                                                                                         March 12 2013


                                          DA 12-0313

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2013 MT 62



TIFFANY KELKER,

              Plaintiff and Appellee,

         v.

GENEVA-ROTH VENTURES, INC., d/b/a
LOAN POINT USA, and MARK CURRY,

              Defendants and Appellants



APPEAL FROM:            District Court of the Thirteenth Judicial District,
                        In and For the County of Yellowstone, Cause No. DV 11-1355
                        Honorable Russell C. Fagg, Presiding Judge


COUNSEL OF RECORD:

                For Appellants:

                        Peter F. Habein, Monique P. Stafford, Crowley Fleck PLLP,
                        Billings, Montana

                For Appellee:

                        John Heenan, Bishop & Heenan, Billings, Montana



                                                    Submitted on Briefs: November 21, 2012

                                                               Decided: March 12, 2013


Filed:

                        __________________________________________
                                          Clerk
Justice Brian Morris delivered the Opinion of the Court.

¶1    Tiffany Kelker (Kelker) submitted an online application for a payday loan with

Geneva-Roth Ventures, Inc. (Geneva-Roth). Geneva-Roth charged Kelker an interest

rate of 780% APR. The Loan Agreement, which Kelker signed electronically, contained

an arbitration clause. Kelker brought a putative class action against Geneva-Roth for

charging an interest rate higher than the 36% APR permitted by the Montana Consumer

Loan Act for payday loans, § 32-5-301, MCA. Geneva-Roth filed a motion to compel

arbitration pursuant to the arbitration clause in the Loan Agreement. The District Court

deemed the arbitration clause unenforceable and denied Geneva-Roth’s motion.

Geneva-Roth appeals.

¶2    Geneva-Roth raises the following issue on appeal:

¶3    Whether the District Court should have compelled arbitration pursuant to the

arbitration clause in the loan agreement.

                 PROCEDURAL AND FACTUAL BACKGROUND

¶4    Kelker, a Montana resident, submitted an online application at Geneva-Roth’s

website, www.loanpointusa.com, for a $600 “payday loan” on January 14, 2011.

Geneva-Roth, a non-resident of Montana, charged Kelker an interest rate of 780% APR.

Geneva-Roth ultimately withdrew electronically over $1,800 in interest charges from

Kelker’s bank account.

¶5    To complete her loan application, Kelker clicked on a box that stated that she had

read, understood, and agreed to be bound by the terms of the Loan Agreement, and that

she understood that by typing in her name in a separate box, she was electronically

                                            2
signing her loan application. The full text of the eight-page Loan Agreement was not

visible on Kelker’s computer screen unless she scrolled down. The Loan Agreement

included a clause to compel arbitration for “any claim, dispute, or controversy” that arose

out of the agreement. Geneva-Roth used bold font and all capital letters to draw attention

to certain provisions of the Loan Agreement.         Geneva-Roth did not highlight the

arbitration clause in this manner.

¶6     The disputes purportedly governed by the arbitration clause include “the validity

of this agreement to arbitrate disputes.” Geneva-Roth agreed to waive the “[c]ustomer’s

arbitration fees” in the event that the customer could not afford to pay them. The

arbitration clause provides no guidance, however, as to the standard to employ to make

this determination or who would be empowered to make this determination. The clause

further provides that any arbitration hearing would “take place at a location near

Customer’s residence.” The clause provides no guidance as to what constitutes “near.”

¶7     Kelker brought a putative class action in which she alleges that the 780% interest

rate charged by Geneva-Roth violated the Montana Consumer Loan Act, § 32-5-301,

MCA. Kelker also claimed that the loan itself was unconscionable, that Geneva-Roth

had engaged in unfair, deceptive, or fraudulent practices in making and collecting on the

loan, that Geneva-Roth had failed to provide the disclosures required under the Montana

Consumer Loan Act, and that Geneva-Roth had engaged in business in Montana without

a valid license.




                                            3
¶8     Geneva-Roth sought to compel arbitration pursuant to the arbitration clause in the

Loan Agreement. The District Court deemed the arbitration clause unenforceable and

denied Geneva-Roth’s motion to compel arbitration. Geneva-Roth appeals. We affirm.

                              STANDARD OF REVIEW

¶9     We review de novo a district court’s order to compel arbitration. Mardsen v. Blue

Cross & Blue Shield of Mont., Inc., 2012 MT 306, ¶ 8, 368 Mont. 34, 291 P.3d 1229;

Solle v. Western States Ins. Agency, 2000 MT 96, ¶ 8, 299 Mont. 237, 999 P.2d 328.

                                     DISCUSSION

¶10    Whether the District Court should have compelled arbitration pursuant to the

arbitration clause in the Loan Agreement.

