Doctor’s Associates Inc. v. Casarotto

PETITIONER:Doctor’s Associates Inc.
RESPONDENT:Casarotto
LOCATION:10th Judicial Circuit Court – Jefferson

DOCKET NO.: 95-559
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Montana Supreme Court

CITATION: 517 US 681 (1996)
ARGUED: Apr 16, 1996
DECIDED: May 20, 1996

ADVOCATES:
Lucinda A. Sikes – Argued the cause for the respondents
Mark R. Kravitz – Argued the cause for the petitioners

Facts of the case

Paul Casarotto, a Subway sandwich shop franchisee, sued franchisor Doctor’s Associates, Inc. (DAI) and its agent, Nick Lombardi, in a Montana state court when a dispute arose between the parties with regard to a standard form franchise agreement for the operation of the shop. The court stayed the lawsuit pending arbitration pursuant to the arbitration clause set out in ordinary type on page nine of the franchise agreement. In reversing, the Montana Supreme Court held that the arbitration clause was unenforceable because it did not meet the state-law requirement, 27-5-114(4), that “[n]otice that a contract is subject to arbitration” be “typed in underlined capital letters on the first page of the contract.” DAI and Lombardi unsuccessfully argued that the state-law requirement was preempted by the Federal Arbitration Act (FAA), which declares written provisions for arbitration “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The Montana Supreme Court focused on the question of whether the application of 27-5-114(4)’s notice requirement would undermine the FAA’s goals and policies. In the Montana court’s judgment, the notice requirement did not undermine these goals and policies, for it did not preclude arbitration agreements altogether.

Question

Does the Federal Arbitration Act preempt Montana’s first-page notice of arbitration requirement?

William H. Rehnquist:

We’ll hear argument next in Number 85… 95-559, Doctor’s Associates, Inc., v. Paul Casarotto.

Mr. Kravitz.

Mark R. Kravitz:

Thank you, Mr. Chief Justice, and may it please the Court:

Section 2 of the Federal Arbitration Act makes written provisions valid, irrevocable, and enforceable except for grounds that apply for the revocation of any contract.

In this case, however, the Montana supreme court refused to enforce the parties’ agreement to arbitrate because it failed to comply with the heightened notice statute that, by its plain language, applies only to arbitration agreements and not to other contracts.

Respondents thus have tried to recast Montana’s notice statute as codifying some general principle of unexpectedness, but that effort fails for two reasons.

First, Montana’s law does no such thing, since it applies to only one type of provision, arbitration agreements, and it applies to them whether they’re unexpected or not.

Second, the FAA prevents a court from refusing to enforce the parties’ agreement to arbitrate on the basis of a State law principle that turns on the fact that the subject matter involved is arbitration.

Thus, under the FAA, a State may not decide, as Montana has decided here, that a contract is fair enough to enforce its basic terms but not fair enough to enforce its arbitration clause.

Congress enacted the Federal Arbitration Act to clear away judicial and legislative suspicion of arbitration, in and so doing, Congress decided for itself to determine the circumstances under which arbitration clauses would be enforceable, unencumbered by State law constraints.

To that end, the text of section 2 alone determines the enforceability of an arbitration agreement, and that text provides that arbitration provisions are enforceable and valid and irrevocable, save for one explicit, and explicitly limited, exception: upon grounds that exist for the revocation of any contract.

We believe that in determining whether or not a State law or principle fits within that savings clause, two considerations are paramount.

First, the savings clause is an exception to a sweeping general rule of enforcement.

Therefore, the Court must be on its guard not to allow the exceptions to swallow or undercut the general rule.

Second, section 2 establishes a principle of what I’ll call rigorous equality for arbitration clauses.

They may be no less valid, no less enforceable, and no less irrevocable than other contract terms under State law.

As a result, this Court has identified two tests that State laws or principles must pass before a law fits within the savings clause.

First, the law must be one of general application.

That is to say, it must apply to contracts generally.

Secondly, even if it is in theory a general principle of law, the particularized application of that general principle cannot turn on the fact that the subject matter involved is arbitration.

Anthony M. Kennedy:

Suppose that the State had a statute which said that the following terms have to be in bold face type: price, term of the contract, choice of law, add a few more if you can think of them, and arbitration.

Would that be a valid State law that’s enforceable?

Mark R. Kravitz:

Depending upon the law, the nature of the law and the things that are included, I think not, and I think it would fail really under two principles.

First, unless the list was quite long, it would not apply to contracts generally but just apply to a few things, and secondly–

Anthony M. Kennedy:

No, this… no… well, I’ll amend the hypothetical, then.

It applies to contracts generally, it says.

Mark R. Kravitz:

–Right.

Well, it applies to all written contract terms?

Anthony M. Kennedy:

All written contracts.

Mark R. Kravitz:

Okay, and does it apply to–

Anthony M. Kennedy:

You have to bold face type… bold face type for price, terms of the contract, choice of law, arbitration.

Mark R. Kravitz:

–Okay.

Then I think you have to ask yourself really the second–

Anthony M. Kennedy:

And whether or not attorney’s fees are allowed.

[Laughter]

Mark R. Kravitz:

–Of course, the more things you put in it, the more it looks like a general principle, but then you have to ask yourself, it seems to me, the second test, which is, why does it make the list?

Why does arbitration make the list, and if it’s making the list because, of course, the court feels that they’re concerned about people arbitrating as opposed to litigating disputes, they think that they’re giving up an especially important right, then, depending upon the size of that list, it may still fail to pass the second principle, that the court has–

Ruth Bader Ginsburg:

Mr. Kravitz, suppose it were concentrated, the clause were concentrated on the forum and were general.

Suppose it read, no choice of forum or choice of law clause in any forum contract will be enforced unless notice of the chosen forum is typed in underlined capital letters.

So it’s general, all contracts, it’s any choice of forum, any choice of law clause.

Mark R. Kravitz:

–Well, certainly if that… if… I just have to ask one more question about that.

If that law applies only to choice of forums that are in arbitration agreements–

Ruth Bader Ginsburg:

It applies to all contracts.

If you have a choice of law or choice of forum, including arbitration, you could pick the–

Mark R. Kravitz:

–Right.

Ruth Bader Ginsburg:

–commercial court in Zurich.

Mark R. Kravitz:

Sure.

Ruth Bader Ginsburg:

It would be the same thing as… any choice of forum in a forum contract, so it’s not all contracts, its just in forum contracts.

Mark R. Kravitz:

That’s–

Anthony M. Kennedy:

Would that be–

Mark R. Kravitz:

–Well, it would… for… I believe it would cause the same problems that we’re addressing, if I may explain.

Assuming that it applies just to both litigation and arbitration, it begins to look more general.

