Ambiguity Between “Bench-Trial” Jury Waivers and Permissive Arbitration Clauses Renders Arbitration Unenforceable in Montana

Introduction

In Bluebird Property Rentals, LLC and Alaina Garcia v. World Business Lenders, LLC; WBL SPO I, LLC; and WBL SPO II, LLC, the Supreme Court of Montana affirmed the Gallatin County District Court’s denial of a lender’s motion to compel arbitration. The dispute arose from a high-cost commercial loan (alleged APR 84.57%) secured by Montana real property and documented through multiple loan instruments (a “Business Promissory Note and Security Agreement,” a “Continuing Guaranty, Personal,” and a “Note and Deed of Trust”).

After default and foreclosure, the borrowers sued, seeking (among other relief) a declaration that the non-bank entity (WBL), rather than the named bank, was the “true lender,” and that Montana usury limits applied—framed as a “rent-a-bank” evasion theory. WBL responded by seeking to compel arbitration under arbitration language contained in the loan documents.

The key legal issue was not whether the claims fell within the scope of the arbitration language, but whether the parties formed a valid and enforceable agreement to arbitrate under Montana contract and constitutional standards when the documents simultaneously (i) permitted arbitration and (ii) stated, conspicuously and mandatorily, that disputes “SHALL BE DECIDED BY TRIAL TO THE COURT WITHOUT A JURY.”

Summary of the Opinion

The Court held that the loan documents were ambiguous because the permissive arbitration provisions (“may choose to arbitrate”) conflicted with bold, capitalized, mandatory non-jury trial language requiring that disputes “shall” be decided by a judge without a jury. This created two reasonable but conflicting interpretations: (1) disputes proceed by bench trial; (2) a party can unilaterally elect arbitration and thereby eliminate any trial at all. Because arbitration entails waiver of fundamental Montana constitutional rights, ambiguity prevented a knowing, voluntary, and intelligent waiver. The Court therefore affirmed denial of arbitration.

Although the District Court improperly relied on the borrower’s subjective declaration to determine intent, the Supreme Court affirmed on the basis that the documents’ conflicting dispute-resolution clauses and their conspicuousness choices were sufficient to support ambiguity and lack of mutual assent.

