Opposition Brief — Piper Jaffray & Co. v. Shea

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require the application of federal law. Nor did the Mon-

tana court in the lead case of Willems* identify any such

law singling out arbitration agreements. Rather, the

Montana court applied state laws to find that a fiduciary

duty arose between the broker and the investors herein.

This duty arose NOT from the arbitration provision

contained in the contract, but from the contract provision

which granted Piper control to buy, sell and trade securi-

ties in the investors’ accounts whenever Piper, in its

discretion, deemed it necessary or appropriate. Willems,

{ 25 (App. 31-32). Thus, the Willems holding itself has less

to do with arbitration than it has to do with the scope of |

fiduciary duties under Montana law. This is a matter that’

is appropriately left to the individual states under our

federal system. See, e.g., Aronson, 440 U.S. at 262. Be-

cause the Montana court applied general principles of

state law, and did not single out the arbitration. agree-

‘ment, review by this Court upon a writ of certiorari is not

warranted.

In fact, the Montana court expressly identified the

FAA provision (and the identical state counterpart) and

applied state law as required by that Act. In the lead case

of Willems, the Montana court expressly recognized the

dictates of the FAA‘ when it held:

* The Willems case itself is not strictly before the Court because the

parties reached a settlement after the case was remanded to the

District Court. However, as set forth in-the Statement of the Case

section, the Montana Supreme Court relied on the analysis in Willems

in issuing non-published opinions in the six cases presently before the

Court on Piper’s Writ of Certiorari.

*9 U.S.C. §2 provides: “A written provision in any maritime

transaction or a contract evidencing a transaction involving commerce

to settle by arbitration a controversy thereafter arising out of such

(Continued on following page)

We conclude that the District Court created no

new special legal standards but instead properly

applied Montana case law by relying on Kloss.)

The FAA provides that an agreement to arbitrate

ts valid except where grounds exist at law or in

equity to revoke the contract ... Montana law

also requires the enforcement of predispute arbi-

tration clauses except upon grounds that exist at

law or in equity for the revocation of a contract.

Kingston v. Ameritrade, Inc., 2000 MT 269, 302

Mont. 90, 12 P.3d 929.

Willems, at J 27 (App. 34) (emphasis added).

In Willems, the Montana court reviewed the provision in

the Piper contracts which provided: “whenever Piper Jaffray

deems it necessary for its protection, Piper Jaffray is author-

ized (but is not required) to: .. . Purchase sell, assign, receive

and deliver all or any part of the securities held or carried for

you.” Willems, {17 (App. 29). Under Montana law, “a

fiduciary relationship is created whenever a broker has

contract or transaction, or the refusal to perform the whole or any part

thereof, or an agreement in writing to submit to arbitration an existing

controversy arising out of such a contract, transaction, or refusal, shall

be valid, irrevocable, and enforceable, save upon such grounds as exist

at law or in equity for the revocation of any contract.”

" Kloss v. Edward D. Jones & Co., 2002 MT 129, { 37, 310 Mont.

123, 54 P.3d 1.

* Piper’s contention in its Petition that the agreement’s language

granting broker discretion is standard in the industry was neither

presented nor proven below or considered or ruled upon by the Montana

Supreme Court. Although it is irrelevant to the issues before this Court,

Respondents are not waiving their right to oppose this contention.

Likewise, Respondents do not waive their right to oppose Piper’s

contentions that the account documents signed by Respondent Jim

Leary did not contain language triggering a fiduciary duty, or that

Respondents Shea signed or received the account documents.

discretion to buy, sell, or otherwise control a client's

account.” Willems, 14 (App. 28) (citing Chor v. Piper,

Jaffray & Hopwood, Inc., 261 Mont. 143, 153, 862 P.2d 26,

32 (1993). Thus, this general contract provision, having

nothing to do with arbitration, created a fiduciary duty.

Under Montana law, a fiduciary must make full disclosure

of all facts relevant to the transaction and relationship

between the parties. See, e.g., Kitchen Krafters Inc. v.

Eastside Bank of Montana, et al., 242 Mont. 155, 163, 789

P.2d 567, 571 (1990); Watson v. Fultz, 239 Mont. 364, 368,

782 P.2d 361, 363 (Mont. 1989).

The Montana court has not singled out arbitration in

the application of the fiduciary duty of full disclosure.