¶11    Agreements to arbitrate generally represent valid and enforceable contracts under

Montana law. Kortum-Managhan v. Herbergers NBGL, 2009 MT 79, ¶ 15, 349 Mont.

475, 204 P.3d 694; § 27-5-114, MCA.          Federal policy similarly places arbitration

agreements on equal footing with other contracts. 9 U.S.C. § 2; AT&T Mobility LLC v.

Concepcion, ___ U.S. ___, 131 S. Ct. 1740, 1745 (2012). The Federal Arbitration Act

(FAA) governs contracts that involve interstate commerce.        9 U.S.C. § 2; Perry v.

Thomas, 482 U.S. 483, 489, 107 S. Ct. 2520, 2525 (1987).

¶12    The U.S. Supreme Court has clarified that, under the FAA, when a party

challenges the validity of a contract as a whole, an arbitrator should resolve that dispute

in the first instance. Nitro-Lift Techs., L.L.C. v. Howard, ___ U.S. ___, 133 S. Ct. 500,

503 (2012). When a party challenges the validity of the arbitration clause in a contract,

however, a court may resolve that dispute in the first instance. Nitro-Lift, ___ U.S. ___,

                                            4
133 S. Ct. at 503. In reviewing the validity of the arbitration clause, however, a state

court must apply state law that arose to govern the validity, revocability, and

enforceability of contracts generally. Kortum-Managhan, ¶ 17; Concepcion, ___ U.S. at

___, 131 S. Ct. at 1746.

¶13    Kelker challenges both the validity of the arbitration clause of the Loan

Agreement and the validity of the entire Loan Agreement. We consider only Kelker’s

challenge to the arbitration clause of the Loan Agreement. A party cannot be forced to

arbitrate a dispute that she has not agreed to submit to arbitration. State ex rel. Bullock v.

Philip Morris, Inc., 2009 MT 261, ¶ 15, 352 Mont. 30, 217 P.3d 475. A court should first

determine whether the parties agreed to arbitrate a matter. Bullock, ¶ 15; Solle, ¶ 22.

¶14    Kelker contends that generally applicable Montana contract law renders the

arbitration clause unenforceable.     Kelker relies on Kortum-Managhan in urging this

Court to find the arbitration clause unenforceable. Geneva-Roth concedes that this Court

can determine the validity of the arbitration clause itself. Geneva-Roth argues, however,

that the arbitration agreement cannot be deemed invalid under generally applicable

Montana contract law. Geneva-Roth further argues that Concepcion changed the way

that the U.S. Supreme Court interpreted the FAA, and, therefore, pre-empted our analysis

of the FAA set forth in Kortum-Managhan.

¶15    Concepcion struck down the California “Discover Bank” rule that deemed

unconscionable all arbitration clauses that prevented class actions. Concepcion, ___ U.S.

at ___, 131 S. Ct. at 1746. The Court determined that the FAA preempted state law rules,

such as the “Discover Bank” rule, that prohibit outright the arbitration of a particular type

                                              5
of claim. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1747. The Court specifically

reiterated, however, that the FAA preserves “generally applicable contract defenses, such

as fraud, duress, or unconscionability.” Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746,

citing Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 1656

(1996). The Court also cited Doctor’s Associates for the proposition that these generally

applicable contract formation defenses cannot be available solely to challenge an

arbitration clause, or derive their meaning from the fact that an agreement to arbitrate is

at issue. Concepcion, ___ U.S. at ___, 131 S. Ct. at 1746.

¶16    We recognized in Kortum-Managhan that the FAA permits this Court to apply

only law that arose “to govern issues concerning the validity, revocability, and

enforceability of contracts generally” to determine the validity of an arbitration clause.

Kortum-Managhan,      ¶   17.     The    Court   also   cited   Doctor’s   Associates    in

Kortum-Managhan for this same proposition. Kortum-Managhan, ¶ 17. Concepcion

restated the law on which this Court relied in Kortum-Managhan: that generally

applicable contract law governs the validity of an arbitration clause. Concepcion, ___

U.S. at ___, 131 S. Ct. at 1746. Accordingly, Concepcion did not alter the U.S. Supreme

Court’s interpretation of the FAA in any manner that would invalidate our analysis in

Kortum-Managhan.

Generally Applicable Defense to Contract Formation

¶17    Geneva-Roth next argues that this Court applied to the arbitration clause in

Kortum-Managhan a contract formation defense available solely to challenge an

arbitration clause in violation of Concepcion.     We stated in Kortum-Managhan that

                                            6
generally applicable contract law provides that an adhesion contract “will not be enforced

against the weaker party if it is (1) not within their reasonable expectations, or (2) within

their reasonable expectations, but, when considered in its context, proves unduly

oppressive, unconscionable or against public policy.” Kortum-Managhan, ¶ 23.

