IN THE SUPREME COURT OF THE STATE OF MONTANA 

1995 

PAUL CASAROTTO and PAMELA CASAROTTO, 

Plaintiffs and Appellants, 

and 

DANIEL L. and DEB HUDSON, and D&D SUBWAY CORPORATION, 

Defendants. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable John M: McCarvel , ~ud~e prsiding. 

COUNSEL OF RECORD: 

For Appellant: 

Grant D. Parker (argued) and Philip D. Tawney, 

Mullendore, Tawney & Watt, Missoula, Montana 

For Respondent: 

Alan G. Schwartz (argued) and Ian E. Bjorkman, 

Wiggin & Dana, New Haven, Connecticut 

L. D. Nybo, Conklin, Nybo, Leveque & Murphy, 

Great Falls, Montana 

For Amici Curiae: 

Lawrence Anderson, Attorney at Law, Great Falls, 

Montana (Montana Trial Lawyers Association) 

Michael A. Bowen and Michael G. McCarty, 

Foley & Lardner, Milwaukee, Wisconsin 

(International Franchise Association; Securities 

Industry Association; Snap-On Tools Corporation) 

Filed: 

Submitted: August 22, 1995 

Decided: August 31, 1995 
Justice Terry N. Trieweiler delivered the opinion of the Court. 

Plaintiffs Paul and Pamela Casarotto filed this suit in the 

District Court for the Eighth Judicial District in Cascade County 

to recover damages which they claim were caused by the defendants' 

breach of contract and tortious conduct. Defendants Nick Lombardi 

and Doctor's Associates, Inc., (DAI) moved the District Court for 

an order dismissing plaintiffs' complaint, or in the alternative, 

staying further judicial proceedings pending arbitration of 

plaintiffs' claims pursuant to a provision in DAI's franchise 

agreement with plaintiffs which required that disputes "arising out 

of or relating to" that contract be settled by arbitration. The 

District Court granted defendants' motion, and ordered that further 

judicial proceedings be stayed until arbitration proceedings were 

completed in accordance with the terms of the parties' agreement. 

Plaintiffs appealed from that order, and on December 15, 1994, we 

reversed the order of the District Court and remanded this case to 

that court for further proceedings. Casarotto v. Lombardi (1994) , 268 

Mont. 369, 886 P.2d 931. Following this Court's decision, the 

defendants petitioned the Supreme Court of the United States for a 

writ of certiorari. That petition was granted, and on June 12, 

1995, the United States Supreme Court ordered that the December 15, 

1994, judgment of this Court be vacated, and remanded this case to 

the Supreme Court of Montana for further consideration in light of 

that Court ' s decision in Allied-Bruce Terminix Cos. v. Dobson (1995) , 513 U. S . 

- 

, 115 S. Ct. 834, 130 L. Ed. 2d 753. Having further considered 
our prior decision in light of Dobson, we now reaffirm and reinstate 

our prior opinion. 

FACTUAL BACKGROUND 

Paul and Pamela Casarotto entered into a franchise agreement 

with DAI which allowed them to open a Subway Sandwich Shop in Great 

Falls, Montana. DAI's franchise agreement included on page nine a 

provision which required that controversies or claims related to 

the contract shall be settled by arbitration in Bridgeport, 

Connecticut. However, the franchise agreement did not include 

notice on the front page to the effect that the contract was 

subject to arbitration, as required by § 27-5-114(4), MCA. 

The Casarottos filed this action in the District Court based 

on their allegations that DAI breached its agreement with them, 

defrauded them, and engaged in other tortious conduct, all of which 

resulted in loss of business and the resulting damage. 

DAI moved to dismiss the Casarottos' claim or to stay further 

judicial proceedings pending arbitration pursuant to the 

arbitration provision in its franchise agreement. The District 

Court granted DAI's motion to stay further judicial proceedings 

pursuant to 9 U.S.C. 5 3, which is part of the Federal Arbitration 

Act found at 9 U.S.C. §§ 1-15 (1988). 

On appeal from the District Court's order, we considered 

whether Montana's notice requirement was preempted by the Federal 

Arbitration Act in light of the U.S. Supreme Court's recent 

decision in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior 
University (1989), 489 U.S. 468, 109 S. Ct. 1248, 103 L. Ed. 2d 488. 

