No. 92-540 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1993 

MARLENE CHOR and MARTIN ANDRE, 

Plaintiffs and Respondents, 

PIPER, JAFFRAY & HOPWOOD, 

INCORPORATED, and JOHN 

LAWRENCE SCHULTZ, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Second Judicial District, 

In and for the County of Silver Bow, 

The Honorable James E. Purcell, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

John G. Crist and James L. Jones, Dorsey 

& Whitney, Billings, Montana 

For Respondents: 

Gregory 0. Morgan and Charles F. Proctor, 

Bozeman, Montana 

Filed: 

Submitted: July 15, 1993 

Decided: October 18, 1993 
Chief Justice J. A. Turnage delivered the Opinion of the Court. 

The District Court for the Second Judicial District, Silver 

Bow County, refusedto enforce three arbitration agreements entered 

between Harlene Chor and Piper, Jaffray & Hopwood, Inc. (Piper). 

Piper appeals. We reverse and remand. 

The issues are: 

1. Did the court err by refusing to enforce the agreements 

because Piper did not fully comply with Rule 21 of the National 

Association of Securities Dealers? 

2. Did the District Court err by relying on Chores intent not 

to be bound by the legal consequences of the arbitration clauses in 

the agreements she signed? 

3. Did the court err by concluding the arbitration agreements 

are void because they are ixxxz?scionable or contracts cf adhesicn? 

4. Did the court err by concluding that the agreements are 

void because Piper committed actual and constructive fraud by not 

explaining the legal implications of the arbitration clauses to 

Chor when she signed the agreements? 

Marlene Chor was forty-seven years old when this matter was 

heard in the District Court. Although she was not a sophisticated 

investor in securities, she has a college degree and was president, 

part-owner, and operator of a million-dollar-a-year gambling 

machine business. She and her brother, Martin Andre, became owners 

of the business after their father's death in 1985. 
In 1988, Chor became acquainted with defendant John Schultz. 

Schultz was a broker for Piper and was registered as a securities 

salesman. Relying on Schultz's advice, Chor invested in stock and 

bought an annuity through Piper. Chor testified that she signed 

many papers with Piper and that Schultz pointed out the important 

items in the documents and explained their impact to her. 

In August of 1989, based upon Schultz's advice and direction, 

Chor wrote a check for $25,000 to "The Terran Corporation" for 

purchase of one of the Terran investments. The following month, 

she wrote a check to "Terran Financial Groupw in the amount of 

$25,000 and delivered it to Schultz for a second Terran investment. 

Chor received certificates of a limited partnership interest in 

"Terran Partners I Limited Partnership." 

In August of 1990, the Nontana State Auditorlc Officc issucd 

a cease and desist order in connection with the sale of the Terran 

Partnership I Limited Partnership. Chor and Andre (who had also 

invested in Terran) filed this suit against Piper and Schultz. 

Because Andre did not sign any agreements containing arbitration 

clauses, Piper has not challenged the District Court's jurisdiction 

to decide his claim. 

Piper contends it had no role in marketing the Terran investments and that Schultz was acting independently in selling them to 

Chor. The validity of that defense has not yet been decided. 

Here, Piper argues that if it is held responsible in this action, 
Chor's claims are subject to arbitration, pursuant to three 

agreements she signed. 

The first agreement, denominated a "Co-owner Account Agreement," was executed on June 17, 1988. Chor testified that she was 

led to believe the only purpose for the agreement was so that she 

and her husband could hold an account jointly. The third page of 

the agreement includes a paragraph entitled "Arbitration:" 

We agree to arbitrate any disputes between PJH and us. 

We specifically agree and recognize that all controversies which may arise between PJH, its agents, representatives or employees and us, concerning any transaction, 

account or the construction, performance or breach of 

this or any other agreement between us, whether entered 

into prior, on, or subsequent to the date hereof, shall 

be determined by arbitration to the full extent provided 

by law. Such arbitration shall be in accordance with the 

rules then in effect of the Arbitration Committee of the 

New York Stock Exchange or the National Association of 

Securities Dealers, Inc., as we may elect. We authorize 

PJH, if we do not make such election by registered mail 

addressed to PJH at its main office within fifteen (15) 

days after receipt of notification from PJH requesting 

such election, to make such election on our behalf. 

