385 P.3d 619
N.M.2016Background
- Eileen Dalton purchased two used vehicles under finance contracts that included a bilateral arbitration clause allowing either party to compel arbitration for disputes exceeding small claims jurisdiction, but expressly reserved both parties’ "self-help" remedies (e.g., repossession) and the right to sue in small claims court for claims within that court’s $10,000 jurisdiction.
- Dalton’s Pontiac was repossessed shortly after missed payment; she sued in district court raising fraud, UCC, unfair trade practices, conversion, and related claims, and later added Santander as a defendant.
- Santander moved to compel arbitration under the contracts; Dalton defended by arguing the arbitration clause was substantively unconscionable because the self-help and small‑claims carve-outs were unreasonably one‑sided.
- The district court and Court of Appeals held the arbitration clause unconscionable; the New Mexico Supreme Court granted certiorari to review that legal conclusion.
- The Supreme Court reversed: it held the self‑help carve‑out was irrelevant to substantive unconscionability because lawful self‑help (nonjudicial repossession) is an extrajudicial remedy, and the small‑claims carve‑out is facially neutral because it applies to either party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is substantively unconscionable because it reserves self‑help remedies | Dalton: Carve‑out lets lender avoid arbitration while forcing consumer to arbitrate, making clause one‑sided | Santander: Carve‑out merely recognizes lawful extrajudicial self‑help (nonjudicial repossession) and does not grant lender special judicial remedies | Held: Reservation of private self‑help remedies is irrelevant to facial unconscionability here because nonjudicial repossession is extrajudicial; clause not one‑sided on that basis |
| Whether the small‑claims carve‑out renders the arbitration clause unconscionable on its face | Dalton: Consumers likely to have claims > $10,000 and thus be forced into arbitration, while lender’s likely claims fall under small claims or self‑help, making the carve‑out practically one‑sided | Santander: Carve‑out is bilateral and facially neutral; small claims court offers economical, streamlined forum and is a legitimate neutral exception | Held: Small‑claims carve‑out is facially neutral and not grossly unfair or unreasonably one‑sided; bilateral exception permissible and encouraged by procedural fairness norms |
Key Cases Cited
- Preston v. Ferrer, 552 U.S. 346 (2008) (arbitration agreements can preempt state forum allocations between judicial and administrative fora)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (by agreeing to arbitrate statutory claims parties submit to arbitral resolution of those rights)
- Rivera v. American General Financial Servs., Inc., 259 P.3d 803 (N.M. 2011) (unilateral carve‑out preserving lender judicial remedies rendered arbitration clause unconscionable)
- Cordova v. World Fin. Corp. of N.M., 208 P.3d 901 (N.M. 2009) (lender’s unilateral judicial‑remedies carve‑out created substantive unconscionability)
- Waisner v. Jones, 755 P.2d 598 (N.M. 1988) (nonjudicial repossession is a permissible private remedy when conducted without breach of the peace)
- Sanchez v. Valencia Holding Co., LLC, 353 P.3d 741 (Cal. 2015) (discussing small‑claims carve‑outs and treating self‑help as extrajudicial for unconscionability analysis)
- Padilla v. State Farm Mut. Auto. Ins. Co., 68 P.3d 901 (N.M. 2003) (contract clause granting appeal rights asymmetrically can be substantively unconscionable)