Peavy v. Skilled Healthcare Group, Inc.
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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 Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions.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 3 4 5 BEVERLY PEAVY, Deceased, by THE PERSONAL REPRESENTATIVE OF THE WRONGFUL DEATH ESTATE, KEITH PEAVY, 6 Plaintiff-Appellee, 7 v. 8 9 10 11 12 13 No. A-1-CA-35494 SKILLED HEALTHCARE GROUP, INC., SKILLED HEALTHCARE, LLC, THE REHABILITATION CENTER OF ALBUQUERQUE, LLC, and PATRICIA WALKER, LPN, Defendants-Appellants. 14 APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY 15 Denise Barela Shepherd, District Judge 16 Feliz A. Real 17 Albuquerque, NM 18 Pitman, Kalkhoff, Sicula & Dentice 19 Jeffrey A. Pitman 20 Milwaukee, WI 21 for Appellee 22 23 24 25 Rodey, Dickason, Sloan, Akin & Robb, P.A. Sandra Beerle Jocelyn Drennan Albuquerque, NM 1 for Appellants 2 MEMORANDUM OPINION 3 VANZI, Chief Judge. 4 {1} Defendants appeal the district court’s denial of their motion to compel 5 arbitration. After an evidentiary hearing, the district court concluded that the 6 arbitration agreement at issue was substantively unconscionable and therefore 7 unenforceable and invalid. We agree with the district court’s ruling that the 8 arbitration agreement is substantively unconscionable and affirm. We also affirm 9 the district court’s subsequent denial of Defendants’ motion for summary judgment 10 on federal preemption grounds. 11 BACKGROUND 12 {2} Beverly Peavy, a resident of the Rehabilitation Center of Albuquerque (the 13 Facility), designated her son, Keith Peavy (Plaintiff), as her durable power of 14 attorney for health care. After she was readmitted to the Facility in October 2008, 15 Plaintiff signed a seventy-eight page admission agreement with the Facility on his 16 mother’s behalf. The admission agreement included an arbitration agreement, the 17 relevant provisions of which we briefly set out. The agreement provided that any 18 dispute between the parties would be resolved by arbitration. The agreement 19 defined “dispute” as “any and all disputes associated with this [a]rbitration 2 1 [a]greement and the relationship created by the [a]dmission [a]greement and/or the 2 provision of services under the [a]dmission [a]greement (including, without 3 limitation, . . . claims for negligent care or any other claims of inadequate care 4 provide[d] by the Facility; claims against the Facility . . .)[.]” However, the 5 agreement excepted from arbitration “any disputes pertaining to collections or 6 discharge of residents.” 7 {3} Ms. Peavy died in April 2010. Plaintiff, as personal representative of his 8 mother’s wrongful death estate, filed suit against Skilled Healthcare Group, Inc.; 9 Skilled Healthcare LLC; The Rehabilitation Center of Albuquerque, LLC; and 10 Patricia Walker, LPN (collectively, Defendants). The complaint alleged wrongful 11 death, negligence, negligent or intentional misrepresentation, unfair trade practices, 12 and sought punitive damages, all of which allegedly arose out of Ms. Peavy’s care 13 at the Facility. Pursuant to NMSA 1978, Section 44-7A-8(a)(2) (2001) of the 14 Uniform Arbitration Act, NMSA 1978, §§ 44-7A-1 to -32 (2001), Defendants filed 15 a motion to dismiss and/or stay litigation and to compel arbitration based on the 16 admission agreement and the arbitration agreement. In reply to Plaintiff’s argument 17 that the arbitration agreement was unconscionable because it contained an unfairly 18 one-sided exception for collections actions and pursuant to our decision in 19 Bargman v. Skilled Healthcare Group, Inc., 2013-NMCA-006, 292 P.3d 1, 20 Defendants requested an opportunity to show that the discharge and collections 3 1 exceptions did not make the arbitration agreement “unfairly and unreasonably one2 sided.” The district court granted Defendants’ request and held an evidentiary 3 hearing after which it entered extensive findings of fact and conclusions of law. 4 Based on the evidence presented, the court concluded that the arbitration 5 agreement was substantively unconscionable and denied Defendants’ motion. 