In that case, the Supreme Court stated that: 

The FAA contains no express pre-emptive provision, 

nor does it reflect a congressional intent to occupy the 

entire field of arbitration. But even when Congress has 

not completely displaced state regulation in an area, 

state law may nonetheless be pre-empted to the extent 

that it actually conflicts with federal law--that is, to 

the extent that it "stands as an obstacle to the 

accomplishment and execution of the full purposes and 

objectives of Congress. " Hines v. Davidowilz, 312 U. S. 52, 

67, 61 S.Ct. 399, 404, 85 L.Ed.2d 581 (1941). The 

question before us, therefore, is whether application of 

Cal.Civ.Proc. Code Ann. § 1281.2 (c) to stav arbitration 

under this contract in interstate commerce, in accordance 

with the terms of the arbitration aqreement itself, would 

undermine the qoals and policies of the FAA. We conclude 

that it would not. 

Volt, 489 U.S. at 477-78, 109 S. Ct. at 1255 (citation omitted; 

emphasis added) . 

Based on the cited language from Volt, we concluded that the 

nature of our inquiry was whether Montana's notice requirement 

found at 5 27-5-114 (4), MCA, would "undermine the goals and 

policies of the FAA." We concluded that it does not. Casarotto, 886 

P.2d at 931. We explained our conclusion as follows: 

Our conclusion that Montana's notice requirement 

does not undermine the policies of the FAA is based on 

the Supreme Court's conclusion that it was never 

Congress's intent when it enacted the FAA to preempt the 

entire field of arbitration, and its further conclusion 

that the FAA does not require parties to arbitrate when 

they have not agreed to do so. That Court held that the 

purpose of the FAA is simply to enforce arbitration 

agreements into which parties had entered, and 

acknowledged that the interpretation of contracts is 

ordinarily a question of state law. Volt, 489 U.S. at 

474, 109 S.Ct. at 1253. 
Presumably, therefore, the Supreme Court would not 

find it a threat to the policies of the Federal 

Arbitration Act for a state to require that before 

arbitration agreements are enforceable, they be entered 

knowingly. To hold otherwise would be to infer that 

arbitration is so onerous as a means of dispute 

resolution that it can only be foisted upon the 

uninformed. That would be inconsistent with the 

conclusion that the parties to the contract are free to 

decide how their disputes should be resolved. 

Montana's notice requirement does not preclude 

parties from knowingly entering into arbitration 

agreements, nor do our courts decline to enforce 

arbitration agreements which are entered into knowingly. 

Therefore, we conclude that Montana's notice statute 

found at 5 27-5-114 (4), MCA, would not undermine the 

goals and policies of the FAA, and is not preempted by 

9 U.S.C. § 2 (1988). 

Casarotto, 886 P.2d at 938-39. 

On January 18, 1995, subsequent to our decision in this case, 

the U.S. Supreme Court decided Dobson. On June 12, 1995, the same 

Court vacated our prior Casarotto decision and remanded the matter to 

this Court for further consideration in light of the Dobson 

decision. 

In Dobson, the plaintiffs were the assignees of a contract with 

Terminix for life-time protection against termites. They sued 

Terminix in Alabama state court when they found their house 

"swarming with termites." Terminix moved the court for a stay 

pursuant to 5 2 of the Federal Arbitration Act (9 U.S.C. 5 2 

(1988)) so that arbitration could proceed pursuant to a provision 

for arbitration in the termite protection plan. The stay was 

denied. The Supreme Court of Alabama upheld the denial on the 
basis of Ala. Code § 8-1-41(3) (l993), which made written, 

predispute arbitration agreements invalid and unenforceable. The 

Alabama court concluded that its state statute was not preempted by 

the Federal Arbitration Act because the connection between the 

termite contract and interstate commerce was too slight. 

In the court's view, the Act applies to a contract only 

if "'at the time [the parties entered into the contract] 

and accepted the arbitration clause, they contemplated 

substantial interstate activity.'" Despite some 

interstate activities (e.g., Allied-Bruce, like Terminix, 

is a multistate firm and shipped treatment and repair 

material from out of state), the court found that the 

parties "contemplated" a transaction that was primarily 

local and not "'substantially" interstate. 

Dobson, 115 S. Ct. at 837 (citations omitted) . 

