517 U.S. 681116 S.Ct. 1652134 L.Ed.2d 902
DOCTOR'S ASSOCIATES, INC., et al.v.CASAROTTO et ux.Certiorari to the Supreme Court of Montana.
No. 95-559.
Argued April 16, 1996
Decided May 20, 1996

Syllabus*
When a dispute arose between parties to a standard form franchise  agreement for the operation of a Subway sandwich shop in Montana,  respondent franchisee sued petitioners, franchisor Doctor's Associates,  Inc. (DAI) and its agent, Lombardi, in a Montana state court.  The court  stayed the lawsuit pending arbitration pursuant to the arbitration  clause set out in ordinary type on page nine of the franchise agreement.  The Montana Supreme Court reversed, holding that the arbitration clause  was unenforceable because it did not meet the state-law requirement that  "[n]otice that a contract is subject to arbitration" be "typed in  underlined capital letters on the first page of the contract."  Mont.  Code Ann. Section(s) 27-5-114(4). DAI and Lombardi unsuccessfully  argued that Section(s) 27-5-114(4) was preempted by Section(s) 2 of the  Federal Arbitration Act (FAA), which declares written provisions for arbitration "valid, irrevocable, and enforceable, save upon such grounds  as exist at law or in equity for the revocation of any contract."  In  arguing for preemption, DAI and Lombardi dominantly relied on Southland  Corp. v. Keating, 465 U. S. 1, and Perry v. Thomas, 482 U. S. 483, in  which this Court established that "state law . . . is applicable if that  law arose to govern issues concerning the validity, revocability, and  enforceability of contracts generally,'' but not if the state-law  principle ``takes its meaning precisely from the fact that a contract to arbitrate is at issue."  Id., at 493, n. 9 (emphasis added).  The Montana Supreme Court, however, thought Volt Information Sciences, Inc.  v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468,  limited Section(s) 2's preemptive force and correspondingly qualified  Southland and Perry; the proper inquiry, the Montana Supreme Court said,  should focus not on the bare words of Section(s) 2 but on the question:  Would the application of Section(s) 27-5-114(4)'s notice requirement undermine the FAA's goals and policies.  In the Montana court's  judgment, the notice requirement did not undermine these goals and  policies, for it did not preclude arbitration agreements altogether. On  remand from this Court for reconsideration in light of Allied-Bruce  Terminix Cos. v. Dobson, 513 U. S. ___, the Montana court adhered to its  original ruling.
Held:  Montana's first-page notice requirement, which governs not "any  contract," but specifically and solely contracts "subject to  arbitration," conflicts with the FAA and is therefore displaced by the  federal measure.  Generally applicable contract defenses, such as fraud,  duress or unconscionability, may be applied to invalidate arbitration  agreements without contravening Section(s) 2, see, e.g., Allied-Bruce,  513 U. S., at ___, but courts may not invalidate arbitration agreements  under state laws applicable only to arbitration provisions, see, e.g.,  id., at ___.  By enacting Section(s) 2, Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed upon the same footing as other  contracts.  Scherk v. Alberto-Culver Co., 417 U. S. 506, 511.  Montana's  Section(s) 27-5-114(4) directly conflicts with Section(s) 2 because the  State's law conditions the enforceability of arbitration agreements on  compliance with a special notice requirement not applicable to contracts  generally. The Montana Supreme Court misread Volt in reaching a  contrary conclusion. The state rule examined in Volt determined only the efficient order of proceedings; it did not affect the enforceability of  the arbitration agreement itself.  Applying Section(s) 27-5-114(4) here,  in contrast, would invalidate the arbitration clause.  Pp. 5-8.
___ Mont. ___, 901 P. 2d 596, reversed and remanded.
Ginsburg, J., delivered the opinion of the Court, in which Rehnquist, C.  J., and Stevens, O'Connor, Scalia, Kennedy, Souter, and Breyer, JJ.,  joined.  Thomas, J., filed a dissenting opinion.
Justice Ginsburg delivered the opinion of the Court.