6 {4} Several witnesses testified at the hearing. With regard to the substantive 7 unconscionability claim, the district court relied primarily on the testimony of the 8 Facility’s administrator, Kathy Correa. The court’s unchallenged findings are as 9 follows. As the administrator, Ms. Correa is responsible for the supervision of 10 accounts receivable and collections owed by residents for services rendered. She 11 testified that the Facility’s accounts receivable typically range from $1 to $10,000 12 for each patient. The Facility has a collections policy that provides, in relevant 13 part: 14 15 16 17 18 19 20 21 22 23 24 25 It is the responsibility of each facility to ensure timely and effective collections measures. . . . Once a private balance meets the criteria for Collections, a team of dedicated collectors in the Collection Agency will assume full responsibility for sustaining aggressive collective efforts through resolution of the account. . . . Private accounts will be placed with a collection agency for collection when all the following criteria are met: Resident has been discharged for at least 60 days; private account balance is greater than $100; and no private payment has been made within 60 days. . . . Exceptions: In the situation of estate claims, the [F]acility will file a claim with the probate court within the allowable time frame. The [F]acility may opt to take an account to small claims if assets are available[.] 4 1 {5} After the Facility has exhausted all internal efforts to collect a payment, the 2 account receivable is deemed uncollectible, and it is the Facility’s “policy and 3 practice to write off the account as a bad debt and to refer it to a consultant for 4 possible placement with a collection agency.” Notwithstanding the above policy or 5 that the Facility has the option to sue a resident or her agent for an unpaid bill, 6 “neither [the Facility] nor any collection agency [acting on its] behalf has ever filed 7 a lawsuit for collection in district court, probate court, metropolitan court or 8 otherwise.” According to Ms. Correa, it would not be practical or cost effective for 9 the Facility to hire an attorney to pursue a lawsuit or arbitrate claims under 10 $10,000, particularly if it was required to arbitrate due to the costs associated with 11 arbitration, namely the arbitrators’ fees. The Facility appears to have offered no 12 independent evidence to support this contention. 13 {6} Based on Ms. Correa’s testimony, as well as its review of the relevant 14 provisions of the admission agreement, arbitration agreement, and collections 15 policy, the district court reached the following conclusions. First, the court 16 concluded that the arbitration provision “at issue herein is facially bilateral as it 17 allows both the nursing home and nursing home residents to take to court ‘disputes 18 pertaining to collections or discharge of residents.’ ” The court nevertheless 19 concluded that, although Defendants were afforded the opportunity to provide 20 evidence to factually rebut that it is not unfair or unreasonable to except such 5 1 claims from arbitration, “[t]he evidence presented by Defendants as to the 2 application of the [a]rbitration provision failed to rebut that the practical effect of 3 the [a]greement unreasonably favors . . . Defendants.” The district court elaborated 4 on its reasoning, stating that “[w]hile ostensibly bilateral on its face, this 5 [a]rbitration [a]greement provision is substantively unconscionable since it 6 mandates arbitration of Plaintiff’s most important and most likely claims while 7 exempting from arbitration the claims most likely to be brought by . . . Defendants 8 and, as such, is unfair and unreasonably one-sided.” Consequently, the arbitration 9 agreement was unenforceable and invalid. 