Opposition Brief — Edward D. Jones & Co., L. P., Dba Edward Jones v. Kloss

No. 02-1112

| 26 2003

Jn The | -

Supreme Court of the United States |

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EDWARD D. JONES & CO., L.P. d/b/a

EDWARD JONES, AND PAUL HUSTED,

Petitioners,

V.

ALICE P. KLOSS,

Respondent.

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On Petition For A Writ Of Certiorari

To The Supreme Court Of Montana

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RESPONDENT?’S BRIEF IN OPPOSITION

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JOSEPH C. ENGEL, III P.C.

Counsel of Record

600 Central Plaza, Ste. 428

P.O. Box 3222

Great Falls, MT 59403

(406) 727-0121

DANE J. DURHAM

9303 Upper Miller Cr. Rd.

Missoula, MT 59803

(406) 251-0358

Attorneys for Respondent

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

OR CALL COLLECT (402) 342-2831

RESTATEMENT OF QUESTION PRESENTED

Does the Federal Aribitration Act pre-empt a State

Court decision that undisclosed arbitration provisions are

unenforceable under generally applicable principles of

adhesion contract, fiduciary duty and contractual waiver

of constitutional rights law?

il

TABLE OF CONTENTS

Page

RESTATEMENT OF QUESTION PRESENTED ...... i

TAR OF CAT ee ine ii

TABLE OF AUTHORITIES oscccsesvecsresesescessscessevesengsns ili

COUNTER STATEMENT OF THE CASE ................ 1

REASONS FOR DENYING WRIT......... 0. ecco

I. THE PETITION IS NOTHING BUT AN UN-

WARRANTED JUDICIAL ATTACK ................... 1

A. Kloss Did Not Create New Rules Specifi-

cally Applicable to Arbitration Agree-

DUNE, ov cnicnnssinpricecninnsenicimeaaniesaiganinbink 3

B. Kloss Properly Applied Montana Law

Governing Fiduciary Duties That Did

Not Discriminate Against Petitioners’

Arbitration Agreement ................cseceeeeeees 9

II. KLOSS DOES NOT CONFLICT WITH THE

Ill. ALOSS DOES NOT RAISE ISSUES OF

FEE ICS As EEE AOE Shick cciscisieniiapesnvnnteoicecentnonenie 14

A. GREEN TREE Has No Relation to Kloss... 14

CI ASOD 0senisnetevesrsnnnsieioniaen emanate 15

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TABLE OF AUTHORITIES

Page

CASES

All State Leasing v. Top Hat Lounge, 198 Mont. 1,

I as ndsednneeonnesnniabdienbadensnnciveesins 9

Alice P Kloss v Edward D. Jones & Co., and Paul

Husted, 2002 MT 129, 310 Mont. 123, 54 P.3d 1............ 1

Allied-Bruce Terminex Co., Inc. v. Dobson, 513 U.S.

I a asd culdicdh bad icetncwascumabmninnante 11

Armendariz v. Foundation Health Psychare Ser-

vices, Inc., 24 Cal. 4th 83 (2001)...............eeeeeeeee 6, 12, 13

Brown v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 197 Mont. 1, 640 P.2d 453 (1982)............ eee 9,10

Chor v. Piper Jaffray & Hopwood, 261 Mont. 143,

oo svincus pusdbanentonibenayeonesisoarnensnents 9,10

Counterpoint, Inc. v. Essex Ins. Co., 291 Mont. 189,

a is osc eniavedushistudbubsaveoenculagebivunnbiansta 4

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

ia salsa sina acloepeabasacconanonneanneninenbdeniein 3, 11, 13

Ex Parte McNaughton, 728 So. 2d 592 (Ala. 1998)........... 12

Graham v. Scissor-Tail, Inc. 28 Cal. 3d 807 (1981)............ 7

Green Tree Corp. v. Bazzle, docket no. 02-634 (cert.

