DA 17-0124

IN THE SUPREME COURT OF THE STATE OF MONTANA

2018 MT 67

BEVERLY LENZ, DARINDA WILLIAMS, TERRANCE

BRADY, DEAN A. HOISTAD, LARRY VERVICK

and RICHARD W. HORTON,

 Plaintiffs and Appellants,

 v.

FSC SECURITIES CORPORATION, ROCKY MOUNTAIN 

FINANCIAL ADVISORS, LLC, f/k/a ROCKY MOUNTAIN FINANCIAL, LLC,

ERIC D. ROLSHOVEN and JOHN DOES 1-10,

 Defendants and Appellees.

APPEAL FROM: District Court of the Fourth Judicial District,

In and For the County of Missoula, Cause No. DV 15-725

Honorable Robert L. Deschamps, III, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

John M. Morrison, Linda Deola, Morrison Sherwood Wilson & 

Deola, PLLP, Helena, Montana

For Appellee:

Charles H. Carpenter, Carpenter Law Firm, Missoula, Montana

(for Eric D. Rolshoven)

Kevin D. Feeback, Toole & Feeback, PLLC, Lincoln, Montana

Edward S. Zusman, Amir Tadjedin, Ryan Probstfeld, Markun Zusman 

Freniere and Compton, LLP, Portland, Oregon

04/03/2018

Case Number: DA 17-0124
2

Submitted on Briefs: November 8, 2017

 Decided: April 3, 2018

Filed:

__________________________________________

Clerk
3

Justice Dirk Sandefur delivered the Opinion of the Court.

¶1 Beverly Lenz, Darina Williams, Terrance Brady, Dean A. Hoistad, Larry Vervick, 

and Richard W. Horton (collectively Investors) appeal the order of the Montana Fourth 

Judicial District Court staying proceedings and compelling them to submit all asserted

claims against FSC Securities Corporation (FSC) and Rocky Mountain Financial Advisors, 

L.L.C. (f/k/a/ Rocky Mountain Financial, L.L.C.), and Eric D. Rolshoven (collectively

RMF) to arbitration. We affirm and restate the dispositive issues as:

1. Did the District Court erroneously conclude that Investors knowingly and 

voluntarily assented to the subject arbitration agreements and validly waived 

their rights to full legal redress and jury trial?

2. Did the District Court correctly conclude that the subject arbitration agreements 

were not unconscionable?

BACKGROUND

¶2 FSC is a Delaware-chartered, Georgia-based corporation registered with the United 

States Securities and Exchange Commission (SEC) to provide interstate securities 

brokerage and investment advisory services. RMF is a Montana-registered, limited 

liability company, that was engaged in the business of providing licensed financial and 

securities brokerage services as registered representatives of FSC. Eric Rolshoven 

(Rolshoven) and broker Barry Hartman (Hartman) were agents of RMF, and registered 

representatives of FSC, doing business in Missoula, Montana. Invizeon was a 

Missoula-based corporation engaged in raising investment capital, purportedly to support 

business plans to aid in the marketing of various security-related technology products. 
4

¶3 Between 2003 and 2014, on the recommendation of RMF brokers and advisors, a 

number of investors, including Investors, purchased securities in Invizeon Corporation

through FSC.

1

 In 2015, Invizeon failed, causing Investors to sustain substantial losses. 

Investors promptly sued FSC and RMF in the Montana Fourth Judicial District Court, 

alleging that FSC failed to adequately supervise its registered RMF representatives and that 

RMF wrongfully induced Investors to invest in Invizeon on various grounds including

misrepresentation, fraud, and undisclosed self-dealing. Eight months into the litigation, 

FSC and RMF separately moved to stay proceedings and compel arbitration before the 

Financial Industry Regulatory Authority (FINRA).2 Following briefing and oral argument

on the motions, the District Court conducted a supplemental evidentiary hearing. 

¶4 Over the course of multiple, day-long hearings, the District Court heard testimony 

from each Investor regarding his or her recollection of the specific contract documents and 

related circumstances. All Investors testified that they did not recall reading or receiving 

a standard-form FSC customer agreement that included a detailed arbitration agreement.

Each Investor described his or her educational background and prior investment 

experience. Though several Investors recalled receiving significant paperwork when they 

opened their RMF accounts, none recalled reading or receiving the customer agreement 

form. However, all Investors recalled seeing and reading an arbitration notice printed 

 

1

Investors also purchased other securities through FSC/RMF throughout this period.

2 FINRA is a private corporation that acts under the approval of the SEC as an industry 

self-regulatory organization regulating member brokerage firms and exchange markets to ensure 

fair and honest industry operations. At all times pertinent, FSC was a FINRA member.
5

above the signature block on the separate client application form. The Investors testified 

that they had no recollection of anyone at RMF advising them of the legal significance of 

the arbitration agreement. 

¶5 FSC’s Senior Litigation Counsel Greg Curley (Curley) testified as to the standard 

FSC protocol followed by FSC representatives in opening brokerage accounts. Each FSC 

brokerage agreement consisted of a separate client application form, customer agreement 

form, signature page form, and an account worksheet generated and maintained by FSC’s 

computerized account management system. Whether viewed in electronic or hard-copy 

form, the transaction documents for each FSC brokerage agreement were readily

identifiable by account name, number, and cross-referenced transaction forms identified 

by version reference. Initiating RMF representatives opened each account through the 

FSC account management system by selecting the constituent transaction forms from a 

menu screen which then set up an electronic account record for each client. Upon initiation 

of each new client account, the system generated a hard copy of all initial transaction 

documents for client review and signature in the form of a single document print-out. 

Pursuant to standard FSC policy and procedure, RMF retained each client’s signed 

application signature form and provided a hard-copy of all transaction documents to the 

client. 