However, what the State is saying in that circumstance, the circumstance you’re positing, is, okay, well, we’ll let you arbitrate, but you have to do it under our rules, and I believe that when the court… when the States are permitted to start tinkering with the parties’ choices about how they wish to arbitrate, it raises many of the same concerns.

For example, if the court–

Ruth Bader Ginsburg:

–Suppose… do you have any doubt about whether such a provision would be valid as to choice of a court?

Suppose the State said, any choice of a judicial forum–

Mark R. Kravitz:

–Right.

Ruth Bader Ginsburg:

–any choice of law to govern this contract has to be put in… on page 1?

Mark R. Kravitz:

The FAA does not speak to such clauses, and certainly that would not run afoul of the Federal Arbitration Act.

Whether there’s anything else–

Ruth Bader Ginsburg:

Well then, you seem to be saying the Arbitration Act, far from allowing laws of general application to apply, says a law of general application about choice of forum can apply to all other contracts but not to arbitration contracts.

Mark R. Kravitz:

–What I’m saying is, Your Honor, and obviously the hypothetical you’re posing is very different from the statute, what I’m saying is that as the States begin to tinker with the parties’ choices of the rules under which they’ll conduct their arbitration, you begin to raise the same issues.

For example, if I may, if a State said, okay, you can arbitrate, but you have… the arbitrators have to be chosen from the voter rolls in a certain town, and you have to have 12 arbitrators, and all the rules of evidence have to apply–

Ruth Bader Ginsburg:

What does that have to do with saying choice of forum has to be on page 1?

Mark R. Kravitz:

–Because I think that to the extent that one is tinkering with the choice that the parties made of the method in which they’re going to resolve their dispute, that it raises the issue as to whether or not one is trying to interfere with the parties’ choice of arbitration, or one is trying to do something else.

Anthony M. Kennedy:

Isn’t the–

–Of course, one of the underlying issues here is that in these cases typically one party will say, I didn’t make this choice.

I didn’t know anything about it.

I signed this thing.

If we are concerned that this is happening more and more, do the Federal courts have the authority to develop a law of adhesion of contracts so that as a matter of Federal common law, I suppose under the Arbitration Clause, the courts could develop certain rules to protect the parties?

Mark R. Kravitz:

Well, Your Honor, I believe that the text of section 2 provides the answer to that, and that text says that the written provisions are valid, irrevocable, and enforceable, whether in State court or Federal court, save upon grounds that exist for the revocation of any contract, which is to say contracts generally.

Now, this Court in Perry and in First Options has said that you look to State rule, has made the choice that… let me step back, said as a matter of Federal law, therefore, the arbitration agreement is valid and enforceable.

The court has then looked to State principles of general application on revocability, but it has done that because the statute so provides, so I think that the court would be prohibited from developing specialized rules under some sort of Federal common law designed to impose on arbitration agreements limitations that are not applicable to clauses generally.

Anthony M. Kennedy:

Even though the evil sought to be cured is peculiarly related to arbitration contracts.

Mark R. Kravitz:

Yes, even though the evil thought–

Anthony M. Kennedy:

There’s something of a vacuum then, isn’t there.

Mark R. Kravitz:

–Well, but the law generally, of course, is that all of the terms in a forum contract, an adhesion contract are, in fact, presumptively valid, if you put your signature on it, so that in fact the law of contracts generally would say these are valid, and that law of contracts generally is being skewed solely… it’s singling out arbitration, and solely because of the fact that it’s arbitration involved as opposed to something else.

And one must ask oneself, why is one skewing the law that way, and it is because one is making a value judgment that arbitration is perhaps less good than a court proceeding, or the like, precisely the value judgment Congress sought to take the way from both Federal courts and State courts and State legislatures when it enacted the FAA.

David H. Souter:

But going back to Justice Ginsburg’s question, if we knew for a fact that her choice of forum limitation did not… did not really bear on, or have application to arbitration agreements to any degree beyond their application to any other choice of forum agreements, if we knew that there was no reason to suppose that it was aimed at arbitration agreements, that it was being enforced sort of evenhandedly with all choice of forum agreements, and that there were plenty of choice of forum agreements which were not arbitration agreements, in that case we would say, that’s general enough, and that wouldn’t violate the FAA–

Mark R. Kravitz:

Certainly… certainly as you posit it, Justice Souter, it sounds general enough, but I would ask the Court to–

David H. Souter:

–So should… may it–

Mark R. Kravitz:

–what principal… I’m sorry.

David H. Souter:

–No, you go ahead.

Mark R. Kravitz:

Well, I would ask the question, what principle, then, would determine overriding the parties’ choice of where they arbitrate in that case from choosing the AAA rules, which provide, for example, for the rules of evidence don’t apply, and where do you draw the line–

Ruth Bader Ginsburg:

It’s not overriding the choice, it’s simply a notice requirement.

Mark R. Kravitz:

–I’m sorry.

Ruth Bader Ginsburg:

It’s simply a notice requirement that you notify the… in the forum contract you put certain things on page 1, and one is choice of forum.

Mark R. Kravitz:

I’m sorry.

Ruth Bader Ginsburg:

–so we’re not talking anything about the rules–

Mark R. Kravitz:

Okay, I’m sorry.

Mark R. Kravitz:

I thought that you were talking about that you could not arbitrate outside the State, and certainly a rule such as that–

Ruth Bader Ginsburg:

–No, there’s–

Mark R. Kravitz:

–would cause those problems.

Ruth Bader Ginsburg:

–It’s a… it says that choice of forum and choice of law go on page 1.

Mark R. Kravitz:

Mm hmm.

Well, again, I–

Antonin Scalia:

Well, the problem you’re confronting is–

Mark R. Kravitz:

–that’s not the statute here.

Antonin Scalia:

–that as far as its generality is concerned–

Mark R. Kravitz:

Right.

Antonin Scalia:

–that is no different from a provision that says choice of forum provisions are invalid.

Mark R. Kravitz:

I think that that’s–

Antonin Scalia:

As far as its generality is concerned, the one is the same as the other.

Mark R. Kravitz:

–That is correct.

Antonin Scalia:

And you would certainly not assert that the latter is okay under the FAA, would you?

Mark R. Kravitz:

No, I would not, and indeed, just to follow up on that point, it has been argued by the respondents that this is just a notice statute.

This doesn’t affect the enforceability of these clauses.

But that argument is simply not so.

This law, which is labeled a notice law, says that arbitration clauses containing agreement without notice are not enforceable, whereas the other terms in the same agreement, without notice, are enforceable, so this statute, which is nominally denominated in a notice statute does, in fact, go to the enforceability of the arbitration clause.

Stephen G. Breyer:

Are there other provisions… what other statutes or rules of law in Montana require other kinds of clauses besides arbitration clauses to be typed in underlying capital letters on the first page of a contract?