On September 30, 1988, Chor signed another Co-owner Account Agreement, for an account she held with her son. That agreement 

contained the same arbitration provision set forth above. 

The third arbitration agreement was contained on page 4 of a 

Margin Agreement Chor signed in February 1991. Chor testified she 

believed the purpose of the Margin Agreement was to clear up a 

debit balance on her account. She further testified that she 
believed the arbitration provision in the Margin Agreement would 

apply to future disputes only. 

The District Court denied Piper's motion to compel arbitration, stating that it first needed to rule on the validity of the 

arbitration agreements. It held a joint hearing on that question 

for purposes of this case and another case which was also appealed 

to this Court, Mueske v. Piper, Jaffray & Hopwood (Mont. 19931, 

P. 2d , 50 St. Rep. 1009. 

After the hearing, the District Court ruled that the arbitration agreements are invalid. The court concluded that: Piper 

failed to correct its procedures and amend its account forms to 

reflect new disclosure requirements under the Rules of the National 

Association of Securities Dealers; Chor did not intend that the 

arbitration claase wo~jld he %utilized in the event that she 

defrauded by Piper or one of its agents: the Co-owner Account 

Agreements are adhesion contracts which do not state their effect 

of waiving the right to trial by jury, and enforcement of the 

arbitration clauses would therefore be unconscionable; and Chor's 

consent to the Co-owner Account Agreements was obtained through 

actual and constructive fraud. Piper appeals. 

Before we discuss the issues raised in this case, we point out 

that contracts requiring arbitration of disputes are as enforceable 

in Montana as are any other contracts. Section 27-5-114, MCA. 

Further, this Court has acknowledged the federal policy favoring 
arbitration. E.g., Vukasin v. D.A. Davidson & Co. (1990), 241 

Mont. 126, 133, 785 P.2d 713, 718; Passage v. Prudential-Bache 

Securities, 1nc. {1986), 223 Mont. 60, 64, 727 P.2d 1298, 1300, 

cert. denied 480 U.S. 905. 

Did the court err in refusing to enforce the agreements 

because Piper did not fully comply with Rule 21 of the National 

Association of Securities Dealers? 

The arbitration agreements between Piper and Chor are 

governed, through operation of their terms, by the rules of the 

National Association of Securities Dealers (NASD). Effective 

September 7, 1989, NASD Rule 21(f)(3) required that: 

A copy of the agreement containing any such [arbitration] 

clause shall be given to the customer who shall acknowl- *U-L -Am- ----4-t A....-.-'Ly* the-0°C ..I. ..&I-& on the a~reement or on a separate 

document. 

Piper did not obtain Chor1s signature acknowledging receipt of a 

copy of any of the three arbitration agreements she signed. 

However, by its own terms, NASD Rule 21 does not apply 

retroactively. The rule provides at subsection (f)(5) that: "The 

requirements of this subsection (f) shall apply only to new 

agreements signed . . . after September 7, 1989.'' Therefore, the 

first two arbitration agreements, which Chor signed in 1988, are 

not subject to the requirements of Rule 21. 
The Margin Agreement, on the other hand, is subject to Rule 

21. We held in Mueske that failure to comply with controlling law 

incorporated into an arbitration agreement, such as an NASD rule, 

renders a pre-dispute arbitration clause invalid. Mueske, - 

P.2d at, 50 St.Rep. at 1013. Based on our holding in Mueske, 

we hold that the arbitration provision in the Margin Agreement 

between Chor and Piper is invalid for violation of NASD Rule 

21(f) (3). 

Without citing authority, the District Court concluded that 

the Xargin Agreement superseded the two previous agreements. Chor 

does not defend that conclusion. Because there is nothing in the 

Margin Agreement to indicate it supersedes or nullifies the first 

two agreements, and in the absence of any citation to legal 

-..tL.--:t.. -..--,.-+<..- tt.,. r,<-t-4-t c.,.,.~+,# --..-'I..... 4-.. .,- -.-... -1.. 2,. UUL""I"Y I3Upp"I &I.'., C8.G UII3G.L &I-C +"UL C I3 I-",I\-ILlYI",', I= +"'I+IUU~ 

that the court was in error. We will therefore proceed to analyze 

the remaining issues as to the first two arbitration agreements. 