¶18    Although we list them separately, our “reasonable expectation” analysis represents

a subset of whether a contract is “unconscionable.” The subset of unconscionability

based on reasonable expectations focuses on whether a party understood the contract.

Highway Specialties, Inc. v. State, 2009 MT 253, ¶¶ 16-17, 351 Mont. 527, 215 P.3d 667.

Even if a party fully understood the terms, however, a contract still can be

unconscionable if the terms are too one-sided or oppressive. Highway Specialties, ¶ 12.

¶19    We discuss the interplay between unconscionability and reasonable expectations

in Highway Specialties, where we analyzed for unconscionability a contractual provision

for liquidated damages.      The test for unconscionability involves a two-step inquiry:

whether the contract qualifies as a contract of adhesion, and whether the contract

unreasonably favored the drafter.      Highway Specialties, ¶ 12.       The “unreasonably

favorable to the drafter” analysis includes an inquiry into “whether the provision was

within the reasonable expectations of, or unduly oppressive to, the weaker party.”

Highway Specialties, ¶ 16.

¶20    We apply the same test that we applied in Kortum-Managhan when we consider

the unconscionability of contracts generally, not solely when a contract includes an

arbitration clause. We applied this analysis in Highway Specialties when we considered

the unconscionability of a contract provision for liquidated damages.              Highway

                                             7
Specialties, ¶ 12. We again applied this test when we considered the unconscionability of

a contract provision for liquidated damages in a lease in Summers v. Crestview Apts.,

2010 MT 164, 357 Mont. 123, 236 P.3d 586.               We reiterated in Summers that

unconscionability requires a two-fold determination: “that the contractual terms are

unreasonably favorable to the drafter and that there is no meaningful choice on the part of

the other party regarding acceptance of the provisions.” Summers, ¶ 22. The “reasonable

expectations” analysis that we used in Kortum-Managhan derives directly from generally

applicable contract law rather than any unique law applicable only to arbitration

agreements.

¶21    We consider the same factors when we analyze for unconscionability a contractual

provision for arbitration as we do when we analyze for unconscionability a contract.

Kortum-Managhan, ¶ 27; Kelly v. Widner, 236 Mont. 523, 528, 771 P.2d 142, 145

(1989). We listed in Kortum-Managhan a number of factors that a court should consider

in determining whether a contractual provision proves unconscionable for being outside a

party’s reasonable expectations. These factors include whether the waiver clause was

conspicuous and explained the consequences of the provision (e.g. waiver of the right to

trial by jury and right of access to the courts); whether a disparity existed in the

bargaining power of the contracting parties; whether a difference in business experience

and sophistication of the parties existed; whether the party charged with the waiver was

represented by counsel at the time the agreement was executed; whether economic, social

or practical duress compelled a party to execute the contract; whether the parties actually



                                            8
signed the agreement or separately initialed the waiver provision; and whether the waiver

clause was ambiguous or misleading. Kortum-Managhan, ¶ 27.

¶22    The factors that we consider in evaluating a claim of unconscionability for an

arbitration   clause   reflect   the   contract   law   of   unconscionability   generally.

Kortum-Managhan, ¶ 27; Kelly, 236 Mont. at 528, 771 P.2d at 145; West v. Club at

Spanish Peaks, L.L.C., 2008 MT 183, ¶ 53, 343 Mont. 434, 186 P.3d 1228; Fitzgerald v.

Aetna Ins. Co., 176 Mont. 186, 190-91, 577 P.2d 370, 372 (1978). Corbin on Contracts

recognizes that the existence of many of the factors that we analyze in

Kortum-Managhan can render a contract unconscionable. 7-29 Corbin on Contracts

§ 29.4. These elements include a lack of meaningful choice, a contract offered on a take

it or leave it basis, and a party that lacks sophistication. Kortum-Managhan, ¶ 27; 7-29

Corbin on Contracts § 29.4.

¶23    The Court applied these same factors in Kelly in considering whether a contract

was unconscionable. Kelly had been seriously injured in an automobile accident. The

insurance adjuster offered, and Kelly accepted, a small settlement in return for her release

of claims. Kelly later challenged the release contract on grounds of unconscionability.

Kelly, 236 Mont. at 527, 771 P.2d at 144-45.

¶24    The Court noted that the principle “of doing justice under the circumstances of

each case” underlies the unconscionability analysis. Kelly, 236 Mont. at 528, 771 P.2d at

145. The Court further recognized that unconscionability lacks “a succinct or precise

definition.” Kelly, 236 Mont. at 528, 771 P.2d at 145. The Court listed elements,

however, that may indicate unconscionability. Kelly, 236 Mont. at 528, 771 P.2d at 145.