Indeed, in the case of Murphy v. Redland, 178 Mont. 296,

583 P.2d 1049 (1978), the Montana court applied the same

fiduciary duty definition used in Willems to deny a joint

adventurer (Redland) the right to recover damages from

his fellow joint adventurer (Murphy) when the damage

was caused by Redland’s failure to disclose a cattle sale.

Similarly, in Deist v. Wacholz, 208 Mont. 207, 678 P.2d 188

(1984), the Montana court found a special relationship

between a bank officer and a bank customer which gave

rise to a fiduciary. duty on behalf of the bank officer to

disclose his involvement in the purchase of a ranch.

Further evidence that the Montana court does not

“single out” -arbitration in the application of its fiduciary

duty law can be found in the case of Chor. In Chor, the

Montana court held that “in the absence of discretionary

authority by a stockbroker to buy and sell in a customer’s

account, no fiduciary relationship is created in a broker-

customer relationship.” Chor, 261 Mont. at 152, 86 P.2d at

31-32. Because the Chor court found in that case that no

such “discretionary authority” existed, it did not hold

Piper’s broker to any fiduciary duty and it enforced the

arbitration provision.

In the cases at issue herein, the Montana court (based

on the Willems analysis), having found that Piper had

retained “discretionary authority,” applied the well-

established rules concerning the duties of a fiduciary to

disclose relevant information about the relationship. Here,

Piper had an internal policy that allowed investors to “opt-

out” of the arbitration requirement by simply crossing out

the arbitration provision. This policy is not a written part

of the agreement. In fact, it is quite unique in the securi-

ties industry. In each of the cases currently before this

Court, it was undisputed that Piper failed to disclose its

policy of allowing customers to “opt-out” of arbitration by

crossing out the provision in the contract. The Montana

court simply held that, under these exceptional circum-

stances, Piper, as a fiduciary, owed its investor clients the

duty to disclose the consequences of the arbitration provi-

sion and this “opt-out” information. Willems, supra, {{ 23,

25 (App. 33). Such a duty arises from state law dealing

with fiduciaries and would apply to all contracts whether

dealing with arbitration or not. Thus, the Montana court

in Willems did nothing more than require such disclosure

based upon the fiduciary relationship which was formed

by Piper’s own form agreement. Application of this fiduci-

ary duty is therefore consistent with the FAA and as such

the issuing of a Writ of Certiorari is not warranted.

State courts have issued thousands of decisions

dealing with the nature and scope of a fiduciary duty.

Many state courts, just like the Montana state court, quote

Justice Cardozo in the case of Meinhard v. Salmon, 249

N.Y. 458, 164 N.E. 545 (1928),” who explained the nature

of the fiduciary duty as follows:

Many forms of conduct permissible in a worka-

day world for those acting at arm’s length, are

forbidden to those bound by fiduciary ties. A

trustee is held to something stricter than the

morals of the marketplace. Not honesty alone,

but the punctilio of an honor the most sensitive,

is then the standard of behavior. As to this there

has developed a tradition that is unbending and

inveterate. Uncompromising rigidity has been

the attitude of courts of equity when petitioned

to undermine the rule of undivided loyalty by the

“disintegrating erosion” of particular exceptions.

Only thus has the level of conduct for fiduciaries

~ been kept at a level higher than that trodden by

the crowd. It will not consciously be lowered by

any judgment of this court.

Id. at 464, 164 N.E. at 546.

Central in most cases dealing with a fiduciary’s duties

is the idea that a fiduciary must fully disclose all relevant

° Kloss v. Edward D. Jones & Co., 2002 MT 129, { 37, 54 P.3d 1, 9,

q 37, 310 Mont. 123, 135, 7 37. The following is a sample of the state

court decisions which relied on the Meinhard decision in analyzing the

scope of fiduciary obligations: Lindsay v. Marcus, 137 Colo. 336, 325

P.2d 267 (Colo. 1958); Brown v. Halbert, Division Three, 271 Cal. App.