I I 

Did the District Court err by relying on Chor's intent not to 

be bound by the legal consequences of the arbitration clauses in 

the agreements she signed? 

As Piper has pointed out, Chor does not address this issue in 

her brief to this Court, effectively conceding it. When a contract 

is reduced to writing, the intention of the parties is to be 

ascertained from the writing alone, if possible. Section 28-3-303, 
MCA. We hold that the District Court erred in relying upon Chor's 

subjective intent not to be bound by the legal consequences of the 

arbitration clauses in the agreements she signed. 

111 

Did the court err by concluding the arbitration agreements are 

void because they are unconscionable or contracts of adhesion? 

In Passaqe, this Court held that an arbitration clause may be 

enforced even if the agreement in which the clause appears is an 

adhesion contract, absent evidence that the arbitration clause was 

not within the partiess reasonable expectations or that the clause 

is oppressive or unconscionable. , 727 P.2d at 1302. Chor 

maintains that this case presents an exception to the general rule 

stated in Passaae because, here, the District Court specifically 

conc.--'ed that t>,- cla"ses ?+,-re not -itkin the 

reasonable expectations. This conclusion was erroneous, based on 

Chorss own deposition testimony. 

Chor testified that she read the arbitration agreements before 

signing them and that her understanding of the first agreement was 

"if I were to have any problems, that we would agree to arbitrate 

the problem." As to her claim that she did not fully understand 

the legal impact of the arbitration clauses, a party cannot avoid 

the legal consequences of an agreement simply by later claiming 

that she did not understand the impact of the plain language of the 

contract on her legal rights. See Wright v. Blevens (1985), 217 
Mont. 439, 444, 705 P.2d 113, 117. More specifically, "[algreements to arbitrate disputes in accordance with SEC-approved 

procedures are not unconscionable as a matter of law." Cohen v. 

Wedbush, Noble, Cooke, Inc. (9th Cir. 1988), 841 F.2d 282, 286. 

Chor also claims that her agreements with Piper are contracts 

of adhesion. 

Contracts of adhesion arise when a standardized form of 

agreement, usually drafted by the party having superior 

bargaining power, is presented to a party, whose choice 

is either to accept or reject the contract without the 

opportunity to negotiate its terms. 

Finkle and Ross v. A.G. Becker Paribas, Inc. (D.C.N.Y. 1985), 622 

F.Supp. 1505, 1511, as cited in Passaqe, 727 P.2d at 1301. This 

claim is not convincing in light of Chor's deposition testimony. 

Chor testified that since 1983 she had investment accounts with 

five other brokerage houses besides Piper, none of which required 

her to consent to arbitrate future disputes. She clearly had the 

ability to go elsewhere if the terms of the agreement with Piper 

did not suit her. Indeed, she did so in the spring of 1990, when 

Schultz left Piper. At that time, Chor terminated her accounts 

with Piper and transferred them to another brokerage firm for a few 

months, before returning to Piper. 

The arbitration clauses here discussed, by their plain 

meaning, concern stock transactions. By no stretch of judicial 

fiction or fantasy does this opinion suggest that the clauses would 

bind Chor to arbitrate a claim based on an automobile accident with 
a Piper secretary, or other torts not related to stock transactions, as postulated in the concurring and dissenting opinion. 

We hold that the District Court erred in concluding the 

arbitration agreements are void due to unconscionability or because 

they are contracts of adhesion. 

IV 

Did the court err by concluding that the agreements are void 

because Piper committed actual and constructive fraud by not 

explaining the legal implications of the arbitration clauses to 

Chor when she signed the agreements? 

A prima facie case of actual fraud or constructive fraud would 

require, among other elements of proof, evidence that Piper 

misrepresented or omitted some material fact. Van Ettinger v. 

Papin (1978): 180 Mont. 1, 10, 588 P.2d 988, 994 (actual fraud): 

Hartfield v. City of Billings (1990), 246 Mont. 259, 263, 805 P.2d 

1293, 1296 (constructive fraud). The District Court concluded that 

Piper made a materially false representation to Chor by failing to 

inform her that she waived her right to a jury trial by signing the 

first two arbitration agreements. 