Mark R. Kravitz:

There are a few isolated examples.

Stephen G. Breyer:

What are they?

Mark R. Kravitz:

Pardon?

Stephen G. Breyer:

What are they?

Mark R. Kravitz:

Actually, I’m not sure that any actually requires an underline on the first page.

There are… as you might imagine, the UCC, for example, says that a disclaimer of implied warranties has to be “conspicuous”.

That’s a heightened notice statute.

I believe the respondents make reference to retail instalment contracts requiring certain disclosures.

I don’t believe they’re underlined in capital letters.

But basically, we’re talking about not the law generally in Montana.

Stephen G. Breyer:

Well, I mean, that would be the question.

If there are a whole lot of provisions like this, and this is not different, then I guess it isn’t just for arbitration, and if, in fact, this seems to be quite different, or there are only a handful, then it does seem different just for arbitration.

Mark R. Kravitz:

I would agree with you.

Stephen G. Breyer:

So which is it?

I mean, I’m sure I’m going to hear the argument, in a few minutes, that there are a lot of other things.

Mark R. Kravitz:

It is certainly just a handful.

Stephen G. Breyer:

Yes.

Mark R. Kravitz:

It is certainly just a handful, but I would suggest that even if it were 5 or 10, and I don’t believe it is, but let’s say it was even 5 or 10, we’re not talking about a coherent body of general law applicable generally, we’re talking about things that are singled out, and why… and they’re singling out arbitration in this statute in the same way in which they’re singling out other things and not applying the law generally, because the law generally says that these clauses, even if it’s in an adhesion contract, even if there’s unequal bargaining power, if the signature’s on it, these clauses are… everything else in that contract is presumptively valid.

William H. Rehnquist:

You’re saying that if there are several other examples, but in separate part of the statutes it still shows kind of an ad hoc approach to each particular thing rather than a general feeling that all of these particular things should be subject to heightened notice.

Mark R. Kravitz:

Exactly, Mr. Chief Justice.

David H. Souter:

Well, are you saying, then, that there can be no… there can be no general rule within the meaning of the statute that refers to, in substantive terms to the kind of provision that it applies to?

In other words, the State law says, no agreements without offer and acceptance.

We can certainly find that an arbitration agreement fails for lack of offer, or lack of acceptance.

Mark R. Kravitz:

Okay, but when you’re–

David H. Souter:

But–

Mark R. Kravitz:

–If that were the general principle announced, then you’d go to the second prong of our test, which is, is it’s application in that particular circumstance, does it turn on the fact that it’s arbitration, and the answer is no.

It turns on the fact that there’s no acceptance.

David H. Souter:

–But then it becomes complicated when you get to examples in which there’s a whole series of terms upon which it may turn, and I think you’re saying, but I’m not sure, no matter how long that series might be, as in Justice Breyer’s example, as long as there is a substantive reference to arbitration, that it would fail.

Are you saying that?

Mark R. Kravitz:

Yes… I would say again, does it go back to our… the two tests that this Court has identified?

If the list is long, maybe it then qualifies as a law of general application, but it’s… the second part is, why does it… why is it being applied in this circumstance, and in this case, as you posit, it’s making that list because it’s arbitration.

Stephen G. Breyer:

Suppose I didn’t agree with you about that.

Suppose I thought that just, well, look at the other things on the list, and if there are a lot of things on the list, maybe it’s just treating them like that, and if there are only one or two or three, and they look different, then they’re singling out arbitration.

All right, on that assumption, how would you argue this?

I mean, I’m–

Mark R. Kravitz:

Under that assumption, we’d still prevail in this case.

Stephen G. Breyer:

–Because–

Mark R. Kravitz:

Because this law only applies to arbitration, one.

Secondly, under the general law in Montana, as reflected in the cases, all the other terms are valid, and third, even though they may be able to point to a few instances in which other things have been singled out, as arbitration is being singled out here, they’re not talking about the laws that apply to contracts generally, they’re talking about a handful of other things that simply don’t meet the test.

Stephen G. Breyer:

–The other things being–

Mark R. Kravitz:

So even under that construct it fails.

Stephen G. Breyer:

–What are those?

I mean, do you want to say anything else about those other things?

Mark R. Kravitz:

I know the UCC… I’m aware because of their footnote that they’re retail installment contracts, but that’s all I’m aware of.

For example, Justice Breyer, I’m not aware of any principle in Montana law that waiving any constitutional right requires any special notice on the first page.

You can waive a jury trial… you can waive these things under Montana law, and nothing special is required, but something is specially required of arbitration under Montana law, and it… and the court explained why something special was required, and that was because the court itself and the legislature were concerned about citizens in Montana agreeing to a procedure that that court felt was devoid of all procedural protections.

Stephen G. Breyer:

The other things you can waive, one is jury trial.

Are there other important things you want to list that they can waive in Montana?

Mark R. Kravitz:

To be honest, Justice Breyer, we have looked to see whether there are special rules for waiving any constitutional rights in Montana, and we could not find any, so its… rather than having a list of things that you can, I haven’t found any in our review… in our review of the law.

Ruth Bader Ginsburg:

Mr. Kravitz, you answered the question to Justice Breyer that it would be the same outcome.

Suppose you had answered the other way to my question.

You’d say, choice of forum as a general matter is one thing.

That’s not what this Montana law says.

It says arbitration.

Mark R. Kravitz:

Right.

Your Honor, I guess I should have said at the outset, I have the view that I have about your question, but the answer, whether I accept your view or don’t accept your view, to your question doesn’t decide this case, because this case doesn’t deal with choice of forum.

It doesn’t deal with litigation and arbitration, it only deals with arbitration, and it only requires arbitration to be on the first page, and it only says… and it says that only arbitration is not enforceable if it’s not on the first page, so while we may–

Ruth Bader Ginsburg:

So are you saying I’m raising an academic question?

Mark R. Kravitz:

–Yes, Your Honor.

[Laughter]

It certainly is not a question that the answer for which determines this case at all, because of the focused nature of the statute, and I think that the courts… it’s important, under the savings clause, I believe, to interpret it and to enforce it and to apply it in the way in which, the manner in which this Court has done in its cases, which is to say, insist, as the language does, that only laws or principles that apply to contracts generally can be used to revoke an arbitration clause, and it’s important for really two reasons.

The first is that, if you want to allow States to add additional limitations, their own special rules or processes for arbitration agreements, it inevitably undercuts the enforceability of arbitration, and it makes them… puts them on a different footing than other contracts, so it impairs not only the words… violates the words as such, but impairs Congress’ intent that this Court has recognized to treat arbitration agreements like any other contract.

Anthony M. Kennedy:

Under that formulation, what about our decision in Volt?