2d 252, 76 Cal.Rptr. 781 (Cal.App. 1969); In re Evans, 113 Ariz. 458,

556 P.2d 792 (Ariz. 1976); Ditis v. Ahlvin Const. Co., 408 Ill. 416, 97

N.E.2d 244 (Ill. 1951); Amoco Prod Co. v. Charles B. Wilson, Jr. Inc.,

266 Kan. 1084, 976 P.2d 941 (Kan. 1999); Appeal of Concerned Corpora-

tors of Portsmouth Sav. Bank, 129 N.H. 183, 525 A.2d 671 (N.H. 1987);

Silverman v. Bresnahan, 35 N.J. Super. 390, 114 A.2d 307 (N.J. 1955);

Young v. Field, 548 So. 2d 784 (Fla. 1989); Van Stee v. Ransford, 346

Mich. 116, 77 N.W.2d 346 (Mich. 1956); Ellezy v. Fyr-Pruf Inc., 376

So. 2d 1328 (Miss. 1979).

matters concerning its dealings. (See Footnote 9, supra.)

Montana’s court, like every state court, employs its fiduci-

ary duty law routinely to decline to enforce contracts when

there has been a lack of disclosure. See, e.g., Deist, 208

Mont. at 228, 678 P.2d at 198; Watson, 239 Mont. at 368, |

782 P.2d at 363. Contrary to Piper’s suggestion, the Mon-

tana court's decisions at issue herein do not conflict in any

way with the decisions of the appellate courts of other

states. See Petition for Writ of Certiorari, pp. 22-24, n.15.

The cases cited by Piper have nothing to do with the

fiduciary duty which formed the basis of the Montana

court’s decision. Moreover, in that the laws relating to

fiduciary duty and contract formation are the province of

the states, any potential conflicts among the laws of such

states relating to fiduciary duty and contract formation

and revocation constitute permissible differences of opin-

ion. Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 206

(1938).

Pursuant to Supreme Court Rule 10, a review on a

writ of certiorari is not a matter of right but of judicial

discretion and will be granted only for “compelling rea-

sons.” No compelling reasons exist for this Court to review

the six unpublished decisions of the Montana court at

issue herein. This is particularly true given that one of the

six (Daly) was settled after the petition was filed. Further,

no substantial federal questions are presented. Nor does

an impermissible conflict among the state courts of last

resort exist as to any federal question. Both the FAA and

Montana’s statutory law (Mont. Code Ann. § 27-5-114(2)

(2003)] provide that arbitration agreements are valid

“except where grounds exist at law or in equity to revoke

the contract.” Here, citing Section 2 of the FAA, the Mon-

tana court declined to enforce the arbitration provision in

question based upon the well-established Montana law

concerning fiduciary obligations that it applies to all such

contracts, not just contracts involving arbitration. For

these reasons, the Montana court correctly considered and

applied the Federal Arbitration Act law in connection with

the facts of these cases, including those arising from

Piper’s unique “opt-out” policy which gave rise to a fiduci-

ary duty to explain its existence and terms to the client.

Given that the Montana court’s analysis and application of

state law generally governing contract formation is not in

conflict with the FAA,” this Court should not review this

matter on a writ of certiorari.

* At most, Piper has alleged the misapplication by the Montana

court of a properly stated rule of law, a situation which this Court,

pursuant to Supreme Court Rule 10, has concluded does not constitute

the requisite “compelling reason” for granting a petition for certiorari.

CONCLUSION

For the foregoing reasons, Respondents respectfully

request that this Court deny Petitioner’s Writ of Certio-

rari.

*DONALD C. ROBINSON

Lisa A. LEVERT

POORE, ROTH & ROBINSON, P.-C.

1341 Harrison Avenue

P.O. Box 2000

Butte, Montana 59702

(406) 497-1200

Attorneys for Roberta J.

Emett and Kathleen E.

Merrett

TINA L. MORIN

POORE, ROTH & ROBINSON, PC.

1341 Harrison Avenue

P.O. Box 2000

Butte, Montana 59702

(406) 497-1200

Attorneys for

Vicki Berryman and

James Leary

*Counsel of Record for

Respondents

September 27, 2005

Respectfully submitted,

WILLIAM P. JOYCE

JOYCE & JOHNSTON, PLLP

321 W. Galena, Suite B

Butte, Montana 59701

(406) 723-8700

Attorneys for John P. Daly

and Audrey M. Daly and

the Estate of Alice A. Franey

GREG J. SKAKLES

SKAKLES & GALLAGHER

117 Main Street

Anaconda, Montana 59711

(406) 563-8409

Attorneys for John D. Shea

and Brenda Shea

Supreme Court, U.S.