PMEOE WIGGD) ...........0..2020cecssersroveccvesoeesnesenenensosers 14, 15

Iwen v. U.S. West Direct, 1999 MT 63, 293 Mont.

ee ee OI secvtivesincynininvonsvensenstasesvossesesnvernsornsesvenvess 4

Klos v. Polske Linie Lognicze, 133 F.3d 164 (2nd Cir.

sc bidcghdacdittediotsinensnkessethvonsncaveneienntesisveenvesaann passim

Mathews v. New Century Mortgage Corp., 188

F. Supp. 2d 874 (S.D. Ohio 2002).............ceesessenereeereeneees 6

iv

TABLE OF AUTHORITIES — Continued

Page

May v. Figgins, 186 Mont. 383, 507 P.2d 1132

CI scdelsiciadkchscaisalaietidlaacs hibnaibdapatathealacdsd a taenaneelananlalakadeensdanss 12

Passage v. Prudential-Bache Securities Inc., 223

BE. GO, FE Fane WE, 6 RE ocecricbhnnsnsinnccisnararennesntesons 4

Rodriquez de Qiujas v. Shearson/American Ex-

Perens, TC., GOO UT, SET CIGD) cncssvccsssesessssnscseseessenccseses 11

Shearson/American Express v. McMahon, 482 U.S.

Be CP vctussiciossscininihsomninanisieciceauitgpiahbadinendianatennnnesiiisameniats 11

Shook v. State Farm Mutual Ins. Co., 872 F. Supp.

I I TED ceticusbicsninncitsncachceatocniiacnaniameceeininien 5

Supak & Sons Mfg. Co. v. Pervel Indus., Inc., 593

Fe. Re IE Te TTD crsticcnccesicectvaniensiancaiiaiteinsnicnsnsasens 11

Ting v. AT&T, docket no. 02-15416 (9th Cir. Slip

Rac Ai RIMMED ds Sedih bclinalecinsnitanh:dvuetanenclbalbdesicibinalidenemarauntubael 13 -

Volt Information Services, Inc. v. Board of Trustees

of Leland Stanford Junior University, 489 U.S.

ee ii hitntnhuiiceieincnditinicinniitectinditeusiciticamedsinncomimabpbacnhiiien 10

STATUTES

Federal Arbitration Act, 9 U.S.C. § 2..............ccccccssssssccessees 2

OTHER AUTHORITIES

1 Corbin on Contracts § 1.4 at 2 (2002 Fall Cumula-

Pe ng, I Gai iss nicsica thc okansnscesdnavsdensendencnrcaavondacia 6

7 Corbin on Contracts § 29.9 (2OOZ) .................ccccccscsscesssees 6

8 Williston on Contracts § 18.10 (4th ed. 1998).................. 6

COUNTER STATEMENT OF THE CASE

Respondent is a 96-year-old widow. See Pet. App. 3.

Compared to Petitioners, she had no bargaining power and

was relatively unsophisticated. Pet. App. 18 and 23-24.

Petitioners became Respondent’s stockbrokers in 1989.

Pet. App. 3. Over the next nine years, Respondent grew to

trust Paul Husted and to rely on him to explain important

terms in Petitioners’ standard form contracts. Pet. App. 8-

9. In opening accounts, Petitioners routinely explained

important terms in their form agreements to investors. Jd.

Petitioners did not regard their arbitration provisions as

significant and did not explain them. Pet. App. 8-9.

In 1998, Respondent opened another customer ac-

count with Petitioners pursuant to their investment

advice. Pet. App. 3. Petitioners presented Respondent with

a signature card which was detached from the document

containing the arbitration terms. The card purported to

incorporate by reference the arbitration provisions con-

tained in the separate document. Pet. App. 3-4 and 20. At

Petitioners’ direction, Respondent signed the detached

signature card before she was provided a copy of the

arbitration provisions. Pet. App. 20-21. After Respondent

signed, Petitioners gave her a separate five page, single-

spaced standard form document that contained the arbi-

tration provisions and other boilerplate.

yy

vy

REASONS FOR DENYING THE WRIT

I. THE PETITION IS NOTHING BUT AN UN-

WARRANTED JUDICIAL ATTACK

Using flawed analysis of Montana law, Petitioners

invite this Court to look behind the opinion in Alice P.