10 {7} Defendants subsequently filed a motion to amend the district court’s 11 findings and conclusions and to “alter” its substantive unconscionability 12 determination. Defendants argued that the district court erred in relying on Ruppelt 13 v. Laurel Healthcare Providers, LLC, 2013-NMCA-014, 293 P.3d 902, as outcome 14 determinative and that it failed to follow the Bargman case-by-case analytical 15 approach. Defendants also filed a motion for summary judgment based on a recent 16 Tenth Circuit holding that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 17 (2012), “preempts the type of substantive unconscionability challenge that Plaintiff 18 made to the [a]rbitration [a]greement in this case—i.e., one that is based on state 19 law which views arbitration as providing an inferior means of dispute resolution.” 20 The district court denied both motions. This appeal followed. 6 1 DISCUSSION 2 {8} On appeal, Defendants make two arguments. First, Defendants argue that the 3 district court erred by failing to apply the substantive unconscionability analysis set 4 forth in Bargman and finding the collections exception unconscionable. Second, 5 Defendants argue that the district court erred by failing to follow recent Tenth 6 Circuit case law holding that the FAA preempts New Mexico’s substantive 7 unconscionability doctrine. 8 Standard of Review 9 {9} A district court’s denial of a motion to compel arbitration is subject to de 10 novo review. Cordova v. World Fin. Corp. of N.M., 2009-NMSC-021, ¶ 11, 146 11 N.M. 256, 208 P.3d 901. Whether an arbitration agreement is unconscionable also 12 presents a question of law subject to de novo review. Id. And we interpret statutes, 13 such as the FAA, de novo as well. Strausberg v. Laurel Healthcare Providers, 14 LLC, 2013-NMSC-032, ¶ 25, 304 P.3d 409. Neither Plaintiff nor Defendants 15 challenge the district court’s findings of fact, and consequently, we accept them as 16 true. See Seipert v. Johnson, 2003-NMCA-119, ¶ 26, 134 N.M. 394, 77 P.3d 298 17 (“An unchallenged finding of the trial court is binding on appeal.”). 18 The Arbitration Agreement Is Substantively Unconscionable 19 {10} A contract is unenforceable if a court determines it is procedurally or 20 substantively unconscionable or a combination of the two. Rivera v. Am. Gen. Fin. 7 1 Servs., Inc., 2011-NMSC-033, ¶ 47, 150 N.M. 398, 259 P.3d 803. “Substantive 2 unconscionability concerns the legality and fairness of the contract terms 3 themselves.” Cordova, 2009-NMSC-021, ¶ 22. When analyzing a contract for 4 substantive unconscionability, our courts consider “whether the contract terms are 5 commercially reasonable and fair, the purpose and effect of the terms, the one6 sidedness of the terms, and other similar public policy concerns.” Id. A court may 7 render a contract or contract provision unenforceable if it is “unreasonably 8 favorable to one party while precluding a meaningful choice of the other party.” Id. 9 ¶ 21. 10 {11} Our Court has addressed the substantive unconscionability of this exact 11 arbitration agreement on at least two prior occasions. See Bargman, 2013-NMCA12 006, ¶¶ 1, 4; Ruppelt, 2013-NMCA-014, ¶¶ 1, 3; see also Figueroa v. THI of N.M. 13 at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶ 28, 306 P.3d 480 (determining 14 that a similar arbitration clause, which contained exclusions for guardianship 15 actions and small claims, was substantively unconscionable). In Ruppelt, we 16 determined that, although the collections exception at issue may facially have 17 appeared to apply evenhandedly, the “practical effect” of the ostensibly bilateral 18 clause was to unreasonably favor the nursing home. 2013-NMCA-014, ¶¶ 15, 18 19 (“Common sense dictates that claims relating to collection of fees and discharge of 20 residents are the types of remedies that a nursing home, not its resident, is most 8 1 likely to pursue.”). Thus, we held that the arbitration agreement was substantively 2 unconscionable because it allowed the defendants to choose “the forum to resolve 3 their disputes that were presumptively deemed to be ‘most likely,’ while 4 simultaneously forcing . . . the weaker party[] to arbitrate her most likely disputes.” 5 Id. ¶ 18. Because the defendants did not present any factual evidence to the district 6 court rebutting the one-sided nature of the claims exempted from arbitration, 7 however, we did not “rule out the possibility that probative evidence could be 8 offered in this type of case.” Id. ¶ 17. 