In order for an omission, rather than an affirmative misrepresentation, to constitute fraud, the plaintiff must first demonstrate that the defendant had a duty to disclose the fact at issue. 

Chiarella v. United States (1980), 445 U.S. 222, 228, 100 S.Ct. 

1108, 1114, 63 L.Ed.2d 348, 356. According to Chor, a duty arose 

from the commercial nature of the relationship between herself and 

10 
Piper, the admissions of Piper, and 5 30-10-301(1), MCA, concerning 

prohibited practices in securities transactions. 

Char cites McJunkin v. Kaufman & Broad Home Systems (1988) , 

229 Mont. 432, 748 P.2d 910, as authority establishing a duty on 

the part of Piper to disclose the legal effect of the arbitration 

clause to her, as a result of the commercial relationship between 

them. In McJunkin, the buyer of a mobile home alleged that the 

seller failed to inform him of structural defects therein, This 

Court stated: 

We have recognized that a sufficient duty can arise in a 

commercial transaction such as the one at hand. [Citation omitted.] We find the defendants had a duty to 

refrain from intentionally or negligently creating a 

false impression by words or conduct. [Citations 

omitted. ] 

McJunkin, 748 P.2d at 915. 

The admissions of Piper upon which Chor relies are contained 

in the deposition of her Piper stockbroker. He "admitted" that he 

owed her a duty to assess her needs and to recommend to her 

appropriate investments to fit those needs. He also ttadmittedv 

that it is reasonable for a customer to rely upon her broker's 

information and that the broker owes a duty to use reasonable care 

in giving information to customers. 

Section 30-10-301(1), MCA, provides: 

It is unlawful for any person, in connection with the 

offer, sale, or purchase of any security, directly or 

indirectly, in, into, or from this state, to: 

(a) employ any device, scheme, or artifice to defraud; 
(b) make any untrue statement of a material fact or omit 

to state a material fact necessary in order to make the 

statements made, in the light of the circumstances under 

which they are made, not misleading; or 

[c) engage in any act, practice, or course of business 

which operates or would operate as a fraud or deceit upon 

any person. 

This Court has stated that 5 30-10-301(1), MCA, creates an implied 

code of conduct for brokers, violation of which may constitute a 

breach of the duty that a broker owes to his customer. Brown v. 

Merrill Lynch, Pierce, Fenner, Etc. (1982), 197 Mont. 1, 9-10, 640 

P.2d 453, 457. Brown involved a broker's alleged failure to warn 

a customer of the amount of risk involved in a "tax straddle" 

investment. 

We are unwilling to construe this Court's rulings in McJunkin 

and Brown so broadly as to state that a stockbroker has a duty to 

disclose to his customers every possible misunderstanding which 

might be reached upon signing a contract. Nor do the "admissions" 

of Chor's Piper stockbroker establish a duty to inform a customer 

of the specific legal ramifications of an agreement to arbitrate. 

His "admissions" only emphasize that the central focus of a 

relationship between a stockbroker and an investor is the wise 

investment of funds according to the goals of the investor. 

In Cohen, the Ninth Circuit Court of Appeals considered 

investors' claims of fraud against their stockbroker for persuading 

them to sign an agreement to arbitrate future disputes with the 

broker. The investors alleged that the broker had told them the 
agreement to arbitrate would "not compromise any of [their] 

rights." -, Cohen 841 F.2d at 286. The Ninth Circuit stated: 

We know of no case holding that parties dealing at arm's 

length have a duty to explain to each other the terms of 

a written contract. We decline to impose such an 

obligation where the language of the contract clearly and 

explicitly provides for arbitration of disputes arising 

out of the contractual relationship. 

Cohen, 841 F.2d at 287. We agree with the Ninth Circuit Court of 

Appeals. 

The plaintiffs' case in &&,en was stronger than that of Chor, 

because Chor has only alleged an omission, rather than a positive 

misrepresentation. Further, there is no evidence that Piper or its 

agents concealed information from Chor. She testified that she had 

ample opportunity to ask questions of Schultz and that he responded 

to all questions she asked. 