Kloss v. Edward D. Jones & Co., and Paul Husted, 2002

MT 129, 310 Mont. 123, 54 P.3d 1, and to focus on the

Montana Supreme Court’s (hereinafter “MSC”) supposed

hostility toward arbitration. Petitioners charge that the

MSC applied state law in a discriminatory manner. Peti-

tioners claim that the MSC misused principles of adhesion

contract and fiduciary duty to create a new requirement

that consumers be given oral notice of arbitration agree-

ments. Petitioners argue that the MSC was motivated by

an historical antagonism to arbitration. Montana law does

not support their unwarranted judicial attacks.

Kloss rests on rules generally applicable to adhesion

contracts, fiduciaries and waivers of constitutional and

procedural rights under Montana law. The MSC did not

single out arbitration agreements to create a new re-

quirement of oral notice.

The MSC, in the concurring opinion of Justice Nelson,

(in which three other justices concurred), acknowledged

the Federal Arbitration Act 9 U.S.C. §2 (hereinafter

“FAA”), but concluded that Montana law, generally appli-

cable to contracts, mandates that waivers of constitutional

rights — jury trial and access to the courts — must be

proven to have been made voluntarily, knowingly and

intelligently, and will be narrowly construed. The waiver

must be shown to have been deliberately and understand-

ingly made, and the language relied upon to constitute the

waiver must unequivocally and unambiguously express

the waiver of the right. Absent such proof, the arbitration

clause will not be enforced. Pet. App. 34-36.

Kloss decided that the manner in which Petitioners

sought to secure Respondent’s assent did not provide fair

notice of the arbitration provisions contained in their

standard form contract.

Acceptance of Petitioners’ accusations would entangle

this Court in another crisis of federalism. Petitioners

misinterpret the FAA and seek to immunize arbitration

agreements from generally applicable requirements of

state law. The FAA does not require states to accord

arbitration agreements preferential treatment.

A. KLOSS DID NOT CREATE NEW RULES

SPECIFICALLY APPLICABLE TO ARBI-

TRATION AGREEMENTS.

Petitioners miscast the decision of the MSC in an

attempt to bring it within the rubric of this Court's holding

in Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681 (1996).

They claim that the MSC created a new rule requiring oral

notice of arbitration agreements because of an historical

hostility toward such agreements.

Petitioners argue that the MSC ignored Montana

contract law and created new rules based on a subjective

analysis of Respondent’s actual expectations. Pet. at 14.

They assert that if the MSC had applied basic principles of

contract law, it never would have reached the question

whether Respondent reasonably expected Petitioners’

arbitration provisions, because those provisions were not

ambiguous. Pet. 15. Disregarding the MSC’s opinion,

Petitioners claim that the “sole reason” the MSC found

Petitioners’ arbitration provision outside Respondent’s

reasonable expectations was because the MSC “was evalu-

ating an arbitration provision.” Jd.

4

In truth, the MSC did not create new rules specifically

applicable to arbitration agreements. Instead, the MSC

explained that “in certain circumstances, traditional

assumptions associated with contract law [do not apply]”

to adhesion contracts. Pet. App. 11. For example, adhesion

contracts are not necessarily enforced based on their plain

language regardless of what a consumer knew or under-

stood; otherwise, “reasonable expectations” would never

become an issue unless the contract was ambiguous or

uncertain. Pet. App. 14-15. The MSC has consistently held

(regardless of the plain language of the agreement) that an

adhesion contract will not be enforced against the weaker

party when it is “not within the reasonable expectations of

said party.” Pet. App. 11, Jwen v. U.S. West Direct, 1999

MT 63, 293 Mont. 512, 977 P.2d 989; Passage v. Pruden-

tial-Bache Securities, Inc., 223 Mont. 60, 66, 727 P.2d

1301-1302 (1986).

Petitioners rely on a line of cases that involves con-

struction and interpretation of terms in insurance policies.