¶6 The three-page customer agreement form contained detailed language explaining

the arbitration process relative to litigation, stated the parties’ agreement to resolve any and 

all disputes through binding arbitration, and declared that the agreement effected a waiver 

of the client’s litigation rights, including, inter alia, the right to a jury trial. Though FSC 
6

did not require Investors to initial or sign the customer agreement form, the application 

signature page forms conspicuously referenced the customer agreement form as part of the 

agreements and conspicuously stated in bold-print directly above one of two customer 

signature blocks that:

The Customer Agreement contains a pre-dispute Arbitration Provision. This 

Provision is contained in this agreement and appears in bold print. I hereby 

acknowledge by my signature below, receipt of a copy of this agreement. 

(Emphasis added.) FSC did not require the initiating RMF representative to further discuss 

or explain the arbitration agreements with clients beyond the express language of the 

transaction forms. 

¶7 Kay Hartman (Kay), wife of RMF broker and registered FSC representative Barry 

Hartman, assisted with clerical duties, including preparing, printing, and providing account 

packets to clients upon opening of new accounts at RMF. Kay testified that she assisted 

with new accounts by obtaining and inputting client information into the FSC system. Kay 

also printed the various transaction documents for client review, verified social security 

numbers, and obtained client signatures. Kay testified that, if she had any reason to believe 

that a client did not receive or leave the office with copies of all transaction documents, it 

was her practice to mail copies to the client with a note to contact her or Mr. Hartman with 

any questions. Kay further testified that it was her standard practice to tell clients that the 

account application documents made them FSC clients and that the referenced customer 

agreement form provided for mandatory arbitration of any dispute related to the account. 

There is no evidence that any of the Investors ever questioned, objected to, or stated any 

concern about the arbitration provisions referenced in any of the FSC account documents. 
7

Kay testified that she mailed complete transaction document packets to two of the Investors 

after signing. 

¶8 Although the language of the customer agreements forms varied slightly over time,

Curley testified that the arbitration agreement language remained substantially similar at 

all times pertinent. Inter alia, the customer agreement forms included the following 

arbitration agreement and disclosure in bold type:

Arbitration

1. Arbitration Disclosure

This agreement contains a pre-dispute arbitration clause. By signing an 

arbitration agreement the parties agree as follows:

 All parties to this agreement are giving up the right to sue each other 

in court, including the right to a trial by jury, except as provided by 

the rules of the arbitration forum in which a claim is filed.

 Arbitration awards are generally final and binding; a party’s ability to 

have a court reverse or modify an arbitration award is very limited.

 The ability of the parties to obtain documents, witness statements and 

other discovery is generally more limited in arbitration that in court 

proceedings.

 The arbitrators do not have to explain the reason(s) for their award.

 The panel of arbitrators will typically include a minority of arbitrators 

who were or are affiliated with the securities industry.

 The rules of some arbitration forums may impose time limits for 

bringing a claim in arbitration. In some cases, a claim that is ineligible 

for arbitration may be brought in court.

 The rules of the arbitration forum in which the claim is filed, and any 

amendments thereto, shall be incorporated into this agreement.

2. Agreement to Arbitrate Controversies

You agree that any and all controversies which may arise between you, 

FSC, Pershing LLC, and/or any of FSC’s employees, agents, or officers 

concerning any account, transaction, dispute or the construction, 

performance, breach, or termination of this Agreement or any other 
8

agreement, whether entered into prior to, on or subsequent to the date hereof, 

shall be determined and resolved by arbitration. Any arbitration under this 

Agreement shall be held under and pursuant to and governed by the Federal 

Arbitration Act, and shall be conducted before an arbitration panel convened 

by the American Arbitration Association or NASD Dispute Resolution.3 

You may also select any other national securities exchange’s arbitration 

forum in which FSC is legally bound to arbitrate the controversy, including, 

where applicable, the Municipal Securities Rulemaking Board. Any 

arbitration pursuant to this Agreement shall be governed by the rules of the 

organization convening the arbitration panel. The award of the arbitrators, 

or a majority of them, shall be final, and judgment on the award may be 

entered in any court of competent jurisdiction. A party’s ability to have a 

court reverse or modify an arbitration award is very limited.

The customer agreement forms distinctly set forth the language of the arbitration agreement

in bold print, separate from the other terms and conditions in the customer agreement. At 

hearing, each Investor acknowledged and authenticated his or her signature on at least one 

FSC account application.4 After each account opening, FSC mailed periodic account 

statements to each Investor that, inter alia, included a detailed notice including arbitration 

agreement language similar to that set forth in the original customer agreement form.

5

 

¶9 On February 8, 2017, following supplemental post-hearing briefing, the District 

Court issued extensive findings of fact, conclusions of law, and an order compelling

Investors to submit their claims to arbitration as provided in the FSC customer agreement

forms. Based on the testimony of individual Investors, the court found that each Investor

 

3 The National Association of Securities Dealers (NASD) was the SEC-approved predecessor of 

FINRA. 

4 Some of the Investors signed several FSC account applications as a result of opening multiple 

accounts.

5 FSC presented uncontradicted testimony that it regularly issued account statements to clients for 

every month in which a client conducted an account transaction and at least quarterly each year.
9

received actual notice of the arbitration agreement. The court further found that all of 

Investors were highly educated and sophisticated market investors with extraordinary 

business acumen. The plaintiffs included a lawyer, a certified public accountant, two 

banking executives, and highly successful business people, all knowledgeable and 

experienced market investors. The court found that none of the investors were under any 

duress or “physical or emotional compulsion” and that there was no evidence or allegation 

that FSC or RMF induced Investors to enter into the subject brokerage agreements by 

duress, fraud, misrepresentation, or other unlawful conduct.