Analysis

Precedents Cited

  • Lenz v. FSC Sec. Corp. (2018 MT 67): The Court relied on Lenz for multiple foundational propositions: (i) de novo review of arbitration-compulsion rulings under the FAA or Montana Uniform Arbitration Act; (ii) arbitration enforceability is assessed using generally applicable state contract and constitutional standards; and critically (iii) because arbitration waives fundamental Montana constitutional rights, waiver must be knowing, voluntary, and intelligent under the totality of circumstances. Bluebird operationalizes Lenz in a drafting-conflict context: where contract structure and wording obscure whether the party is waiving only a jury or any court adjudication at all, mutual assent fails.
  • Peeler v. Rocky Mountain Log Homes Canada, Inc. (2018 MT 297): Cited for the two-step “substantive arbitrability” inquiry: (1) valid and enforceable arbitration agreement; (2) scope. Bluebird underscores that FAA’s pro-arbitration tilt does not bypass step one; the appeal turned solely on enforceability/formation, not scope.
  • Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. (460 U.S. 1 (1983)): Invoked by WBL for the presumption favoring arbitration. The Court narrowed that presumption to the “scope” question, not the antecedent question of whether a valid agreement to arbitrate exists under state law.
  • Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ. (489 U.S. 468 (1989)): Cited for the principle that arbitration is a matter of consent. This anchored the Court’s focus on mutual assent: a contract cannot compel arbitration where the writing reasonably signals “bench trial” as the mandatory forum.
  • In re Est. of Kindsfather (2005 MT 51): Cited for general consent requirements: consent must be “free, mutual, and communicated.” Bluebird treats internal inconsistency in dispute-resolution clauses as evidence consent was not adequately communicated.
  • AWIN Real Estate, LLC v. Whitehead Homes, Inc. (2020 MT 225), Mary J. Baker Revocable Tr. v. Cenex Harvest States, Coops., Inc. (2007 MT 159), and Richards v. JTL Grp., Inc. (2009 MT 173): These cases supplied Montana’s ambiguity framework: ambiguity exists when language, taken as a whole, is susceptible to two reasonable but conflicting meanings. The Court applied this “whole document” approach to the clash between “may arbitrate” and “shall be decided by trial to the court.”
  • Brandt v. R&R Mountain Escapes, LLC (2025 MT 155): Cited for contract interpretation methodology: (i) read the contract as a whole; (ii) use extrinsic evidence only to ascertain circumstances of making; (iii) do not contradict written terms. Bluebird used Brandt to critique the District Court’s reliance on subjective declarations while still affirming ambiguity on the face/structure.
  • Great W. Oil Co. v. Lewistown Oil & Ref. Co. (91 Mont. 146 (1932)) and § 28-3-203 MCA: Cited for reading multiple documents in a single transaction together. This mattered because the Agreement and Guaranty used similar “may arbitrate” language, while the Guaranty contained especially conspicuous, separately-signed jury-waiver language pointing toward mandatory bench trial.
  • Riehl v. Cambridge Ct. GF, LLC (2010 MT 28): Central to the outcome. The Court noted it has refused to enforce arbitration provisions when they conflict with other provisions in the same contract, concluding lack of mutual assent. Bluebird extends that logic to the specific configuration of (i) permissive arbitration plus (ii) mandatory “trial to the court” bench-trial language.
  • Lewis & Clark Cnty. v. Wirth (2022 MT 105): Cited for the contra proferentem principle—ambiguities are construed against the drafter. Once ambiguity existed in a dispute-resolution regime that implicates constitutional waivers, the Court resolved it in favor of the non-drafter’s bench-trial interpretation.
  • Augustine v. Simonson (283 Mont. 259 (1997)) and Montana Petroleum Tank Release Comp. Bd. v. Crumleys, Inc. (2008 MT 2): Cited for procedural and review standards when a Rule 12(b)(6) motion is converted to summary judgment by considering matters outside the pleadings. The Court also observed that the record did not reflect notice of conversion under M. R. Civ. P. 12(d), but neither party raised it on appeal.

Legal Reasoning

  1. Threshold enforceability (formation) controls. Even under the FAA, courts first ask whether the parties formed a valid agreement to arbitrate. The FAA’s pro-arbitration presumption does not manufacture consent; it addresses scope once a valid agreement exists.
  2. Arbitration waives fundamental Montana constitutional rights, triggering heightened scrutiny. The Court reiterated that arbitration waives the constitutional right of access to courts (and jury trial), so the waiver must be knowing, voluntary, and intelligent. This transforms drafting clarity and conspicuousness from mere “best practices” into legally consequential evidence of assent.
  3. Ambiguity arose from a direct conflict in dispute-resolution instructions. The arbitration language was permissive (“may choose to arbitrate”) and described a procedure for electing arbitration. But the Guaranty also contained a separately signed, bold, capitalized clause stating that disputes “SHALL BE DECIDED BY TRIAL TO THE COURT WITHOUT A JURY.” The Court found this “bench trial” mandate misleading because arbitration—if elected by the lender—eliminates any trial. The documents did not clearly disclose priority between the two mechanisms.
  4. “Buried” arbitration + “spotlighted” bench-trial waiver supported lack of mutual assent. The Court emphasized the drafter’s selective conspicuousness: choice-of-law and jury-waiver language were made conspicuous, while arbitration was not similarly highlighted, despite its greater consequence (waiver of court adjudication altogether). This structural presentation helped show why a reasonable signer could believe they were agreeing only to a non-jury court trial.
  5. Extrinsic evidence limits: the Court corrected methodology but affirmed result. The District Court relied on the borrower’s declaration (subjective evidence) to find lack of awareness. The Supreme Court held subjective evidence is generally inadmissible to establish ambiguity or mutual intent, citing Mary J. Baker Revocable Tr. v. Cenex Harvest States, Coops., Inc.. Nonetheless, the Court held the contract itself and objective indicia (conflicting clauses; conspicuousness choices) sufficed to sustain the ambiguity finding.
  6. Ambiguity was construed against the drafter, defeating arbitration. Applying Montana’s rule that ambiguity is interpreted most strongly against the drafter, the Court treated the default forum as bench trial, rendering arbitration provisions unenforceable due to insufficient knowing and intelligent waiver.
  7. Attorney opinion letter did not cure ambiguity. The lender argued the borrower obtained a legal opinion letter as a loan condition. The Court rejected the notion that this fact makes the documents unambiguous; enforceability still turns on what the documents say and whether they manifest mutual assent.