In those cases, the MSC (and U.S. District Court in Mon-

tana) refused to apply adhesion contract rules (based on

the weaker party’s reasonable expectations) to interpret

insurance policies. Pet. 14. The MSC instead applied the

general law of contract interpretation. For example, in

Counterpoint, Inc. v. Essex Ins. Co., 291 Mont. 189, 967

P.2d 393 (1998), the MSC held:

Because we conclude that Counterpoint’s liability

insurance policy is unambiguous, we enforce it as

written. Despite Counterpoint’s request that we

apply the reasonable expectation doctrine and

rules for interpreting an adhesion contract

against the insurer, we do not apply these princi-

ples here. 967 P.2d 393 at § 18.

In Shook v. State Farm Mut. Ins. Co., 872 F.Supp. 768,

773 (D.Mont. 1994), the U.S. District Court explained:

One of the major concerns which led to the evolu-

tion of the “reasonable expectations” doctrine

was a desire to protect an insured, unfamiliar

with the technical terms utilized in most insur-

ance policies, from having insurance coverage di-

luted by application of technical and confusing

policy provisions. ... A limited number of juris-

dictions have extended the doctrine to all ques-

tions of insurance coverage, whether or not

ambiguities exist in the language of the con-

tract.... This extension, however, appears to be

the minority view. ... In the majority of jurisdic-

tions, the doctrine has been utilized to resolve

ambiguities in insurance policies in order that

the policies comport with the insureds’ “reason-

able expectations”.... Well established prece-

dent indicates Montana follows the majority

position.

Construction of insurance contracts in Montana

is governed by the general law of contract inter-

pretation contained in Title 28, Chapter 3, Mon-

tana Code Annotated, and the case law which

has developed thereunder in the context of in-

surance. The Montana Supreme Court has stated

that the intention of the parties to the contract is

not to be inquired into unless there is ambiguity

on the face of the contract. Accordingly, where

the language of an insurance policy admits of

only one meaning, there is no basis for interpre-

tation of the policy coverage under the guise of

ambiguity. 872 F.Supp. 773 (citations omitted).

In Kloss, the issue was not the interpretation or

construction of the arbitration provisions. The issue was

6

whether those provisions were unenforceable under

adhesion contract principles. Specifically, the question was

whether Respondent reasonably expected that Petitioners’

standard form contract contained waivers of her constitu-

tional and procedural rights.

Most courts now refer to this issue as “procedural

unconscionability.” See 1 Corbin on Contracts § 1.4 at 2

(2002 Fall Cumulative Supp., rev. ed.); 8 Williston on

Contracts § 18.10 at 57-68 (4th ed. 1998); Armendariz v.

Foundation Health Psychcare Services, Inc., 24 Cal.4th 83,

113-114 (2001). Resolution of this issue involves considera-

tion of all facts surrounding the formation of an adhesion

contract to determine whether the weaker party had

reasonable notice of the challenged provisions.’ The

analysis is not confined to a determination whether the

written terms are ambiguous.”

In Kloss, the trial court (Judge Macek presiding)

found that Respondent “signed [the detached card from

the 1998 agreement] after being presented with docu-

ments by Donna Ferderer.” Pet. App. 45, Finding #17.

However, as noted to the contrary in the MSC concurring

opinion of Justice Leaphart:

I would also add that the record indicates that

the detachable signature card was signed by

Kloss before she was ever provided a copy of the

Agreement. The branch office administrator,

* See: 7 Corbin on Contracts § 29.9 at 405-408 and 413-415 (2002);

Kloss v. Polske Linie Lotnicze, 133 F.3d 164, 169 (2nd Cir. 1997);

Mathews v. New Century Mortg. Corp., 85 F. Supp. 2d 874, 892 (S.D.

Ohio 2002).

* Id.

Donna Ferderer testified that she filled out the

Jones account number, wrote the type of regis-

tration of the account and tore the detachable

card out of the brochure. Ferderer testified that,

“IT gave it to Alice and told Alice I need her signa-

ture right here. ...” Ferderer then took the form

back, gave Kloss the disclosure statement, ad-

vised her that “these are the terms and condi-

tions of opening up an Edward D. Jones account,

keep these for your records... .”

... Reasonable expectations are, by their very

nature, prospective; they are defined before one

enters into a contract, noi after. Pet. App. 20-21

(emphasis is Justice Leaphart’s).