1
This case concerns a standard form franchise agreement for the  operation of a Subway sandwich shop in Montana.  When a dispute arose  between parties to the agreement, franchisee Paul Casarotto sued  franchisor Doctor's Associates, Inc. (DAI) and DAI's Montana development  agent, Nick Lombardi, in a Montana state court.  DAI and Lombardi sought  to stop the litigation pending arbitration pursuant to the arbitration  clause set out on page nine of the franchise agreement.


2
The Federal Arbitration Act (FAA or Act) declares written provisions for arbitration "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. Section(s) 2.  Montana law, however, declares an  arbitration clause unenforceable unless "[n]otice that [the] contract is  subject to arbitration" is "typed in underlined capital letters on the  first page of the contract."  Mont. Code Ann. Section(s) 27-5-114(4)  (1995).  The question here presented is whether Montana's law is  compatible with the federal Act.  We hold that Montana's first-page  notice requirement, which governs not "any contract," but specifically and solely contracts "subject to arbitration," conflicts with the FAA  and is therefore displaced by the federal measure.


3
* Petitioner DAI is the national franchisor of Subway sandwich shops. In April 1988, DAI entered a franchise agreement with respondent  Paul Casarotto, which permitted Casarotto to open a Subway shop in Great  Falls, Montana.  The franchise agreement stated, on page nine and in  ordinary type: "Any controversy or claim arising out of or relating to  this contract or the breach thereof shall be settled by Arbitration  . . ."  App. 75.


4
In October 1992, Casarotto sued DAI and its agent, Nick Lombardi, in Montana state court, alleging state-law contract and tort  claims relating to the franchise agreement.  DAI demanded arbitration of  those claims, and successfully moved in the Montana trial court to stay  the lawsuit pending arbitration. Id., at 10-11.


5
The Montana Supreme Court reversed.  Casarotto v. Lombardi, 268  Mont. 369, 886 P. 2d 931 (1994).  That court left undisturbed the trial  court's findings that the franchise agreement fell within the scope of  the FAA and covered the claims Casarotto stated against DAI and  Lombardi.  The Montana Supreme Court held, however, that Mont. Code Ann.  Section(s) 27-5-114(4) rendered the agreement's arbitration clause  unenforceable. The Montana statute provides:


6
"Notice that a contract is subject to arbitration . . . shall be  typed in underlined capital letters on the first page of the contract;  and unless such notice is displayed thereon, the contract may not be  subject to arbitration."


7
Notice of the arbitration clause in the franchise agreement did  not appear on the first page of the contract.  Nor was anything relating  to the clause typed in underlined capital letters.  Because the State's  statutory notice requirement had not been met, the Montana Supreme Court  declared the parties' dispute "not subject to arbitration."  268 Mont.,  at 382, 886 P. 2d, at 939.


8
DAI and Lombardi unsuccessfully argued before the Montana Supreme Court that Section(s) 27-5-114(4) was preempted by Section(s) 2  of the FAA.1  DAI and Lombardi dominantly relied on our decisions in  Southland Corp. v. Keating, 465 U. S. 1 (1984), and Perry v. Thomas, 482  U. S. 483 (1987). In Southland, we held that Section(s) 2 of the FAA  applies in state as well as federal courts, see 465 U. S., at 12, and  "withdr[aws] the power of the states to require a judicial forum for the  resolution of claims which the contracting parties agreed to resolve by  arbitration," id., at 10. We noted in the pathmarking Southland decision  that the FAA established a "broad principle of enforceability," id., at 11, and that Section(s) 2 of the federal Act provided for revocation of  arbitration agreements only upon "grounds as exist at law or in equity  for the revocation of any contract."  In Perry, we reiterated: "[S]tate  law, whether of legislative or judicial origin, is applicable if that  law arose to govern issues concerning the validity, revocability, and  enforceability of contracts generally.  A state-law principle that takes  its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with [the text of Section(s) 2]."  482 U. S., at  493, n. 9.