6

¶10 Though the District Court determined that all agreements were non-negotiated

contracts on terms dictated by FSC, the court further concluded that the standard-form

contracts, including the arbitration agreements, were within the reasonable expectations of 

each client and were not oppressive, unconscionable, or contrary to public policy. The 

court found that each of the plaintiffs “signed at least one, and sometimes more than one, 

account opening document . . . confirm[ing that] ‘the Customer Agreement contain[ed] a 

pre-dispute Arbitration Provision’” and that each expressly acknowledged receipt of the 

customer agreement form by signature and through the following signature page advisory:

THE TRADITIONAL INDIVIDUAL RETIREMENT CUSTODIAL 

ACCOUNT PLAN (“ACCOUNT PLAN”) THAT ACCOMPANIES THIS 

ADOPTION AGREEMENT CONTAINS A PREDISPUTE 

ARBITRATION CLAUSE, WHICH MAY AFFECT RIGHTS UNDER 

THE PLAN. THE PREDISPUTE ARBITRATION CLAUSE IS LOCATED 

IN ARTICLE VIII, SECTION 11(i) ON PAGES 7 & 8 OF THE ACCOUNT 

PLAN. BY SIGNING THIS IRA ADOPTION AGREEMENT, I 

ACKNOWLEDGE THAT I HAVE READ THE PREDISPUTE 

 

6

Investors’ second amended complaint alleged, inter alia, that brokers tortiously induced them to 

purchase Invizeon securities subsequent to execution of their FSC brokerage account agreements.
10

ARBITRATION CLAUSE, UNDERSTAND IT, AND AGREE TO BE 

BOUND BY IT.

The District Court found and concluded that no fiduciary relationship existed between 

FSC/RMF and any of the plaintiffs and, thus, FSC/RMF had no duty to further explain the 

legal significance of the arbitration agreements beyond their express written language. The 

court further found that all of the FSC transaction forms were “subject to regulatory

approval” and that there was no evidence or assertion that the forms did not conform with 

applicable securities regulations. 

¶11 Though the arbitration language in each account agreement differed slightly

depending on the version the forms in use at time of execution, the District Court 

determined that the arbitration agreement language in each form was substantively similar, 

clear, and unambiguous. The court ultimately concluded that each Investor had knowingly 

and voluntarily executed a valid arbitration agreement and associated waiver of their 

Montana constitutional rights to full legal redress and a jury trial.7 The court thus granted 

the motions of FSC and RMF and compelled the Investors to submit to binding arbitration 

before FINRA. Upon obtaining an order to stay proceedings pending appeal, six of the 

original eleven plaintiffs timely appeal.

STANDARD OF REVIEW

¶12 We review district court conclusions of law, and resulting orders compelling 

arbitration, de novo for correctness. Global Client Solutions, LLC v. Ossello, 2016 MT 50, 

¶ 19, 382 Mont. 345, 367 P.3d 361 (citing Kelker v. Geneva-Roth Ventures, 2013 MT 62, 

 

7 See Mont. Const. art. II, §§ 16 and 26 (rights to full legal redress/access to courts and jury trial).
11

¶ 9, 369 Mont. 254, 303 P.3d 777); Hurly v. Lake Cabin Dev., LLC, 2012 MT 77, ¶ 14, 364 

Mont. 425, 276 P.3d 854. When a district court compels arbitration pursuant to a motion 

to dismiss or summary judgment, we review the order for correctness under the standards 

of M. R. Civ. P. 12 or 56, as applicable. See Day v. CTA, Inc., 2014 MT 119, ¶¶ 4-6, 375 

Mont. 79, 324 P.3d 1205; Kortum-Managhan v. Herbergers NBGL, 2009 MT 79, ¶ 12, 349 

Mont. 475, 204 P.3d 693; Young v. Security Union Title Ins. Co., 1998 MT 335, ¶ 17, 292 

Mont. 310, 971 P.2d 1233. When a court compels arbitration upon a contested evidentiary 

hearing, we review the court’s findings of fact for clear error. Kloss v. Edward D. Jones 

& Co., 2002 MT 129, ¶ 43, 310 Mont. 123, 54 P.3d 1; Chor v. Piper, Jaffray & Hopwood, 

Inc., 261 Mont. 143, 153, 862 P.2d 26, 32 (1993). Findings of fact are clearly erroneous 

only if not supported by substantial evidence, the court misapprehended the effect of the 

evidence, or our review of the record leaves us with a definite and firm conviction that the 

court was mistaken. Brown v. MacDonald, 2007 MT 197, ¶ 8, 338 Mont. 390, 165 P.3d 

1125. 

DISCUSSION

¶13 Investors assert that the District Court erroneously stayed litigation of their claims 

and compelled them to submit to arbitration on the asserted grounds that FSC and RMF 

failed to satisfy their burden of proving that Investors (1) knowingly entered into integrated 

contractual agreements providing for arbitration and (2) validly waived their Montana 

constitutional rights to full legal redress and jury trial. Investors further assert that the

District Court erroneously concluded that the standard-form arbitration agreements were 

not unconscionable. 
12

¶14 Enacted in 1925 to offset “widespread judicial hostility to arbitration agreements,” 

the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, mandates that arbitration agreements 

involving interstate commerce are valid and enforceable “on equal footing with all other 

contracts.” Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, 2008 MT 175, ¶ 12, 

343 Mont. 392, 185 P.3d 332; AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339, 131 

S. Ct. 1740, 1745-46 (2011); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 

443-44, 126 S. Ct. 1204, 1207 (2006). The FAA “is a congressional declaration of a liberal 

federal policy favoring arbitration agreements” regardless of any substantive or procedural 

state law to the contrary. Perry v. Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 2525 (1987)

(citing Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.

Ct. 927, 941 (1983)). The FAA encompasses a discrete “body of federal substantive law 

of arbitrability applicable to any arbitration agreement within the coverage of the Act.” 

Perry, 482 U.S. at 489, 107 S. Ct. at 2525. Consequently, courts must stay litigation and 

compel arbitration on all claims subject to a valid and enforceable arbitration agreement. 