Based upon Petitioners’ procedure, Respondent

understood that she was opening an account, but she was

unaware of the arbitration provisions. The MSC consid-

ered the parties’ relative bargaining positions’ and nine

year course of dealing in determining Respondent’s rea-

sonable expectations. Pet. App. 14 and Pet. 6-7.*

Over time, the parties understood that Respondent

did not read Petitioners’ form contracts and instead relied

on Petitioners to explain important terms. Id. The MSC

concluded that Petitioners’ arbitration provisions were

“important terms” because they included waivers of

Respondent’s constitutional and procedural rights. Jd.

* Le., an elderly widow with a relative lack of sophistication and

bargaining power. See: Pet. App. 3 and 23.

* Courts routinely consider a weaker party’s course of dealing to

determine whether adhesive terms were outside actual and reasonable

expectations. See: Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 820-821

(1981).

8

Relying on the parties’ course of dealing and relative

bargaining strength, the MSC concluded that Respondent

did not reasonably expect that Petitioners would require

her to waive her constitutional and procedural rights

without explanation.

Far from providing an explanation, Petitioners had

Respondent sign a detachable signature card waiving her

rights before presenting the arbitration provisions. Pet.

App. 20-21. As Justice Leaphart’s concurring opinion

emphasized, reasonable expectations should be defined

before one enters into a contract, not after. Pet. App. 21.

The cases relied upon by Petitioners demonstrate that

the MSC does not apply adhesion contract law to the

construction and interpretation of insurance policies. Pet.

14. None of those cases involved the issue decided in Kloss:

whether an adhesion contract term was unenforceable

because it was beyond the reasonable expectation of the

weaker party. None of Petitioners’ cases involve facts

relating to the formation of the contracts remotely similar

to the parties’ course of dealing in Kloss — e.g., there was

no indication that insurance brokers in those cases rou-

tinely explained important terms in their policies to new

policyholders. Pet. App. 14.

At most, Petitioners have shown that the MSC, along

with a majority of state courts, do not apply adhesion

contract analysis to interpret insurance policies. It is not

the purpose of the FAA, however, to have this Court

ensure that Montana uniformly applies adhesion contract

principles to the construction of insurance policies as well

as to the enforcement of arbitration agreements, especially

since insurance policies typically do not incorporate

waivers of constitutional and procedural rights.

9

Most importantly, Petitioners have not established

that the MSC applied Montana’s law of adhesion contracts

in a way that discriminated against Petitioners’ arbitra-

tion agreement. Adhesion contract rules are generally

applicable under the Montana commercial code. See All

State Leasing v. Top Hat Lounge, 198 Mont. 1, 649 P.2d

1250 (1982). Indeed, in two prior cases, the MSC upheld

arbitration provisions in stock brokers’ form agreements

against challenges under adhesion contract rules. Passage,

supra, and Chor v. Piper Jaffray & Hopwood, 261 Mont.

143, 862 P.2d 26 (1993). And, in Chor, the MSC held that

the arbitration provisions were clearly within a customer’s

actual expectations because she testified that she had

reviewed and understood the contract. Chor, supra, at 261

Mont. 143, 149.

B. KLOSS PROPERLY APPLIED MONTANA

LAW GOVERNING FIDUCIARY DUTIES

THAT DID NOT DISCRIMINATE AGAINST

PETITIONERS’ ARBITRATION AGREE-

MENT.

Petitioners base their argument on a single, older case

that is inapposite, Brown v. Merrill, Lynch, Pierce, Fenner

& Smith, Inc., 197 Mont. 1, 640 P.2d 453 (1982). The MSC

held that Merrill, Lynch had no duty to bring a liquidation

clause to an investor’s attention. There was no contention

that a fiduciary relationship was created when the cus-

tomer agreement was formed. The facts surrounding

contract negotiations were not even mentioned in Brown;

hence, the MSC presumed the contract was an arm’s

length transaction. Brown’s only significance is that it

contains a liquidation clause similar to Petitioners’.

