## Facts

- Paul and Pamela Casarotto, Montana residents, entered a Subway franchise agreement with Doctor’s Associates, Inc. (DAI), a Connecticut corporation; Nick Lombardi acted as DAI’s Montana development agent.
- The agreement contemplated operating the franchise in Great Falls, Montana; the Casarottos alleged they were steered from their preferred location to a less desirable site.
- The agreement included (1) a Connecticut choice-of-law clause and (2) an arbitration clause requiring arbitration of disputes “arising out of or relating to” the contract, located later in the document (not on the first page).
- The Casarottos alleged Lombardi promised them exclusive rights to their preferred location if it later became available; when it did, DAI and Lombardi allegedly awarded it to others, and the Casarottos’ business failed.
- The Casarottos sued in Montana state court for contract and tort damages; DAI and Lombardi moved to dismiss or stay the action pending arbitration.
- The district court stayed the case for arbitration; the Casarottos appealed.

## Issues

1. Whether Montana or Connecticut law governed the enforceability of the franchise agreement’s arbitration clause.
2. If Montana law applied, whether Montana’s statutory first-page, conspicuous-notice requirement for arbitration clauses was preempted by the Federal Arbitration Act (FAA).

## Decision

- The Montana Supreme Court reversed the district court’s stay order and remanded for litigation in court.
- Applying Montana conflict-of-laws rules, the court held Montana law governed despite the contract’s Connecticut choice-of-law provision.
- The court held the FAA did not preempt Montana’s notice statute and ruled the arbitration clause unenforceable because the agreement lacked the required first-page notice.

## Legal Principles

- A contractual choice-of-law clause may be disregarded where applying the chosen law would contravene a fundamental policy of a state with a materially greater interest and whose law would otherwise apply.
- Montana’s Uniform Arbitration Act required notice that a contract is subject to arbitration to be typed in underlined capital letters on the first page of the contract; noncompliance rendered the arbitration provision unenforceable under Montana law.
- The FAA enforces arbitration agreements except on grounds that exist for revocation of any contract; the court treated Montana’s notice requirement as a contract-formation rule aimed at ensuring informed consent, and therefore not preempted.

## Conclusion

The court applied Montana law, declined to enforce the contract’s Connecticut choice-of-law clause, and held that the arbitration clause could not be enforced because the agreement failed to provide the conspicuous first-page notice required by Montana statute, which the court concluded was not preempted by the FAA.


Casarotto v. Lombardi, 886 P.2d 931 (Mont. 1994)