9 {12} Shortly after Ruppelt, we issued our decision in Bargman—another case 10 involving an arbitration agreement with the same collections exemption. See 11 Bargman, 2013-NMCA-006, ¶ 18. The defendants there argued that the collections 12 exception was conscionable because it would not be cost effective for them to 13 pursue collections if they had to arbitrate due to “non-specific ‘sums involved’ in 14 collections disputes” and the cost of paying for the arbitrators. Id. ¶ 22. However, 15 they did not present any evidence regarding these matters at the district court level 16 and requested we remand the case for an evidentiary hearing. Id. ¶ 23. Noting that 17 no New Mexico case has laid down a “bright-line, inflexible rule that excepting 18 from arbitration any claim most likely to be pursued by the defendant drafter will 19 void the arbitration clause as substantively unconscionable[,]” we said that “cases 20 should . . . be examined on a case-by-case basis.” Id. ¶ 17. Accordingly, we 9 1 remanded the matter in order to give the defendants “the opportunity to present 2 evidence tending to show that the collections exclusion is not unreasonably or 3 unfairly one-sided such that enforcement of it is substantively unconscionable.” Id. 4 ¶ 24. 5 {13} It is against this backdrop that we decide this case. Defendants argue that the 6 district court did not fully apprehend Bargman’s clarification that substantive 7 unconscionability should be analyzed on a case-by-case basis to determine if the 8 exception is reasonable and fair in light of the actual evidence presented. Instead, 9 Defendants argue, the district court viewed our analysis in Ruppelt as outcome 10 determinative, holding that the exception was unconscionable because Defendants 11 failed to prove that the practical effect of the exception was not one-sided. 12 According to Defendants, had the district court correctly applied Bargman and 13 focused on whether the exception was reasonable and fair, despite its one14 sidedness, it would have held that the exception was conscionable in light of the 15 evidence presented. We disagree. 16 {14} At the outset, we reiterate that, because unconscionability is an affirmative 17 defense to contract enforcement, the party claiming that defense bears the burden 18 of proving that a contract, or a portion thereof, should be voided as 19 unconscionable. Strausberg, 2013-NMSC-032, ¶¶ 39, 48. However, the party 20 bearing the burden of proving unconscionability need not make any “particular 10 1 evidentiary showing and can instead persuade the fact[-]finder that the terms of a 2 contract are substantively unconscionable by analyzing the contract on its face.” 3 Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 8, 385 P.3d 619. 4 Once a facial threshold of unconscionability has been met by the moving party, the 5 opposing party is then allowed to present evidence tending to show that the 6 arbitration exclusion “is not unreasonably or unfairly one-sided such that 7 enforcement of it is substantively unconscionable.” Bargman, 2013-NMCA-006, ¶ 8 24. 9 {15} While there is no “bright-line, inflexible rule” that excepting from arbitration 10 any claims the drafter is most likely to pursue will void the arbitration clause as 11 substantively unconscionable, id. ¶ 17, we have previously decided that this 12 specific arbitration exception is facially unconscionable. Ruppelt, 2013-NMCA13 014, ¶ 15; see Figueroa, 2013-NMCA-077, ¶ 31 (“Common sense dictates that the 14 most likely claims [the d]efendant would have against a resident would be related 15 to its provision of services to that resident: i.e., the collection of fees for 16 services[.]”). The question here, therefore, is whether Defendants presented 17 sufficient evidence to show why—despite our prior ruling to the contrary—the 18 collections exclusion was not unfairly one-sided and was justified. We agree with 19 the district court that they did not and that Defendants “failed to rebut that the 20 practical effect of the [arbitration a]greement unreasonably favors . . . Defendants.” 