State Ex Rel. Bullock v. Philip Morris, Inc.

delivered the Opinion of the Court.

¶1 The State of Montana appeals from an order entered by the First Judicial District Court, Lewis and Clark County, granting the motion of Philip Morris USA Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company to compel arbitration. We reverse and remand for further proceedings.

BACKGROUND

¶2 This appeal arises out of litigation that began in 1997, when the State sued the nation’s largest tobacco manufacturers for the public health costs caused by the industry’s alleged ongoing misrepresentations to consumers about the risks of smoking. Other states and territories filed similar litigation. In 1998, four of the tobacco manufacturers (Philip Morris, R.J. Reynolds, Lorillard, and Brown & Williamson Tobacco Corp.1) entered into a Master Settlement Agreement (MSA) with 46 states (including Montana2), the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands. These four defendants are referred to in the MSA as “original participating manufacturers” (OPMs), and the states, territories, and District of Columbia are referred to as the ‘Settling States.” The MSA permits other tobacco companies to join the settlement in order to avoid future litigation, and the companies which have done so are designated “subsequent participating manufacturers” (SPMs). A number of SPMs have intervened in the present suit. Finally, the original participating manufacturers and the subsequent participating manufacturers are known collectively as “participating manufacturers” (PMs), while the tobacco companies that are not signatories to the MSA are known as “non-participating manufacturers” (NPMs).

¶3 In exchange for the Settling States’ release of all claims, the PMs agreed to certain marketing restrictions and to make annual payments *32to the Settling States ‘for the advancement of public health” and ‘the implementation of important tobacco-related public health measures.” The PMs do not make payments directly to individual Settling States; rather, each PM is required to make a single, nationwide payment into an escrow account, and the amounts are then allocated among the Settling States. Each PM’s individual contribution to the account is based on its market share. Likewise, each Settling State receives an “allocable share” of the sum of all payments made by the PMs in the year in question. Montana’s allocable share is 0.4247591%. The State received $24.8 million in MSA funds in 2006; $25.8 million in 2007; and $34.6 million in 2008.

¶4 The MSA assigns several responsibilities to an “Independent Auditor,” which is defined as “a major, nationally recognized, certified public accounting firm.” Specifically, the Independent Auditor

shall calculate and determine the amount of all payments owed pursuant to [the MSA], the adjustments, reductions and offsets thereto (and all resulting carry-forwards, if any), the allocation of such payments, adjustments, reductions, offsets and carry-forwards among the Participating Manufacturers and among the Settling States, and shall perform all other calculations in connection with the foregoing ....

In calculating the PMs’ annual payments, the Independent Auditor takes the base amount owed by the PMs for the calendar year and then applies a series of adjustments, reductions, and offsets. Of relevance to this case is the Non-Participating Manufacturer Adjustment (NPM Adjustment). The parties to the MSA recognized that the marketing restrictions and payment obligations imposed on PMs could give NPMs a competitive advantage and cause the PMs to lose market share to the NPMs. Moreover, they recognized that a transfer of market share to the NPMs would undermine the purposes of the MSA. Thus, the NPM Adjustment serves to level the playing field by reducing the PMs’ annual payment obligations if it is determined that (1) the PMs collectively lost more than two percent of their pre-MSA (i.e., 1997) aggregate market share to NPMs during the year in question and (2) “the disadvantages experienced as a result of the provisions of [the MSA] were a significant factor contributing to” this loss.

¶5 The NPM Adjustment typically applies to the allocated payment for each Settling State; however, a Settling State can avoid the NPM Adjustment if it “continuously had a Qualifying Statute... in full force and effect during the entire calendar year immediately preceding the year in which the payment in question is due, and diligently enforced the provisions of such statute during such entire calendar year.” A *33“Qualifying Statute” is a statute, regulation, law, or rule that “effectively and fully neutralizes the cost disadvantages that the Participating Manufacturers experience vis-á-vis Non-Participating Manufacturers within such Settling State as a result of the provisions of [the MSA].” If a Settling State meets these requirements, then the NPM Adjustment is inapplicable to that Settling State and is reallocated among the other Settling States on a pro rata basis.

¶6 The present litigation concerns the PMs’ annual payments for 2006. The PMs had lost the requisite percentage of market share in 2003, and an economic consulting firm had determined that the disadvantages imposed by the MSA were a “significant factor” contributing to that loss. Thus, the PMs asked the Independent Auditor to offset their 2006 payments by the amount of the 2003 NPM Adjustment. In response, the Settling States contended that they each had enacted Qualifying Statutes which were in full force and effect in 2003 and that the Independent Auditor should presume, in the absence of substantial evidence to the contrary, that state officials had “diligently enforced” those statutes. The PMs, however, argued that the Independent Auditor must “presume just the opposite,” i.e., that the statutes had not been diligently enforced.

