## Facts

- Keystone, Inc., a Montana corporation, purchased a computer system from Triad Systems Corp., a California corporation.
- The contract required arbitration in California before the American Arbitration Association and included a California choice-of-law clause.
- Keystone alleged the system was defective and that Triad refused to refund the purchase price.
- Keystone sued Triad in Montana for breach of contract, breach of warranty, negligence, and negligent misrepresentation.
- Triad demanded arbitration in California under the contract; Keystone agreed to arbitrate but only in Montana.
- Keystone relied on Montana statutes expressing public policy against requiring Montana residents to resolve disputes outside Montana, including MCA § 28-2-708 and MCA § 27-5-323.
- The Montana district court compelled arbitration in California, reasoning that the Federal Arbitration Act (FAA) preempted the Montana statutes.

## Issues

1. Whether a contractual clause requiring arbitration in California is enforceable against a Montana resident in light of Montana’s public policy against out-of-state forum-selection provisions.
2. Whether the FAA preempts Montana statutes and public-policy rules that invalidate out-of-state arbitral-forum requirements when those rules are generally applicable to contracts.

## Decision

- The Montana Supreme Court reversed the order compelling arbitration in California.
- The court held the out-of-state arbitral-forum requirement was unenforceable under Montana public policy and directed that arbitration be compelled in Montana.
- The court held the FAA did not preempt MCA § 28-2-708 and MCA § 27-5-323 as applied, because they functioned as generally applicable contract-law rules rather than arbitration-specific restrictions.
- The case was remanded with instructions to compel arbitration in Montana.

## Legal Principles

- A state may refuse to enforce a clause requiring its residents to resolve disputes in another state when the refusal rests on a generally applicable contract rule grounded in state public policy, rather than a rule that singles out arbitration.
- For FAA preemption purposes, state laws are vulnerable when they impose special burdens on arbitration agreements; generally applicable contract defenses may be applied to arbitration agreements on the same terms as other contracts.
- In determining enforceability of contractual forum and related provisions, a court may apply conflict-of-laws analysis and give controlling weight to the state with the most significant relationship to the transaction and parties, including the place of performance and the resident party’s location.

## Conclusion

The court required arbitration to proceed in Montana, concluding that Montana’s general public policy against out-of-state forum-selection provisions rendered the California arbitration forum clause unenforceable and that this neutral contract-law rule was not preempted by the FAA.


Keystone, Inc. v. Triad Sys. Corp., 971 P.2d 1240 (Mont. 1998)