Mark R. Kravitz:

Well, Your Honor, to be honest, we… I think that Volt is about the oddest place to find support for the Montana supreme court.

Volt enforced the parties’ choice of law.

Volt enforced the arbitration agreement.

In this case, the Montana supreme court refused to enforce the parties’ choice of law and refused to enforce the arbitration agreement.

Volt really was no different–

Anthony M. Kennedy:

That’s one way of characterizing it, but it did stay the arbitration pending judicial proceedings–

Mark R. Kravitz:

–But it didn’t say–

Anthony M. Kennedy:

–as I recall the case, and I’m… it’s not clear to me whether or not those judicial proceedings would have been binding on the arbitrator.

Mark R. Kravitz:

–Well–

Anthony M. Kennedy:

But let’s for a moment assume that they would have been, which I think was quite a plausible conclusion.

Mark R. Kravitz:

–Well, but you’re assuming, I think, in the question that the parties intended something different, and that’s what Volt is all about.

In fact, the parties intended that that was the result.

It was… Volt… I mean, really Volt is no different than if the parties had in their arbitration agreement spelled out and said, when there is litigation pending with someone else, this is how we’ll handle it, and the Court in Volt said that the… it took the California supreme court’s interpretation of the contract as the effective equivalent to what I’ve just posed and said, well, the FAA is about enforcing parties’ choices, and we need to enforce those choices, but that’s not the situation here.

And here we have a situation where the parties have said, Connecticut law governs, and we want to arbitrate, and the Court wiped away the Connecticut choice of law and then applied the Montana statute to eliminate the parties choice.

Anthony M. Kennedy:

And if the parties had chosen Montana law what would your result–

Mark R. Kravitz:

I don’t think the result… in the ordinary case the result wouldn’t be different, and I say that for this reason.

Certainly–

Anthony M. Kennedy:

–Then Volt becomes a harder case for you.

Mark R. Kravitz:

–Well, under Volt, then, you’re trying to determine the intent of the parties.

However, this Court this last term in the Mastrobuono case said… recognized it’s a cardinal principle of statutory interpretation that two clauses shouldn’t be seen to intrude on one another.

And one would ask the question then if the court finds that the choice of law clause is meant to actually render completely invalid another clause in the contract, are they applying principles of contract construction in an evenhanded manner, or are they applying them in a manner that’s skewed against arbitration?

And in Perry the Court said, in construing an arbitration clause, the court must do so the same way it would a nonarbitration clause, and so if, in fact, the court were overriding one clause of the agreement with another clause of the agreement and doing so because arbitration was involved as opposed to some other term, then that would run afoul of the FAA in the same circumstance, even when they chose Montana law in that circumstance.

And you wouldn’t ordinarily expect that the parties in one clause would say, we’ll arbitrate, and in another clause say, no, you know, we’re not going to arbitrate.

But I must say, as the amicus brief points out, that is what courts have been doing with Volt, contrary, I think, to the intent of Volt, is that they have been using a choice of law clause to say, well then, if you’ve chosen Montana law, we’ll just throw out the entire arbitration agreement.

That’s not what happened in Volt.

I don’t think that’s what Volt stands for.

It certainly isn’t what the Court explained it stood for in Mastrobuono, but yet that has been happening in courts below.

Of course, here again, the parties chose Connecticut law, and under Connecticut law this arbitration agreement is fully enforceable and fully valid, and the court then used the notice statute to void the parties’ choice of law, the same notice statute it used to void the parties’ choice of arbitration.

Justice Ginsburg.

Ruth Bader Ginsburg:

Could there be an arbitration clause in a forum contract that could be held unconscionable?

Mark R. Kravitz:

Well, let me say two things.

First, I want to make clear that this statute isn’t limited to forum contracts or adhesion contracts or anything else.

Going to your hypothetical, I believe the answer is no, if you are saying holding the fact of arbitration unconscionable.

If you’re striking down the entire contract, that would be acceptable under the construct that I’ve proposed, because then you would be fairly assured that what’s happening is a principle of general application, not something that is targeted to arbitration, so striking down the entire–

Antonin Scalia:

I don’t understand that.

Mark R. Kravitz:

–I’m sorry, Justice Scalia.

Antonin Scalia:

You say if you have an arbitration clause the State can invalidate the whole contract because the arbitration–

Mark R. Kravitz:

Oh, no, I–

Antonin Scalia:

–clause is unconscionable?

Mark R. Kravitz:

–No, I didn’t mean to say that–

Antonin Scalia:

Oh, okay.

Mark R. Kravitz:

–and let me make myself clear.

If they’re striking down the entire contract because there happens to be an arbitration clause in the contract, that would be invalid under Volt.

What I’m saying is, the Court might decide that all of the terms of this forum contract fell–

Ruth Bader Ginsburg:

Or enough of them.

Mark R. Kravitz:

–because they’re unconscionable, wholly apart from whether it has an arbitration clause.

For example, that–

David H. Souter:

Or that the arbitration clause itself got in there because of unconscionable contracts.

Mark R. Kravitz:

–Fraud in the inducement, for example.

David H. Souter:

Yes.

Mark R. Kravitz:

Or if the arbitration clause got in there because of fraud in the inducement, in that case… in that case, there would be general principle, fraud in the inducement, and it would be determined not because the subject matter is arbitration, but because there was a fraud that went on about a material term, so it would meet both of our tests in that regard.

Unless the Court has further questions, I would like to reserve my time.

William H. Rehnquist:

Very well, Mr. Kravitz.

Ms. Sikes, we’ll hear from you.

Lucinda A. Sikes:

Mr. Chief Justice, may it please the Court:

The issue presented in this case is whether a Montana notice statute, a statute which is aimed at ensuring that parties know that they’re signing a contract that includes an arbitration provision, is preempted by the Federal Arbitration Act.

The Montana notice requirement is different from all the State requirements that this Court has preempted in the past because its function is not to prevent arbitration but to help ensure that arbitration is consensual.

The statutes preempted in Southland, in Perry, and in Terminex prevented the enforcement of arbitration agreements so that there was nothing a person who wanted to enforce arbitration could do to make sure that it would be enforced.

Here, on the other hand, it’s in the total control of the person drafting the agreement to make sure that the arbitration provision will be enforced.

David H. Souter:

But you want to make the arbitration agreement more consensual than other forms of the con… other elements of the contract, that’s your problem, not that they want to make it consensual, but they want to make it more consensual, hyperconsensual, isn’t that your difficulty?

Lucinda A. Sikes:

I don’t think that’s what Montana is doing.

Let me explain why it falls within the savings clause of section 2 of the Federal Arbitration Act.