¶7 The Independent Auditor declined to apply the NPM Adjustment to the PMs’ 2006 payments. Noting the parties’ dispute over whether the Settling States continuously had Qualifying Statutes fin full force and effect” and whether they “diligently enforced” the provisions of such statutes, the Independent Auditor explained that it was “not charged with the responsibility under the MSA of making a determination regarding this issue.” Moreover, the Independent Auditor stated that it was ‘hot qualified to make the legal determination as to whether any particular Settling State has ‘diligently enforced’ its Qualifying Statute.” Thus, the Independent Auditor concluded that “[u]ntil such time as the parties resolve this issue or the issue is resolved by a trier of fact, the Independent Auditor will not modify its current approach to the application of the NPM Settlement Adjustment.” In effect, the Independent Auditor presumed that the Settling States had diligently enforced their Qualifying Statutes.

¶8 On April 10,2006, the OPMs served notice that they disputed the Independent Auditor’s final calculations. Nevertheless, the OPMs paid the full amounts calculated by the Independent Auditor, though R. J. Reynolds and Lorillard paid the sums attributable to the disputed amount into the Disputed Payments Account provided for in the MSA.

¶9 The State then commenced the instant action on May 8, 2006, by *34filing a motion for declaratory order. The State alleged that Montana had enacted a Qualifying Statute (§16-11-401 to -404, MCA) in 1999 when the Legislature adopted the Model Statute set forth in Exhibit T of the MSA. The State further alleged that the provisions of §16-11-401 to -404, MCA, were continuously in full force and effect during 2003 and that the State had diligently enforced these provisions during that year. The State relied on the presumption contained in §26-1-602(15), MCA (“[ojfficial duty has been regularly performed’) and also listed certain actions it had taken to enforce §16-11-401 to -404, MCA. The State asked the District Court to enter an order declaring that Montana diligently enforced the provisions of §16-11-401 to -404, MCA, during 2003. In the alternative, the State asked the District Court to determine that the PMs ‘have released, waived, or are estopped to assert any claim that Montana did not diligently enforce the Model Statute with regard to the 2003 escrow payment.” The State alleged that the court had jurisdiction under §VII(a)(2) of the MSA, which provides that each individual state court retains exclusive jurisdiction for the purposes of ‘implementing and enforcing” the MSA and the Consent Decree as to such Settling State.

¶10 The OPMs responded with a motion to compel arbitration (which the intervening SPMs joined). They relied on §XI(c) of the MSA, which states:

Resolution of Disputes. Any dispute, controversy or claim arising out of or relating to calculations performed by, or any determinations made by, the Independent Auditor (including, without limitation, any dispute concerning the operation or application of any of the adjustments, reductions, offsets, carry-forwards and allocations described in subsection IX(j) or subsection XI(i)) shall be submitted to binding arbitration before a panel of three neutral arbitrators, each of whom shall be a former Article III federal judge. . . .

The OPMs argued that the parties’ dispute was one “arising out of or relating to calculations performed by, or ... determinations made by, the Independent Auditor.” The OPMs also asserted that the parties’ dispute concerned the “application” of an adjustment “described in subsection IX(j)” (namely, the NPM Adjustment). The OPMs next argued that allowing Settling States to challenge the Independent Auditor’s determinations in their respective state courts would “wreak havoc” on the MSA’s payment system. Lastly, the OPMs contended that the law favors arbitration when a contract contains an arbitration clause.

¶11 In response, the State emphasized that it sought a ruling only *35with respect to its own diligent enforcement efforts and that it was not asking the District Court to calculate any payments or adjustments. The State also pointed out that the arbitration provision applies only to “calculations performed by” and “determinations made by” the Independent Auditor, and the State argued that the Independent Auditor is, by definition, an accounting firm which is not vested by the MSA with responsibility for evaluating the exercise of prosecutorial discretion by the various state attorneys general to determine whether their respective Qualifying Statutes have been diligently enforced.