Impact

1) Drafting of arbitration in Montana must be internally consistent with other dispute-resolution clauses.
The most immediate impact is on contract forms—especially loan and guaranty packages—containing both (a) an arbitration election mechanism and (b) a stand-alone, mandatory “trial to the court” jury waiver. After Bluebird, pairing permissive arbitration with mandatory bench-trial language, without clearly stating priority and consequences, creates a substantial risk that Montana courts will find ambiguity and deny arbitration.

2) “Jury waiver” language cannot be used as a substitute disclosure for arbitration.
The Opinion distinguishes between waiving a jury (still leaving a court trial) and waiving a trial (arbitration). Highlighting jury waiver while burying arbitration can support a finding that the signer did not knowingly and intelligently agree to arbitrate.

3) FAA arguments will not salvage unclear assent.
The Court reaffirmed that FAA policy favoring arbitration does not override generally applicable state-law formation principles or Montana’s constitutional waiver doctrine. Lenders should expect Montana courts to treat “consent” defects as dispositive.

4) Litigation posture in high-interest lending disputes.
Although the merits (including the alleged “rent-a-bank” structure and usury exposure) were not decided, the ruling affects forum and leverage. Plaintiffs challenging loan structures may more readily keep cases in court when loan documents contain mixed signals about whether disputes go to court or arbitration.

Complex Concepts Simplified

  • FAA (Federal Arbitration Act): A federal statute that often requires courts to enforce arbitration agreements. It does not force arbitration when the parties never formed a clear agreement to arbitrate.
  • Substantive arbitrability: The gateway inquiry: (1) is there a valid arbitration agreement? (2) does it cover the dispute? Bluebird is a step-one case.
  • Bench trial vs. jury trial: A jury trial uses a jury as factfinder; a bench trial is decided by a judge. Both are court trials. Arbitration is not a court trial at all; it is a private adjudication.
  • Ambiguity (in contract law): Not mere confusion—rather, language reasonably supports two conflicting meanings. Here: “disputes shall be decided by trial to the court” versus “any party may choose to arbitrate.”
  • Objective vs. subjective extrinsic evidence: Objective evidence comes from neutral circumstances (e.g., document structure, headings, formatting choices, transaction context). Subjective evidence is a party’s after-the-fact statement of what they thought; Montana generally disfavors it to prove ambiguity.
  • Contra proferentem: When a contract is ambiguous, courts construe it against the drafter—especially salient when constitutional rights are waived.
  • Knowing, voluntary, and intelligent waiver: A heightened requirement when a contract waives fundamental rights (like access to courts); the signer must understand what is being given up, not merely sign the document.

Conclusion

Bluebird establishes a practical and consequential rule for Montana contract drafting and arbitration enforcement: when loan documents tell a signer—conspicuously and mandatorily—that disputes “shall” be resolved by a non-jury court trial, yet also contain permissive arbitration election language without clearly explaining priority and effect, the resulting ambiguity defeats mutual assent and prevents a knowing, voluntary, and intelligent waiver of the constitutional right to access the courts. The FAA’s pro-arbitration policy does not cure that defect.