Pool v. Drivetime Car Sales

Annotate this Case

Download PDF

This memorandum opinion was not selected for publication in the New Mexico Appellate Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date. 1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO 2 MICHAEL A. POOL and 3 MICHELLE POOL, 4 Plaintiffs-Appellees, 5 v. NO. 33,894 6 DRIVETIME CAR SALES COMPANY, LLC, 7 d/b/a DRIVETIME, and JEREMY MENDOZA, 8 Defendants-Appellants. 9 APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY 10 Valerie A. Huling, District Judge 11 Treinen Law Office PC 12 Rob Treinen 13 Albuquerque, NM 14 Public Justice PC 15 Jennifer Dale Bennett 16 Oakland, CA 17 for Appellees 18 Quintairos, Prieto, Wood & Boyer, P.A. 19 Frank Alvarez 1 Christina Gratke Nason 2 Dallas, TX 3 Ballard Spahr LLP 4 Mark J. Levin 5 Philadelphia, PA 6 for Appellants 7 MEMORANDUM OPINION 8 WECHSLER, Judge. 9 {1} Plaintiffs Michael A. and Michelle Pool purchased a used vehicle from 10 Defendants DriveTime Car Sales Company (DriveTime) and its employee Jeremy 11 Mendoza. The sales contract between the parties contained an arbitration agreement 12 that allowed either party to refer a wide array of claims arising from the transaction 13 to binding arbitration. At trial, the district court found the arbitration agreement to be 14 substantively unconscionable and unenforceable under New Mexico law. On appeal, 15 Defendants argue that (1) the arbitration agreement is not substantively 16 unconscionable under New Mexico law and (2) the district court’s order is preempted 17 by the Federal Arbitration Act (FAA). We hold that the terms of the arbitration 18 agreement result in one-sided carve-out provisions for self-help and small claims 19 remedies that have previously been declared to be substantively unconscionable by 2 1 this Court. Because the agreement is substantively unconscionable under New Mexico 2 law, the district court’s order is not preempted by the FAA. We affirm. 3 BACKGROUND 4 {2} In the summer of 2013, Plaintiffs were shopping for a used vehicle for their son. 5 During that process they visited DriveTime’s Albuquerque, New Mexico location and 6 were assisted by a salesperson named Jeremy Mendoza. Mendoza allegedly informed 7 Plaintiffs that the 2005 Dodge Durango being considered by Plaintiffs had never been 8 in an accident and provided an AutoCheck report indicating the same. On July 1, 9 2013, Plaintiffs entered into a simple interest retail installment contract with 10 Defendants for the purchase of the vehicle. The contract was presented to Plaintiffs 11 in two parts. The first part, entitled “Simple Interest Retail Installment Contract,” 12 included the financial terms of the sale and additional language governing the 13 purchase of the vehicle. The second part, entitled “Arbitration Agreement,” included 14 terms under which Plaintiffs waived the right to a civil trial under certain 15 circumstances. The arbitration agreement was expressly incorporated into the contract 16 and vice versa. 17 {3} The arbitration agreement itself contains a clause that states, in relevant part, 3 1 2 3 Unless you reject this Agreement, this Agreement provides that upon your or our election, all disputes between you and us will be resolved by BINDING ARBITRATION. 4 5 6 If you or we elect arbitration, you will be GIVING UP YOUR RIGHT TO GO TO COURT to assert or defend your rights under the Contract (except for individual claims that may be taken to small claims court). 7 8 Your rights will be determined by a NEUTRAL ARBITRATOR AND NOT by a JUDGE OR JURY. 9 The arbitration agreement goes on to provide that a “[c]laim may be arbitrated instead 10 of litigated in court” and to define “claim” as, 11 12 any claim, dispute or controversy between you and us arising from or related to one or more of the following: 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 (a) The Contract. (b) The vehicle or the sale of the vehicle. (c) The provision or sale of any goods and services like warranties, insurance and extended service contracts covered by the Contract or related to the vehicle. (d) The relationships resulting from the Contract. (e) Advertisements, promotions or oral or written statements related to the Contract. (f) The financing terms. (g) Your credit application. (h) The origination and servicing of the Contract. (i) The collection of amounts you owe us. (j) Any repossession, or replevin, of the vehicle. (k) Your personal information[.] (l) The rescission or termination of the Contract. 