9 U.S.C. § 3; Moses H. Cone Memorial Hosp., 460 U.S. at 26, 103 S. Ct. at 942.8 It is 

undisputed that the subject arbitration agreements involve interstate commerce and are thus 

subject to the FAA. 

¶15 1. Did the District Court erroneously conclude that Investors knowingly and 

voluntarily assented to the subject arbitration agreements and validly waived their 

rights to full legal redress and jury trial?

 

8

See also 9 U.S.C. § 4 (court shall compel arbitration “in accordance with the terms of the 

agreement” on motion and determination “that the making of the agreement for arbitration or the 

failure to comply therewith is not in issue”); Merrill Lynch, Pierce, Fenner & Smith v. Haydu, 637 

F.2d 391, 395 (5th Cir. 1981) (“state court bound to apply” provisions of FAA “if statutory 

requisites are present”).
13

¶16 Arbitration agreements are “valid, irrevocable, and enforceable” except “upon such 

grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 

Arbitration agreements governed by the FAA are subject to all generally applicable state 

law contract principles “such as fraud, duress, or unconscionability, but not by defenses 

that apply only to arbitration or that derive their meaning from the fact that an agreement 

to arbitrate is at issue.” Concepcion, 563 U.S. at 339, 131 S. Ct. at 1746 (citing Doctor’s 

Associates, Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S. Ct. 1652, 1656 (1996)). State 

law may not defeat arbitration agreements based on “special rules which apply only to 

arbitration provisions.” Iwen v. U.S. West Direct, 1999 MT 63, ¶ 26, 293 Mont. 512, 977 

P.2d 989 (citing Casarotto, 517 U.S. at 687, 116 S. Ct. at 1656). Accord Kortum, ¶ 17. 

¶17 “The fundamental tenet of modern contract law is freedom of contract”―parties are

free to “agree to terms governing their private conduct as long as those terms do not conflict 

with public laws.” Arrowhead School Dist. No. 75 v. Klyap, 2003 MT 294, ¶ 20, 318 Mont. 

103, 79 P.3d 250. “This tenet presumes that parties are in the best position to make 

decisions in their own interest.” Arrowhead School Dist., ¶ 20. Capable parties may 

contractually bind each other on valid consideration and mutual assent to all lawful contract 

terms and conditions. See §§ 28-2-101, -102, -202, -301, -303, -501, -602, and -701, MCA; 

Kortum, ¶ 18. The threshold validity and enforceability of an arbitration agreement is a 

question of law but the limited role of the court is to enforce and give effect to the lawful 

agreement of the parties. See Arrowhead School Dist., ¶ 20.
14

¶18 All contracts must contain four essential elements: (1) identifiable parties capable 

of contracting; (2) consent of the parties; (3) a lawful object; and (4) consideration. Section 

28-2-102, MCA; Kortum, ¶ 18. Contract formation is based on the consent of the parties 

and arbitration is a matter of consent. Volt Information Sciences, Inc. v. Board of Trustees 

of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S. Ct. 1248, 1256 (1989). Consent 

must be free, mutual, and communicated by each to the other. Franks v. Kindsfather, 2005 

MT 51, ¶ 31, 326 Mont. 192, 108 P.3d 487; §§ 28-2-102, -301, MCA. We have further 

explained: 

There must be mutual assent or a meeting of the minds on all essential terms 

to form a binding contract. Consent is established when there has been an 

offer and an acceptance of that offer. More specifically, . . . in order to 

effectuate a contract there must be not only a valid offer by one party, but 

also an unconditional acceptance, according to its terms, by the other.

Keesun Partners v. Ferdig Oil Co., Inc., 249 Mont. 331, 337, 816 P.2d 417, 421 (1991), 

(internal citations omitted). Contract terms to which the parties did not mutually assent are 

not valid and enforceable against a party who did not assent. See Kortum, ¶ 18; Keesun 

Partners, 249 Mont. at 337, 816 P.2d at 421. See also §§ 28-2-102(2), -301, -303, and -

401, MCA (mutual assent standards).

¶19 In addition to compliance with generally applicable contract principles, arbitration 

agreements must also comply with state constitutional standards generally applicable to 

contracts. Kortum, ¶¶ 25-27. Arbitration agreements necessarily effect a waiver of a

party’s state and federal constitutional rights to full legal redress, jury trial, due process of 
15

law, and equal protection of law.

9 Kortum, ¶ 26. The Montana constitutional rights to full 

legal redress and jury trial are fundamental rights entitled to the highest level of 

constitutional scrutiny and protection. Kortum, ¶¶ 25-26. A waiver of a fundamental

Montana constitutional right is valid only if made knowingly, voluntarily, and intelligently 

under the totality of circumstances. Kortum, ¶¶ 26-27; Park v. Montana 6th Jud. District 

Ct., 1998 MT 164, ¶ 36, 289 Mont. 367, 961 P.2d 1267 (citing Johnson v. Zerbst, 304 U.S. 

458, 464, 58 S. Ct. 1019, 1023 (1938)). As applied to contract waivers, relevant 

considerations include but are not limited to whether the waiver was the product of 

negotiation or dictated by the party with stronger bargaining position without opportunity 

for negotiation, whether the waiver provision was conspicuous and clearly explained the 

consequences of waiving rights to legal redress and jury trial, whether a disparity in 

business experience and sophistication existed between the parties, whether the waiving 

party had the assistance of counsel at the time of execution, whether the waiving party was 

under economic, social or practical duress compelling acceptance of the arbitration 

agreement (e.g. where a consumer service at issue is not reasonably available except on 

similarly dictated terms), whether the waiving party separately signed or initialed the 

waiver provision, whether the waiver provision was ambiguous or misleading, and 

“whether the party with the superior bargaining power lulled the inferior party into a belief 

that the waiver would not be enforced.” Kortum, ¶ 27. Our Kortum requirement for a 

 

9 See Mont. Const. art. II, §§ 14, 16-17, 26 (right to equal protection of law, access to courts, due 

process of law, and jury trial); U.S. Const. amend. XIV (right to due process and equal protection 

of law).
16

knowing, voluntary, and intelligent contract waiver is not specific to arbitration 

agreements; it generally applies to any type of contract waiver of a fundamental Montana 

constitutional right. 

