Keystone, Inc. v. Triad Systems Corp., 97-496
| Decision Date | 30 December 1998 |
| Docket Number | No. 97-496,97-496 |
| Parties | , 1998 MT 326 KEYSTONE, INC., a Montana corporation, Plaintiff and Appellant, v. TRIAD SYSTEMS CORPORATION, a California corporation, Defendant and Respondent. |
| Court | Montana Supreme Court |
John G. Crist (argued); Crist Law Firm, LLC; Billings, Montana, For Appellant
Peter F. Habein (argued); Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P.; Billings, Montana, For Respondent
¶1 Keystone, Inc., filed in the District Court of the Thirteenth Judicial District in Yellowstone County a complaint against Triad Systems Corp. for alleged breach of contract and other duties. In accordance with one of the contract provisions, Triad demanded that the parties arbitrate their dispute in California. Keystone filed a motion to compel arbitration in Montana, and Triad filed a cross-motion to compel arbitration in California. The District Court denied Keystone's motion and ordered the parties to submit to arbitration in California. Keystone appeals. We reverse the order of the District Court.
¶2 The sole issue on appeal is whether the contract provision which requires arbitration in California is void because it violates § 28-2-708, MCA, or § 27-5-323, MCA.
¶3 Triad Systems Corporation is a California corporation engaged in the sale of computer hardware, software, and support systems. Keystone, Inc., is a Montana corporation engaged in the distribution of automotive parts and supplies in Billings, Montana.
¶4 In November 1994, Keystone and Triad entered into a contract by which Keystone agreed to purchase a computer system from Triad for approximately $250,000. The system allegedly failed to work, and Triad was unable to correct the problems to Keystone's satisfaction. Keystone requested that Triad take back its computers and that it refund Keystone's payment. Triad refused.
¶5 In November 1996, Keystone filed a complaint against Triad in the District Court in which it alleged breach of warranty ¶6 In reliance on § 28-2-708, MCA, Keystone moved the District Court to compel arbitration in Montana. Triad filed a cross-motion to compel arbitration in California in accordance with the terms of the contract. The District Court reasoned that § 28-2-708, MCA, was preempted by the Federal Arbitration Act (FAA), and that as such, its only choice was to enforce the parties' agreement, which called for the parties to arbitrate in California. Accordingly, it granted Triad's motion to compel arbitration in California.
breach of contract, negligence, and negligent misrepresentation. In response, Triad contended that pursuant to the parties' contract, they were required to arbitrate any dispute between them before the American Arbitration Association (AAA) in San Francisco, California. Keystone notified Triad that it was willing to arbitrate the matter before the AAA, but only in Montana.
¶7 Is the contract provision which requires arbitration in California void because it violates § 28-2-708, MCA, or § 27-5-323, MCA?
¶8 We review a district court's conclusion of law to determine whether it is correct. See Carbon County v. Union Reserve Coal Co., Inc. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686; see also Kreger v. Francis (1995), 271 Mont. 444, 447, 898 P.2d 672, 674; Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603-04.
¶9 At the outset, it is necessary to discuss whether Montana law is even applicable to our interpretation of this contract. The terms of the contract provide that it "will be governed by and construed in accordance with the laws of the United States and the State of California." Triad contends that because the parties made a valid agreement to interpret the contract according to the law of California, the question of how Montana law affects the parties' rights is irrelevant. Keystone acknowledges the contract's choice of law provision. However, it contends that this Court's decision in Casarotto v. Lombardi (1994), 268 Mont. 369, 886 P.2d 931, rev'd on other grounds, Doctor's Assocs., Inc. v. Casarotto (1996), 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902, as it pertains to the validity of choice of law provisions, governs this case and resolves the question so that Montana law should apply to our interpretation of the contract.
¶10 In Casarotto, we held that the Restatement (Second) of Conflict of Laws § 187(2) (1971) applies when we are faced with the question of whether to give effect to a contractual choice of law by the parties. The relevant portion of § 187(2) states:
The law of the state chosen by the parties to govern their contractual rights and duties will be applied ... unless ...
....
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.
We rely on § 188 to determine which state has a materially greater interest in the particular contract issue and which state's law would apply in the absence of an effective choice of law by the parties. The factors from § 188 that we consider include:
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.
Restatement (Second) of Conflict of Laws § 188(2). Based on the facts in Casarotto, we concluded that: (1) Montana had a materially greater interest in the particular contract issue than Connecticut, the state whose law the parties had contracted to apply; (2) Montana law would apply absent an effective choice of law by the parties; and (3) application of Connecticut law would be contrary to a fundamental public policy of Montana. See Casarotto, 268 Mont. at 375-77, 886 P.2d at 935-36.
¶11 Triad has raised no challenge to our analysis in Casarotto nor made any suggestion that those same principles should not govern when a choice of law question arises. Moreover, the U.S. Supreme Court's opinion reversing the Casarotto decision did not address that part of the opinion which dealt with choice of law. Therefore, that part of our decision is still valid precedent.
¶12 The record in this case suggests that the parties eventually entered into their contract after many months of negotiation in which officials from both companies traveled back and forth between California and Montana. Most significantly, however, the contract was performed almost exclusively in Montana. Triad developed the computer system to coordinate Keystone's distribution of auto parts across Montana, installed the system in Billings, and trained Keystone employees in Montana to use the system. Furthermore, the subject matter of the contract is located in Montana. We conclude, therefore, that Montana has a materially greater interest in the contract issue than California, and that its law would apply in the absence of an effective choice of law provision.
¶13 The next issue is whether an application of California law would be contrary to a fundamental public policy of Montana. In both Rindal v. Seckler (D.Mont.1992), 786 F.Supp. 890, 894, and State ex rel. Polaris Industries, Inc. v. District Court (1985), 215 Mont. 110, 695 P.2d 471, the Federal District Court and this Court, respectively, noted strong public policy considerations in Montana for voiding choice of forum provisions. Although those cases involved contracts generally (as will be discussed), those same public policy considerations apply to choice of forum provisions in arbitration contracts.
¶14 Therefore, to the extent that the application of California law would evade Montana's public policy regarding choice of forum provisions in contracts, we hold that the provision in this contract requiring the application of California law is void. 1
¶15 The parties agree on most relevant facts in this case. They both acknowledge that they executed a contract that requires that all disputes between them be submitted to arbitration before the AAA in San Francisco, California. They further agree that regardless of where their dispute is resolved, it should be settled by arbitration pursuant to the rules of the AAA.
¶16 The basis of the parties' disagreement was the issue of whether § 28-2-708, MCA, applies to the arbitration provision in their contract and renders void the forum selection clause that requires the parties to arbitrate in California. Section 28-2-708, MCA, provides:
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. 2
Keystone contends that, based on the statute, any forum selection clause that would require Montana residents to resolve disputes outside Montana when the usual procedure would be to resolve the dispute in Montana, is void, and that the statute applies to arbitration provisions, as well as other contracts. Triad, on the other hand, asserts that the statute does not apply to arbitration agreements. In addition to the preemption position taken by the District Court, Triad relies on what it contends is an express exclusion in the last sentence of the statute and on its assumption that arbitration is not a usual proceeding in the ordinary tribunals.
¶17 Section 28-2-708, MCA, has historically been applied for two distinct purposes: (1) to protect Montana...
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