10

The opinion in Brown is consistent with Kloss. Kloss

does not hold that Petitioners had a duty to explain their

liquidation clause. In Kloss, the MSC affirmed precedent

that there was fiduciary duty in every broker customer

relationship, and held that the scope of the duty in this

case required Petitioners to explain the arbitration provi-

sions based on the parties’ prior course of dealing, and

because Petitioners had discretion to buy and sell in

Respondent’s account. Pet. App. 17.

As fiduciaries, Petitioners should have explained the

arbitration clause because it waived Respondent’s consti-

tutional and procedural rights. Pet. App. 18; 7 Corbin on

Contracts, supra, at 412. The case relied upon by the MSC

for finding a fiduciary relationship, Chor, supra, was

decided eleven years after Brown. The fact that the MSC

did not find a fiduciary duty in Brown when no party

raised the issue is neither relevant nor a reason for finding

Kloss ironic.

Petitioners’ contention that the MSC created unique

requirements for arbitration agreements by applying the

law of fiduciary duty in this case is specious. Ten years

ago, the MSC recognized that stock brokers could be

fiduciaries if they have discretion to trade in a customer’s

account. Chor, supra. In Kloss, the MSC properly applied

that principle because the parties’ course of dealing sup-

ported it, not because the case involved an arbitration

agreement.

II. KLOSS DOES NOT CONFLICT WITH THE

FAA.

In Volt Information Sciences, Inc. v. Board of Trustees

of Leland Stanford Junior University, 489 U.S. 468, 474

|

11

(1989), this Court held that one of the fundamental tenets

of the FAA is that arbitration provisions should exist

“upon the same footing” as all other contractual provi-

sions. Evaluating arbitration agreements pursuant to

federal law while evaluating all other contractual provi-

sions pursuant to state law would place an arbitration

provision on footing different from the rest of the contract;

the arbitration provision would receive preferential

treatment. See Supak & Sons Mfg. Co. v. Pervel Indus.,

Inc., 593 F.2d 135, 137 (4th Cir. 1979). Arbitration provi-

sions contained in adhesion contracts, like al! other

contractual provisions contained in adhesion contracts, are

subject to the state’s adhesion contract laws. See Doctor’s

| Assoc., Inc., supra, at 687; Chor, supra, 261 Mont. at 148,

862 P.2d at 29; see also 9 U.S.C. § 2 (1998):

Petitioners argue that under the FAA, arbitration

agreements may not be subject to general defenses under

state law if those defenses turn on the fact that arbitration

agreements necessarily entail waiver of constitutional and

procedural rights. Pet. 21-22.

This argument directly conflicts with this Court’s

consistent holding that. “generally applicable contract

defenses, such as fraud, duress or unconscionability, may

be applied to invalidate arbitration agreements without

contravening [§ 2 of the FAA.]” Doctor’s Associates, supra,

at 687 citing Allied-Bruce Terminix Co., Inc. v. Dobson, 513

U.S. 265, 281 (1995); Rodriguez de Quijas v. Shear-

son/American Express, Inc., 490 U.S. 477, 483-84 (1989);

Shearson/American Express, Inc. v. McMahon, 482 U.S.

220, 226 (1987). In Allied-Bruce, this Court stated that the

FAA preempts state laws that are applicable “only to

arbitration provisions.” 513 U.S. 281. That is not the case

12

in Kloss, which applies “principles of Montana law gener-

ally applicable to all contracts.” Jd., at 54 P.3d 1, 17 7 76

(Pet. App. 36).

Secondly, Petitioners’ argument rests on a false

premise. Non-binding arbitration agreements do not

require waiver of constitutional and procedural rights.

Such waivers are not essential elements of all pre-dispute

arbitration agreements. However, all contracts that

contain such waivers are subject to strict scrutiny under

Montana law, whether or not they require arbitration. Jd.;

May v. Figgins, 186 Mont. 383, 394, 507 P.2d 1132, 1138

(1980).

The Alabama Supreme Court’s opinion in Ex Parte

McNaughton, 728 So.2d 592 (Ala. 1998) is wrong.

