No. 89-265 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

WILLIAM GIBSON, JR., INC., 

a Montana corporation, and 

WILLIAM GIBSON, JR., individually, 

Plaintiffs and Appellants, 

-vsJAMES GRAFF COMMUNICATIONS, INC., 

a Montana corporation, JAMES GRAFF, 

individ.ually, SAGE ADVERTISING, INC., 

a Montana corporation, ROBERT A. HENKEL, 

individually, and SAGE ADVERTISING, 

BILLINGS, a partnership, 

, . Defendants and Respondents. 

APPEAL'FROM: District Court of the Thirteenth Judicial District, 

c (.- In and for the County of Yellowstone, I 

- - The Honorable Russell Fillner, Judge presiding. 

I. ,! 

COUNSEL -OF RECORD : L i 

*JJ 

(For Appellant: 

* . . 

John J. Cavan, Cavan, Smith, Grubbs & Cavan, Billings, 

Montana 

For Respondent: 

Steven J. Lehman; Crowley, Hauqhey, Hanson, Toole and 

Dietrich, Billings, Montana 

Filed: 

Submitted on Briefs: Sept. 7, 1989 

Decided: September 27, 1989 
Justice John Conway Harrison delivered the Opinion of the 

Court. 

William Gibson, Jr., Inc., and William Gibson, Jr., 

individ,ually, (Gibson) filed suit in the Thirteenth Judicial 

District, Yellowstone County, seeking damages under several 

theories arising out of respondents' termination of Gibson's 

employment contract. The District Court granted respondents' 

motion for a stay of proceedings and to compel arbitration 

based on arbitration clauses in the partnership agreement and 

employment agreement under the Federal Arbitration Act. From 

that order Gibson appeals. We affirm. 

We rephrase the issues appellants present for review as 

follows : 

1. Did the District Court err because the contracts at 

issue do not involve interstate commerce? 

2. Did the District Court err because the appellants' 

claims are outside the scope of the arbitration clause in the 

contracts? 

3. Did the District Court err because respondents have 

defaulted and waived their right to insist on arbitration? 

4. Did the District Court err because the contracts 

specify that the law of Montana will govern the rights and 

obligations of the parties thereunder, and any interpretation 

and construction of the agreement. 

We will discuss only issue No. 1 as we find it to be 

controlling. We have considered appellants' other 

contentions and find that they must be rejected. 

The parties to this action entered into the following 

contracts: (1) an employment agreement between Sage 

Advertising, Billings and James Graff dated November 30, 

1979; (2) an employment agreement between Sage Advertising, 

Billings and William Gibson, and (3) a partnership agreement 
between Sage Advertising, James Graff Communications, Inc., 

and William Gibson, Jr., Inc. forming Sage Advertising, 

Billings dated November 21, 1980. 

All three contracts contain similar arbitration 

clauses. An example is the arbitration clause in the 

partnership agreement which provides as follows: 

Arbitration. If at any time during the 

existence of the Partnership or after the 

dissolution or termination thereof, any 

question, disagreement or difference 

shall arise among the parties hereto 

concerning the Partnership, its affairs, 

transactions, business or accounts or the 

meaning - or interpretation of the 

agreement, or - the rights, duEes or 

obligations of any party hereto, sux 

question, disagreement or difference 

shall be submitted to and determined by 

the American Arbitration Association in 

accordance with its rules then in force. 

(Emphasis added.) 

Sage Advertising, Billings was in the business of 

providing advertising services. Sage Advertising, Billings 

hired Mr. Graff as manager of its daily affairs and Mr. 

Gibson as creative director in charge of graphics plus other 

duties. During the term of Mr. Gibson's employment, Sage 

Advertising, Billings performed advertising services for 

clients in Wyoming and North and South Dakota as well as 

Montana. Sage sold and delivered advertising goods in these 

states as well. Respondents terminated Mr. Gibson's 

employment on August 11, 1984. 

After Mr. Gibson's termination, the parties attempted 

for several years to negotiate a settlement of Mr. Gibson's 

wrongful termination claim. These negotiations included a 

January 14, 1987 letter to appellants' counsel from 

respondents' counsel which suggested binding arbitration to 

settle the dispute. Appellants filed suit on August 11, 
1987. Respondents' answer of September 24, 1987 raised as a 

defense the arbitration clauses in Gibson's employment 

agreement and the partnership agreement. 

Did the District Court err because the contracts at 

issue do not involve interstate commerce? 

The law is clear that if a contract falls within the 

ambit of the Federal Arbitration Act, (FAA) , 9 U.S .C. §§ 1 , 

et seq., then an arbitration clause found in that contract 

must be enforced. Passage v. Prudential-Bache Securities 

(1986), 223 Mont. 60, 63-64, 727 P.2d 1298, 1300. Appellants 

contend that the District Court erred in holding that the 

partnership and employment agreements are contracts involving 

interstate commerce within the meaning of the FAA. We 

disagree. 

Appellants acknowledge that Sage Advertising, Billings 

conducted business in Wyoming and North and South Dakota. By 

appellants' estimate at least five percent of Sage's clients 

were from out-of-state. But appellants assert that the 

amount of business Sage transacted in those states was too 

small to justify designating Sage as involved in interstate 

commerce. Although the percentage of Sage's interstate 

business may have been small, it is clear that Sage, 

Billings' activities affected interstate commerce bringing it 

within the scope of § 2 of the FAA. Bernhardt v. Polygraphic 

Co. (1956), 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199. Thus 

the District Court correctly found that the FAA applied to 

the partnership and employment agreements and required 

enforcement of the arbitration clauses. 

We affirm the District Court. 
We concur: /