FILED

No. 05-86 OCT 6 - 2005

5u The

Supreme Court of the Gnited States

>» 4

PIPER JAFFRAY & CO., and

ROBERT ENGLISH, et al.,

Petitioners,

JOHN P. DALY and AUDREY M. DALY, JOHN D. SHEA

and BRENDA SHEA, THE ESTATE OF ALICE A. =

FRANEY, ROBERTA J. EMETT and KATHLEEN E.

MERRETT, VICKI BERRYMAN and JAMES LEARY,

~ Respondents.

On Petition For Writ Of Certiorari

To The Montana Supreme Court

REPLY BRIEF

Counsel: a

STANLEY T. KALECZYC

~ BROWNING, KALECZYC, BERRY

& HOVEN, P.C.

139 N. Last Chance Gulch

P.O. Box 1697

Helena, Montana 59624

(406) 443-6820

Counsel of Record

JOHN S. LUTZ

TAMARA A. HOFFBUHR

FAIRFIELD AND Woops, P.C.

1700 Lincoln, Suite 2400

Denver, Colorado 80203

(303) 830-2400

Counsel for Piper Jaffray & Co.,

and Robert English

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

Re I PALS A OIE 1 OUD scented odicsosccisectntainadeabivcanin ii

I es 1 .

I. The Salient Reasons for Granting Certiorari

Have Not Been Challenged ....................000.000 3

II. Willems Establishes a Dangerous Precedent

for Undermining Arbitration Provisions Na-

IIE adtivicnicsnscresnicactsinnicedticonbamtacnsmian mca 8

PEAT MENGIIN ccncizhossesoktnionnsaxadissnsuacsosnbibeybetabbiolocdeds 9

‘i

TABLE OF AUTHORITIES

Page

Cases

Barrett v. McDonald Investments, Inc., 870 A.2d

SO Ce Se edtostiscecndscichiscs ian 8

Chor v. Piper, Jaffray & Hopwood, Inc., 862 P.2d'26

CUI HU csicas baconsccs casera cn.scctadcav a chsioadies eanbasouscoedntoes 5

Casarotto v. Lombardi, 886 P.2d 931 (Mont. 1994)............ 4

Casarotto v. Lombardi, 901 P.2d 596 (Mont. 1995)............ 4

Doctor’s Associates, Inc. v. Casarotto, 515 U.S. 1129

(1995) ....n.-.recsssecserosecseressorenensescesereesesesenensasenescees ETE ee 4

Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681

B: SROREREAE CAST ie eae mnt Oana! BP RnR Ip re ae ee

Kloss v. Edward D. Jones (Kloss I), 2002 MT 129,

54 P.3d 1, cert. denied, 583 U.S. 956 (2003)................ 6,7

Kloss v. Edward D. Jones (Kloss II), 2002 MT 129A,

54 P.3d 41, cert. denied, 538 U.S. 946 (2003).............. 6, 7

Mueske v. Piper Jaffray & Hopwood, Inc., 859 P.2d

EE Fass. ones nds shccdca ahd i anacdad pao uaatamolaotocs 5

Perry v. Thomas, 482 U.S. 483 (1987)...........:.:cesssseceeeeee 4,5

Willems v. U.S. Bancorp Piper Jaffray Inc., et al., |

BG BEE BT Fe GO ives isssincicovecescces 2, 3, 6, 8

OTHER AUTHORITIES

BEAGE) Mima, Tate DELGED oc inc snsscsscsisnncvisssnsscsosessocsnenvacsses 7

Scott J. Burnham, The War Against Arbitration in

Montana, 66 Mont. L. Rev. 139 (2005)............... eee 1,9

INTRODUCTION

Petitioners seek this Court’s review to ensure that the

Montana Supreme Court complies with the Federal Arbi-

tration Act, this Court’s admonishment in Doctor’s Assoct-

ates, Inc. v Casarotto, 517 U.S. 681 (1996), and well-settled ©

federal law with respect to the cases at issue here. Only

then will the Montana courts begin to enforce arbitration

provisions in a manner consistent with the Federal Arbitra-

tion Act, this Court’s precedent and well-settled federal law.