Suppose for a moment that Montana had not adopted the statutory notice requirement, but we had similar facts, so that the plaintiff had tried to sue… had filed a suit in court, the defendant had sought to stay litigation in order to compel arbitration, then the plaintiff could have gone into court and said that the arbitration was invalid under general contract principles that unexpected clauses in contracts need to be conspicuous.

And in that case, I don’t think that would have been prevented by the Federal Arbitration Act, because what the Court would be doing in that case is applying a general contract principle of unexpected… of reasonable expectations doctrine to the arbitration provision and invalidating it, and that that’s simply what the Montana court is doing–

David H. Souter:

But I–

Lucinda A. Sikes:

–the Montana legislature did in enacting this statute.

David H. Souter:

–But I don’t think we can really deal with that hypothesis based on what you give us, because if we… if it were shown on the record that this concept of the unexpected turned out to be a concept which is either applied in sort of an undisciplined fashion by courts so that it could be used to single out arbitration, or if it was shown that it was applied in a way which, by whatever set of principles, the State courts were… tended to fall heavily on arbitration, or if it could be shown that it was intended as a common law rule really to apply to arbitration and make it more difficult, we would say that there was not, in fact, a sufficient generality there, and that therefore the rule, the unexpectedness concept would fail because it wasn’t sufficiently general, and we just don’t know enough, I guess, even if we had the case that you hypothesize, to know how we would rule on that.

Lucinda A. Sikes:

Well, I think what the Montana… the Montana court has adopted the reasonable expectations doctrine, and they’ve spelled out how they apply the doctrine in two cases involving arbitration, and I think if you look at that doctrine, it could have been applied in this case.

William H. Rehnquist:

But it wasn’t.

Yes, but it wasn’t.

Lucinda A. Sikes:

No, it wasn’t applied in this case.

John Paul Stevens:

They applied the statute.

Lucinda A. Sikes:

Right, but my argument is, is that if it would have been okay for the Montana court to have invalidated it under those general contract principles, it should also be okay for the Montana legislature to do the same thing.

Ruth Bader Ginsburg:

But Ms. Sikes, can you explain to me why it’s unexpected?

Arbitration clauses are used in all manner of formal contracts.

It’s not immediately obvious that that would fit within the definition of unexpected terms.

Lucinda A. Sikes:

The notice provision, the notice requirement was enacted at the same time that… in 1985, when Montana was changing their entire law, and for the 100 years previously it had been Montana… in Montana’s statute that arbitration agreements weren’t going to be enforced, so I think it was perfectly reasonable for the Montana legislature to assume that it would be… it wasn’t a background knowledge that people had in Montana, because–

David H. Souter:

But isn’t there a policy answer to that?

In other words, shouldn’t we say, just on the hypothesis that you give us, that we would not… we should not recognize a State policy which brands as unexpected a form of adjudification… adjudication which it is Federal law and policy to promote?

Lucinda A. Sikes:

–But the statute itself does not discourage arbitration, and it doesn’t prevent the enforcement of arbitration.

David H. Souter:

Well, yes, but on your assumption, your assumption is that the arbitration clause may properly be found to be unexpected within the meaning of the Montana, either common law rule or statutory rule, and it seems to me that that, in and of itself, is at odds with Federal policy.

Lucinda A. Sikes:

Well, that–

William H. Rehnquist:

It’s not a question whether it discourages arbitration under the section 2.

The thing has to be put on such grounds as exist in law or equity for the revocation of any contract.

Lucinda A. Sikes:

–That’s right, and that provision has to mean something, and if there is a doctrine that says that… the unexpected terms and standardized form contract doctrine is not only applied to arbitration provisions, it’s applied to terms and standardized form contracts that the person signing the agreement might not expect.

William H. Rehnquist:

But the Montana supreme court didn’t apply that judge made doctrine here, did it?

Lucinda A. Sikes:

No.

No, it did not, but what the Montana legislature was doing in enacting the notice requirement in statute was essentially the same thing.

William H. Rehnquist:

Well, except apparently it thought that only arbitration would ever be unexpected.

Lucinda A. Sikes:

No, that’s not true.

There are some other examples–

William H. Rehnquist:

There’s no generality to the statute.

It simply singles out arbitration.

Lucinda A. Sikes:

–It does single out arbitration, but it’s… but the Montana… under Montana law, other provisions in a contract could be invalidated if they weren’t conspicuous under this general common law that’s also in Montana, and what the legislature is doing is simply creating a bright line rule that actually helps people who are drafting agreements to know, okay, if I’m going to put an arbitration provision in, it needs to be conspicuous, and this is how I need to make sure it’s going to be conspicuous.

William H. Rehnquist:

Well, why didn’t it help other people who were drafting other kinds of unexpected provisions?

Lucinda A. Sikes:

Well, you have to look at the reason that the legislature was doing it.

It wasn’t saying, okay, what are the unexpected provisions out there?

Lucinda A. Sikes:

It was done in a context of considering arbitration, and I don’t think a legislature has to do everything in order to do anything.

It was identifying–

Antonin Scalia:

Was this done simultaneously with the–

Lucinda A. Sikes:

–Yes, exactly.

In 1985, as a result of Southland, for the first time in Montana arbitration agreements became enforceable, and at that same time, the Montana legislature required there to be a notice given so that people knew that they were now signing a contract that included an arbitration provision.

Antonin Scalia:

–You want us to look at Montana law as a whole, and not at the statutory law separately from the judge made law, and you’re saying–

Lucinda A. Sikes:

Exactly.

Antonin Scalia:

–If you look at the whole ball of wax, this is just one piece of a general rule requiring notice of surprising provisions.

Lucinda A. Sikes:

Exactly.

That’s exactly–

Stephen G. Breyer:

And the other members of that class are?

Lucinda A. Sikes:

–The other members of the class in statute are terms and retail… retail installment contracts, part of the UCC requirements that petitioner was talking about.

Stephen G. Breyer:

And the ones that are in–

Lucinda A. Sikes:

But then also in common law Montana has invalidated certain provisions in insurance contracts, and also, Montana doesn’t have a huge body of case law.

They do look to California, because they adopted their code from California, so they also looked to the California common law, where there’s been several other types of provisions–

Stephen G. Breyer:

–I mean, is that listed in your… what I’d need would be, if we’re to look at it as a whole, is the list of provisions that don’t have to do with arbitration, where the law of Montana, whether judge made–

Lucinda A. Sikes:

–Yes.

Yes.

Stephen G. Breyer:

–or legislature made, does, in fact, require notice roughly similar to underlined capital letters on the first page of a contract, not that that has to be just in those words.

Lucinda A. Sikes:

Right.

It–

Stephen G. Breyer:

Where is that list?

I found a few things.

Lucinda A. Sikes:

–Yes.

There’s not a comprehensive list.

There’s some cases.