28 Despite these broad pronouncements, the arbitration agreement then exempts certain 29 “claims” from arbitration, stating, 4 1 2 3 4 5 6 7 8 9 10 11 [N]otwithstanding any language in this Agreement to the contrary, the term “Claim” does not include (i) any self-help remedy, such as repossession or sale of any collateral given by you to us as security for repayment of amounts owed by you under the Contract; or (ii) any individual action in court by one party that is limited to preventing the other party from using such self-help remedy and that does not involve a request for damages or monetary relief of any kind. Also, we will not require arbitration of any individual Claim you make in small claims court or your state’s equivalent court, if any. If, however, you or we transfer or appeal the Claim to a different court, we reserve our right to elect arbitration. 12 The arbitration agreement additionally provides that (1) the consumer may choose 13 either JAMS or the American Arbitration Association (AAA) to administer any 14 arbitration between the parties, (2) conflicts between the arbitration agreement and the 15 arbitration administrator’s rules will be governed by the agreement, and (3) the FAA 16 governs the arbitration agreement. 17 {4} On December 11, 2013, Plaintiffs filed this lawsuit against Defendants for fraud 18 and violations of the New Mexico Unfair Practices Act based upon allegations that 19 Defendants knowingly misrepresented the vehicle history and omitted information 20 related to a previous accident and repairs. The complaint also requested relief in the 21 form of a declaratory judgment, holding that the arbitration agreement was 22 unenforceable as a matter of New Mexico law. 23 {5} In addition to their answer, Defendants filed a motion to compel arbitration as 24 provided in the contract. Following a hearing on May 8, 2014, the district court denied 5 1 the motion based upon a finding that the arbitration scheme is substantively 2 unconscionable as a matter of law. This appeal resulted. 3 STANDARD OF REVIEW 4 {6} Our appellate courts apply de novo review to both the denial of a motion to 5 compel arbitration and the issue of unconscionability of a contract. Cordova v. World 6 Fin. Corp. of N.M., 2009-NMSC-021, ¶ 11, 146 N.M. 256, 208 P.3d 901. We also 7 review statutory interpretation, including interpretation of the FAA, de novo. 8 Strausberg v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, ¶ 25, 304 P.3d 9 409. 10 APPLICATION OF THE DOCTRINE OF UNCONSCIONABILITY TO 11 ARBITRATION AGREEMENTS IN NEW MEXICO 12 {7} As recently as December 2014, this Court spoke to the specific application of 13 the doctrine of unconscionability to arbitration agreements contained within used 14 automobile sales and financing contracts. Dalton v. Santander Consumer USA, Inc., 15 2015-NMCA-030, ¶¶ 2-3, 345 P.3d 1086, cert. granted, 2015-NMCERT-003, 346 16 P.3d 1163. While the instant case presents different contractual language, we are 17 guided by this Court’s application of the doctrine of unconscionability to the 18 arbitration agreement at issue in Dalton. 6 1 Unconscionability Analysis in Dalton 2 {8} In New Mexico, unfairly one-sided carve-out provisions in arbitration 3 agreements are substantively unconscionable. Id. ¶ 7; see Rivera v. Am. Gen. Fin. 4 Servs., Inc., 2011-NMSC-033, ¶ 46, 150 N.M. 398, 259 P.3d 803 (“Contract 5 provisions that unreasonably benefit one party over another are substantively 6 unconscionable.” (internal quotation marks and citation omitted)). In Dalton, this 7 Court applied this general rule, holding that the arbitration agreement at issue was 8 substantively unconscionable when “the practical effect of the carve-out provisions 9 is to mandate arbitration of [the p]laintiff’s most important and most likely claims 10 while exempting from arbitration [the d]efendant’s most important judicial and non11 judicial remedies.” 