Chor argues that Schultz's role as her investment advisor 

supports a finding that a fiduciary relationship existed between 

them and that his breach of his duty as a fiduciary to explain to 

her the effect of the arbitration clause justifies her claim of 

constructive fraud. Absent special circumstances, a fiduciary duty 

is required to prove constructive fraud. Bottrell v. American Bank 

(1989), 237 Mont. 1, 20-21, 773 P.2d 694, 706. However, "a 

fiduciary relationship is not automatically established in a 

stockbroker-client relationship." United Methodist Church v. D.A. 

Davidson (1987), 228 Mont. 288, 296, 741 P.2d 794, 799 (Sheehy, J., 

dissenting). In the absence of discretionary authority by a 
stockbroker to buy and sell in a customer's account, no fiduciary 

relationship is created in a broker-customer relationship. Caravan 

Mobile Home Sales v. Lehman Bros. Kuhn Loeb (9th Cir. 1985), 769 

F.2d 561, 567. 

Chor has not alleged that Piper stockbrokers had discretionary 

authority over her accounts. She stated that Schultz "acted as if 

he did," but that she made it clear to him that he did not have the 

authority to buy and sell stocks in her account without her 

permission. The District Court's finding that Piper had de facto 

control over Chor's accounts is therefore clearly erroneous. 

Chor has provided no legal or factual reason for this Court to 

ignore Cohen and the general rule binding a person to the written 

agreements she enters. We conclude that no duty has been established on the part of Piper to explain to Chor, at the time the 

first two arbitration agreements were entered, that by signing the 

agreements to arbitrate future disputes, she waived her right to a 

jury trial. We therefore hold that the District Court erred in 

concluding that the arbitration agreements are void based upon 

actual or constructive fraud. 

Finally, Chor maintains in her brief to this Court that the 

language of the arbitration agreements is too narrow to include 

matters outside the contracts themselves. This claim was not 

raised in the court below. It therefore will not be considered. 

We hold that the arbitration agreements entered between Chor 

and Piper on June 17, 1988, and on September 30, 1988, are binding 

14 
and enforceable. Reversed and remanded for further proceedings 

consistent with this Opinion. 

We concur: 

Justices 
Justice James C. Nelson specially concurs and dissents. 

I concur with the Court's discussion and holding on issues 2., 

3. and 4. I respectfully dissent from the Court's discussion and 

holding on issue 1. on the basis of my dissent in Mueske v. Piper, 

Jaffray & Hopwood, Cause No. 92-539, decided August 27, 1993. 

Specifically, in Mueske, we held that a failure to comply with 

controlling law incorporated into an arbitration agreement, such as 

an NASD rule, renders a pre-dispute arbitration clause invalid. 

However, if the NASD rule is "controlling lawi', as held by the 

Court here and in Mueske, then all of the NASD rules should 

control. The NASD rules provide that a violation of Rule 21 can 

result in sanctions being issued against the violating dealer. 

There is no provision for invalidating the arbitration agreement in 

its entirety. 

If there is some legal basis for the Court to determine that 

a violation of a choice of law provision' can result in a remedy 

not provided for by that law, this legal basis should be clearly 

articulated. If there is no legal basis for allowing this remedy, 

one should not be artificially created. 

For the foregoing reasons, I respectfully d sent from the 

Court's decision on Issue 1. 

Justice Karla M. Gray concurs if;,j& foregoing special concurrence 

and dissent. &K 3 

1 I do not believe that the reference by the District our&^ 

or by this Court to the provision at issue as being one of nchoice 

of law*' is accurate in the context in which that concept is usually 

understood. 
Justice Terry N. Trieweiler concurring in part and dissenting in 

part. 

I concur with the majority's conclusions under Issues I 

and 11. 

I dissent from the majority's conclusions under Issues I11 

and IV. 

However, it is not necessary to conclude that the arbitration 

clauses at issue are contracts of adhesion, nor that they were 

induced by fraud. Neither federal nor state law permits 

enforcement of any provision so broad as the arbitration agreements 

relied on in this case. In fact, I conclude that the arbitration 

clauses in plaintiffs' contracts with Piper, Jaffray & Hopwood, 

Inc., are void by reason of the fact that they violate public 

-_ ..... , - 2 . -.L.. LL. L policy in the State of i.ioiitaiia. xu exp~a~lt WLIY LII~L ~uii~lusi~ii is 

necessary, further factual background is helpful. 