11 1 {16} The undisputed evidence demonstrated that the Facility’s accounts 2 receivable were typically below $10,000 for each resident. Although neither the 3 Facility nor any collection agency on the Facility’s behalf ever filed a lawsuit for 4 collection, the Facility never told any resident or resident’s agent that it would not 5 sue them for an unpaid bill. Indeed, the collection letters sent by the Facility to 6 residents/agent included a provision stating, “Your account is seriously past due. 7 Please make payment arrangements with the business office to avoid legal action.” 8 Our review of the unchallenged findings establish that Defendants offered nothing 9 further below to rebut the thrust of our prior holdings: that the collections 10 exemption here is another way of exempting from arbitration claims Defendants 11 are most likely to bring, and that that it is unreasonably or unfairly one-sided such 12 that enforcement of it is substantively unconscionable. We reject Defendant’s 13 argument that there may be some reasonable justification for the collections 14 exemption because paying arbitrators would be cost-prohibitive. Defendants could 15 have, but did not, present evidence to the district court regarding the costs involved 16 for hiring arbitrators, even though the burden was theirs to do so. 17 {17} The dissent maintains that the fact that “neither the Facility nor a collection 18 agency acting on its behalf had ever filed a collection lawsuit in any court[,]” and 19 that the price “paid [to] a lawyer to conduct an asset search to help determine 20 whether a lawsuit would be worthwhile,” in large part satisfies the evidentiary 12 1 threshold contemplated by the Facility. Dissent Op. ¶¶ 26, 28. But to so conclude 2 would not only serve to enforce an agreement identical to that which we have 3 twice concluded was unenforceable based upon the same concerns about 4 substantive unconscionability as were previously resolved as a matter of law, it 5 would also leave open to future litigation the very same sort of non-arbitrable 6 action that the Facility has heretofore determined to be cost-prohibitive to pursue 7 despite its research into the feasibility of such a lawsuit or collection effort. Where, 8 as here, an agreement contains language that has been determined to be 9 substantively unconscionable, we consider the mere fact that thus far it is too 10 expensive for a facility to pursue to be little assurance that one day it will not be. 11 {18} Finally, we reject Defendants’ argument that the district court “did not fully 12 apprehend and follow this Court’s substantive conscionability analysis in 13 Bargman” because it did not cite Bargman in its findings and conclusions. 14 Defendants requested an evidentiary hearing pursuant to Bargman. The district 15 court granted that request. The fact that it did so demonstrates the court’s 16 awareness of and compliance with Bargman. We note as well that the district 17 court’s conclusions of law necessarily demonstrate that it understood Bargman’s 18 requirement that arbitration cases should be decided on a case-by-case basis. Thus, 19 we disagree that the absence of a citation to Bargman commands the conclusion 20 that the district court failed to “apprehend and follow” Bargman’s substantive 13 1 conscionability analysis. As a final matter, Defendants do not point to anything in 2 the district court’s ruling that suggests the court did not consider all of the evidence 3 presented or that it did not examine this case individually. 4 {19} Defendants also cite to a recent New Mexico Supreme Court case, Dalton, in 5 support of their position that the collections exception was conscionable. In 6 Dalton, our Supreme Court held that an arbitration clause provision excepting 7 small claims of less than $10,000 from arbitration was “neither grossly unfair nor 8 unreasonably one-sided on its face.” 2016-NMSC-035, ¶ 1. In that case, the 9 plaintiff filed suit against the defendant relating to the circumstances surrounding 10 the purchase of two cars. Id. ¶ 2. Each of the separate sales contracts allowed either 11 party to compel arbitration of any claim or dispute arising out of the contracts that 12 exceeded the jurisdiction of a small claims court, which was $10,000 at the time. 13 Id. ¶ 3. In response to the defendant’s motion to compel arbitration, the plaintiff 14 argued that the small claims exception was substantively unconscionable because 15 the defendant was substantially more likely to bring a small claim. Id. ¶¶ 17-18. 