2015-NMCA-030, ¶ 2. 12 {9} The contractual language invoking this analysis in Dalton expressly allowed 13 both parties to have claims within the jurisdiction of small claims court heard in that 14 forum, a facially bilateral exclusion. Id. ¶ 3 (“You and we retain the right to seek 15 remedies in small claims court for disputes or claims within that court’s 16 jurisdiction[.]” (internal quotation marks and citation omitted)). However, when 17 combined with the arbitration agreement’s carve-out for self-help repossession, the 18 practical effect of the small claims exclusion was to exempt from arbitration the most 19 likely lender claims, including judicial foreclosure, award of deficiency judgments, 7 1 and wage garnishment, while subjecting the most likely consumer claims, including 2 fraud, misrepresentation, and violations of consumer protection statutes, to arbitration. 3 Id. ¶¶ 16-18. 4 Application of the Dalton Unconscionability Analysis 5 {10} The language of the arbitration agreement in the instant case varies from that 6 in Dalton in two distinct ways. We review these distinctions in turn. 7 A. The Self-Help and Small Claims Exclusions 8 As in Dalton, the arbitration agreement at issue in the present case excludes {11} 9 self-help remedies, including repossession and sale of the vehicle, from the set of 10 claims subject to arbitration. Id. ¶ 3. Unlike in Dalton, the arbitration agreement at 11 issue in the present case does not expressly reserve access to small claims court for 12 both parties. Instead, the language of the arbitration agreement states, “we will not 13 require arbitration of any individual [c]laim you make in small claims court[.]” 14 (Emphasis added.) This language appears facially neutral or even, as argued by 15 Defendants, appears to favor Plaintiff in this case. 16 {12} However, our case law requires that we look beyond just the contractual 17 language and seek, instead, the practical effect of the arbitration agreement. See 18 Rivera, 2011-NMSC-033, ¶ 45 (“Substantive unconscionability concerns the legality 8 1 and fairness of the contract terms themselves, and the analysis focuses on such issues 2 as whether the contract terms are commercially reasonable and fair, the purpose and 3 effect of the terms, the one-sidedness of the terms, and other similar public policy 4 concerns.” (emphasis added) (internal quotation marks and citation omitted)). 5 {13} Since the arbitration agreement only expressly carves out access to small claims 6 court for the consumer, DriveTime’s claims—even those within the jurisdiction of a 7 small claims court—are “claims” subject to arbitration under the arbitration 8 agreement. In fact, in their appellate briefing, Defendants stated that the small claims 9 carve-out “benefits Plaintiffs exclusively, since DriveTime has essentially waived its 10 own right . . . to bring claims against Plaintiffs in small claims court.” 11 {14} For various reasons, we are unpersuaded that DriveTime’s small claims must 12 be arbitrated. First, when we read the contract as a whole, other language creates 13 confusion as to whether DriveTime must bring its small claims in arbitration. 