Stephen G. Breyer:

My guess is… I would assume, perhaps, that since you went through this, that the reason that there isn’t a comprehensive list is you weren’t able to find many things.

Lucinda A. Sikes:

There aren’t very many cases in Montana.

Stephen G. Breyer:

Or in the incorporation of California law, or any place… I mean, you’ve looked at this pretty thoroughly… it’s a good brief… and so my guess is, there just aren’t that many things.

Lucinda A. Sikes:

Well, I also would like to point out that in terms of arbitration agreements, they… before 1985 they were invalidated for a whole lot of other reasons, and so you’d only be looking at a short period of time, anyway.

Lucinda A. Sikes:

I wanted to go back to–

David H. Souter:

May I ask you a question before you leave the question Justice Breyer raised, and that is, in giving the answer that you could to his question, you were giving some examples that at least… perhaps I didn’t understand what you were saying, but they didn’t seem to suggest to me that they would be an appropriate part of the series of unexpected terms.

For example, you mentioned the terms of a retail installment contract.

What would be unexpected in buying a refrigerator on the installment plan in the fact that there were terms governing the installment payments?

What’s unexpected about that?

It seems to me that the concept these examples are pointing to is something other than unexpectedness.

Lucinda A. Sikes:

–I think that the rationale behind what the Montana legislature was doing in that is based on the understanding that people don’t necessarily read form contracts carefully, and so–

William H. Rehnquist:

That’s not the same thing as being unexpected.

Lucinda A. Sikes:

–Well, I think that the terms that need… in the statute have to do with the high interest rates that are in retail installment contracts, and so it wouldn’t be within the reasonable expectations of a person signing a retail installment contract that there were going to be such high interest rates applied–

David H. Souter:

But if that is an example of the series, then it seems to me that arbitration is being analogized with high, if not quite unconscionable interest, and it sounds to me like a series… whatever the adjective the State uses, it sounds like a series of disfavored terms, not unexpected terms.

Lucinda A. Sikes:

–It’s not that the term is disfavored, because if that were the case… well, obviously–

Ruth Bader Ginsburg:

Well, they’re not–

Lucinda A. Sikes:

–under the Federal law they couldn’t do that.

Anthony M. Kennedy:

–They’re not incompatible categories, are they?

The State can disfavor that which is unexpected–

Lucinda A. Sikes:

Exactly.

Anthony M. Kennedy:

–I assume, for the obvious reasons that parties will have their legitimate expectations, or what they felt were legitimate expectations.

Lucinda A. Sikes:

Exactly.

I think that’s right, and I think it’s important also to note that the way that that statute’s been applied in Montana is that if… that shows that it’s really a notice requirement and nothing more is the Chor case, that’s cited in our brief.

In that case, Ms. Chor signed a contract that included an arbitration provision.

She said that she understood at the time she signed the contract that the arbitration, that her… any disputes under the contract would have to be arbitrated, and even though the notice requirement wasn’t on the front page of that contract, the Montana supreme court went ahead and compelled arbitration.

I think that shows that in Montana it really is an informed consent provision.

If the parties consent to arbitrate, then the court is going to enforce it.

William H. Rehnquist:

Well, how did the supreme court of Montana avoid the statute in that case?

Lucinda A. Sikes:

It just kind of ignores it, actually.

It doesn’t really explain it.

It recognizes that the statute exists, but then… then–

Antonin Scalia:

Well then, our invalidation of it would make no difference, would it?

[Laughter]

Ms. Sikes, suppose we had a case of, instead of arbitration, there was an equipment… there were some… Montana, some farmers… I know Michigan does.

Antonin Scalia:

That’s where this case came from.

There’s a rental equipment thing that they sign with some company in New York, and they get into a big dispute, and then they find out this contract says they’ve consented to be sued in the State courts in New York.

Under your view of what the Montana law is, would that be… fall under this generally unexpected, so it would be no good?

Lucinda A. Sikes:

–Well, it actually would do more than that, because Montana has a statute… I wanted to point this out to Justice Breyer, too, that for bids, legal contracts from restraining legal… from putting any restraints on legal proceedings, so forum selection clauses that are outside the State in Montana are void as a matter of the statute, as would jury trial, so there’s no need to require notice of those waiver type provisions, because you just can’t waive your legal rights, except for arbitration.

That statute then, the–

Ruth Bader Ginsburg:

Forum selection clauses that are consented to?

You–

Lucinda A. Sikes:

–Right.

You can’t consent to forum selection clauses that are outside of the State in Montana.

You can’t–

Ruth Bader Ginsburg:

–And then, how about choice of law?

Lucinda A. Sikes:

–Well, the statute… it says restraints upon legal proceedings are void, so any… it’s been used to… every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract by the usual proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void, and it’s been used… it now has an exception, so it doesn’t invalidate arbitration agreements.

That was what… it was amended in 1985.

Before 1985, it was used to apply to arbitration provisions, but since then, it also has been applied for forum selection clauses, for statute of limitations–

Ruth Bader Ginsburg:

But if litigation is actually begun in the forum selected–

Lucinda A. Sikes:

–Well, in that case–

Ruth Bader Ginsburg:

–Montana would have no choice but to recognize it.

Lucinda A. Sikes:

–Oh, right.

Right.

Absolutely.

It seems to me that what the petitioner’s basic argument is is that whenever a court or legislature applies a general contract principle in a case involving an arbitration clause, that violates the Federal Arbitration Act because it singles out an arbitration… because by singling out the arbitration clause it shows hostility toward arbitration.

Sandra Day O’Connor:

Well, we don’t have to deal with that, of course–

Lucinda A. Sikes:

Okay.

No–

Sandra Day O’Connor:

–here, do we?

I mean, all we have to deal with, I suppose, is whether this particular law of Montana is valid or invalid under the Federal Arbitration Act provision.

Lucinda A. Sikes:

–I think that’s right, and I… but my point is is that Congress said that arbitration agreements can be invalidated upon grounds that exist for the revocation of any contract, and that the savings clause has to mean something, and if it doesn’t mean that a State can’t invalidate an unexpected clause in a standardized form contract and use that general principles and apply it specifically to arbitration clauses, then I don’t think section 2 means anything.

William H. Rehnquist:

Well, what are the other… you’re talking about the other unexpected things other than arbitration, and has the supreme court of Montana said that things other… provisions other than Montana, other than arbitration must be displayed on the first page of the contract in capital letters, or have they simply invalidated those provisions?

Lucinda A. Sikes:

They’ve invalidated them.

William H. Rehnquist:

Well then, that isn’t the same treatment.

Lucinda A. Sikes:

But what the Montana… the doctrine of how you determine whether or not something is within the reasonable expectations of someone signing the contract also has to go to whether it’s conspicuous or not.