Inevitably a national corporation, like the Sub-

way sandwich franchisor in Casarotto, will not

tailor its arbitration clause or its waiver of rights

to the requirements the Montana Supreme Court

enumerated in Kloss and the arbitration provi-

sion will be struck down. The U.S. Supreme

Court held in Casarotto that the legislature could

not enact provisions that restrict arbitration in

that situation. And in footnote three to that case,

it warned the courts not to do what the legisla-

ture may not do. [citation omitted] But the Mon-

tana Supreme Court has now accomplished what

the legislature was unable to do — the regulation

if not the prohibition of pre-dispute arbitration

clauses in Montana. It is possible that the higher

court will right this wrong, or even that a recon-

stituted Montana Supreme Court will see things

differently. Until that time, however, arbitration

is dead in Montana.

Scott J. Burnham,’ The War Against Arbitration in Mon-

tana, 66 Mont. L. Rev. 139, 200 (2005).

* Scott J. Burnham is a Professor of Law at the University of!

Montana School of Law. Scott J. Burnham, The War Against Arbitration

in Montana, 66 Mont. L. Rev. 139, n.1 (2005).

2 .

Contrary to Respondents’ argument, this case is not

about the Montana Supreme Court clarifying or applying

Montana law concerning fiduciary duty. Instead, this case

is about the Montana Supreme Court’s continuing assault

upon the Federal Arbitration Act, this Court’s previous

rulings, and federal policy and well-settled federal law

favoring arbitration as a means of dispute resolution. This

assault impermissibly ignores the prior precedent of this

Court and must necessarily fail for that reason alone.

The Montana Supreme Court’s holding that a broker

dealer has a fiduciary duty to explain an arbitration

clause, but no other contract provision -to a prospective

client, before the client signs the contract containing the

arbitration clause, places arbitration clauses in a class

apart from other contract provisions in violation of the

Federal Arbitration Act. This Court chastised the Montana

Supreme Court for precisely such action in Casarotto, but

the Montana Supreme Court seems determined to ignore

that admonishment and continue its misguided course.

Despite Respondents’ claim to the contrary, Petitioners

raised this federal question to the Montana Supreme

Court and that Court specifically held that the Federal

Arbitration Act was not violated. Willems, [J 26, 27 (App.

33, 34).

The Montana Supreme Court does not uniformly

apply its law pertaining to fiduciary duty. Instead, it

applies a different and higher duty to arbitration provi-

sions with the resultant effect of wholly invalidating pre-

dispute arbitration provisions in standardized brokerage

agreements in Montana. The Montana Supreme Court’s

decision is contrary to virtually every other federal and

state court jurisdiction uniformly enforcing pre-dispute

arbitration provisions and further impairs the contract

rights of broker dealers and their clients, thus placing an

undue and substantial burden on interstate commerce in

violation of the Commerce Clause.

I. The Salient Reasons For Granting Certiorari

Have Not Been Challenged.

Respondents’ Brief in Opposition is most telling in

what it does not say. United States Supreme Court Rule

15.2 provides Respondents have an obligation to point out

in their Brief in Opposition any perceived misstatements

of fact or law in the Petition, otherwise the objection may

be deemed waived. Respondents did not identify any

perceived misstatements of law or fact in response to

Petitioners’ three principal arguments.”

With respect to Petitioners’ first argument, Respon-

dents do not dispute that the-Montana Supreme Court

held the only contract provision the broker had a fiduciary

duty to explain was the arbitration provision. Respondents

instead argue this holding does not single out arbitration

clauses, but is consistent with Montana’s fiduciary duty of

“full disclosure.” Resp’ts’ Opp’n at p. 9. Full disclosure,

* The first three pages of Respondents’ Brief in Opposition contain

factual allegations that are unproven and wholly irrelevant to this

Court’s analysis and decision. Respondents’ recitation of irrelevant

allegations is inappropriate and should not be considered by this Court.