16 Both the district court and this Court agreed with the plaintiff. Id. ¶ 5. Our 17 Supreme Court reversed, reasoning that the small claims exception did not 18 “unambiguously benefit the drafting party alone[.]” Id. ¶ 20. The Court 19 acknowledged the defendant’s argument that there were “ ‘legitimate, neutral 20 reasons’ for the parties to exclude small claims actions from arbitration, including 14 1 streamlined pretrial and discovery rules[.]” Id. ¶ 21. The Court concluded that the 2 small claims exception was not unfair, even if the drafting party was substantially 3 more likely to bring a small claim, because “[b]oth parties benefit from the 4 economy and efficiency of a small claims court[.]” Id. ¶ 22. 5 {20} Defendants contend that the Dalton analysis compels the conclusion that it is 6 reasonable and fair to exclude the collections dispute exemption at issue in this 7 case from arbitration. We disagree. As an initial matter, contrary to Defendants’ 8 assertion, Dalton did not hold that the party seeking to enforce an arbitration 9 agreement need only show “that there is a legitimate reason for the exception.” Nor 10 do we agree that the rationale allowing the small claims exception in Dalton 11 applies to the collections and discharge exceptions here. As we have noted above, 12 the small claims exception in Dalton allows both parties complete access to small 13 claims proceedings and the exception benefits both sides by allowing each to take 14 advantage of the economy and efficiency of a small claims court compared to 15 arbitration. Here, on the other hand, Defendants are the most likely to bring 16 collection actions and to be exempted from arbitration while forcing “claims for 17 negligent care or any other claims of inadequate care”—claims the resident is most 18 likely to bring—into arbitration. See Figueroa, 2013-NMCA-077, ¶ 31 (“Common 19 sense dictates that the most likely claims [the d]efendant would have against a 20 resident would be related to its provision of services to that resident: i.e., the 15 1 collection of fees for services[.]); Ruppelt, 2013-NMCA-014, ¶ 15 (“Common 2 sense dictates that claims relating to collection of fees . . . are the types of remedies 3 that a nursing home, not its resident, is most likely to pursue.”). Thus, Defendants 4 reliance on Dalton is misplaced. The agreement in this case is realistically for the 5 sole benefit of Defendants. The collections exception is for a claim most likely to 6 be pursued by Defendants, and they have failed to provide sufficient evidence to 7 prove that the exception is not unreasonably or unfairly one-sided. Accordingly, 8 we affirm the district court’s ruling that the arbitration agreement is 9 unconscionable and unenforceable. 10 New Mexico’s Substantive Unconscionability Doctrine Is Not Preempted by 11 Federal Law 12 {21} Under the FAA, an arbitration agreement may be struck down as 13 unenforceable where “grounds . . . exist at law or in equity for the revocation of 14 any contract.” 9 U.S.C. § 2. “Agreements to arbitrate may accordingly ‘be 15 invalidated by generally applicable contract defenses, such as fraud, duress, or 16 unconscionability.’ ” Rivera, 2011-NMSC-033, ¶ 17 (quoting Rent-A-Center, W., 17 Inc. v. Jackson, 561 U.S. 63, 68 (2010)). “But states cannot invalidate arbitration 18 agreements through the application of ‘defenses that apply only to arbitration or 19 that derive their meaning from the fact that an agreement to arbitrate is at issue.’ ” 20 Id. ¶ 17 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). 