Elk Mountain Motor Sports, Inc. v. Arctic Cat Sales, Inc.

• Decision Date: 30 September 2013
• Docket Number: CV 13-7-H-CCL
• Parties: ELK MOUNTAIN MOTOR SPORTS, INC., Plaintiff, v. ARCTIC CAT SALES, INC., Defendant.
• Court: U.S. District Court — District of Montana

ELK MOUNTAIN MOTOR SPORTS, INC., Plaintiff, v. ARCTIC CAT SALES, INC., Defendant.

CV 13-7-H-CCL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA HELENA DIVISION

Done and Dated: September 30, 2013

ORDER

Before the Court is Defendants' Motion to Compel Arbitration (ECF No. 2). Plaintiff opposes the motion. The Court sits in diversity jurisdiction pursuant to 28 U.S.C. § 1332 and therefore has subject matter jurisdiction to determine the threshold question of whether a valid agreement to arbitrate exists. After reviewing the briefs and arguments of counsel and all the record, the Court is prepared to rule on the Motion.

1. Background.

The dispute in this case arises from the relationship between Elk Mountain Motor Sports, Inc., ("Elk Mountain"), a Montana corporation with its principal place of business in Helena, Montana, and Arctic Cat Sales, Inc. ("Arctic Cat"), a Minnesota corporation with its principal place of business in Thief River Falls, Minnesota. (ECF No. 1-2, ¶¶ 1-2.) Arctic Cat manufactures snowmobiles and all terrain vehicles. Beginning in 2002, Elk Mountain became a non-exclusive, authorized dealer for Arctic Cat vehicles, accessories, and garments. (ECF No. 7-1, Aff. McWilliams, ¶ 2.) Elk Mountain has invested more than $600,000 in its facility and training its employees to meet the requirements Arctic Cat imposes on its dealers. (ECF No. 7-1, Aff. McWilliams, ¶ 3.) The relationship apparently began to fray in 2011, to such an extent that by November 15, 2011, Elk Mountain notified Arctic Cat that Elk Mountain considered the dealership to be constructively terminated. Elk Mountain now brings its Complaint seeking damages allegedly suffered by it as a result of the termination.

Beginning in 2002, Elk Mountain signed multiple dealership agreements(one for each product line or type of sales) on an annual basis . (ECF No. 7-1, Aff. McWilliams, ¶¶ 6-7.) In 2009, a "new form contract" (the "Dealer Agreement") was presented to Elk Mountain by Arctic Cat, and Elk Mountain was told that "it would be more convenient for [Arctic Cat's] dealers, because they now only had to sign one agreement for all of the Arctic Cat products they were authorized to sell, and Arctic Cat had extended the term of that one agreement for a period longer than one year." (ECF No. 7-1, Aff. McWilliams, ¶ 7.) The new term ran to March 31, 2012, and after signing in June, 2009, the actual term was for thirty-three months. (ECF No. 3-1, ¶ 15.) The Dealer Agreement also contained an arbitration clause. (ECF No. 3-1, ¶ 20.) The arbitration clause is set forth in its own distinct subsection, numbered 20, and subtitled "Arbitration" in bold letters. It calls for arbitration of

[a]ll disputes, controversies, and claims arising out of or in connection with the execution, interpretation, performance, non-performance, or breach (including without limitation the validity, scope, enforceability, and voidability under any statute, regulation, ordinance, or ruling, or termination or nonrenewal of this Agreement, or of any provisions of this Agreement (including without limitation this arbitration provision and the arbitrability of any issue) . . shall besolely and finally settled by arbitration at Minneapolis, Minnesota (unless this location is not permitted under applicable law), in accordance with the United States Arbitration Act (9 U.S.C. 1 et seq.), and the rules of the American Arbitration Association relating to commercial arbitration. There shall be a single arbitrator who shall be a lawyer with at least five years of significant experience related to business law. The arbitrator shall have the right to award or include in any award the specific performance of this Agreement; provided, that the arbitrator shall not have the right to issue any award or include in any award that relief which is more than could be awarded by a federal or state court located in the State of Minnesota.

(ECF No. 3-1, ¶ 20(a).) The arbitration provision is divided into five subsections which, in addition to the subsection quoted above, identify the binding nature of the agreement, the obligations of the parties to the arbitrator, the treatment of any public policy defense to arbitration, and the survival of the arbitration provision after termination of the Dealer Agreement. (ECF No. 3-1, ¶ 20(a)-(e).)

