No. DA 06-0170 IN THE SUPREME COURT OF THE STATE OF MONTANA 2007 MT 42

CITIBANK (SOUTH DAKOTA) N.A., Plaintiff and Respondent,

v. DOC L. DAHLQUIST, Defendant and Appellant.

APPEAL FROM: The District Court of the Eleventh Judicial District, In and For the County of Flathead, Cause No. DV-04-175B, Honorable Katherine R. Cu rtis, Presiding Judge

COUNSEL OF RECORD: For Appellant: William L. Managhan and Santana Kortum-Managhan, Managhan & Kortum-Managhan La w Firm PLLC, Kalispell, Montana For Respondent: Kimberly S. More, Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P., Kalispell, Montana

Submitted on Briefs: January 17, 2007 Decided: February 13, 2007 Filed:

__________________________________________ Clerk2 Justice W. William Leaphart delive red the Opinion of the Court. ¶1 This is the second appeal before us concerning Doc Dahlquist, credit card debt, and a purported arbitration award. 1 Here, plaintiff Citibank sued Dahlquist, alleging he owed $7,955.01 in credit card debt. Dahlquis t subsequently filed a motion to confirm, alleging the action was subject to an arbitra tion award. The District Court denied the

motion to confirm the arbitration award be cause the arbitration procedure failed to conform to the arbitration agreement. Fr om the denial of hi s motion to confirm, Dahlquist appeals. We affirm. ¶2 We restate the issue as follows: ¶3 Did the District Court correctly deny Dahlquist’s motion to confirm when the arbitration award was issued by an arbitrat or other than the one specified in the arbitration agreement, even though Citibank failed to disput e the award within ninety days?

BACKGROUND ¶4 On March 19, 2004, Citibank filed a comp laint alleging that Dahlquist owed $7,955.01 pursuant to a credit ca rd agreement with Citibank. Citibank apparently filed two different actions against Dahlquist w ithout adequately specifying the account number. Dahlquist responded to one suit, but not the other. The court initially entered a default against Dahlquist, but then set asid e the default judgment, citing the confusion regarding the double suit without adequate account numbers.

1 See Bank of America v. Dahlquist , 2007 MT 32, ____ Mont . ____, _____ P.3d

_____.3 ¶5 Dahlquist then filed a motion to confirm an arbitration award. The arbitration award had been issued by th e National Arbitration Counse l (NAC), an arbitration group

based in Florida. 2 In response to NAC’s notices, C itibank informed NAC by letter that it had not agreed, and would not agree, to arbitrate any dis putes before NAC. Despite Citibank’s letter, NAC issued an award for Dahlquist and against Citibank on the debt that Citibank alleges is owed by Dahlquist. Citibank did not move to vacate the award, and in fact did not challenge the award un til February 8, 2005, in its response to Dahlquist’s motion to set asid e the entry of default. ¶6 The arbitration agreement at issue does not list NAC as a potential arbitrator. Instead the agreement provides th at one of three arbitrators must be used: the American Arbitration Association (AAA); JAMS; or the National Arbitration Forum (NAF). Additionally, the arbitration agreement provides that it “is governed by the Federal Arbitration Act” (FAA). ¶7 The District Court, in its order denying Dahlquist’s mo tion to confirm, concluded that Dahlquist’s use of NAC wa s “not in accordance with the ar bitration provisions of the agreement” and thus the NA C arbitration was “invalid ab initio ” and “the statutory time limits to challenge the award [were] not tri ggered.” From this order, Dahlquist appeals.

2 NAC is the same arbitration group that Dahlquist employed during his dispute with Bank of America. See Bank of America , ¶ 4.4 STANDARD OF REVIEW ¶8 We review a district court’s conclusions of law, including whether an arbitration award is valid, de novo

. See Martz v. Beneficial Montana, Inc. , 2006 MT 94, ¶ 10, 332 Mont. 93, ¶ 10, 135 P.3d 790, ¶ 10.