Moreover, entirely absent from Respondents’ purported factual state-

ment are any allegations touching upon fraud or duress with respect to

the arbitration clause itself. The absence of such potentially relevant

allegations is understandable because no such allegations have been

made throughout the course of these proceedings. Indeed, the Montana

Supreme Court has found that the arbitration clause was not discussed

when the agreement was signed. Willems { 25.

however, would require the broker to explain every provi-

sion, not just the arbitration provision.

Further, Respondents offer no response to Petitioners’

description of Montana’s historical hostility toward arbi-

tration. Respondents fail to come to grips with the fact

that the instant rulings are fundamentally no different

than the Montana Supreme Court’s rulings in the

Casarotto series of cases* in which this Court struck down

a Montana statute which treated arbitration clauses

differently than any other contract provision.

It is no wonder Respondents made the tactical deci-

sion to ignore the fundamental holding in Casarotto,

because it is apparent from the Brief in Opposition they

either misapprehend or have intentionally misstated the

_express language of the Federal Arbitration Act and the

previous decisions of this Court interpreting that Act,

including most notably Perry v. Thomas, 482 U.S. 483

(1987). In Perry, this Court specifically admonished that

- courts may not “rely on the uniqueness of an agreement to

arbitrate as a basis for a state-law holding that enforce-

ment would be unconscionable, for this would enable the

court to effect what we hold today the state legislature

cannot.” Perry, supra, at 492, n.9.

Respondents ignore in the first instance that the

Federal Arbitration Act limits the application of state law

to only that law providing for revocation of the contract

generally. Jd. Respondents also ignore the fact that the

* Doctor’s Associates, Inc. v. Casarotto, 515 U.S. 1129 (1995);

Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996); Casarotto v.

Lombardi, 886 P.2d 931 (Mont. 1994); Casarotto v. Lombardi, 901 P.2d

596 (Mont. 1995).

Montana Supreme Court has not found that sufficient

grounds exist for the revocation of the customer agree-

ments at issue here on the basis of fraud, fraudulent

inducement, mutual mistake, or any other of the grounds

generally applicable in state contract law. Rather, the

Montana Court singled out the arbitration provision alone

for invalidation and otherwise left the contracts in place

and enforceable.

The ruling of the Montana Court created an impossi-

ble burden for any broker dealer to meet by requiring a

nebulous affirmative obligation to disclose and explain the

arbitration provision, and only the arbitration provision,

in a level of detail-which inexplicably goes beyond the

written disclosure which is already found in the contracts

at issue and which complies with the Montana Court’s own

earlier requirement enunciated in Mueske v. Piper Jaffray

& Hopwood, Inc., 859 P.2d 444 (Mont. 1993). In so doing,

the Montana Supreme Court has impermissibly imposed a

burden which is incapable of determination or satisfaction,

‘and significantly greater than the legislatively created

burden that was found unacceptable in Casarotto. Simply

put, the Montana Court has impermissibly singled out

arbitration clauses in a way which this Court has already

rejected. The Montana Supreme Court must heed the

admonishment of both Casarotto and Perry: that it may

not do what the legislature cannot.

Further, Respondents concede a fiduciary duty be-

tween an investment advisor and his or her client does not

exist absent a grant of discretionary authority, but Re-

spondents do not address Petitioners’ argument that a

fiduciary duty created by an agreement cannot exist before

the agreement creating the duty is signed. Resp’ts’ Opp’n

at pp. 9-10; (citing Chor v. Piper Jaffray & Hopwood Inc.,

862 P.2d 26, 32 (1993)). The Montana Supreme Court’s

creation of such a pre-existing fiduciary duty merely

serves to underscore its result oriented analysis and pre-

determined objective to strike down pre-dispute arbitra-

tion clauses.

Respondents also repeatedly misstate the Montana

Supreme Court’s findings. Respondents incorrectly state

the Montana Supreme Court held Petitioners had a

fiduciary duty to explain Piper’s policy permitting clients

to cross out the arbitration provision. Resp’ts’ Opp’n at pp.

3, 10. The Montana Supreme Court, however, did not find

Piper had a fiduciary duty to explain the opt-out policy as

it stated, “We affirm the District Court’s conclusion that

Piper owed a fiduciary duty to explain the arbitration

provision to Willems. ...” Willems { 28 (App. 34).