                                             9
These elements include unequal bargaining power of the parties, lack of meaningful

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

sophistication. Kelly, 236 Mont. at 528, 771 P.2d at 145. The Court further cited

J. Calamari and J. Perillo, The Law of Contracts § 56 (1970) for this same proposition.

The Court examined Kelly’s dire financial situation, her lack of education, and her lack

of legal advice as factors that made her vulnerable to exploitation. Kelly, 236 Mont. at

528, 771 P.2d at 145.

¶25   This Court also considers whether ambiguities exist in all contracts, including

contracts that contain arbitration clauses. Club at Spanish Peaks, ¶ 53; Fitzgerald, 176

Mont. at 190-91, 577 P.2d at 372; Riehl v. Cambridge Court GF, LLC, 2010 MT 28,

¶¶ 28-30, 355 Mont. 161, 226 P.3d 581. We recognized that “an ambiguity exists where

the language of a contract, as a whole, reasonably is subject to two different

interpretations.” Club at Spanish Peaks, ¶ 53; see also Riehl, ¶ 26 (quoting Club at

Spanish Peaks while analyzing an arbitration clause for ambiguity).        If the court

determines a contract has ambiguous terms, the court interprets the contract “most

strongly” against the party who drafted it. Club at Spanish Peaks, ¶ 53.

¶26   The Court considered whether a car insurance contract contained an ambiguity in

Fitzgerald. The insurance policy covered only automobiles not owned in whole or in part

by the insured party. The insurance policy provided coverage for “hired automobiles.”

Fitzgerald, 176 Mont. at 190, 577 P.2d at 372. A dispute arose over the scope of the

policy’s coverage when the insured owned the trailer component of the tractor-trailer



                                           10
involved in the accident.     The insured party hired the tractor component of the

tractor-trailer.

¶27    The Court determined that the entire tractor-trailer constituted one automobile.

The Court further determined that the provision in the contract regarding the scope of

coverage created an ambiguity. The contractual language could be interpreted to exclude

coverage where the insured partially owned the automobile. The contract could be

construed, in contrast, to provide coverage where the insured partially rented the

automobile. Fitzgerald, 176 Mont. at 190-91, 577 P.2d at 372. The Court construed the

ambiguity in the contract against the insurance company that had drafted the contract.

The Court determined that the contract, interpreted against the drafter, provided coverage

for the entire tractor-trailer involved in the accident. Fitzgerald, 176 Mont. at 191, 577

P.2d at 372.

¶28    This Court uses the same test and analyzes the same factors for possible

unconscionability of arbitration clauses as we use to analyze the possible

unconscionability of contracts generally. Kortum-Managhan, ¶ 27; Highway Specialties,

¶ 12; Summers, ¶ 22; Kelly, 236 Mont. at 528, 771 P.2d at 145; Club at Spanish Peaks,

¶ 53; Fitzgerald, 176 Mont. at 190-91, 577 P.2d at 372; Riehl, ¶¶ 26-30.

Enforceability of the Arbitration Clause

¶29    We evaluate the arbitration clause in the Loan Agreement to determine whether

the arbitration clause was unconscionable under generally applicable Montana contract

law. A contract is unconscionable if it is a contract of adhesion and the contractual terms

unreasonably favor the drafter. Highway Specialties, ¶ 12. We consider whether the

                                            11
contractual terms fell within Kelker’s reasonable expectations as we analyze whether the

contractual terms unreasonably favor the drafter. Highway Specialties, ¶ 12.

¶30    We first look to whether the loan agreement constitutes a contract of adhesion. A

contract of adhesion involves a standard form contract prepared by one party, to be

signed by a weaker party who has little choice about the terms. Woodruff v. Bretz, Inc.,

2009 MT 329, ¶ 8, 353 Mont. 6, 218 P.3d 486. A contract of adhesion arises when the

stronger party gives the weaker party a choice either to accept, or to reject, the contract

without the opportunity to negotiate its terms. Woodruff, ¶ 8.

¶31    No doubt exists that Geneva-Roth afforded Kelker no opportunity to negotiate the

terms of the contract. Geneva-Roth presented Kelker with a contract on the Internet.

Kelker either could accept or reject the standardized agreement. Geneva-Roth afforded

Kelker no meaningful choice whether to accept any particular terms, including the

arbitration provision. Woodruff, ¶ 8. The Loan Agreement qualifies as a contract of

adhesion under these circumstances. Woodruff, ¶ 8.

¶32    The fact that the contract qualifies as one of adhesion does not by itself render the

arbitration clause unconscionable. Woodruff, ¶ 13. We now must assess whether the

arbitration clause unreasonably favors Geneva-Roth, including whether the arbitration

clause fell outside Kelker’s reasonable expectations. Highway Specialties, ¶ 12.