14 Nearburg v. Yates Petroleum Corp., 1997-NMCA-069, ¶ 28, 123 N.M. 526, 943 P.2d 15 560 (“In interpreting a contract, the court must consider the contract as a whole and 16 give significance to each part.”). The arbitration agreement provides that the consumer 17 must choose either JAMS or AAA as the arbitration administrator. Consumer 18 arbitrations conducted by JAMS and AAA are subject to internal rules and protocol 9 1 determined by each company. See JAMS, JAMS Policy on Consumer Arbitrations 2 Pursuant to Pre-Dispute Clauses Minimum Standards of Procedural 3 F a i r n e s s ( J u l y 1 5 , 2 0 0 9 ) , 4 http://www.jamsadr.com/files/Uploads/Documents/JAMS-Rules/JAMS_Consumer 5 _Min_Stds-2009.pdf (JAMS Consumer Arbitration Rules); American Arbitration 6 Association, Consumer Arbitration Rules (Sept. 1, 2014), 7 https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTAGE2021425&rev 8 ision=latestreleased (AAA Consumer Arbitration Rules). Both the JAMS and AAA 9 consumer arbitration rules state that reciprocity of access to small claims court is a 10 necessary condition for either entity to administer consumer arbitration. See JAMS 11 Consumer Arbitration Rules, supra, at 2; AAA Consumer Arbitration Rules, supra, at 12 15. Defendants argue that in the case of “conflict or inconsistency between the 13 administrator’s rules and this Agreement, this Agreement governs.” However, both 14 JAMS and AAA require that amendments to their rules must be in writing and 15 submitted by both parties. See JAMS, JAMS Streamlined Arbitration Rules & 16 P r o c e d u r e s , supra, at 6 (July 1, 2014), 17 http://www.jamsadr.com/files/Uploads/Documents/JAMS-Rules/JAMS_streamline 18 d_arbitration_rules-2014.pdf; AAA Consumer Arbitration Rules, supra, at 10. No 10 1 indication exists that Plaintiffs would acquiesce to amend the consumer arbitration 2 rules under the circumstances. Without such an amendment, it appears that JAMS and 3 AAA would be unavailable to arbitrate. While the arbitration agreement contemplates 4 the unavailability of both JAMS and AAA by empowering a court to choose a 5 substitute administrator, it is unclear that any arbitration entity would serve as an 6 administrator absent a term requiring reciprocal access to small claims court. This 7 issue has not been briefed, and we assume that DriveTime would rather accept the 8 default rules than have this Court undertake to determine whether JAMS and AAA 9 constitute integral, but unavailable, providers under the circumstances. See Rivera, 10 2011-NMSC-033, ¶ 56 (holding that courts will not undertake a “wholesale revision 11 of the arbitration clause” for the purpose of replacing an integral but unavailable 12 designated arbitrator (internal quotation marks and citation omitted)); id. ¶ 28 (citing 13 QuickClick Loans, LLC v. Russell, 943 N.E.2d 166, 174 (Ill. App. Ct. 2011), which 14 held “unenforceable an arbitration agreement that specified arbitration before one of 15 two arbitration providers, both of which were unavailable”). 16 {15} Second, both the arbitration agreement itself and Defendants’ commentary 17 during oral argument before this Court acknowledge a crucial truth: an arbitration 18 agreement does not prevent a plaintiff from filing the plaintiff’s claims in a forum of 19 the plaintiff’s choosing. See Daniels Ins. Agency, Inc. v. Jordan, 1982-NMSC-148, 11 1 ¶ 5, 99 N.M. 297, 657 P.2d 624 (“A valid arbitration defense does not divest the court 2 of jurisdiction[.]”). Instead, an arbitration agreement empowers a defendant to compel 3 a plaintiff to abandon the plaintiff’s preferred forum in favor of arbitration. This 4 distinction was clarified during oral argument before this Court. 5 6 7 Defendants’ Attorney: If DriveTime sues in small claims court [Plaintiffs] can move to compel arbitration. So, DriveTime is not[.] 8 The Court: Now would DriveTime sue in small claims court? 9 Defendants’ Attorney: Well, if it did. If it did. 10 11 12 The Court: Let me ask you this question . . . suppose DriveTime has a deficiency that’s under $10,000. What’s the process[?] 13 .... 14 15 16 17 Defendants’ Attorney: If there’s a deficiency judgment, if it went to court, I’m not saying they can’t go to court, but if they did go to court . . . to small claims court, . . . Plaintiffs could compel arbitration. 18 19 The Court: If who went to small claims court? Ok, so if DriveTime filed in small claims court? 20 Defendants’ Attorney: Yes[.] 