The common law has developed that way, so if it’s on the front page of a contract you can’t argue any more that you didn’t expect to see it because it’s there, it’s in capital letters, and you see it, so you can no longer say, well, I didn’t know what I was signing.

William H. Rehnquist:

And so that’s how the unexpectedness doctrine works out in practice?

Lucinda A. Sikes:

Yes.

William H. Rehnquist:

To avoid it, you put it on the front page.

Lucinda A. Sikes:

Yes.

You make sure it’s conspicuous.

William H. Rehnquist:

Then you put, actually the important terms of the contract on the other pages.

[Laughter]

Lucinda A. Sikes:

Well, the people would be looking for those, and the common law doesn’t say it has to be on the front page, but… which is why I think the statute actually benefits parties, because it sets out what the person drafting the agreement has to do in order to make sure that their provision is conspicuous enough.

So it sets out a bright line rule.

Once it’s on the front page, they don’t have to worry.

They know it’s going to be enforced in Montana.

Montana has, since Southland, time after time, enforced arbitration agreements.

It’s not a State that’s refusing to enforce arbitration agreements.

They’ve only refused twice, once in this case and the other one, which was based on Volt, and all that the… the statute doesn’t create any burden, any significant burden on a business to comply with it.

It simply requires them to look in the statute, see what’s required, put it on the–

Ruth Bader Ginsburg:

Ms. Sikes, how about the problem that a Nationwide merchant has, and Montana says page 1 in capital letters, and suppose Nevada says, page 3 and bold face… these are form contracts that are prepared so they could be used in every State.

Lucinda A. Sikes:

–Well, that’s why I think that the Chor case is important, because it shows that in Montana technical noncompliance isn’t going to mean that the arbitration provision is going to be thrown out, so that if… if, in Montana, you had a… if you made sure that the arbitration provision was conspicuous in some other way, the evidence from Chor would be that the Montana supreme court would go ahead and enforce it, and I’d also just like to say that… I mean–

Ruth Bader Ginsburg:

But there you said it was… she knew about it.

Lucinda A. Sikes:

–Right.

She did know about it.

She did–

Ruth Bader Ginsburg:

All right.

Suppose the merchant has complied with California law, which requires on the first page but in ordinary type, and the person never read the contract, never knew anything about arbitration.

Lucinda A. Sikes:

–I think that the… that businesses who transact in interstate commerce… Doctor’s Associates has 10,000 franchisees across the country, and for each of… they have to comply with all sorts of different State laws as it is, so this is not a significant burden on them.

For example, 12 States have franchise–

Ruth Bader Ginsburg:

Well, that’s a different answer than the one you gave me before.

Lucinda A. Sikes:

–Yes.

I think–

Ruth Bader Ginsburg:

Now you’re saying they must comply with divergent laws–

Lucinda A. Sikes:

–I–

Ruth Bader Ginsburg:

–so they can’t use the one form.

Lucinda A. Sikes:

–I think that there’s evidence, given the Chor case, that the Montana court, if the provision was conspicuous, wouldn’t hold the party to such an exacting requirement as notice, because if it had been conspicuous in some other way, the purpose of the statute, of providing informed consent, would have been given.

Antonin Scalia:

That’s remarkable, given the terms of the statute, that unless such notice is displayed, the contract may not be subject to arbitration.

The court just says, well, that’s what it says, but we don’t–

Lucinda A. Sikes:

But the–

Antonin Scalia:

–That’s a little harsh, and we’re not going to do that.

Lucinda A. Sikes:

–Well, I wish–

Antonin Scalia:

They’re different out there in Montana, I guess.

[Laughter]

Lucinda A. Sikes:

–I think there’s two… there’s two points to your question.

First, I’m not sure that, given the Chor case, the Montana court wouldn’t have gone ahead and enforced an arbitration agreement anyway, but even if they were… looked at the Montana notice statute and said, it’s not the way we require, we’re going to invalidate the arbitration provision.

It’s not a tremendous burden on an interstate… on a business transacting business across the country to make sure that they comply with the different requirements of each State.

As I was saying, there’s 12 States that have these franchise registration and disclosure requirements.

Franchisers have to know what those are, and they have to comply with them.

This is just a insignificant burden compared to all the other State laws that someone has to comply with.

All it does is, it requires… it’s just to ensure that a person signing a contract knows that it includes an arbitration provision.

It doesn’t discourage arbitration in any way, and it is easy for someone drafting the agreement to comply with it.

It’s not a difficult process at all.

I also just want to–

Ruth Bader Ginsburg:

The selected forum was Connecticut, right?

They were going to have arbitration in Connecticut.

Lucinda A. Sikes:

–Yes.

Ruth Bader Ginsburg:

Could a Connecticut court, State or Federal, if there’s diversity, instruct the parties to cease and desist from continuing that legislation in Montana because they have bound themselves to a clause that says arbitration?

Would a Connecticut court that… whose law is, we give effect to these agreements, say to the parties over whom it has jurisdiction, stop litigating in Montana on pain of contempt of the Connecticut court?

Lucinda A. Sikes:

I don’t know.

That’s a… would be a matter of… I don’t think that that’s specific to this particular situation.

That would be in any case where there was… parties were trying to proceed in Montana and Connecticut thought that they had more jurisdiction over the case.

I don’t… that isn’t specific to whether arbitration is involved.

Ruth Bader Ginsburg:

Well, maybe it suggests that under the Federal Arbitration Act this contract has to be treated the same way in every State.

Lucinda A. Sikes:

Right, and so… well, I… the… I’m not sure I understand exactly what your question is.

Ruth Bader Ginsburg:

Well, I’m trying to suggest that this… there could be an unseemly confrontation among States that are proarbitration and States that are a little slow at getting there unless there’s a uniform interpretation to the Federal law, so that–

Lucinda A. Sikes:

But the Federal Arbitration Act did leave for the States the ability to invalidate arbitration agreements under general grounds that would apply to the revocation of any contract.

Ruth Bader Ginsburg:

–Yes, but the question is, how can you really argue that something that says arbitration is general grounds?

Lucinda A. Sikes:

Well, I… if you can’t say that, then I don’t see that the savings clause in section 2 means anything, because by singling… you’d always be singling out an arbitration provision in any kind of case where you were looking at the validity of the making of that agreement.

John Paul Stevens:

May I ask you a question?

I don’t mean to interrupt your… but I–

Lucinda A. Sikes:

My time is limited.

What–

John Paul Stevens:

–You may welcome a different question.

Is it your view–

[Laughter]

–that the… upon remand, supposing we agree with your opponent that the statute is unenforceable because it clearly singles out arbitration agreements.

Is it your view that on remand the Montana supreme court could reinstate its order saying the case may go forward in Montana on the ground that we have a common law principle that unexpected provisions have to be conspicuous, and this isn’t conspicuous?