21 Our Supreme Court has repeatedly held that New Mexico courts may invalidate 16 1 arbitration agreements through the doctrine of substantive unconscionability 2 without violating the FAA. See Cordova, 2009-NMSC-021, ¶ 38 (“Our 3 unconscionability analysis, which is applied in the same manner to arbitration 4 clauses as to any other clauses of a contract, is therefore not inconsistent with the 5 dictates of the FAA.”); see also Rivera, 2011-NMSC-033, ¶ 17 (“Despite the 6 policy favoring enforcement of arbitration agreements, under the FAA an 7 arbitration agreement is not enforceable where grounds exist at law or in equity for 8 the revocation of any contract.” (internal quotation marks and citation omitted)); 9 Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 23, 144 N.M. 464, 188 P.3d 10 1215 (“While the FAA prevents states from singling out arbitration provisions for 11 suspect status, it does not give arbitration provisions special protection either.”). 12 {22} Nevertheless, Defendants contend that a recent Tenth Circuit Court of 13 Appeals decision, THI of New Mexico at Hobbs Center, LLC v. Patton, 741 F.3d 14 1162, 1169 (10th Cir. 2014), compels us to readdress the issue of preemption. In 15 Patton, the Tenth Circuit held that our state courts were applying the 16 unconscionability doctrine based on an impermissible “perceived inferiority of 17 arbitration to litigation as a means of vindicating one’s rights.” Id. Defendants 18 argue that our state courts must follow the Tenth Circuit on matters of preemption 19 and that we are not foreclosed from reversing the district court’s decision to the 17 1 contrary because our Supreme Court has not addressed the merits of the Patton 2 decision. We disagree. 3 {23} While our Supreme Court has not yet addressed the possible preemption of 4 our substantive unconscionability doctrine in light of Patton, “[a]ppeals in this 5 Court are governed by the decisions of the New Mexico Supreme Court— 6 including decisions involving federal law, and ‘even when a United States 7 Supreme Court decision seems contra.’ ” Dalton v. Santander Consumer USA, 8 Inc., 2015-NMCA-030, ¶ 30, 345 P.3d 1086 (quoting State v. Manzanares, 19839 NMSC-102, ¶ 3, 100 N.M. 621, 674 P.2d 511), rev’d on other grounds, Dalton, 10 2016-NMSC-035, ¶ 24. Therefore, we view our Supreme Court’s decisions in 11 Cordova and its progeny as binding precedent that the district court correctly 12 followed. Accordingly, we conclude that the district court did not err in rejecting 13 Defendants’ argument that our unconscionability doctrine is preempted under the 14 FAA in light of Patton. 15 CONCLUSION 16 {24} For the foregoing reasons, we affirm the district court’s ruling that the 17 arbitration agreement was substantively unconscionable despite Defendants’ 18 evidence. Further, we affirm the district court that our unconscionability doctrine is 19 not preempted in light of controlling New Mexico Supreme Court precedent. 20 {25} IT IS SO ORDERED. 18 1 2 __________________________________ LINDA M. VANZI, Chief Judge 3 I CONCUR: 4 _________________________________ 5 J. MILES HANISEE, Judge 6 KIEHNE, Judge (dissenting). 19 1 KIEHNE, Judge (dissenting). 2 {26} I agree with the majority that the question we are called on to resolve is 3 “whether Defendants presented sufficient evidence to show why . . . the collections 4 exclusion was not unfairly one-sided and was justified.” Majority Op. ¶ 15. I 5 disagree, however, with its conclusion that Defendants failed to present sufficient 6 evidence. As the majority correctly acknowledges, the evidence was that the 7 Facility’s accounts receivables were typically below $10,000 per resident, and 8 neither the Facility nor a collection agency acting on its behalf had ever filed a 9 collection lawsuit in any court. Majority Op. ¶ 16. The majority then states that the 10 Facility never informed residents that it would not file a collections lawsuit. Id. 11 Finally, the majority rejects the Facility’s argument that the exception for 12 collections claims is justifiable because arbitrating such claims is not cost13 effective, on the ground that the Facility failed to present evidence of the cost of 14 hiring the arbitrators. Id. 15 {27} With respect to the first ground for rejecting Defendants’ claim—i.e. that 16 Defendants did not inform any resident that they would not file a collections 17 lawsuit—neither Plaintiff, nor the district court, nor the majority has cited any 18 authority for the proposition that this fact matters to our analysis, and I am aware 19 of none. Thus, this fact appears to play no role in the analysis and should be 20 regarded as irrelevant. 