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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2003
- **Citation:** 538 U.S. 956

## Text

No. 02-1112

| 26 2003
Jn The | -
Supreme Court of the United States |
¢

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

Petitioners,

V.

ALICE P. KLOSS,

Respondent.

¢

On Petition For A Writ Of Certiorari
To The Supreme Court Of Montana

¢

RESPONDENT?’S BRIEF IN OPPOSITION

¢

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

~

ili

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1066%3A2. Public record. Not legal advice.