¶12 The District Court agreed with the State that the MSA does not define “diligent enforcement,” does not outline the standard by which a Settling State meets this requirement, and does not expressly charge the Independent Auditor with the duty of determining whether a Settling State has “diligently enforced” its Qualifying Statute. Nevertheless, the court concluded that the parties’ dispute “concerning the Auditor’s determination not to apply the 2003 NPM Adjustment” was a matter for arbitration. The court first observed that the issue of whether “diligent enforcement” has occurred is “necessarily linked” to whether the NPM Adjustment applies. The court then reasoned that although the Independent Auditor did not explicitly determine that the Settling States were diligently enforcing their Qualifying Statutes, the Independent Auditor “presumed” that they were. In the District Court’s view, this “presumption of‘diligent enforcement’ is essentially a determination and, under Section IX(c), MSA, this determination is a matter for arbitration.” The State now appeals.

ISSUE

¶13 The sole issue on appeal is whether the District Court erred in granting the PMs’ motion to compel arbitration.

STANDARD OF REVIEW

¶14 This Court reviews a district court’s order granting a motion to compel arbitration de novo. Martz v. Beneficial Montana, 2006 MT 94, ¶ 10, 332 Mont. 93, 135 P.3d 790.

DISCUSSION

¶15 Arbitration is a matter of contract, and a party cannot be required to submit to arbitration a dispute which it has not agreed so to submit. AT&T Technologies v. Communications Workers of America, 475 U.S. 643, 648, 106 S. Ct. 1415, 1418 (1986); accord Willems v. U.S. Bancorp Piper Jaffray, 2005 MT 37, ¶ 13, 326 Mont. 103, 107 P.3d 465. Moreover, unless the parties “clearly and unmistakably” provide *36otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator. AT&T Technologies, 475 U.S. at 649, 106 S. Ct. at 1418; cf. Kingston v. Ameritrade, 2000 MT 269, ¶ 13, 302 Mont. 90, 12 P.3d 929 CIA] district court may not order arbitration if there is a substantial and bona fide dispute over whether there exists an agreement to arbitrate.” (citing § 27-5-115, MCA)). Thus, the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute. Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S. Ct. 3346, 3353 (1985); cf. Willems, ¶ 13 (‘When a district court is asked to compel arbitration of a dispute, the threshold inquiry is whether the parties agreed to arbitrate.”). When deciding whether the parties agreed to arbitrate a certain matter, courts generally should apply ordinary state-law principles that govern the formation of contracts. See First Options of Chicago v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 1924 (1995); Willems, ¶ 13 (‘Because arbitration is a matter of contract, the rules of contract apply.”); §28-3-102, MCA (“A contract is to be interpreted according to the law and usage of the place where it is to be performed . . ..”). Indeed, the MSA itself states that ‘tt]his Agreement (other than the Escrow Agreement) shall be governed by the laws of the relevant Settling State, without regard to the conflict of law rules of such Settling State.”

¶16 Under Montana law, the construction and interpretation of a contract is a question of law for the court to decide. Ophus v. Fritz, 2000 MT 251, ¶ 19, 301 Mont. 447, 11 P.3d 1192. “A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” Section 28-3-301, MCA. “When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone if possible ....” Section 28-3-303, MCA. ‘The whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, each clause helping to interpret the other.” Section 28-3-202, MCA. ‘The language of a contract is to govern its interpretation if the language is clear and explicit and does not involve an absurdity.” Section 28-3-401, MCA. “A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect if it can be done without violating the intention of the parties.” Section 28-3-201, MCA. Laws existing at the time a contract is formed become part of the contract. Earls v. Chase Bank of Texas, N.A., 2002 MT 249, ¶ 12, 312 Mont. 147, 59 P.3d 364. If the language of a contract is unambiguous-i.e., reasonably susceptible to only one construction-the *37court must apply the language as written. Mary J. Baker Revoc. Trust v. Cenex Harvest States, 2007 MT 159, ¶ 19, 338 Mont. 41, 164 P.3d 851.

¶17 Again, the MSA’s arbitration provision (§ XI(c)) provides, in relevant part, that

[a]ny dispute, controversy or claim arising out of or relating to calculations performed by, or any determinations made by, the Independent Auditor (including, without limitation, any dispute concerning the operation or application of any of the adjustments, reductions, offsets, carry-forwards and allocations described in subsection IX(j) or subsection XI(i)) shall be submitted to binding arbitration.