Respondents also fail to explain how the Montana

Supreme Court’s reference to Kloss is a proper application

of state law when the facts in Kloss are significantly

different than those here. Kloss v. Edward D. Jones, 2002

MT 129, 310 Mont. 123, 54 P.3d 1, cert. denied, 538 U.S.

956 (2003) (“Kloss I”); see also, Kloss v. Edward D. Jones,

2002 MT 129A, 54 P.3d 41, cert. denied, 538 U.S. 956

(2003) (“Kloss IT”).

In Kloss, Mrs. Kloss began a relationship with her

broker in 1985, opened a full service account in 1989 and

established a living trust account in 1992. Kloss I at 125-

26, 54 P.3d at 3-4. Both account agreements contained

arbitration provisions (Kloss I at 126, 54 P.3d at 4), and

the 1992 agreement contained the same discretionary

language deemed by the Kloss court to create a fiduciary

duty. Kloss II, 57 P.3d at 41.

The fiduciary duty in Kloss was presumably created

six years before Mrs. Floss opened the account in question,

the 1998 charitable trust, because the discretionary

language deemed by the Kloss court to create a fiduciary

duty was present in the 1992 agreement. Another signifi-

cant distinguishing fact is that in 1998, when Mrs. Kloss

opened her charitable trust account, she did not even sign

the account agreement, but instead signed a detachable

card acknowledging she received a copy of the agreement

and incorporating an arbitration clause by reference. Kloss

I at 126, 54 P.3d at 4. In contrast, here, the agreements

signed by the customers contained the arbitration provi-

sions, and also contained a thorough explanation of arbi-

tration in the language of the arbitration provisions

themselves. (App. 63-64). This language was approved and

mandated by the U.S. Securities and Exchange Commis-

sion (“SEC”). Rule 3110(f) National Association of Securi-

ties Dealers (“NASD”) Manual. Thus, to the extent any

explanation of the arbitration clause was needed, it was

provided in a manner consistent with the requirements of

the SEC and NASD.

With respect to Petitioners’ second argument, Re-

spondents do not explain why Montana appears to be the

only state that does not enforce pre-dispute arbitration

agreements in securities contracts. In two sentences,

Respondents dismiss Petitioners’ extensive list of contrary

decisions in other states in footnote fifteen of the Petition

by stating these decisions do not conflict with the decisions

below and have nothing to do with the basis of the Mon-

tana Supreme Court’s decision. Resp’ts’ Opp’n at p. 12. Not

only is this explanation vague and meaningless, but it is

also contrary to the numerous cases listed in footnote

fifteen.

8 -

With respect to Petitioners’ third argument, Respon-

dents do not dispute that the Montana Supreme Court’s

decisions will impair the Petitioners’ and other broker-

dealers’ ability to rely upon uniform agreements drafted in

compliance with SEC regulations when executed in Mon-

tana by Montana clients. Respondents also do not chal-

lenge Petitioners’ arguments that the Montana Supreme

Court’s decisions violate the Commerce Clause because

they will place an undue and substantial burden on

interstate commerce by impairing Petitioners’ right to

contract in Montana.

Ii. Willems And The Cases Based On Willems At

Issue Here Establish A Dangerous Precedent

For Undermining Arbitration Provisions Na-

tionally.

The Willems decision was recently identified as one in

a series of cases that will roll back the enforcement of pre-

dispute arbitration laws, in contravention of established

U.S. Supreme Court precedent:

The passage of time and events, particularly the

increased use of contracts of adhesion contain-

ing mandatory arbitration clauses to avoid judi-

cial enforcement of federal and state anti-

discrimination and consumer protection laws, is

leading many appellate courts to distinguish and

weaken the significance of these [U.S. Supreme

Court] precedents from an earlier time in the de-

velopment of arbitration law.

Barrett v. McDonald Investments, Inc., 870 A.2d 146, 153

(Me. 2005) (Alexander, J., concurring).

The enforceability of arbitration clauses is clearly

under siege in Montana, and one commentator has indeed

suggested that the battle is already over. See Burnham,

Scott J., The War Against Arbitration in Montana, 66

Mont. L. Rev. 139, 201 (2005) (* ... arbitration is dead in

Montana”). Absent immediate intervention by this Court,

the Montana Supreme Court’s continuing refusal to heed

this Court’s rulings or enforce the Federal Arbitration Act

will be assured.