The owner and president of Elk Mountain Motor Sports, Robert McWilliams, alleges that he thought he was just renewing the Dealer Agreement as in the past, although he concedes that he was told by an Arctic Cat representative that the agreement addressed terms that had previously been contained in multiple agreements and that the agreement had a longer term thanthe previous annual agreements. (ECF No. 7-1, Aff. McWilliams, ¶ 7.) McWilliams asserts that "[e]ven if somebody had called my attention to the inclusion of the arbitration clause in the 6/30/09 Dealer Agreement, I still would have signed it on behalf of Elk Mountain." (ECF No. 7-1, Aff. McWilliams, ¶ 8.)

2. Legal Standard.

Under Montana law, arbitration agreements are valid and enforceable. Kortum-Managhan v. Herbergers NBGL, 204 P.3d 693 (Mont. 2009); §27-5-114, MCA. However, the Federal Arbitration Act ("FAA") governs this dispute because it involves a transaction implicating interstate commerce. 9 U.S.C. § 4; Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987). By enacting the FAA, Congress has set a policy favoring arbitration unless grounds exist at law or in equity to revoke the agreement. 9 U.S.C. § 2. In Southland Corp. v. Keating, 465 U.S. 1, 4-5, 104 S.Ct. 852, 79 L.Ed. 1 (1984), the United States Supreme Court held that the FAA "create[d] a body of federal substantive law," which was "applicable in state and federal courts." 465 U.S. at 12, 104 S.Ct. 852 (internal quotation marks omitted). State law (even state claimsbrought in state court) cannot bar enforcement of § 2 of the FAA. See id. at 10-14, see also Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270-73, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995).

Section 2 of the FAA provides that

A written provision in . . . a contract ... to settle by arbitration a controversy thereafter arising out of such contract ... or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. Thus, general contract law governs whether an arbitration agreement is valid. AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 1745-46, 179 L.Ed.2d 742 (2011). Arbitration provisions are subject to "'generally applicable contract defenses, such as fraud, duress, or unconscionability....'" Concepcion, ___ U.S. ___, 131 S.Ct. at 1746 (quoting Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)). Elk Mountain's argument asserting that it is entitled to rely on the Montana Motor Vehicle Act to block arbitration must be rejected according to the line of SupremeCourt cases, including Concepcion, 131 S. Ct. 1740 at 1753, which holds that a state law that stands as an obstacle to the purpose of Congress in enacting the FAA, cannot be used to override arbitration agreements. In Concepcion, the Court states definitively that "[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." Concepcion, 131 S. Ct. at 1747; see also Volt Information Sciences v. Board of Trustees, 489 U.S. 468, 474, 109 S. Ct. 1248, 1253, 103 L.Ed.2d 488 (1989) (FAA preempts state legislative attempts to limit enforceability of arbitration agreements).

Challenges that go specifically to the making of the agreement to arbitrate itself should be decided by the court. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). However, challenges against the contract generally must be decided by an arbitrator. Nitro-Lift Techs., L.L.C. v. Howard, ___ U.S. ___, 133 S.Ct. 500, 503, 184 L.Ed.2d 328 (2012). Under Montana law, also, once an arbitration provision is determined to be valid, "challenges to the contract as a whole are properly decided viaarbitration, given the existence of an arbitration clause." Martz v. Beneficial Montana, Inc., 135 P.3d 790, 794 (Mont. 2006).

The party seeking to compel arbitration carries the burden of persuasion, by a preponderance of the evidence, that a valid arbitration exists. See Bridge Fund Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). In 2000, the Montana Supreme Court stated that "uncertain terms in a contract [arbitration provision] are to be construed strictly against the party causing the uncertainty." Kingston v. Ameritrade, Inc., 12 P.3d 929, 933 (Mont. 2000) (citing Frates v. Edward D. Jones and Co., 760 P.2d 748, 752 (Mont. 1988), and Mueske v. Piper, Jaffray & Hopwood, Inc., 859 P.2d 444, 449-50 (Mont. 1993)). Expanding upon that proposition and citing Kingston, the Montana Supreme Court stated in 2009 that in reviewing the granting of a motion to arbitrate, it would take all allegations of fact by the nonmoving party as true. See Kortum-Managhan v. Herbergers NBGL, 204 P.3d 693, 696 (Mont. 2009). The Court will observe this rule stated in Kortum-Managhan, noting, however, that this standard is not consistent with the application of "a standard similar to the summary judgmentstandard of [Federal Rule of Civil Procedure 56]." Nguyen v. Barnes & Noble, Inc., 2012 WL 3711081, at *2 (C.D. Cal. Aug. 28, 2012) (quoting Concat LP v. Unilever, PLC, 350 F.Supp.2d 796, 804 (N.D. Cal. 2004)); see also Engalla v. Permanente Med. Grp., Inc., 938 P.2d 903, 916-17 (Cal. 1997) ("[A] party opposing the petition [for arbitration] bears the burden of proving by a preponderance of the evidence any fact necessary to its...