¶18 In applying this provision, we must first identify the parties’ “dispute, controversy or claim.” The PMs frame the dispute in rather broad and imprecise terms. Specifically, they assert that the parties’ dispute is over “the Auditor’s determination not to apply the 2003 NPM Adjustment.” As noted, the PMs lost the requisite percentage of market share in 2003, and an economic consulting firm determined that the disadvantages imposed by the MSA were a “significant factor” contributing to that loss. These facts triggered an NPM adjustment; however, the MSA states that a Settling State’s allocated payment “shall not” be subject to an NPM Adjustment if the Settling State continuously had a Qualifying Statute in full force and effect and diligently enforced the provisions of such statute. Yet, while the MSA provides comprehensive formulas for determining whether an NPM Adjustment is triggered, the MSA does not provide such formulas for evaluating “diligent enforcement” of a Qualifying Statute. Nor does it state what entity is responsible for conducting that evaluation. The Independent Auditor concluded that it was neither responsible nor qualified to determine diligent enforcement; and, for that matter, the parties did not suggest that the Independent Auditor should make this determination. Rather, the PMs argued that the Independent Auditor should presume that the Settling States had not diligently enforced Qualifying Statutes, while the Settling States argued in favor of the opposite presumption. The Independent Auditor ultimately adopted the Settling States’ approach and presumed diligent enforcement, and that is what the PMs dispute-i.e., the Independent Auditor’s decision to presume diligent enforcement rather than presume no diligent enforcement.

¶19 But that is not the dispute here. The State filed the instant action not to challenge any calculation, determination, or course of action actually performed, made, or chosen by the Independent Auditor. *38Rather, the State sought a declaration that Montana had, in fact, diligently enforced the provisions of §16-11-401 to -404, MCA, during 2003. Notably, the PMs have not alleged that Montana did not diligently enforce these statutes. In any event, the dispute in the present case, as framed in the State’s motion, is whether Montana diligently enforced a Qualifying Statute. We reject the PMs’ attempts to repackage the dispute in this case as something it clearly is not.

¶20 The second question is whether this dispute is one “arising out of or relating to calculations performed by, or any determinations made by, the Independent Auditor.” We agree with the State that it is not. The Independent Auditor neither “calculated” nor “determined” whether Montana diligently enforced a Qualifying Statute. Rather, the Independent Auditor simply presumed that Montana did so, and we cannot agree that this constitutes a “determination” as contemplated by the MSA. To “presume” is “to suppose to be true without proof.” Merriam-Webster’s Collegiate Dictionary 923 (10th ed., Merriam-Webster 1997). To “determine,” by contrast, involves something more affirmative, such as “to find out or come to a decision about by investigation, reasoning, or calculation.” Merriam-Webster’s Collegiate Dictionary 315. Here, the Independent Auditor refused to conduct any ‘investigation, reasoning, or calculation” regarding whether the Settling States had diligently enforced their Qualifying Statutes. In this connection, it is important to bear in mind that the Independent Auditor is defined in the MSA as “a major, nationally recognized, certified public accounting firm,” whose duties are to calculate and determine the amounts of payments, to collect all information necessary to make such calculations and determinations, and to allocate such payments. The PMs point to nothing in the MSA supporting their contention that the parties intended for the Independent Auditor to interpret statutes and evaluate whether the prosecutorial activities of the state attorneys general amount to “diligent enforcement” of those statutes. As the Independent Auditor itself stated, it is “not qualified” to make this determination.

¶21 We also agree with the State that the question of whether Montana diligently enforced a Qualifying Statute in 2003 does not “arise out of or relate to” any calculations or determinations that the Independent Auditor actually “performed” or “made.” To be sure, the State’s motion for declaratory order followed from the Independent Auditor’s finding that the PMs lost the requisite percentage of market share in 2003 and from the economists’ subsequent determination that the disadvantages imposed by the MSA were a significant factor contributing to that loss. But the State’s motion in no way “arises out *39of or relates to” the Independent Auditor’s market-share analysis. Indeed, that analysis has not been challenged. Rather, the State’s motion relates to an issue (diligent enforcement) that the Independent Auditor explicitly refused to determine, and it is clear from the language of the arbitration provision that the parties intended to arbitrate only those disputes which arise out of or relate to calculations or determinations that the Independent Auditor actually “performed” or "made.”

¶22 The PMs point to the parenthetical in the arbitration provision, emphasized here:

Any dispute, controversy or claim arising out of or relating to calculations performed by, or any determinations made by, the Independent Auditor (including, without limitation, any dispute concerning the operation or application of any of the adjustments, reductions, offsets, carry-forwards and allocations described in subsection IX(j) or subsection XI(i)) shall be submitted to binding arbitration.

The PMs contend that subsection IX(j) describes the NPM Adjustment and that the language of the parenthetical, therefore, mandates that all disputes “concerning” the “application” of an NPM Adjustment must be arbitrated.