Before addressing the issue presented, the Dobson majority 

reiterated its conclusion that the purpose of the Federal 

Arbitration Act was to "overcome judicial hostility to arbitration 

agreements and that applies in both federal and state courts." 

Dobson, 115 S. Ct. at 835. The Court then went on to conclude that 

the language in 5 2 of the Act which applied its provisions to any 

"contract evidencing a transaction involving commerce" had broader 

significance than the words of art "in commerce," and therefore, 

covered more than persons or activities "within the flow" of 

interstate commerce. Dobson, 115 S. Ct. at 839. The Court held 

that the word "involving," like "affecting," signaled an intent on 

the part of Congress "to exercise Congress's commerce power to the 

full," Dobson, 115 S. Ct. at 841, and secondly that the Act's 

preemptive force applies to transactions which, in fact, involve 
interstate commerce, even though a connection to interstate 

commerce may not have been contemplated by the parties at the time 

they entered into the agreement. For these reasons, the judgment 

of the Supreme Court of Alabama was reversed. Dobson, 115 S. Ct. at 

843. 

After careful review, we can find nothing in the Dobson 

decision which relates to the issues presented to this Court in 

this case. Our prior Casarotto decision did not involve state law 

which made arbitration agreements invalid and unenforceable. Our 

state law simply requires that the parties be adequately informed 

of what they are doing before they enter into an arbitration 

agreement. Our decision did not involve an analysis of what was 

meant by "involving commercew or "affecting commerceu or "in 

commerce." We assumed, in the Casarotto decision, that the 

transaction with which we were concerned involved interstate 

commerce, and that any state law which frustrated the purposes of 

the Federal Arbitration Act would be preempted. 

Finally, there is no suggestion in the Dobson decision that the 

principles from Volt on which we relied have been modified in any 

way. To our knowledge, it is still the law, therefore, that state 

law is only preempted to the extent that it "stands as an obstacle 

to the accomplishment and execution of the full purposes and 

objectives of Congress." Volt, 489 U.S. at 477, 109 S. Ct. at 1255 
(citing Hinesv. Davidowitz (1941), 312 U.S. 52, 67, 61 S. Ct. 399, 404, 

85 L. Ed. 2d 581). 

While the Dobson decision does include a discussion extolling 

the virtues of arbitration as a "less expensive alternative to 

litigation," Dobson, 115 S. Ct. at 843 (apparently based on input 

from the American Arbitration Association), and while that 

conclusion is at odds with facts set forth in Justice Trieweiler's 

concurring opinion to our earlier decision, the concurring opinion 

was not the basis for our decision. 

For these reasons, we conclude, after thorough review of our 

earlier decision in light of the U.S. Supreme Court's decision in 

Dobson, that the decisions are not inconsistent, and therefore, that 

there is no basis for modifying or reversing our earlier opinion. 

We reaffirm and reinstate our opinion dated December 15, 1994, in 

the above matter, and remand this case to the District Court for 

further proceedings consistent with this opinion. 

We concur: 

Chief Justice 

Justice W. William Leaphart, specially concurring. 

Justice John C. Harrison was in the majority in this Court's 

initial decision in Casarotto v. Lombardi (1994), 268 Mont. 369, 

886 P.2d 931. Justice Harrison has since retired. As the 

successor to Justice Harrison, it is incumbent on me to review that 

decision in light of the remand from the United States Supreme 

Court. Having reviewed the Casarotto decision, I specially concur 

with the Court's conclusion that Montana's notice requirement in § 

27-5-114(4), MCA, does not undermine the goals and policies of the 

FAA and is not preempted by 9 U.S.C. § 2 (1988). I have also 

reviewed the United States Supreme Court's decision in Allied-Bruce 

Terminix Cos. v. Dobson (1995), 115 S.Ct. 834, 130 L.Ed.2d 753, and 

I see no reason why the principles enunciated in that decision 

should have any effect upon this Court's decision in Casarotto. 