McNaughton held the FAA precludes state courts from

invalidating arbitration agreements as unconscionable

because they involve waivers of constitutional and proce-

dural rights. McNaughton held that such an approach

would assign a suspect status to arbitration agreements in

violation of the FAA. Pet. 21-22. The employment contract

in McNaughton required employees to arbitrate their

claims while allowing the employer to retain its judicial

options.

In Armendariz v. Foundation Health Foundation

Psychcare Services, Inc., supra, the California Supreme

Court rejected McNaughton’s notion that requiring mutu-’

ality in an adhesive arbitration contract imposes a suspect

status on arbitration agreements. Armendariz, 24 Cal. 4th

119-120. The Court stated:

. it does not disfavor arbitration to hold that

an employer may not impose a system of arbitra-

tion on an employee that seeks to maximize the

13

advantages and minimize the disadvantages of

arbitration for itself at the employee’s expense.

Id., 24 Cal. 4th at 120.

In other words, arbitration agreements are not necessarily

unilateral.

Kloss did not impose a suspect status on arbitration

agreements per se. It requires a stronger party to give fair

notice if it knows that a weaker party does not reasonably

expect that she is waiving constitutional and procedural

rights. It requires a fiduciary to give fair notice if he is

requiring another with whom he is in a relationship of

trust to waive her constitutional and procedural rights.

These principles apply to all adhesion and fiduciary

contracts seeking certain waivers whether or not they

require arbitration. The MSC did not invalidate the

contract provisions in Kloss because they required arbitra-

tion. The recent decision of the Ninth Circuit in Ting v.

AT&T, docket no. 15416 (9th Cir. Slip Op. 2/11/03), makes

the pertintent point at footnote 16:

If the district court indicated any hostility, it was

not directed at arbitration, but at the manner in

which it was forced upon consumers ... The de-

cision is hostile to the adhesive and oppressive

' nature of [the agreement] not to the particular

forum ... More importantly, the Supreme Court’s

general statements on arbitration do not override

the FAA’s particular rule which obtains here and

is well settled: “Generally applicable contract de-

fenses, such as fraud, duress, or unconscionabil-

ity, may be applied to invalidate arbitration

agreements without contravening [9 U.S.C.A.]

§ 2”. See Doctor’s Assoc. [supra].

14

Similarly, the MSC invalidated the Petitioners’ con-

tract because the circumstances under which Petitioners

tried to secure Respondent’s assent did not provide her

reasonable notice of the arbitration provisions, i.e., it was

“beyond her reasonable expectations” and not because of

hostility to arbitration. Pet. App. 20-21, 23-24 and 32-33.

Ill. KLOSS DOES NOT RAISE ISSUES OF NA-

TIONAL IMPORT.

Kloss rests on the particular facts surrounding the

parties’ nine year course of dealing and Petitioners’ pecu-

liar practice of having Alice Kloss sign an agreement

before presenting the agreement to her. It does not apply

generally to pre-dispute arbitration agreements, whether

or not those agreements call for binding arbitration. It

does not purport to affect fiduciary relationships outside

Montana. Therefore, it does not apply generally to broker

accounts outside Montana.

A. GREEN TREE HAS NO RELATION TO

KLOSS.

Petitioners assert, without explanation, that in

deciding Green Tree Financial Corp v. Bazzle, docket no.

02-634 (cert. granted 1/10/03), this Court is likely to

address issues relevant to their petition. Pet. 27-29.

Petitioners claim that their petition requires this Court to

decide whether state courts have the power to substitute

their notions of fairness in protecting constitutional rights

at the expense of the parties’ arbitration agreement. Pet.

28. That is untrue.

The issue is whether state courts have the power to

refuse to enforce arbitration agreements under state laws

15

of general application. This Court has consistently held

that they do. Green Tree does not involve that issue, but

rather whether arbitration is applicable in class actions.

6

CONCLUSION

The petition for writ of certiorari should be denied.

Respectfully submitted,

JOSEPH C. ENGEL, III P.C. DANE J. DURHAM

Counsel of Record 9303 Upper Miller Ck. Rd.

600 Central Plaza, Suite 428 Missoula, MT 59803

P.O. Box 3222 (406) 251-0358

Great Falls, MT 59403

(406) 727-0121

Dated: February 26, 2003