¶20 Here, Investors do not dispute that they entered into the subject brokerage

agreements based on mutual consent and consideration. Substantial evidence exists that 

the FSC brokerage contracts included a standardized client application form, an application 

form signature page, and a customer agreement form, inter alia. With minor variation, the 

signature page forms conspicuously, clearly, and unambiguously referenced a separate 

customer agreement form and conspicuously gave notice that the customer agreement form 

contained an arbitration agreement. Though generated and maintained in separate forms, 

the FSC system printed-out the application, customer agreement, and signature page forms

in a single-document format for client review and signature. In both formats, the

transaction documents clearly, conspicuously, and unambiguously stated and explained 

that the customer agreement form was an essential part of the contract terms to which 

Investors were assenting, the nature of arbitration in contrast to litigation, that all disputes 

arising from the agreement were subject to binding arbitration, and that the agreement

effected a waiver of the rights to full legal redress and jury trial. The signature page form 

also clearly, conspicuously, and unambiguously stated and notified the signatory that, by 

signing, the client acknowledged receipt of a copy of the customer agreement form.
17

¶21 Though all but one of the plaintiffs proceeded without representation of counsel10

and FSC/RMF indeed dictated the arbitration agreements with no opportunity for 

negotiation, substantial evidence manifests that all Investors were highly educated, 

experienced, knowledgeable, and sophisticated market investors. Substantial evidence 

indicates that the Investors were well aware of, and more than capable of understanding, 

the nature of arbitration, that all account-related disputes would be subject to arbitration, 

and that they were waiving their rights to full legal redress and jury trial. No evidence

indicates that Investors’ assent to the arbitration agreements was the product of 

non-disclosure, mistake, fraud, misrepresentation, coercion, or duress. There is similarly 

no evidence that RMF induced or otherwise lulled the Investors into believing that RMF 

or FSC would not enforce the arbitration agreement.

¶22 A party who executes a written contract is presumed to have read and understood 

the contract and assented to its terms. Woodruff v. Bretz, 2009 MT 329, ¶ 8, 353 Mont. 6, 

218 P.3d 486; First Sec. Bank v. Abel, 2008 MT 161, ¶ 29, 343 Mont. 313, 184 P.3d 318; 

Stowers v. Community Med. Ctr., Inc., 2007 MT 309, ¶ 12, 340 Mont. 116, 172 P.3d 1252; 

Gliko v. Permann, 2006 MT 30, ¶ 35, 331 Mont. 112, 130 P.3d 155. Absent incapacity, 

mutual mistake, fraud, misrepresentation, or other tortious conduct affecting assent, 

ignorance or disregard of clear and unambiguous contract language “is not a ground for 

relief from liability.” Wiley v. Iverson, 1999 MT 214, ¶ 23, 295 Mont. 511, 985 P.2d 1176; 

Quinn v. Briggs, 172 Mont. 468, 474, 565 P.2d 297, 301 (1977). A party to a clear and 

 

10 One of the Investors was a licensed Montana lawyer.
18

unambiguous written contract “cannot avoid [its] legal consequences . . . simply by later 

claiming that she did not understand” the legal consequences “of the plain language of the 

contract.” Chor, 261 Mont. at 149, 862 P.2d at 30.

¶23 Here, under the totality of the circumstances, the asserted fact that some or all 

Investors did not recall seeing or reading the customer agreement forms is insufficient to 

overcome the presumption that they read and understood the consequences of the clear and 

unambiguous language of the arbitration agreement in the customer agreement forms,

particularly in light of the conspicuous signature page language affirmatively certifying 

their receipt of those forms. Moreover, substantial evidence affirmatively indicates that 

Investors received, were aware of, understood, and knowingly, voluntarily, and 

intelligently assented to the arbitration agreements and associated waivers of their rights to 

full legal redress and jury trial. Under the totality of the circumstances, we hold that the 

District Court correctly concluded that Investors knowingly, voluntarily, and intelligently 

assented to the subject arbitration agreements and validly waived their associated rights to 

legal redress and jury trial.

¶24 2. Did the District Court correctly conclude that the subject arbitration agreements 

were not unconscionable?

¶25 The terms of an otherwise validly formed contract are unenforceable under 

generally applicable contract principles if the terms are either contrary to public policy or

unconscionable. Kortum, ¶¶ 26-27. Over the years, we have needlessly complicated this 

analysis by inconsistently defining equitable unconscionability and erroneously 

interjecting the insurance-specific reasonable expectations doctrine into our generally
19

applicable unconscionability analysis. Since 1986, we have repeatedly held that arbitration 

agreements in otherwise validly formed contracts of adhesion are unenforceable only if not 

within the “reasonable expectations” of the weaker party or nevertheless “unduly 

oppressive, unconscionable, or against public policy.” E.g., Tedesco v. Home Savings Bank 

Corp., 2017 MT 304, ¶ 30, 389 Mont. 468, 407 P.3d 289; Day, ¶ 11; Kelker, ¶ 18; Graziano 

v. Stock Farm Homeowners Ass’n, Inc., 2011 MT 194, ¶ 20; 361 Mont. 332, 258 P.3d 999;

Kortum, ¶ 23; Woodruff, ¶ 13; Larsen v. Western States Ins., 2007 MT 270, ¶ 15, 339 Mont. 