In Dobson, the United'States Supreme Court held that the FAA 

preempts anti-arbitration state statutes which invalidate 

arbitration agreements. Section 27-5-114 (4) , MCA, cannot be 

characterized as anti-arbitration nor does it invalidate 

arbitration agreements. On the contrary, it is one section of 

Montana's Uniform Arbitration Act which specifically recognizes 

arbitration agreements: "A written agreement to submit an existing 

controversy to arbitration is valid and enforceable except upon 

such grounds as exist at law or in equity for the revocation of a 

contract. Section 27-5-114 (1) , MCA. The notice requirement of 

subsection (4) merely protects the consumer by requiring that 

notice of an arbitration provision be conspicuously placed on the 
front page of the contract. This does not undermine the proarbitration policy of the FAA. Rather, it furthers the policy of 

meaningful and consensual arbitration by helping ensure that the 

consumer who signs what is most often a nonnegotiated, form 

contract, knowingly agrees to arbitration in the event of a 

dispute. I see no inconsistency between Dobson and our decision in 

Casarotto and I specially concur in the Court's decision to 

reaffirm and reinstate its December 15, 1994 opinion. 
Justice Karla M. Gray, dissenting. 

I dissent from the Court's opinion and order and its 

reinstatement of its prior opinion in this case. My dissent is 

based on the procedures used by the Court in addressing the United 

States Supreme Court's vacating of our earlier opinion and 

remanding for our reconsideration based on its decision in AlliedBruce Terminix Cos. v. Dobson (1995), 115 S.Ct. 834, 130 L.Ed.2d 

753. 1 also dissent from the Court's conclusion that nothing in 

the Dobson case relates to the issues presented to this Court. In 

dissenting, I also reaffirm and reinstate my earlier dissent in 

this case. 

A remand for reconsideration to this Court from the United 

States Supreme Court is an uncommon occurrence for which we have no 

procedural rules or practices in place. Counsel for the parties 

were left without guidance as to how they should proceed in order 

to be heard during this phase of the case. Counsel for the 

defendants/respondents requested the opportunity to brief the 

issues raised by the United States Supreme Court's remand and to 

present oral argument. Without so much as a mention of this 

request, the Court apparently denies it. While one can only 

speculate on the reasons for such an implicit decision, one must 

assume that the Court is simply unwilling to consider any analysis 

that would require a change in the result it remains determined to 

reach, I cannot join in such an arrogant and cavalier approach to 

this important case on remand from the United States Supreme Court. 

More importantly, I disagree with the Court's conclusion that 

nothing in Dobson relates to the issues before us. While I agree 
that the substantive issue addressed at length in Dobson is not 

before us here, I read more importance into the early language in 

Dobson than does the Court. In Dobson, the United States Supreme 

Court reiterates the fundamental premise of the Federal Arbitration 

Act by citing to Volt, the very case which this Court erroneously 

interprets and on which it premises its erroneous decision, for the 

proposition that "the basic purpose of the Federal Arbitration Act 

is to overcome courts1 refusals to enforce agreements to 

arbitrate. l1 Dobson, 115 S .Ct . at 838; citing Volt Information 

Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ. 

(1989), 489 U.S. 468, 474. The Supreme Court goes on to say that 

" Cnl othing significant has changed in the 10 years subsequent to 

Southland; no later cases have eroded Southland's authority [ . I " 

Dobson, 115 S.Ct. at 839. It is this latter statement on which I 

believe we must focus in reconsidering our decision here. The 

Court refuses to do so. 

I continue to believe that this Court erroneously interprets 

Volt, which was decided by the Supreme Court five years after 

Southland. Volt is clearly distinguishable on its facts from the 

case before this Court and cannot properly serve as a basis for the 

result the Court reaches. Volt is neither inconsistent with, nor 

a retrenchment from, Southland, as this Court suggested in its 

earlier opinion and suggests again today. This is the message I 

take from the Supreme Court's statement in Dobson that "no later 

cases have eroded Southland's authority;" this is the portion of 

this Court's earlier opinion to which I believe the Supreme Court 

was directing our attention on remand. 
For the reasons stated in my earlier dissent, it is my view 

that application of Montana's notice statute is preempted by the 

Federal Arbitration Act in this case because application of that 

statute undercuts, undermines and renders unenforceable the 

parties' agreement to arbitrate. This view is entirely consistent 

both with Southland and with a proper interpretation of m. 

Therefore, I dissent from the Court's opinion and order and 

reinstate my prior dissent in this case. 

Chief Justice J.A. Turnage and Justice Fred J. Weber join in the 

foregoing dissent of Justice Karla M. Gray. 

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