2 N.M. 645
N.M. Ct. App.2012Background
- Borrower signed a March 5, 2010 loan agreement with Lender for $2,400, repayable with $3,177.84 total, secured by Borrower’s 1999 Dodge Ram; an arbitration provision covers claims arising from the agreement or vehicle collateral.
- Borrower failed to pay by April 5, 2010; two Certified Adjusters attempted to repossess the truck on May 21, 2010, during which a Browning employee shot Borrower, leaving him unable to walk.
- Borrower filed a twelve-count complaint against Lender, Certified Adjusters, and Browning, including tort claims and a contract claim.
- The district court held the arbitration clause substantively unconscionable due to an “escape hatch” and, alternatively, that the scope was ambiguous, thus denying arbitration.
- The court concluded the tort claims were outside the arbitration scope, but the breach of contract claim fell within it; it also found the appeal mechanism unconscionable but severable, and remanded for stays regarding nonarbitrable claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of arbitration for Borrower’s tort claims | Clay contends tort claims fall outside scope | Lender argues broad scope covers all related disputes | Tort claims outside scope except for breach of contract claim |
| Arbitration of the appeal/escape-hatch clause | Escape hatch is unfairly one-sided against Borrower | Appeal right is neutral and affordable | Escape hatch severable and thus unenforceable; remainder remains enforceable |
| Delegation to arbitrate arbitrability | Borrower challenged delegation due to suspected fraud in inducement | Arbitrability delegation is clear and unmistakable | Delegation challenged; court may address arbitrability issue |
| Remedy for unconscionability | Entire arbitration clause should be struck | Unconscionable term severable, remainder enforceable | Appeal clause severable; rest of arbitration provision enforceable; remand for stay |
Key Cases Cited
- Padilla v. State Farm Mut. Auto. Ins. Co., 133 N.M. 661 (2003-NMSC-011) (unconscionable appeal clause prejudices insured rights; public policy concern)
- Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc., 567 F.3d 1191 (10th Cir. 2009) (nonarbitrable vs. arbitrable claims; stay considerations; arbitration policy)
- Aiken v. World Fin. Corp. of South Carolina, 644 S.E.2d 705 (S.C. 2007) (broad arbitration clauses do not sweep in outrageous torts not contemplated by contract)
- Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511 (10th Cir. 1995) (contractual scope limits to matters arising out of the underlying contract)
- World Finance Corp. v. Aiken, 644 S.E.2d 707 (S.C. 2007) (legality of information use outside arbitration scope; limits broad arbitration)
- Arbitration decisions: Cordova v. City, 2009-NMSC-021 (N.M. 2009) (one-sided arbitration provisions may be unconscionable)