DISCUSSION ¶9 Did the District Court correctly deny Dahlquist’s motion to confirm when the arbitration award was issued by an arbitr ator other than the one specified in the arbitration agreement, even though Citiba nk failed to dispute the award within ninety days? ¶10 Dahlquist, focusing primarily upon Montan a’s Uniform Arbitration Act, §§ 27-5- 111 through -324, MCA, claims that Citiba nk has waived the right to challenge the arbitration award issued by NAC because it fa iled to challenge the award within ninety days. See §§ 27-5-311 and -312, MCA. Under Montana law, the ninety-day time limit on challenging an award affixes even if a pa rty claims the award is invalid because the wrong arbitrator was used. See § 27-5-312, MCA. As Citib ank has waited much longer than that, Dahlquist insists Citibank is ba rred from challenging the NAC award and the

District Court must confirm the award. ¶11 We disagree with Dahlquist’s assessme nt, primarily because the arbitration agreement at issue, by its terms, is not gove rned by Montana’s arbitr ation statutes but by the FAA (9 U.S.C. §§ 1-16). While the prov isions of the FAA are similar to Montana’s Act, including a three-month time limitation to vacate an award, the FAA, unlike5 Montana law, does not recogni ze a motion to vacate an award for the reason that “there was no arbitration agreement.” See § 27-5-312, MCA, an d 9 U.S.C. §§ 10-12. ¶12 Under the FAA, where parties have not agreed to arbitrat e, or where the arbitration does not follow the format provided for in the arbitration agreement, the arbitration award

is invalid ab initio

. See MCI Telecommunications Corp. v. Exalon Industries, Inc. , 138 F.3d 426, 430 (1st Cir. 1998), and Bank of America , ¶¶ 12-13. In MCI , the First Circuit determined that, for a party to be subject to the FAA’s three-month time limitation, a written arbitration agreement must be “in effect” and the party must be “bound by [the] conditions” of the agreement. MCI , 138 F.3d at 430. One condition that must be followed for an arbitration proceeding to be valid under the FAA is employment of the agreed upon arbitrator. See 9 U.S.C. § 5 and R. J. O’Brien & Assoc., Inc. v. Pipkin , 64 F.3d 257, 263 (7th Cir. 1995) (“[I]n order to enforce an arbitration award, the arbitrator must be chosen in conformance with the pro cedure specified in the parties’ agreement to arbitrate.”). ¶13 Here, the arbitration agreement specifically limits the arbitrators that may be used to AAA, JAMS or NAF. Dahlquist, howeve r, did not use one of th e three named groups, but unilaterally selected NAC. As Citibank had not agreed to arbitrate the dispute before NAC, and as the agreement specifically call s for AAA, JAMS or NAF to be used, the award is unenforceable, under R. J. O’Brien , because NAC was not chosen in

conformance with the arbitra tion agreement. Further, the arbitration award was invalid

ab initio under MCI , because, while there is a written ar bitration agreement, Citibank had6 not consented to be bound by NAC, and in f act had notified NAC by letter that it had not agreed and would not agree to arbitrate before NAC. Th e FAA time limitation was thus not triggered, and Citibank is not bound by the award, even though it failed to challenge

it within three months. ¶14 Dahlquist, citing to several federal cases, contends that even under the FAA, the

three-month time limitation bars Citibank from challenging th e award. The cases cited by Dahlquist, however, are distinguishable fromthe issue at hand because, in each case, the parties arbitrated the dispute in conforma nce with a valid arbitration agreement. For example, Dahlquist cites to Sander v. Weyerhaeuser Co. , 966 F.2d 501, 503 (9th Cir. 1992), for the proposition that the FAA’s th ree-month limitation “is meaningless if a party to the arbitration proceedings may bring an independent direct action asserting such claims outside of the statutory time pe riod.” (Citations omitted.) However, this proposition is inapplicable to the situation here , because the party in Sander consented to and participated in arbitra tion, and then, two years la ter, challenged the award, a valuation of stock, alleging a violation of securities laws. The Ninth Circuit refused to allow an arbitration participan t to challenge the resulting awar d via “collateral attack.”

Sander , 966 F.2d at 502-03. Here, Citibank, unlike the party in Sander , was not “a party to the arbitration proceeding” nor did it co nsent to arbitration with NAC.

CONCLUSION ¶15 Under the FAA, the arb itration award was invalid ab initio because NAC was not the arbitrator specified in the arbitration agreement, and Citiba nk did not consent to7 arbitration under NAC. The District Court’s denial of Dahlquist’s motion to confirm is

therefore affirmed.

/S/ W. WILLIAM LEAPHART

We concur:

/S/ KARLA M. GRAY /S/ JAMES C. NELSON /S/ PATRICIA COTTER /S/ JOHN WARNER /S/ BRIAN MORRIS /S/ JIM RICE