407, 170 P.3d 956; Zigrang v. U.S. Bancorp Piper Jaffray, Inc., 2005 MT 282, ¶¶ 13, 18, 

329 Mont. 239, 123 P.3d 237; Kloss, ¶ 24; Iwen, ¶ 27; Chor, 261 Mont. at 149, 862 P.2d

at 30; Passage v. Prudential-Bache Securities, Inc., 223 Mont. 60, 66, 727 P.2d 1298, 1302 

(1986).11 Unfortunately, this oft-repeated rule is a circular intermix of our traditional twoelement equitable unconscionability analysis and the incompatible, insurance-specific 

reasonable expectations doctrine. Rather than continue to perpetuate this analytical 

imprecision and error, we briefly digress for analytical clarification. 

¶26 As a threshold matter, violation of public policy is an independent, generally

applicable ground for invalidating a contract provision, separate and distinct from equitable 

 

11 We have interjected the Passage reasonable expectations/unconscionability rule beyond the 

arbitration agreement context into our assessment of other types of contracts of adhesion. See,

e.g., Highway Specialties, Inc. v. Montana Dept. of Transp., 2009 MT 253, ¶ 12, 351 Mont. 527, 

215 P.3d 667 (liquidated damages provision); Polzin v. Appleway Equipment Leasing, Inc., 2008 

MT 300, ¶ 21, 345 Mont. 508, 191 P.3d 476 (choice of law and venue provisions); Denton v. First 

Interstate Bank of Commerce, 2006 MT 193, ¶ 30, 333 Mont. 169, 142 P.3d 797 (bank promissory 

note contracts); Arrowhead School Dist., ¶¶ 64-68 (liquidated damages provision); LaFournaise 

v. Montana Development Ctr., 2003 MT 240, ¶ 12, 317 Mont. 230, 77 P.3d 202 (collective 

bargaining agreement terms).
20

unconscionability or the reasonable expectations of the weaker party. See

§§ 28-2-102(3), -602, -603, and -701, MCA (requirement for lawful object as an essential 

element for contract formation). See also, e.g., State Farm Mut. Auto Ins. v. Gibson, 2007 

MT 153, ¶ 11, 337 Mont. 509, 163 P.3d 387 (holding insurance anti-stacking provision 

invalid as contrary to public policy).12 In contrast, in modern contract law, 

unconscionability is a two-element equitable doctrine rendering an otherwise validly 

formed contract or term unenforceable13 if (1) the contract or term is a contract of adhesion 

and (2) the contract or term unreasonably favors the stronger party or is unduly oppressive 

to the weaker party. Junkermeir, Clark, Campanella, Stevens, P.C. v. Alborn, Uithoven, 

Reikenberg, P.C., 2016 MT 218, ¶ 33, 384 Mont. 464, 380 P.3d 747; Day, ¶ 8; Kelker, 

¶ 29; Fisher ex rel. McCartney v. State Farm Mut. Ins. Co., 2013 MT 208, ¶ 41, 371 Mont. 

147, 305 P.3d 861; Summers v. Crestview Apts., 2010 MT 164, ¶ 22, 357 Mont. 123, 236 

P.3d 586; American Music Co. v. Higbee, 2004 MT 349, ¶ 23, 324 Mont. 348, 103 P.3d 

518; Arrowhead School Dist., ¶ 48; Iwen, ¶ 31; Leibrand v. National Farmers Union Prop. 

& Cas. Co., 272 Mont. 1, 12-13, 898 P.2d 1220, 1227 (1995). Accord Estate of Michael 

v. Glacier Gen. Ins. Co., 264 Mont. 261, 266, 871 P.2d 272, 275 (1994) (bargaining power 

disparity and oppression of weaker party are indicia of unconscionability); Kelly v. Widner, 

236 Mont. 523, 528, 771 P.2d 142, 145 (1989) (“unequal bargaining power, lack of 

 

12 But see Restatement (Second) of Contracts § 208 cmt. a-b (1981) (noting conflated view 

violation of public policy as a consideration of unconscionability).

13 “Particular [contract] terms may be unconscionable whether or not the contract as a whole is 

unconscionable.” Restatement (Second) of Contracts § 208 cmt. e (1981).
21

meaningful choice, oppression, and exploitation of the weaker party’s vulnerability or lack 

of sophistication” are indicia of unconscionability); Restatement (Second) of Contracts

§ 208 cmt. a-e (1981). Under the first element, a contract of adhesion is a contract wherein 

a party in superior bargaining position dictates the contract terms to the weaker party on a 

take it or leave it basis without any reasonable opportunity for negotiation. Graziano, ¶ 18;

Woodruff, ¶ 8; Denton v. First Interstate Bank of Commerce, 2006 MT 193, ¶ 30, 333 

Mont. 169, 142 P.3d 797. Preprinted, standard-form consumer contracts are typically 

contracts of adhesion. Woodruff, ¶¶ 8-11. 

¶27 However, whether viewed as stemming from the modern Uniform Commercial 

Code, see Leibrand, 272 Mont. at 12-13, 898 P.2d at 1227, or having deeper roots in equity,

see Restatement (Second) of Contracts § 208 cmt. a-e (1981), we did not consider the 

reasonable expectations of the weaker party in conjunction with our generally applicable,

equitable unconscionability analysis until we rejected a “reasonable expectations” 

argument as an independent ground for invalidating a standard-form arbitration agreement, 

which was not unconscionable. See Passage, 223 Mont. at 65-66, 727 P.2d at 1301-02. In 

Passage, the plaintiff asserted that, even if not equitably unconscionable, the standard-form 

arbitration agreement was independently unenforceable by extension of the 

insurance-specific reasonable expectations doctrine first recognized by this Court in 

Transamerica Ins. Co. v. Royle, 202 Mont. 173, 180-81, 656 P.2d 820, 824 (1983). 