¶33    We consider the totality of the Kortum-Managhan factors in determining whether

the arbitration clause fell within Kelker’s reasonable expectations. Kortum-Managhan,

¶ 27; Kelly, 236 Mont. at 528, 771 P.2d at 145. The District Court determined that nearly

all of these factors weigh against enforcement of the arbitration clause. We agree.

                                            12
¶34    Kelker presented undisputed evidence in her affidavit that she did not understand

the arbitration agreement. Nothing conspicuous denotes the arbitration clause. No bold

or capital letters highlight the arbitration clause. Geneva-Roth highlighted several other

sections of the Loan Agreement with bold or capital letters.         Kelker alleges in her

undisputed affidavit that no one explained the arbitration clause.

¶35    In fact, Kelker entered the contract over the Internet with no contact with any

employees or representatives of Geneva-Roth. Cf. Kluver v. PPL Mont., LLC, 2012 MT

321, ¶ 26, 368 Mont. 101, 293 P.3d 817 (noting that proposed electronic memorandum

had been “reviewed and approved by the parties and their counsel”). Kelker signed the

Loan Agreement as a whole. She did not separately sign or initial the arbitration clause.

No counsel represented Kelker when she signed the arbitration agreement. See Kelly,

236 Mont. at 528, 771 P.2d at 145 (determining that Kelly’s lack of legal advice

represented an important factor in finding the contract unconscionable).

¶36    Kelker asserts further that a difference in business experience and sophistication of

the parties existed at the time that she executed the Loan Agreement. Geneva-Roth has

presented no evidence to suggest that Kelker qualifies as a sophisticated party with

significant business experience.    Further, it appears that economic duress compelled

Kelker to enter into this contract for a $600 payday loan with a 780% APR. See Kelly,

236 Mont. at 528, 771 P.2d at 145 (determining that Kelly’s dire financial situation and

her lack of education represented important factors in finding the contract

unconscionable).



                                            13
¶37    Ambiguities also plague the arbitration clause. The sentence before the arbitration

clause provides that the Loan Agreement “does not constitute a waiver of any of

Customer’s rights to pursue a claim individually.”         The arbitration clause follows

immediately.    The arbitration clause indicates that the parties agree “to arbitrate

disputes.”   The arbitration clause further purports to give the consumer notice that

“[w]ithout this arbitration agreement, both parties have the right to litigate disputes

through the law courts but we have agreed instead to resolve disputes through binding

arbitration.” These two clauses, that the consumer does not waive any of her rights, and

that the consumer waives her right to litigation in court, cannot easily be reconciled.

Kortum-Managhan, ¶ 27; Riehl, ¶¶ 26-30. The language gives rise to two reasonable

interpretations: that Kelker maintained all of her rights, including her right to a trial, or

that Kelker gave up her right to a trial and must submit to arbitration. Club at Spanish

Peaks, ¶ 53; Fitzgerald, 176 Mont. at 190-91, 577 P.2d at 372. We generally construe an

ambiguity in a contract against the party who drafted the contract—in this case,

Geneva-Roth. Club at Spanish Peaks, ¶ 53; Fitzgerald, 176 Mont. at 190-91, 577 P.2d at

372.

¶38    We have considered the validity of the arbitration clause in the Loan Agreement

using generally applicable Montana contract law.          Kortum-Managhan, ¶ 27.        The

arbitration clause qualifies as a contract of adhesion and falls outside Kelker’s reasonable

expectations, and, therefore, the arbitration clause is unconscionable.            Highway

Specialties, ¶ 12; Kortum-Managhan, ¶ 27.

¶39    Affirmed.

                                             14
                                                     /S/ BRIAN MORRIS



We Concur:

/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT


Justice Patricia O. Cotter specially concurs.

¶40    I concur in the result reached by the Court, but would deem the arbitration clause

unenforceable on alternative grounds.

¶41    Section 27-5-114, MCA, is a provision of the Uniform Arbitration Act entitled

Validity of arbitration agreement – exceptions. Section 27-5-114(2), MCA, provides

generally that a written agreement to submit to arbitration a controversy arising between

the parties after the agreement is made is valid and enforceable except on legal or

equitable grounds that exist for revocation of a contract. However, subsection (2)(b) goes

on to provide that the provision does not apply to “any contract by an individual for the

acquisition of real or personal property, services, or money or credit when the total

consideration to be paid or furnished by the individual is $5,000 or less.”

¶42    Prior to 1989, the statute provided that arbitration clauses in contracts in which the

total payable consideration was $35,000 or less, were not subject to the enforcement

provisions of the statute. In February 1989, Senator Bruce Crippen introduced SB 363,

proposing to amend the statute. SB 363 was entitled:

       An act allowing parties to a contract for the acquisition of real or personal
       property, services, or money or credit to agree to submit any future
       contractual disputes to arbitration, regardless of the dollar amount of the

                                                15
       contract; deleting the dollar amount limitation for contracts that may
       contain such arbitration agreements.

