMF to arbitration pursuant to the subject arbitration agreements.
¶35 Affirmed.
/S/ DIRK M. SANDEFUR We concur:
/S/ MIKE McGRATH
/S/ JIM RICE
/S/ INGRID GUSTAFSON
/S/ JAMES JEREMIAH SHEA
/S/ LAURIE McKINNON
/S/ BETH BAKER
Notes
[1] Investors also purchased other securities through FSC/RMF throughout this period.
[2] FINRA is a private corporation that acts under the approval of the SEC as an industry self-regulatory organization regulating member brokerage firms and exchange markets to ensure fair and honest industry operations. At all times pertinent, FSC was a FINRA member.
[3] The National Association of Securities Dealers (NASD) was the SEC-approved predecessor of FINRA.
[4] Some of the Investors signed several FSC account applications as a result of opening multiple accounts.
[5] FSC presented uncontradicted testimony that it regularly issued account statements to clients for every month in which a client conducted an account transaction and at least quarterly each year.
[6] Investors’ second amended complaint alleged, inter alia , that brokers tortiously induced them to purchase Invizeon securities subsequent to execution of their FSC brokerage account agreements.
[7] See Mont. Const. art. II, §§ 16 and 26 (rights to full legal redress/access to courts and jury trial).
[8] See also 9 U.S.C. § 4 (court shall compel arbitration “in accordance with the terms оf the agreement” on motion and determination “that the making of the agreement for arbitration or the failure to comply therewith is not in issue”); Merrill Lynch, Pierce, Fenner & Smith v. Haydu , 637 F.2d 391, 395 (5th Cir. 1981) (“state court bound to apply” provisions of FAA “if statutory requisites are present”).
[9] See Mont. Const. art. II, §§ 14, 16-17, 26 (right to equal protection of law, access to courts, due process of law, and jury trial); U.S. Const. amend. XIV (right to due process and equal protection of law).
[10] One of the Investors was a licensed Montana lawyer.
[11] We have interjected the
Passage
reasonable expectations/unconscionability rule beyond the
arbitration agreement context into our assessment of other types of contracts of adhesion.
See
,
e.g.
,
Highway Specialties, Inc. v. Montana Dept. of Transp.
,
[12] But see Restatement (Second) of Contracts § 208 cmt. a-b (1981) (noting conflated view violation of public policy as a consideration of unconscionability).
[13] “Particular [contract] terms may be unconscionable whether or not the contract as a whole is unconscionable.” Restatement (Second) of Contracts § 208 cmt. e (1981).