20 1 {28} As for the second ground—i.e. the lack of evidence—I believe the majority 2 has taken an overly narrow view of the evidence. As discussed above, the evidence 3 was that accounts receivable were typically between $1 and $10,000 per resident, 4 and neither the Facility nor any collections agency had ever filed a collections 5 lawsuit in any court. Ms. Correa testified that the Facility had not filed any 6 collections lawsuits because it concluded that doing so would not be cost-effective, 7 explaining that the Facility had once paid a lawyer to conduct an asset search to 8 help determine whether a lawsuit would be worthwhile, and the cost for that 9 service alone had been $7,000. Additionally, the arbitration agreement required 10 that in the event of a dispute, the parties would proceed first to mediation (before a 11 mediator whose fee would be paid by the Facility) and, if that were unsuccessful, 12 to arbitration before a panel of three arbitrators (whose fees would, again, be paid 13 by the Facility). Ms. Correa thus explained that the cost of arbitrating these 14 disputes would also not be cost-effective, since the Facility would not only be 15 paying for its own attorney’s fees, but also the additional fees to hire a mediator 16 and three arbitrators. 17 {29} Although it is true, as the majority states, that the Facility did not present 18 evidence to quantify the amount of the mediator’s and arbitrators’ fees that would 19 be incurred, it is hard to see why that matters. Here the evidence—which no one 20 disputes—was that the Facility believed it was not cost-effective to file collections 21 1 lawsuits in court, where it would only have to pay its own attorney, and in fact had 2 never done so. Given these facts, the cost of paying a mediator and three 3 arbitrators, regardless of the amount, would necessarily make arbitration even less 4 cost-effective than proceeding in court. Thus, the Facility’s failure to put a specific 5 dollar figure on those fees is not a defect at all, much less a fatal one. 6 {30} Our Supreme Court and this Court have previously stated that in analyzing 7 an arbitration agreement that excepts certain claims from its scope, we are not to 8 focus on theoretical possibilities. Instead, we look at the agreement’s “practical 9 effect,” meaning that we determine whether the agreement unfairly preserves a 10 business’s ability to bring in court its most likely claims against a consumer while 11 requiring consumers to bring their most likely claims in arbitration. See, e.g., 12 Cordova, 2009-NMSC-021, ¶ 1 (holding that arbitration agreement was 13 unconscionable where it preserved for a lender the option of proceeding in court on 14 “all remedies the lender [was] most likely to pursue against a borrower” (emphasis 15 added)); see also Dalton, 2016-NMSC-035, ¶ 8 (“Substantive unconscionability 16 requires courts to examine the terms on the face of the contract and to consider the 17 practical consequences of those terms.” (emphasis added)); Ruppelt, 2013-NMCA18 014, ¶ 16 (rejecting business’s argument that exception for collections claims from 19 arbitration agreement was conscionable because it was bilateral; situations where 20 consumers might have such claims were “rare” and thus did not detract from the 22 1 “practical reality” that the arbitration agreement allowed the business to bring its 2 most likely claims in court while forcing consumers to bring their most likely 3 claims in arbitration). 4 {31} Under the facts of this case, I do not see how the exception for collections 5 claims rendered the arbitration agreement unconscionable. The “practical effect” of 6 the exception was null, since the Facility had never brought any such claims, nor 7 was it likely to do so. I would therefore reverse and remand for enforcement of the 8 arbitration agreement. Because I would resolve the case on these grounds, I do not 9 believe it is necessary to decide the federal preemption issue. My colleagues being 10 of a different view, I respectfully dissent. 11 12 _________________________________ EMIL J. KIEHNE, Judge 23
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