## Facts

- Doctor’s Associates, Inc. (DAI), franchisor of Subway shops, entered a franchise agreement with Paul Casarotto to operate a store in Great Falls, Montana.
- The agreement contained an arbitration clause (in ordinary type) requiring arbitration of disputes arising out of or relating to the contract.
- Montana law required arbitration clauses to be preceded by a specific notice in underlined capital letters on the first page of the contract; absent that notice, the contract could not be subject to arbitration.
- The franchise agreement did not include the required first-page, underlined, capitalized notice.
- Casarotto sued DAI and its agent in Montana state court asserting state-law contract and tort claims; DAI sought to compel arbitration.

## Issues

1. Whether § 2 of the Federal Arbitration Act preempts a state statute that conditions enforceability of arbitration agreements on a special first-page notice requirement applicable only to arbitration provisions.
2. Whether a state may impose arbitration-specific form requirements consistent with the FAA’s rule that arbitration agreements are enforceable except on grounds applicable to contracts generally.

## Decision

- The Supreme Court reversed the Montana Supreme Court (8–1).
- The Court held that Montana’s arbitration-specific notice statute conflicts with and is preempted by FAA § 2.
- Because the Montana statute singled out arbitration clauses for special burdens not imposed on contracts generally, it could not be used to invalidate the parties’ arbitration agreement.
- The dispute remained subject to arbitration under the franchise agreement.

## Legal Principles

- FAA § 2 requires arbitration agreements to be enforced on the same terms as other contracts, subject only to generally applicable contract defenses (e.g., fraud, duress, unconscionability).
- State rules that apply only to arbitration provisions—such as special notice, formatting, or formality requirements—are displaced because they impose unequal treatment on arbitration agreements.
- The relevant preemption inquiry is whether the state rule is a generally applicable contract doctrine or a rule that derives its force from the presence of an arbitration clause.

## Conclusion

The Court held that the FAA preempts state laws that condition enforceability of arbitration clauses on arbitration-only notice or formatting requirements, and it enforced the franchise agreement’s arbitration provision despite noncompliance with Montana’s first-page notice statute.


Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996)