Senator Crippen thus proposed to eliminate any dollar limitations for contracts that may

contain enforceable arbitration agreements. During hearings on the bill in the House and

Senate, proposals were made to lower the limitation rather than eliminate it altogether.

Ultimately, the legislators agreed to the $5,000 limit that remains in place today. It does

not appear that this Court has previously been called upon to apply this statute.

¶43    Kelker entered into a $600 payday loan with Geneva. According to the loan

agreement, she would pay $180 in interest if the loan was paid on her nearest payday, for

a total payment of $780. Clearly, even if Kelker was a few months late in making her

payment, the total consideration she would have to pay would not exceed $5,000.

¶44    I appreciate that this argument was not advanced in the District Court, and I also

appreciate that we do not typically determine cases on the basis of arguments not made.

See Pinnow v. Mont. State Fund, 2007 MT 332, ¶ 15, 340 Mont. 217, 172 P.3d 1273

(citations omitted).    However, because here we are dealing with the waiver of

fundamental rights, including the right to access to the court system, the right to trial by

jury, and the right to an appeal, and because our Legislature has made a policy

determination with respect to what contracts should be subject to mandatory arbitration, I

feel it appropriate and necessary to apply the statute. As Justice Baker observes in her

Dissent, it is not unreasonable for states to impose more stringent standards for evaluating

the waiver of fundamental rights. Dissent, ¶ 55.




                                             16
¶45    The Legislature of Montana has declared that arbitration clauses contained in

contracts are enforceable when the total consideration to be paid is over $5,000. The

corollary, of course, is that arbitration clauses contained in contracts when the total

consideration is under $5,000 are not enforceable. I would apply the provisions of

§ 27-5-114(2)(b), MCA, to this contract, and declare the arbitration clause unenforceable

under the facts before us here.

¶46    I therefore specially concur.


                                                  /S/ PATRICIA COTTER


Justice Beth Baker, dissenting.

¶47    Although well-intentioned, the Court’s decision fosters a rule of state law with

“disproportionate impact on arbitration agreements,” Concepcion, 131 S. Ct. at 1747,

prohibited by federal law and controlling decisions of the U.S. Supreme Court. The

Court also overlooks a key factor in our generally applicable analysis of contract

unconscionability by failing to evaluate the specific language of the arbitration provision

at issue. For these reasons, and because the District Court erred in its analysis of the

Loan Agreement’s arbitration clause by considering the validity of the agreement as a

whole, I dissent.

¶48    I begin with the full language of the arbitration provision at issue, which is omitted

from the Court’s opinion. The Loan Agreement to which Kelker agreed provides:

       Both parties agree that any claim, dispute, or controversy between us, any
       claim by either party against the other or the agents, services, or assigns of
       the other, including the validity of this agreement to arbitrate disputes as

                                             17
       well as claims alleging fraud or misrepresentation shall be resolved by
       binding arbitration.[1] Any arbitration hearing, if one is held, will take
       place at a location near Customer’s residence and shall be conducted by a
       mutually agreed to and certified arbitrator. Customer’s arbitration fees will
       be waived in the event you cannot afford to pay them. This arbitration
       agreement is made pursuant to a transaction involving interstate commerce
       and shall be governed by the Federal Arbitration Act 9. [sic] USC Section
       1-18. Judgment upon the award may be entered by any party in court
       having jurisdiction. Notice: Without this arbitration agreement, both
       parties have the right to litigate disputes through the law courts but we have
       agreed instead to resolve disputes through binding arbitration.

¶49    The District Court’s decision recognized “a good argument” that the arbitration

provision is enforceable, based upon Concepcion. The court noted that this Court had not

addressed its historic concern with arbitration provisions since Concepcion was decided

and that there appeared to be some “tension” between our precedents and the U.S.

Supreme Court’s directives. The District Court applied Montana law requiring that, in

order for a contract of adhesion to be unenforceable, it must be “(1) not within [the

challenging party’s] reasonable expectations or (2) within her reasonable expectations,

but when considered in its context, proves unduly oppressive, unconscionable, or against

public policy.” (citing Zigrang v. U.S. Bancorp Piper Jaffray, Inc., 2005 MT 282, ¶ 13,

329 Mont. 239, 123 P.3d 237). The District Court held that the Loan Agreement’s

provision requiring arbitration “may well have been within Kelker’s reasonable

expectations.” Considering the arbitration provision “in its context,” however, the court

found the arbitration provision “unduly oppressive, unconscionable, and against public

policy.” (Emphasis in original.) The “primary factor” in the court’s determination was


1
 The validity of the agreement to arbitrate is, as the Court observes (Opinion, ¶¶ 11-12), a matter
for the court to decide. Geneva-Roth does not contest this point.