Lucinda A. Sikes:

–Yes.

Yes.

John Paul Stevens:

So that this may not end the lawsuit even if you lose.

Lucinda A. Sikes:

Right.

I think… and if that is true that that’s okay, which I think it has to be under the savings clause, then what the Montana legislature did should also be okay, because it was essentially doing the same thing.

John Paul Stevens:

What the Montana legislature did under your view of Montana law was just superfluous, that they could have–

Lucinda A. Sikes:

Yes.

John Paul Stevens:

–simply repealed the prohibition against arbitration agreements and the Montana supreme court would have decided this case precisely the same way on this background principle of common law that they never mentioned.

Lucinda A. Sikes:

Yes, and so what they were doing was simply creating this bright line rule that actually benefits arbitration because it gives people that rule that they know they have to comply with.

Stephen G. Breyer:

Well, do you have in your brief on this the list of other cases decided on this basis, or this background rule, so that we’re… I mean, this started with Terminex–

Lucinda A. Sikes:

Let me–

Stephen G. Breyer:

–Like the termites, it keeps sort of coming back.

What I–

Lucinda A. Sikes:

–In case I don’t, there’s Transamerica v. Royale, which is the case where the Montana court adopted the reasonable expectations doctrine.

That’s at 656 P. 2d 820 at 824.

Lucinda A. Sikes:

Then it’s discussed again in Passage and Chor, which are both cited in my brief, State Farm v. Estate of Braun, which is 793 P. 2d 253.

It’s discussed again in Wellcome, with two L’s, v. Home Insurance Company, 849 P. 2d 190.

And I think it’s also important, though, to–

Antonin Scalia:

–Those are surely not cases which say that the provision in question must be typed in underlined capital letters on the first page of the contract.

Lucinda A. Sikes:

–No.

Antonin Scalia:

There are a lot of other ways of making it prominent.

Lucinda A. Sikes:

Right.

Antonin Scalia:

Like if you wave it in the face of a plaintiff–

Lucinda A. Sikes:

That’s–

Antonin Scalia:

–or do all sorts of things.

It would not be this statute–

Lucinda A. Sikes:

–No, that’s–

Antonin Scalia:

–that is being applied.

Lucinda A. Sikes:

–That’s correct.

That’s correct, but what the statute does is, it tells the party drafting the agreement how to be sure that it’s going to meet the requirements that–

John Paul Stevens:

This is a proarbitration statute.

[Laughter]

Lucinda A. Sikes:

–Right.

It encourages… it makes sure that, unlike, as I said, all the other statutes that this Court has preempted, this one is easy to comply with.

In all the other cases, there was nothing someone who wanted to arbitrate could do to ensure that their arbitration agreement would be enforced.

In this case, all they have to do is comply with this requirement, which is an insignificant burden.

They just need to put it on the front page.

Antonin Scalia:

Are you going to advise the Montana supreme court to go ahead and strike it down under a common law rule?

Do you think that would be good legal advice?

I mean, you say they may.

Lucinda A. Sikes:

Well–

Antonin Scalia:

Are you sure they may?

Should they be sure that they may?

Lucinda A. Sikes:

–I think they can, because if–

Antonin Scalia:

They can decree that arbitration agreements are unexpected.

Lucinda A. Sikes:

–Not as a general… I… they would be looking to the–

John Paul Stevens:

You surely will make the same argument to them that you made to us.

I don’t know why you’d be ashamed of doing that.

Lucinda A. Sikes:

–No.

No, I wouldn’t.

I’d better sit down.

William H. Rehnquist:

Thank you, Ms. Sikes.

Lucinda A. Sikes:

Thank you.

Mr. Kravitz, you have 3 minutes remaining.

Mark R. Kravitz:

Thank you, Mr. Chief Justice.

I want to make two points in my rebuttal, if I may, just so that I’m clear about what our position is.

The first is this, and it was the second point that I made in my opening.

Regardless of whether or not this statute merely codifies some general principle of expectedness, which I don’t think it does, but assuming for a moment that it does, as Ms. Sikes has said, it still falls under the FAA, so it would not be possible on remand for the Montana supreme court to decide we’re now going to apply a general principle.

The general principle is adhesion.

We’re not going to call it a statute, we’re going to call it a general principle, and we’re going to find that this is unexpected because Montana has outlawed arbitration for 100 years, and therefore no one in Montana would expect such a clause, and this Court dealt with precisely that issue in Perry.

In footnote 9 in Perry the Court said, you cannot have a statute that singles out arbitration, but it didn’t stop there.

It went on and said, but there’s one thing more.

If you’re applying a State law principle of general applicability, and in that case it was the law of unconscionability, one can… a State cannot decide that a principle is violated on the basis of the fact that arbitration is involved because after all, if that’s what could be done, then the courts could do that which this Court has said the legislatures may not do.

John Paul Stevens:

Mr. Kravitz, isn’t there another answer to my suggestion, namely that your opponent is suing on the contract, aren’t they?

They’re claiming a breach of the contract.

Mark R. Kravitz:

That’s correct.

John Paul Stevens:

So they can’t very well say the contract’s invalid.

They’re really just attacking the arbitration clause.

Mark R. Kravitz:

They’re just attacking… you’re absolutely right, Justice Stevens, and let me say one other thing.

The second point I wanted to make was that this statute, Ms. Sikes says it’s easy to comply with.

I suggest to the court that the test that this Court has announced is not whether it’s easy to comply with, but you have looked at what is required of other terms in the contract.

And looked at from that point of view, which is the point of view that the FAA requires, other terms in this particular contract don’t have to be in underlined capital letters, it’s only the arbitration clause that must be, and so the fact that we might be able to comply for this one clause doesn’t satisfy the test.

The lens that this Court has to look through is the lens as to how other clauses are treated.

I would also say, incidentally, that the obstacles to complying with these State laws are great, and to follow up on Justice Ginsburg supposition, it’s not a supposition.

Missouri requires the notice to be right above the signature.

Mark R. Kravitz:

Montana says it’s on the first page.

Texas says it has to be initialed by a lawyer.

Iowa says it has to be signed by a party.

California says its 10-point type, and New York says its 12-point type.

It’s impossible to comply with all those things, and the Nationwide uniformity that Congress sought to achieve with the Federal Arbitration Act is destroyed by allowing States to do this.

One final note is this.

This Court will read the Chor decision.

The Chor decision, one can read it from the front end to the back end, and the majority doesn’t even mention the notice statute, so the supposition that my opponent supposes that this law, technical noncompliance doesn’t make sense.

William H. Rehnquist:

Thank you, Mr. Kravitz.

Mark R. Kravitz:

Thank you.

William H. Rehnquist:

The case is submitted.

The honorable court is adjourned until tomorrow at ten o’clock.