¶23 Again, we disagree. As noted, “[t]he whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, each clause helping to interpret the other.” Section 28-3-202, MCA. Moreover, Twjhere there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.”Section 1-4-101, MCA. Reading the parenthetical as the PMs urge, such that any dispute concerning the application of an NPM Adjustment must be arbitrated, would effectively nullify the limiting words “calculations performed by, or any determinations made by” the Independent Auditor. When the arbitration provision is read as a whole, it is clear that the parties intended to arbitrate only those disputes which involve calculations performed or determinations made by the Independent Auditor. The situations identified in the parenthetical are not ‘in addition to” those which come before the parenthetical. Rather, the parenthetical, which begins with the word ‘including,” simply lists examples and affirms that any calculations or determinations actually performed or made by the Independent Auditor regarding “any of the adjustments, reductions, offsets, carry-forwards and allocations described in subsection IX(j)” are to be submitted to arbitration. In this regard, it is important to note that while subsection IX(j) does mention the NPM Adjustment, it makes no *40mention of “diligent enforcement” or the Settling States’ exemption from the NPM Adjustment.

¶24 The PMs also contend that arbitration is compelled by the MSA’s “single, unitary payment structure.” The PMs opine that if “payment-related disputes” are not resolved through “a single, nationwide arbitration” guided by “one clearly articulated set of rules,” the result will be “chaos.” Moreover, the PMs argue that because granting one Settling State an exception to the NPM Adjustment effectively reduces the payments to any Settling States which do not qualify for this exception (pursuant to the reallocation provision, see ¶ 5, supra), nationwide arbitration of the “diligent enforcement” issue for all Settling States is necessary so that each state can participate.

¶25 We are not persuaded. For one thing, our decision must be based on Montana law and the plain language of the arbitration provision, not on the PMs’ policy arguments. If the PMs intended for the “diligent enforcement” question to be arbitrated pursuant to “one clearly articulated set of rules” and with all Settling States present in one nationwide forum, the PMs certainly were capable of negotiating for this requirement in the MSA. As it is, no such language and no such rules appear in the MSA. Moreover, notwithstanding the PMs’ apparent concern that some Settling States might suffer reductions to their allocated payments, the fact remains that the question of whether Montana diligently enforced its Qualifying Statute does not depend, in any way, on what the other Settling States have or have not done. If Montana diligently enforced a Qualifying Statute, the NPM Adjustment does not apply to it; whether the other Settling States did the same is immaterial.

¶26 As for the PMs’ desire for “one clearly articulated set of rules,’’the PMs’ argument in this regard is undercut by the MSA’s Governing Law provision, which states that ‘ttjhis Agreement... shall be governed by the laws of the relevant Settling State, without regard to the conflict of law rules of such Settling State.” In executing the MSA, the PMs clearly agreed to the application of various state laws, with the possibility of differing outcomes on a single issue. In this connection, §VII(f) of the MSA states:

Coordination of Enforcement. The Attorneys General of the Settling States (through NAAG) shall monitor potential conflicting interpretations by courts of different States of this Agreement and the Consent Decrees. The Settling States shall use their best efforts, in cooperation with the Participating Manufacturers, to coordinate and resolve the effects of such conflicting interpretations as to matters that are not exclusively *41local in nature.

Given this provision, the PMs’ concerns about “chaos” and no uniformity of decisions are somewhat overstated. Indeed, even if, as the PMs argue, “one clearly articulated set of rules” is preferable for deciding the “diligent enforcement” issue, this fact does not lead inevitably to the conclusion that nationwide arbitration is “compelled.” Certainly the individual state courts are capable of applying uniform rules (should they be promulgated) in a consistent and evenhanded fashion to their respective Settling States.

¶27 Lastly, the PMs cite (in their briefs and in post-briefing notices of supplemental authority) a number of cases from other state courts, each of which concluded that the particular Settling State had agreed to arbitrate the issue of “diligent enforcement.” Of course, those decisions are not binding on this Court. Moreover, they are of limited persuasive value given that we are applying Montana law to the particular claims raised by the State in its motion for declaratory order. And, while many of the decisions cited by the PMs appear simply to be following suit with the earlier decisions of other state courts, our independent review of the relevant provisions of the MSA and our application of Montana’s well-settled principles of contract interpretation require us to conclude that the State of Montana did not agree to arbitrate the question of whether it diligently enforced a Qualifying Statute.

CONCLUSION

¶28 The District Court erred in granting the PMs’ motion to compel arbitration. We accordingly reverse the District Court’s order and remand this case for further proceedings consistent with this Opinion.

¶29 Reversed and remanded.