                                                18
the “extraordinarily exorbitant” interest rate of 780% that Kelker was charged under the

Loan Agreement. In considering the context of the contract and its provisions, the

District Court could not “stand by” and overlook what it viewed as a clearly oppressive

term in the Agreement.

¶50    The District Court erred as a matter of law by considering the contract as a whole

in determining the validity of the arbitration provision. As we recognized in Martz v.

Beneficial Montana, Inc., 2006 MT 94, 332 Mont. 93, 135 P.3d 790, the U.S. Supreme

Court has “made clear that arbitration, not court, is the proper forum for challenges to

contracts as a whole where those contracts contain arbitration provisions.” Martz, ¶ 17

(quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 447, 126 S. Ct. 1204,

1209-10 (2006)). Thus, it is the arbitration provision itself that must be examined to

determine (1) whether it is within Kelker’s reasonable expectations and, if so, (2) whether

it nonetheless is unduly oppressive, unconscionable, or against public policy.

¶51    While the Court does not adopt the District Court’s rationale, it invalidates the

arbitration clause on the sole ground that it was outside Kelker’s reasonable expectations,

professing to rely on “generally applicable contract law.”        The Court reaches this

conclusion based on the ten-factor test adopted in Kortum-Managhan.

¶52    Although the Court emphasizes repeatedly that Kortum-Managhan recognized the

obligation to apply generally applicable contract law, it fails to mention two important

aspects of our decision in that case. First, one of the principal bases for our holding that

the arbitration agreement was not within Kortum-Managhan’s reasonable expectations

was its inclusion in a “bill stuffer” long after she accepted the credit card agreement.

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Kortum-Managhan was deemed to have accepted the terms of the arbitration agreement

simply by continuing to use her credit card. Kortum-Managhan, ¶ 7. Here, Kelker

acknowledges that in order to be eligible for the loan, she had to click “I Agree” to the

terms and conditions of the Loan Agreement, which expressly included the agreement to

arbitrate disputes.   By clicking “I Agree,” she voluntarily engaged in an electronic

transaction with Geneva-Roth subject to the same rules as the formation of any other

contract. Sections 30-18-104(2) and -113(2), MCA; Kluver v. PPL Mont., LLC, 2012

MT 321, ¶ 23, 368 Mont. 101, 293 P.3d 817.

¶53    Outside the arbitration context, our generally applicable principles of contract law

presume that “[a]bsent incapacity to contract, ignorance of the contents of a written

contract is not a ground for relief from liability” under its provisions. Quinn v. Briggs,

172 Mont. 468, 476, 565 P.2d 297, 301 (1977); Gliko v. Permann, 2006 MT 30, ¶ 35, 331

Mont. 112, 130 P.3d 155 (noting that each party was presumed to have read the contract

and “had a duty to understand the terms of the agreement”); First Sec. Bank v. Kyle Abel

& Abel Enters., 2008 MT 161, ¶ 29, 343 Mont. 313, 184 P.3d 318 (“[i]t is well

established in Montana that one who executes a written contract is presumed to know the

contract’s contents”); Stowers v. Community Med. Ctr., Inc., 2007 MT 309, ¶ 12, 340

Mont. 116, 172 P.3d 1252 (plaintiff’s failure to read the agreement before signing did not

relieve him from its terms); Wiley v. Iverson, 1999 MT 214, ¶ 23, 295 Mont. 511, 985

P.2d 1176 (“[t]he duty to inquire prior to signing an antenuptial contract is consistent

with the general rule [of contract law] in Montana”). Likewise, in contexts other than

agreements to arbitrate, we have held that expectations contrary to clear terms of a

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contract are not objectively reasonable. Newbury v. State Farm Fire & Cas. Ins. Co.,

2008 MT 156, ¶ 35, 343 Mont. 279, 184 P.3d 1021 (citing Mont. Petroleum Tank Release

Compen. Bd. v. Crumleys, Inc., 2008 MT 2, ¶ 35, 341 Mont. 33, 174 P.3d 948).

¶54    Because an arbitration provision waives fundamental rights, however, we have

applied a more stringent standard when faced with a consumer’s claim that she has not

read or understood the arbitration clause in a contract. Woodruff v. Bretz, Inc., 2009 MT

329, ¶¶ 14-15, 353 Mont. 6, 218 P.3d 486; Kortum-Managhan, ¶ 26; Kloss v. Edward D.

Jones & Co., 2002 MT 129, ¶ 28, 310 Mont. 123, 54 P.3d 1, see also ¶¶ 64-65 (Nelson,

J., specially concurring). Kelker’s acceptance of the terms of the Loan Agreement are

distinct from the “addition of completely new terms and conditions” through the “bill

stuffer” used by Herbergers, Kortum-Managhan, ¶ 22, and her failure to read the

Agreement does not remove the arbitration provision from her reasonable expectations.

