Felts v. CLK MANAGEMENT, INC.
254 P.3d 124
N.M. Ct. App.2011Background
- Felts filed a putative class action alleging NM UPA and SLA violations by payday lenders based on online loan transactions.
- Felts signed three Loan Agreements, each containing an arbitration provision and a separate class action waiver.
- Arbitration provision required binding individual arbitration under NAF and prohibited class arbitration; a class action ban was prominent in all caps.
- District court declined to compel arbitration, finding the arbitration provision unconscionable under Fiser and unenforceable as a whole.
- CANI later moved to compel arbitration and to stay; argued severability of the class ban and district court jurisdiction to decide validity of the provision.
- The appeals were consolidated; the court addressed arbitrability, unconscionability under Fiser, and severability under New Mexico law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability questions? | Felts contends court decides arbitrability, not arbitrator. | CLK/CANI argue delegation clauses assign arbitrability to arbitrator. | District court properly decided arbitrability; delegation clause insufficient to require arbitration of arbitrability. |
| Is the class action ban in the arbitration provision unconscionable? | Felts relies on Fiser to show exculpatory effect and public policy against banning class relief. | Defendants contend Fiser does not apply or is distinguishable; arbitration remedy exists via NAF. | Yes, the class action ban is substantively unconscionable under Fiser and unenforceable. |
| Can the class action ban be severed from the arbitration provision? | Felts argues severability would allow enforcement of the remainder of the arbitration clause. | Defendants contend severability should be allowed where unconscionable term is separable. | No, the class action ban is not severable; it is central to the arbitration mechanism. |
Key Cases Cited
- AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643 (U.S. 1986) (arbitration is a matter of contract; court may compel arbitration on eligible issues)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. 1985) (FAA §2 validity; court directs to arbitration unless defenses exist)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (challenges to contract vs. arbitration clause; severability governs where appropriate)
- Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772 (U.S. 2010) (delegation provisions require clear and unmistakable evidence to delegate arbitrability to arbitrator)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (who decides arbitrability depends on what the parties clearly and unmistakably agreed)
- Fiser v. Dell Computer Corp., 2008-NMSC-046 (N.M. 2008) (class action ban in consumer arbitration can be unconscionable under NM public policy)
- Cordova v. State Farm Mut. Auto. Ins. Co., 2009-NMSC-021 (N.M. 2009) (severability and centrality of unconscionable terms in arbitration agreements)
- Christmas v. Cimarron Realty Co., 98 N.M. 330 (N.M. 1983) (arbitration agreements interpreted by contract law; reference to governing rules)
- McMillan v. Allstate Indemnity Co., 2004-NMSC-002 (N.M. 2004) (interpretation of broad arbitration clauses; enforceability under NM law)