21 These comments contradict Defendants’ briefing to this Court, which implies that 22 DriveTime’s small claims are subject to arbitration and may not be brought in small 23 claims court. That DriveTime does in fact retain its right to bring claims in small 12 1 claims court is not a meaningless distinction with respect to the practical effect of the 2 arbitration agreement. 3 {16} As in Dalton, the practical effect of the arbitration agreement at issue is to 4 exempt Defendants from arbitration for their most likely claims, while providing 5 Defendants the option to compel arbitration for Plaintiffs’ most likely claims. 20156 NMCA-030, ¶¶ 16-18; see also Cordova, 2009-NMSC-021, ¶ 26 (stating that cases 7 of default are the most likely reason that lenders take legal action against their 8 borrowers). The arbitration agreement exempts statutory self-help remedies, including 9 repossession and commercially reasonable sale of the vehicle. See NMSA 1978, § 5510 9-609 (2001); NMSA 1978, § 55-9-610(a) (2001). After sale, DriveTime can seek a 11 judgment in magistrate court for any deficiency, up to $10,000, between the contract 12 price of the vehicle and the amount recovered at sale. See NMSA 1978, § 35-3-3(A) 13 (2001). If self-help repossession is impracticable or impossible under the 14 circumstances, DriveTime can, at the point when the market value of the vehicle falls 15 below $10,000, file for judicial foreclosure or replevin of the vehicle in magistrate 16 court. See NMSA 1978, § 35-11-1 (1975). 17 {17} Plaintiffs, under the arbitration agreement at issue, may compel arbitration of 18 any of these small claims brought by DriveTime. That right would not, however, have 19 the practical effect of DriveTime actually being required to arbitrate its small claims. 13 1 {18} A cost-benefit analysis shows that Plaintiffs would gain nothing by compelling 2 arbitration of DriveTime’s most likely claims against them. The purpose of arbitration 3 is to promote judicial efficiency and to conserve the resources of the parties involved. 4 Clay v. N.M. Title Loans, Inc., 2012-NMCA-102, ¶ 6, 288 P.3d 888. These purposes 5 are achieved, largely, by limiting both discovery and the application of the Rules of 6 Civil Procedure. See United Nuclear Corp. v. Gen. Atomic Co., 1979-NMSC-036, 7 ¶ 48, 93 N.M. 105, 597 P.2d 290 (“In most cases, discovery in arbitration is limited 8 to the discovery available under the Arbitration Act itself.”); see also Medina v. 9 Found. Reserve Ins. Co., 1997-NMSC-027, ¶ 10, 123 N.M. 380, 940 P.2d 1175 10 (“Arbitration is a special statutory proceeding which requires application of 11 procedural rules that may conflict with the more general [R]ules of [C]ivil [P]rocedure 12 in order to accomplish the purpose behind the Act.”). With respect to any claims 13 DriveTime would bring against Plaintiffs in small claims court, the savings in time 14 and money realized by Plaintiffs as a result of compelling arbitration would be 15 minimal. There is simply a limited need for discovery in defending against a claim for 16 a deficiency judgment. However, from a cost perspective, a decision by Plaintiffs to 17 compel arbitration would make Plaintiffs responsible for payment of the arbitration 18 filing fee, whereas remaining in small claims court as a defendant costs Plaintiffs 19 nothing. Compare NMSA 1978, § 35-6-1(B) (2011) (providing that no costs or fees 14 1 are paid by civil defendants), with AAA Consumer Arbitration Rules, supra, at 33 2 (requiring a $200 filing fee), and JAMS Consumer Arbitration Rules, supra, at 2 3 (requiring a $250 filing fee). Any assertion by Defendants that Plaintiffs would be 4 likely to compel arbitration of small claims against them stretches credulity.1 5 {19} Because no legitimate reason exists for Plaintiffs to compel arbitration of small 6 claims against them, the practical effect of the self-help and small claims exclusions 7 in the arbitration agreement at issue are precisely the same as in Dalton, despite 8 differences in the contractual language. 