9
The Montana Supreme Court, however, read our decision in Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468 (1989), as limiting the preemptive force of  Section(s) 2 and correspondingly qualifying Southland and Perry.  268  Mont., at 378-381, 886 P. 2d, at 937-939.  As the Montana Supreme Court  comprehended Volt, the proper inquiry here should focus not on the bare  words of Section(s) 2, but on this question: Would the application of  Montana's notice requirement, contained in Section(s) 27-5-114(4),  "undermine the goals and policies of the FAA."  268 Mont., at 381, 886  P. 2d, at 938 (internal quotation marks omitted).  Section 27-5-114(4), in the Montana court's judgment, did not undermine the goals and policies of the FAA, for the notice requirement did not preclude arbitration agreements altogether; it simply prescribed "that before  arbitration agreements are enforceable, they be entered knowingly."  Id., at 381, 886 P. 2d, at 939.


10
DAI and Lombardi petitioned for certiorari.  Last Term, we granted their petition, vacated the judgment of the Montana Supreme  Court, and remanded for further consideration in light of Allied-Bruce  Terminix Cos. v. Dobson, 513 U. S. ___ (1995).  See 515 U. S. ___   (1995).  In Allied-Bruce, we restated what our decisions in Southland  and Perry had established:


11
"States may regulate contracts, including arbitration      clauses,  under general contract law principles and they may      invalidate an  arbitration clause `upon such grounds as exist      at law or in equity for  the revocation of any contract.'  9      U. S. C. Section(s) 2 (emphasis  added).  What States may not      do is decide that a contract is fair enough  to enforce all      its basic terms (price, service, credit), but not fair      enough to enforce its arbitration clause.  The Act makes any      such state  policy unlawful, for that kind of policy would      place arbitration clauses  on an unequal `footing,' directly      contrary to the Act's language and  Congress's intent."  513      U. S., at ___ (slip op., at 15-16).


12
On remand, without inviting or permitting further briefing or oral argument,2 the Montana Supreme Court adhered to its original ruling. The court stated: "After careful review, we can find nothing in  the [Allied-Bruce] decision which relates to the issues presented to  this Court in this case."  Casarotto v. Lombardi, ___ Mont. ___, ___,  901 P. 2d 596, 598 (1995). Elaborating, the Montana court said it found  "no suggestion in [Allied-Bruce] that the principles from Volt on which  we relied [to uphold Section(s) 27-5-114(4)] have been modified in any way."  Id., at ___-___, 901 P. 2d, at 598-599.  We again granted certiorari, 516 U. S. ___ (1996), and now reverse.

II

13
Section 2 of the FAA provides that written arbitration agreements "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. Section(s) 2 (emphasis added). Repeating our  observation in Perry, the text of Section(s) 2 declares that state law  may be applied "if that law arose to govern issues concerning the  validity, revocability, and enforceability of contracts generally."  482  U. S., at 493, n. 9.  Thus, generally applicable contract defenses, such  as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening Section(s) 2.  See Allied-Bruce, 513 U. S., at ___ (slip op., at 15); Rodriguez de Quijas  v. Shearson/American Express, Inc., 490 U. S. 477, 483-484 (1989);  Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 226 (1987).


14
Courts may not, however, invalidate arbitration agreements under  state laws applicable only to arbitration provisions.  See Allied-Bruce,  513 U. S., at ___ (slip op., at 15); Perry, 482 U. S., at 493, n. 9.  By  enacting Section(s) 2, we have several times said, Congress precluded  States from singling out arbitration provisions for suspect status,  requiring instead that such provisions be placed "upon the same footing  as other contracts."  Scherk v. Alberto-Culver Co., 417 U. S. 506, 511 (1974) (internal quotation marks omitted).  Montana's Section(s) 27-5-114(4) directly conflicts with Section(s) 2 of the FAA because the  State's law conditions the enforceability of arbitration agreements on  compliance with a special notice requirement not applicable to contracts  generally.  The FAA thus displaces the Montana statute with respect to  arbitration agreements covered by the Act.  See 2 I. Macneil, R.  Speidel, T. Stipanowich, & G. Shell, Federal Arbitration Law Section(s) 19.1.1, pp. 19:4-19:5 (1995) (under Southland and Perry, "state legislation requiring greater information or choice in the making of  agreements to arbitrate than in other contracts is preempted"). 3