¶55    The second aspect of Kortum-Managhan’s ten-factor test the Court overlooks is

that it expressly was to be used to determine “whether an individual deliberately,

understandingly and intelligently waived their fundamental constitutional rights to trial

by jury and access to the courts[.]” Kortum-Managhan, ¶ 27. The fact that arbitration

clauses, “by their very nature,” waive the rights “to trial by jury, access to the courts, due

process of law and equal protection of the laws” required application of the standards

reserved for effective waiver of a constitutional right. The ten-factor test was derived

from the fundamental nature of the rights given up by arbitration, thereby demanding

proof that the waiver was made “voluntarily, knowingly and intelligently,” which in turn

required “that a consumer must be informed of the consequences before personally

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consenting to the waiver.” Kortum-Managhan, ¶ 26. Since Kortum-Managhan was

decided, we have applied its ten-factor test only to evaluate an arbitration clause.

Woodruff, ¶ 15. Drawing from the Kortum-Managhan factors, the Court suggests that

Kelker was compelled by “economic duress” to sign a contract that called for a 780%

APR. Opinion, ¶ 31. The Court cites no generally applicable principle of contract law

for this proposition and incorporates the District Court’s error of looking to

unconscionability of the contract as a whole in evaluating the agreement to arbitrate.

¶56    It is not unreasonable that a State should impose more stringent standards for

evaluating the waiver of fundamental constitutional rights. In doing so, however, we

have created a state-law rule with “disproportionate impact on arbitration agreements,”

Concepcion, 131 S. Ct. at 1747, which the U.S. Supreme Court has viewed as the “type

of ‘judicial hostility towards arbitration’” that is expressly foreclosed by the FAA,

Nitro-Lift, 133 S. Ct. at 503. Like it or not, we are bound by those rulings. U.S. Const.

Art. VI, cl. 2.

¶57    Under generally applicable principles of contract law, our analysis of contracts of

adhesion for unconscionability should include examining the challenged provision itself

to determine whether it is “unreasonably favorable to the drafter,” “unduly oppressive, or

against public policy.” Highway Specialties, ¶ 16; Summers, ¶¶ 22, 24; Iwen v. U.S. W.

Direct, 1999 MT 63, ¶ 31, 293 Mont. 512, 977 P.2d 989. The same section of Corbin on

Contracts cited by the Court notes that “the purpose of the [unconscionability] doctrine is

to prevent two evils: oppression and unfair surprise.” 7 J. Perillo, Corbin on Contracts,

§ 29.4 at 388 (emphasis in original). This echoes our statement in Kelly where, citing the

                                            22
identical UCC Comment, we noted that the “principle is one of the prevention of

oppression and unfair surprise.” Kelly, 236 Mont. at 527, 771 P.2d at 145 (citing to UCC

§ 2-302 cmt. 1). The Court’s opinion in this case lacks any such analysis.

¶58    The arbitration clause in the Loan Agreement, unlike that invalidated as

unconscionable in Iwen, is not one-sided and does not unreasonably favor Geneva-Roth.

It provides for mutual consent to an arbitrator, proceedings near the consumer’s home,

and waiver of fees if the consumer cannot afford them. Unlike Iwen, it does not grant

only the party with superior bargaining power the right to go to court. Given the FAA’s

“national policy favoring arbitration,” Nitro-Lift, 133 S. Ct. at 503 (quoting Southland

Corp. v. Keating, 465 U.S. 1, 10, 104 S. Ct. 852, 858 (1984)), the provision cannot be

said to violate public policy. Analyzed in light of cases outside the arbitration context,

such as Highway Specialties, Summers, and Kelly, it is difficult to determine how this

provision is unconscionable, except that—like any arbitration agreement—it waives

Kelker’s right to a jury trial and access to the courts.

¶59    In short, removing Kortum-Managhan’s heightened standard of unconscionability

from the analysis, the Loan Agreement’s arbitration provision would not be subject to

invalidation under our generally applicable principles of contract law. “[T]he times in

which consumer contracts were anything other than adhesive are long past.” Concepcion,

131 S. Ct. at 1750. Unfortunately, the fact that the Loan Agreement Kelker accepted is

typical of such adhesive consumer Internet transactions does not make its arbitration

provisions less worthy of enforcement than other contracts subject to the FAA. I would

reverse the District Court’s denial of Geneva-Roth’s motion to compel arbitration and

                                              23
allow the arbitrator to determine whether the Loan Agreement’s 780% APR makes the

contract as a whole unconscionable.



                                                 /S/ BETH BAKER




Justice Jim Rice joins in the dissenting Opinion of Justice Beth Baker.


                                                 /S/ JIM RICE




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