The arbitration clauses relied on by PJH and enforced by the 

majority's decision were included in two co-owner account 

agreements signed by plaintiff Marlene Chor. The first agreement 

was entered into among PJH, Marlene Chor, and her husband, John 

Michael Chor, on June 17, 1988. It related only to PJH account 

number 730-194699-500. Its purpose was to authorize either of the 

co-owners of that account to deal with PJH individually and 

provided that each co-owner would be bound by the actions and 

decisions of the other with regard to that account. 
The second co-owner account agreement was entered into among 

PJH, Marlene Chor, and her son, John Martin Chor. It related to 

PJH account number 730-194696-500. Its purpose was the same as the 

previous co-owner account agreement, but related to a different 

account owned by different parties. 

The fact that the two agreements were separate agreements 

relating to different subject matters and involving different 

parties is evident from the fact that two separate agreements were 

required by PJH. 

Referring to the two co-owner account agreements and the 

margin agreement in its appellate brief, PJH's attorneys correctly 

pointed out that "[elach agreement is a separate document, executed 

at a different time. The three agreements created three separate 

and disiinci accounts with different account numbers. Even rhe 

parties are different." 

The cause of action which is the subject of this appeal is 

based on plaintiffst allegation that John Schultz, while employed 

by PJH, sold Marlene Chor and her brother, Martin Andre, 

unregistered Terran Partnership investments in violation of the 

Montana Securities Act. This transaction was unrelated to any of 

the three accounts for which Marlene Chor had signed co-owner 

account agreements or a margin agreement. In fact, it is PJH1s 

position that it neither underwrote nor marketed the Terran 

Partnership securities and that Schultz was unauthorized by PJH to 

sell them. 
The point of all this background is that PJH is relying on an 

arbitration provision in three account agreements to compel 

arbitration of a dispute arising out of a transaction which is 

unrelated to any of those accounts, and therefore, unrelated to 

those specific agreements. 

According to PJH, because the arbitration provision in its 

co-owner account agreements is so broad, once Marlene Chor signed 

them, she became bound to arbitrate every future dispute with PJH, 

regardless of the basis for that dispute. In other words, based on 

the arbitration agreement in the co-owner account agreements, if 

one of PJH's secretaries ran over Marlene Chor while she was a 

pedestrian crossing a Butte city street with a green light and a 

dispute arose over liability for that collision, Marlene Chor would 

be bound to drbiirdie indi dispute and would be denied her right of 

access to Montana's courts and her right to a jury trial. 

To approve enforcement of an arbitration provision so broad, 

under the circumstances in this case, is unconscionable and shows 

a blatant disregard for the importance of access to our courts and 

the jury system. 

The public policy in Montana is clearly set forth at 

5 28-2-708, MCA, where it provides that: 

Every stipulation or condition in a contract by which any 

party thereto is restricted from enforcing his rights 

under the contract by the usual proceedings in the 

ordinary tribunals or which limits the time within which 

he may thus enforce his rights is void. This section 

does not affect the validity of an agreement enforceable 

under Title 27, chapter 5. 
Title 27, chapter 5, is known as Montana's Uniform Arbitration 

Act. Section 27-5-114, MCA, of the Act provides that with some 

exceptions, an agreement to submit a controversy to arbitration is 

a valid and enforceable agreement. However, an important 

qualification is found in subsection (4) which provides: 

Notice that a contract is subject to arbitration 

pursuant to this chapter shall be typed in underlined 

capital letters on the first page of the contract; and 

unless such notice is displayed thereon, the contract may 

not be subject to arbitration. 

Neither of the two co-owner account agreements complied with 

this requirement. However, more importantly, a contract to 

purchase an interest in the Terran Partnership was a separate 

agreement for which no notice whatsoever was given that plaintiff 

would be required to arbitrate disputes arising from that 

transaction. 

It is correct that, to the extent Montana's public policy 

requiring a judicial forum for the resolution of claims is 

inconsistent with federal policy, Montana's policy is preempted. 

Sourhlalzd Cop v. Keating (1984), 465 U.S. 1, 104 S. Ct. 852, 79 

L. Ed. 2d 1. However, the Federal Arbitration Act is not 

inconsistent in this respect. 