15
The Montana Supreme Court misread our Volt decision and therefore reached a conclusion in this case at odds with our rulings.  Volt involved an arbitration agreement that incorporated state  procedural rules, one of which, on the facts of that case, called for  arbitration to be stayed pending the resolution of a related judicial  proceeding. The state rule examined in Volt determined only the  efficient order of proceedings; it did not affect the enforceability of  the arbitration agreement itself. We held that applying the state rule  would not "undermine the goals and policies of the FAA," 489 U. S., at  478, because the very purpose of the Act was to "ensur[e] that private  agreements to arbitrate are enforced according to their terms," id., at  479.


16
Applying Section(s) 27-5-114(4) here, in contrast, would not enforce the arbitration clause in the contract between DAI and Casarotto; instead, Montana's first-page notice requirement would invalidate the clause. The "goals and policies" of the FAA, this Court's  precedent indicates, are antithetical to threshold limitations placed  specifically and solely on arbitration provisions.  Section 2  "mandate[s] the enforcement of arbitration agreements," Southland, 465  U. S., at 10, "save upon such grounds as exist at law or in equity for  the revocation of any contract," 9 U. S. C. Section(s) 2.  Section  27-5-114(4) of Montana's law places arbitration agreements in a class  apart from "any contract," and singularly limits their validity.  The   State's prescription is thus inconsonant with, and is therefore  preempted by, the federal law.


17
For the reasons stated, the judgment of the Supreme Court of Montana is reversed, and the case is remanded for further proceedings  not inconsistent with this opinion.


18
It is so ordered.


19
djq  Justice Thomas, dissenting.


20
For the reasons given in my dissent last term in Allied-Bruce Terminix Cos. v. Dobson, 513 U. S. __ (1995), I remain of the view that  Section(s) 2 of the Federal Arbitration Act, 9 U. S. C. Section(s) 2,  does not apply to proceedings in state courts. Accordingly, I  respectfully dissent.



*
 The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience  of the reader.  See United States v. Detroit Lumber Co., 200 U. S. 321,  337.


1
 Section 2 provides, in relevant part:
"A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy  thereafter arising out of such contract or transaction, or the refusal  to perform the whole or any part thereof, . . . 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. Section(s) 2.


2
 Dissenting Justice Gray thought it "cavalier" of her colleagues to ignore the defendants' request for an "opportunity to  brief the issues raised by the . . . remand and to present oral  argument."  Casarotto v. Lombardi, ___, Mont. ___, ___-___, 901 P. 2d  596, 599-600 (1995).


3
 At oral argument, counsel for Casarotto urged a broader  view, under which Section(s) 27-5-114(4) might be regarded as harmless surplus.  See Tr. of Oral Arg. 29-32.  Montana could have invalidated  the arbitration clause in the franchise agreement under general,  informed consent principles, counsel suggested. She asked us to regard  Section(s) 27-5-114(4) as but one illustration of a cross-the-board  rule: unexpected provisions in adhesion contracts must be conspicuous.  See also Brief for Respondents 21-24.  But the Montana Supreme Court  announced no such sweeping rule. The court did not assert as a basis for  its decision a generally applicable principle of "reasonable expectations" governing any standard form contract term.  Cf. Transamerica Ins. Co. v. Royle, 202 Mont. 173, 180, 656 P. 2d 820, 824   (1983) (invalidating provision in auto insurance policy that did not  "honor the reasonable expectations" of the insured). Montana's decision  trains on and upholds a particular statute, one setting out a precise, arbitration-specific limitation.  We review that disposition, and no  other.  It bears reiteration, however, that a court may not "rely on the  uniqueness of an agreement to arbitrate as a basis for a state-law  holding that enforcement would be unconscionable, for this would enable  the court to effect what . . . the state legislature cannot."  Perry v.  Thomas, 482 U. S. 483, 493, n. 9 (1987).