9 B. 10 {20} The Injunctive Relief Exclusion The second distinguishing characteristic between the arbitration agreements in 11 this case and in Dalton is the presence of an additional opportunity for each party to 12 seek injunctive relief with respect to self-help remedies. Since only consumers would 13 avail themselves of this right, its presence weighs, to a degree, against a finding that 13 14 15 16 17 18 19 20 21 22 1 The Consumer Financial Protection Bureau’s Arbitration Study Report to Congress outlines the disparity between the initiation of pre-arbitration dispute resolution in small claims courts by lenders and consumers in the context of credit card account disputes. While not directly analogous, the report indicates that, in New Mexico, less than one half of one percent of small claims suits are initiated by consumers. Consumer Financial Protection Bureau, Arbitration Study, § 7, supra, at 11;App. E, supra, at 156 (March 2015), http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congre ss-2015.pdf (revealing that, in 2012, 421 of 423 small claims between credit card issuers and consumers were filed by the issuers). 15 1 the arbitration agreement is unconscionably one-sided. However, after consideration 2 of the practical effects of this provision, we observe that it provides only limited 3 protection to consumers in the context of used automobile sales and finance contracts. 4 {21} With respect to a consumer’s ability to enjoin the sale of a repossessed vehicle, 5 “[i]njunctions are harsh and drastic remedies that should issue only in extreme cases 6 of pressing necessity and only where there is a showing of irreparable injury[.]” 7 Leonard v. Payday Prof’l/Bio-Cal Comp., 2008-NMCA-034, ¶ 14, 143 N.M. 637, 179 8 P.3d 1245 (alterations, internal quotation marks, and citation omitted). While 9 injunctive relief is contemplated in Article 9 of the Uniform Commercial Code (UCC), 10 such relief would only be available in instances in which a secured creditor has 11 repossessed a vehicle in violation of the UCC. See NMSA 1978, § 55-9-625(a) (2001) 12 (“If it is established that a secured party is not proceeding in accordance with Chapter 13 55, Article 9 NMSA 1978, a court may order or restrain collection, enforcement or 14 disposition of collateral on appropriate terms and conditions.”). We trust that it would 15 be the rare consumer who would obtain injunctive relief to prevent the resale of a 16 vehicle repossessed in violation of New Mexico law. 17 {22} The same rationale applies to a consumer’s ability to enjoin repossession of a 18 vehicle by a secured creditor. First, injunctive relief prior to repossession is an 19 unlikely option for a defaulted consumer given that repossession by a secured creditor 16 1 requires no notice. See § 55-9-609(a)(1), (b)(2) (“After default, a secured 2 party . . . may take possession of the collateral . . . without judicial process, if it 3 proceeds without breach of the peace.”). But additionally, and more importantly, a 4 grant of injunctive relief in this context would imply that the creditor has violated 5 Section 55-9-609 by attempting to take possession prior to default. We decline to 6 conclude that a consumer is significantly benefitted by contract provisions that 7 provide access to judicial relief largely in order to prevent or remedy the wrongful acts 8 of the other party.2 9 {23} Finally, a question arises as to whether consumers should or would avail 10 themselves of injunctive relief in the case of wrongful repossession and/or sale given 11 the inability under the contract to bring claims for damages associated with the 12 wrongful act. The arbitration agreement provides the option for injunctive relief but 13 prohibits “a request for damages or monetary relief of any kind.” A wrongful 14 repossession or sale of Plaintiffs’ vehicle would subject DriveTime to civil liability. 