Piper, Jaffray & Hopwood concedes that the Federal Act's 

starting point for determining whether this claim must be 

arbitrated is found at 9 U.S.C. 5 2 (1925). That section provides, 

in relevant part, as follows: 
A written provision in any . . . contract evidencing a 

transaction involving commerce to settle by arbitration 

a controversy thereafter arisina out of such contract or 

transaction, or the refusal to perform the whole or any 

part thereof, or an agreement in writing to submit to 

arbitration an existing controversy arisina out of such 

a contract, transaction, or refusal, shall be valid, 

irrevocable, and enforceable, save upon such grounds as 

exist at law or in equity for the revocation of any 

contract. [Emphasis added]. 

All that is authorized by 5 2 of the Federal Arbitration Act 

is a contract provision requiring arbitration of disputes which 

arise from the contract which includes the arbitration provision. 

There is nothing in the Federal Arbitration Act which allows a 

party to a contract to include in that contract the requirement 

that the other party to the contract submit every future dispute 

between the parties to arbitration regardless of whether the future 

dispute relates to the contract in question. To include such a 

sweeping provision in a contract of adhesion, like the one in 

question, is simply unconscionable. 

While on the subjects of adhesion and unconscionability, it is 

important to take a look at this Court's previous analysis of 

brokerage agreements in the context of the District Court's 

findings in this case. 

In Passage v. Prudential-Bache Securities, Inc. (1986) , 223 Mont. 60, 727 

P.2d 1298, we cited with approval the following rule from Finkleand 

Ross v. A.G. Becker Paribus, Inc. (D.c.N.Y. 1985), 622 F. Supp. 1505, 
Contracts of adhesion arise when a standardized form of 

agreement, usually drafted by the party having superior 

bargaining power, is presented to a party, whose choice 

is either to accept or reject the contract without the 

opportunity to negotiate its terms. (citation omitted.) 

Here, the investor is faced with an industry wide 

practice of including Arbitration Clauses in standardized 

brokerage contracts. As the investor faces the 

possibility of being excluded from the securities market 

unless he accepts a contract with such an agreement to 

arbitrate, such clauses come within the adhesion 

doctrine. 

Passage, 727 P.2d at 1301. 

The District Court made the following findings of fact which 

satisfy the above legal criteria of an adhesion contract: 

19. . . . The co-owner account agreement was 

drafted by PJH, printed on PJH form, and filled out by 

Schultz. . . . 20. Schultz presented the co-owner account 

agreement to her representing that it was necessary to 

sign it in order to open the account. Chor was given no 

alternative to signing. 

21. OsNeil further testified that the customer had 

no choice in agreeing to arbitration. If a customer 

refused to so agree, OINeil said he would refuse to 

accept the account. He stated the customer would Isgo 

down the roadss and do business elsewhere. 

The above findings are supported by substantial evidence. 

They clearly satisfy the requirements for an adhesion contract, as 

set forth above. By finding that this contract was not a contract 

of adhesion, the majority simply retried that issue of fact. 

Establishment of an adhesion contract is, however, not the end 

of our inquiry. The rule cited in Pussage goes on to provide: 

However, mere inequality in bargaining power does not 

render a contract unenforcible [sic], (citation omitted) 

nor are all standardized contracts unenforcible [sic]. 
(citations omitted.) As a consequence of current 

commercial realities, form forum clauses will control, 

absent a strong showing it should be set aside. 

(citation omitted.) For such a contract or clause to be 

void, it must fall within judicially imposed limits of 

enforcement. It will not be enforced against the weaker 

party when it is: (1) not within the reasonable 

expectations of said party or (2) within the reasonable 

expectations of the party, but, when considered in its 

context, is unduly oppressive, unconscionable or against 

public policy. 

Passage, 727 P.2d at 1301-02. While the arbitration agreements in 

Passage and Finkle were found to be within the investor's expectation 

and consistent with public policy, the arbitration provisions in 

this case were neither. In this regard, the District Court made 

the following findings, which were supported by substantial 

evidence: 

21. Marlene Chor testified that she understood the 

purpose of this co-owner account agreement (Char's 

Exhibit No. 4) was to create a joint account. 

27. The document, on its face, is called a co-owner 

account agreement. The "imwortant notice: wlease read 

carefully" notice on the front page deals entirely with 

the type of account. The identification of the name of 

the account on the front page was printed by someone 

else. 