Passage, 223 Mont. at 65-66, 727 P.2d at 1301-02. Without analysis of the threshold 

compatibility of the insurance-specific doctrine as a generally applicable contract principle 

outside the narrow insurance context, we first quoted our now-familiar hybrid reasonable 
22

expectations/unconscionability rule from a cited federal district court decision and then 

merely held that:

There is nothing in the record to indicate that the arbitration clause . . . was 

not within the parties’ reasonable expectations. Nor is there any evidence 

that the clause is oppressive or unconscionable.

Passage, 223 Mont. at 66, 727 P.2d at 1302. Thus was the advent of the unsupported but 

now-canon consideration of the reasonable expectations doctrine as a generally applicable 

contract enforcement principle. 

¶28 While we have attempted to clarify the “‘reasonable expectation’ analysis” as a 

mere “subset of whether a contract is ‘unconscionable,’” Kelker, ¶¶ 18-19 

(recharacterizing reasonable expectations of weaker party as an included consideration 

when determining whether terms of a contract of adhesion unreasonably favor stronger

party rather than as an independent defect), we have continued to perpetuate confusion by 

inaccurately referencing unconscionability, unduly oppressive terms, and terms beyond the 

reasonable expectations of the weaker party as distinct grounds for determining that a 

contract of adhesion is unenforceable. See, e.g., Tedesco, ¶ 32; Day, ¶ 11; Kelker, ¶ 18. 

Even more problematic in particular regard to arbitration agreements, we have failed to 

recognize the manifest incompatibility of the insurance-specific reasonable expectations 

doctrine as a generally applicable contract principle.

¶29 Contrary to our attempt to merge the reasonable expectations doctrine with equitable 

unconscionability, they are two wholly separate and distinct legal concepts. See Fisher, 

¶¶ 41-44 (separately analyzing whether standard-form insurance contract provision 

violated public policy, was within reasonable expectations of the weaker party, or was 
23

unconscionable). As first recognized in Transamerica Ins. Co., 202 Mont. at 181-82, 656 

P.2d at 824, the “reasonable expectations doctrine” mandates that, unless the terms of an 

insurance policy “clearly demonstrate an intent to exclude coverage,” an insurance buyer’s 

“objectively reasonable expectations” regarding the nature of the policy “should be 

honored notwithstanding the fact that a painstaking study of the policy would have negated 

those expectations.” Giacomelli v. Scottsdale Ins. Co., 2009 MT 418, ¶ 42, 354 Mont. 15, 

221 P.3d 666 (internal punctuation omitted). The reasonable expectations doctrine is a 

special, public policy-based rule requiring liberal construction of insurance policies in 

favor of coverage when the policy language is such that “an ordinary, objectively 

reasonable person . . . would fail to understand” that the policy technically does not provide 

the coverage at issue or where “circumstances attributable to” the insurer would cause an 

“an ordinary, objectively reasonable person” to believe that the coverage exists. Bailey v. 

Lincoln Gen. Ins. Co., 255 P.3d 1039, 1048-49 (Colo. 2011). Accord Winter v. State Farm 

Mut. Auto Ins. Co., 2014 MT 168, ¶ 19, 375 Mont. 351, 328 P.3d 665; Fisher, ¶¶ 19-21

(citing Bailey, 255 P.3d at 1050); American Family Mut. Ins. Co. v. Livengood, 1998 MT 

329, ¶ 32, 292 Mont. 244, 970 P.2d 1054; Wellcome v. Home Ins. Co., 257 Mont. 354, 358, 

849 P.2d 190, 193-94 (1993). The reasonable expectations doctrine is a special, insurancespecific rule that supplements generally applicable contract principles in the insurance 

context. Bailey, 255 P.3d at 1050. In contrast to the special public policy justification for 

the reasonable expectations doctrine, no similar or analogous public policy mandates

narrow enforcement of arbitration agreements. To the contrary, subject only to generally

applicable contract principles, Congress has set a paramount public policy strongly 
24

favoring arbitration agreements in interstate commerce. Perry, 482 U.S. at 489, 107 S. Ct. 

at 2525 (citing Moses H. Cone Memorial Hosp., 460 U.S. at 14, 103 S. Ct. at 941). The 

FAA preempts and precludes any special public policy-based limitation or restriction of 

arbitration agreements. Iwen, ¶ 24; Concepcion, 563 U.S. at 339, 131 S. Ct. at 1746; 

Casarotto, 517 U.S. at 686-87, 116 S. Ct. at 1656. Expansion of the reasonable 

expectations doctrine to be similarly applicable to arbitration agreements, and thus a special 

public policy based justification for narrowly construing the clear and unambiguous 

language of an arbitration agreement based on the unwritten expectations of the 

non-drafting party, would contravene and be preempted by the FAA. Mortensen v. 

Bresnan Communications LLC, 722 F.3d 1151, 1161 (9th Cir. 2013).

14 Such expansion of 

the doctrine from a special public policy based rule, narrowly applicable in the insurance 

context, to a generally applicable contract principle would similarly contravene the parol 

evidence rule, thereby destroying the stability and predictability of written contracts. See 

 

14 The Ninth Circuit held that, as “currently employed,” the Montana “reasonable 

expectations/fundamental rights rule runs contrary to the FAA as interpreted by Concepcion

because it disproportionally applies to arbitration agreements, invalidating them at a higher rate 

than other contract provisions.” Mortensen, 722 F.3d at 1161 (citing Kortum, ¶¶ 20-28). However, 

Mortenson is based on an erroneous characterization of our requirement for a knowing, voluntary, 

and intelligent waiver to include a requirement that arbitration agreements be specifically 

“explained to and initialed by consumers” in every case. Mortensen, 722 F.3d at 1160. Closer 

scrutiny of our pertinent holdings reveals that we have never required special explanation and 

initialing of arbitration agreement provisions as a requirement for a valid constitutional waiver or 

avoidance of unconscionability in every case. Rather, we have merely found that those 

considerations may be relevant, inter alia, to whether a valid constitutional waiver occurred, and 

whether adhesive contract terms were unconscionable as a matter of equity, under the totality of

the circumstances in a particular case. Woodruff, ¶ 15; Kortum, ¶¶ 25-27; Kloss, ¶¶ 27-28; Chor, 

261 Mont. at 149-53, 862 P.2d at 30-32. Thus, by weeding-out the reasonable expectations 

doctrine and clarifying our generally applicable constitutional waiver and equitable 

unconscionability analyses, we distinguish the dark cloud of Mortenson.
25

§§ 28-2-905(1) and 28-3-303, MCA (resort to extrinsic evidence to construe clear and 

unambiguous contract language prohibited―intent of parties to written contract must “be 

ascertained from the writing alone if possible”). Thus, the reasonable expectations doctrine 

is incompatible as a generally applicable contract principle, particularly in regard to 

FAA-governed arbitration agreements.