15 See Muncey v. Eyeglass World, LLC, 2012-NMCA-120, ¶ 22, 289 P.3d 1255 (defining 16 the tort of conversion as “the unlawful exercise of dominion and control over personal 2 17 In their brief in chief, Defendants argue that “if [we] attempt[] to repossess or 18 sell the loan collateral through self-help, Plaintiffs can go to court to try to prevent 19 [us] from repossessing or selling the collateral.” Success in this endeavor by Plaintiffs 20 implies that the vehicle was to be improperly repossessed or sold. 17 1 property belonging to another in exclusion or defiance of the owner’s rights” (internal 2 quotation marks and citation omitted)). However, our case law makes clear that if 3 Plaintiffs successfully enjoined a wrongful repossession or sale of their vehicle, they 4 would forgo any claim for damages arising from the same transaction. See Three 5 Rivers Land Co. v. Maddoux, 1982-NMSC-111, ¶ 29, 98 N.M. 690, 652 P.2d 240 6 (holding that, under the doctrine of res judicata, a judgment granting or denying 7 equitable relief precludes a subsequent claim for damages at law arising from the same 8 transaction), overruled on other grounds by Universal Life Church v. Coxon, 19869 NMSC-086, 105 N.M. 57, 728 P.2d 467. We decline to conclude that consumers are 10 significantly benefitted by contract provisions that, when enforced, result in those 11 consumers forgoing the opportunity to brings claims for damages at law. 12 The Practical Effect of the Exclusions 13 {24} When the practical effect of an ostensibly bilateral exemption clause is to 14 unreasonably favor one party over the other, that clause cannot stand. See Figueroa 15 v. THI of N.M. at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶¶ 33-35, 306 P.3d 480 16 (invalidating a clause that exempted guardianship proceedings, collections 17 proceedings, and eviction actions); Ruppelt v. Laurel Healthcare Providers, LLC, 18 2013-NMCA-014, ¶¶ 10-18, 293 P.3d 902 (invalidating a clause that exempted 19 collections proceedings and discharge actions). Despite adding provisions that 18 1 nominally favor consumers to this arbitration agreement, the practical effect mandates 2 arbitration of Plaintiff’s “most important and most likely claims while exempting from 3 arbitration” Defendant’s “most important judicial and non-judicial remedies.” Dalton, 4 2015-NMCA-030, ¶ 2. As a result, the arbitration agreement is impermissibly one5 sided and substantively unconscionable as a matter of New Mexico law. 6 PREEMPTION AND SEVERABILITY 7 {25} “[O]ur Supreme Court has consistently upheld the application of our generally 8 applicable unconscionability doctrine to one-sided arbitration agreements.” Id. ¶ 29; 9 see Strausberg, 2013-NMSC-032, ¶ 49 (“[A] court may, consistent with the 10 FAA . . . invalidate an arbitration agreement through the application of an existing 11 common law contract defense such as unconscionability.”). Because our Supreme 12 Court has specifically rejected the argument that application of the doctrine of 13 unconscionability to “a carve-out exempting Article 9 rights is somehow inconsistent 14 with the FAA[,]” FAA preemption is inapplicable in this case. Dalton, 2015-NMCA15 030, ¶ 30 (citing Rivera, 2011-NMSC-033, ¶¶ 50-52). “[T]he exemptions of certain 16 claims from arbitration are so central to the agreement that they are incapable of 17 separation from the agreement to arbitrate[.]” Figueroa, 2013-NMCA-077, ¶ 39. As 18 such, the only appropriate action by this Court under the circumstances is to strike the 19 arbitration clause from the contract in its entirety. 19 1 CONCLUSION 2 {26} In their briefing, Plaintiffs raised additional potentially meritorious objections 3 to the substance of the arbitration agreement. These objections relate to the inclusion 4 of clauses limiting damages available in arbitration and mandating confidentiality with 5 respect to the outcome of any arbitration. Because our holding is supported by existing 6 appellate case law, we refrain from deciding those issues pending the outcome of 7 Dalton on certiorari to our Supreme Court. Affirmed. 8 {27} IT IS SO ORDERED. 9 10 ________________________________ JAMES J. WECHSLER, Judge 11 WE CONCUR: 12 ________________________________ 13 JONATHAN B. SUTIN, Judge 14 ________________________________ 15 LINDA M. VANZI, Judge 20

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.