28. On the third page of the agreement (Chorls 

Exhibit No. 4), there appears a paragraph entitled 

"arbitration:" in the following language: 

[Agreement deleted]. 

29. The insertion of the arbitration provision in 

the co-owner account agreement alters the stated purpose 

of the document from a joint account agreement to one 

establishing a joint account and requiring arbitration of 

"all controversies which may arise . . . . :I 
30. Schultz did not point out or explain what the 

arbitration clause meant. There is nothing on the front 

page of the co-owner account agreement which indicates 

that the document contains an arbitration clause. Nor is 

there anything on the signature page of the document 

which indicates that the document contains an arbitration 

clause. 

31. Marlene Chor testified that she thought the 

effect of the arbitration clause was that if there were 

a dispute that they would first negotiate it. As a lay 

person, Marlene Chor interpreted the provision as merely 

one step in the process prior to court action. She did 

not understand that it meant she was waiving her right to 

the courts and a jury trial. 

32. Furthermore, the co-owner account agreement 

does not state anywhere that she waived her right to a 

jury trial. 

33. Holland admitted in testimony that it would 

take someone with legal training or actual experience 

with arbitration to discern from the agreement that its 

effect is to waive due process through the Montana court, 

including the right to a jury trial. Yet, PJH apparently 

still expected the customer to sign an agreement 

containing an arbitration clause. 

34. Both PJH's branch manager, Tom OfNeil, and 

Chorvs current personal account representative, Mike 

Holland, testified that they were not attorneys and 

therefore could not explain how the arbitration clause 

required waiving the right to a jury trial but that they 

were aware that through their own experience that is the 

effect. 

35. PJH has stipulated in the record that Chor had 

no input in drafting the co-owner account agreements she 

signed. PJH took advantage of their superior bargaining 

position with regard to Chor in that, as the drafter of 

the document, PJH knew that the effect of the document 

was to accomplish more than to set up a joint account. 

Yet, PJH failed to inform Chor of that effect of the 

document and now seeks to take advantage to the detriment 

of Chor of their superior bargaining power and knowledge 

which was not revealed by either their agent or the 

document itself. Now, PJH wishes to deny Chor the right 

to seek relief in the Montana courts. 
The District Court clearly found that the result of the 

arbitration provision, which the majority enforced, was not within 

the reasonable expectations of Marlene Chor. Those findings were 

supported by substantial evidence. Therefore, according to this 

Court's prior authority, the arbitration clause is not enforceable. 

Even if the clause had been found to be within Marlene Chor's 

reasonable expectations, it would not be enforceable under the 

authority of Finkle and Passage because it was unconscionable and 

against public policy for the reasons set forth previously. 

As a result of the majority's decision in this case, an 

unsophisticated member of the consuming public can sign a form 

agreement prepared by a large corporation with superior bargaining 

power, assuming that it relates to a limited transaction, and later 

find that they have lost all future rights of access to Montana's 

courts in any future disputes with that corporation, no matter how 

totally unrelated to the subject of the original contract. 

With court dockets being as overcrowded as they are, the rush 

of the federal judiciary and this Court to embrace arbitration is 

understandable. However, the majority's willingness to, in the 

process, ignore fundamental constitutional rights such as access to 

our courts and the right to jury trial, is not so understandable. 

For these reasons I dissent from the majority opinion. 

I also conclude that the District Court correctly found that 

Marlene Chor was induced by constructive fraud to enter into these 

arbitration agreements, because PJH breached its duty to properly 
inform her of the consequences of the agreement. However, because 

I conclude that the arbitration provisions are unenforceable based 

on the above discussion, I feel it is unnecessary to discuss 

further that part of the majority opinion. 

Justice William E. Hunt, Sr., joins in the foregoing concurrence 

and dissent. 
October 18, 1993 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the following 

named: 

John G. Crist and James L. Jones 

Dorsey & Whitney 

P.O. Box 7188 

Billings, MT 59103 

Gregov 0. Morgan and Charles F. Proctor 

Attorneys at Law 

P.O. Box 1530 

Bozeman, MT 59771-1530 

ED SMITH 

CLERK OF THE SUPREME COIJRT