¶30 However, without reference to the reasonable expectations of the weaker party and 

to the extent not arbitration-specific, the non-exclusive Kortum factors remain relevant 

considerations, inter alia, to whether a valid waiver of applicable Montana constitutional 

rights has occurred and whether the terms of a contract of adhesion are equitably

unconscionable under the totality of the circumstances in a particular case. Day, ¶ 11; 

Kelker, ¶¶ 20-24 (citing Highway Specialties, ¶ 16, and 7 Arthur Linton Corbin, Corbin on 

Contracts, § 29.4 (Joseph M. Perillo ed., rev. 2017)); Kortum, ¶¶ 26-27. Thus, clarifying 

our oft-stated rule from Passage and its progeny: (1) the reasonable expectations doctrine

is not a generally applicable contract principle; (2) whether the terms of a contract of 

adhesion are unduly oppressive to the weaker party is a relevant consideration of equitable 

unconscionability rather than a separate concept; and (3) the Kortum factors remain 

relevant to whether a valid waiver of applicable Montana constitutional rights has occurred 

and whether a contract or term of adhesion is unconscionable. 

¶31 Applied here, the standard-form FSC arbitration agreements were unquestionably 

contracts of adhesion. Whether a contract term of adhesion unreasonably favors the 

stronger party or is unduly oppressive to the weaker party, is a mixed question of fact and 

law under the totality of circumstances surrounding the execution of the contract. In 
26

addition to the non-exclusive Kortum factors, other relevant considerations may include, 

inter alia, whether the disputed term was common in prior dealings between the parties, 

whether the weaker party carefully reviewed the agreement, and whether the stronger party 

personally explained the nature and consequences of the disputed term. Woodruff, ¶ 15; 

Kloss, ¶ 28. However, absent a fiduciary relationship or other special relationship of trust

and reliance, securities brokers and advisors have no duty to further explain the legal 

consequences of a clear, explicit, and conspicuous arbitration agreement. Chor, 261 Mont. 

at 149-53, 862 P.2d at 30-32. Absent special circumstances, such as the broker’s exercise 

of discretionary authority “to buy and sell in a customer’s account,” the relationship 

between a securities broker/advisor and client is not a fiduciary or other special relationship 

of trust and reliance. Chor, 261 Mont. at 152-53, 862 P.2d at 32. 

¶32 As in our foregoing analysis of the sufficiency of Investors’ waiver of their Montana 

constitutional rights, the Kortum factors similarly indicate that the FSC arbitration 

agreements were not unreasonably favorable to FSC/RMF or unduly oppressive to

Investors. As manifest in this case, standard-form arbitration agreements are common, if 

not pervasive, in securities brokerage contracts. See, e.g., Passage, 223 Mont. at 65-66, 

727 P.2d at 1301-02. Investors were all highly intelligent, educated, sophisticated, and 

experienced market investors with extraordinary business acumen. There is substantial 

credible evidence that at least two of the four Investors had previously arbitrated a 

securities brokerage dispute with RMF under similar agreements. There is no evidence 

that the Investors carefully studied the FSC customer agreement form before signing or 

that the procuring RMF representatives personally explained the nature and consequences 
27

of the arbitration agreements. However, unlike in Kloss, there is substantial evidence that 

no fiduciary or other special relationship of trust and reliance existed between Investors 

and FSC/RMF. Also, unlike in Kloss, there is no evidence that Investors were anything 

other than highly sophisticated and experienced market investors, well aware and 

accustomed to the terms and consequences of the standard-form FSC arbitration 

agreements. 

¶33 Finally, there is substantial, uncontradicted evidence that the FSC brokerage 

agreement forms were subject to regulatory oversight and approval by the federal SEC and 

FINRA. There is no evidence or allegation that they did not comply with applicable SEC 

regulations. “Agreements to arbitrate disputes in accordance with SEC-approved 

procedures are not unconscionable as a matter of law.” Chor, 261 Mont. at 149, 862 P.2d 

at 30 (citing Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 286 (9th Cir. 1988)). 

Under the totality of the circumstances, we hold that the District Court correctly concluded 

that the standard-form FSC arbitration agreements were not unconscionable.

CONCLUSION

¶34 We hold that the District Court’s findings of fact are supported by substantial 

evidence and not clearly erroneous. We hold that the District Court correctly concluded 

that Investors knowingly, voluntarily, and intelligently assented to the terms of the 

standard-form arbitration agreements and validly waived their associated Montana 

constitutional rights to full legal redress and jury trial. We hold further that the District 

Court correctly concluded that the standard-form FSC arbitration agreements were not 

unconscionable. Therefore, we hold that the District Court correctly compelled Investors 
28

to submit their claims against FSC and RMF to arbitration pursuant to the subject 

arbitration agreements. 

¶35 Affirmed.

/S/ DIRK M. SANDEFUR

We concur: 

/S/ MIKE McGRATH

/S/ JIM RICE

/S/ INGRID GUSTAFSON

/S/ JAMES JEREMIAH SHEA

/S/ LAURIE McKINNON

/S/ BETH BAKER