Felts v. CLK Management, Inc.
254 P.3d 124
N.M. Ct. App.2011Background
- Felts entered into three online payday loan agreements with CLK and CANI, each containing an arbitration provision and a class action waiver.
- The arbitration provision requires binding individual arbitration under the NAF rules and prohibits class arbitration.
- The class action waiver bars class actions and allows the lender to seek court costs and attorney fees; the NAF forum is the chosen arbitral forum.
- Felts filed a putative class action in district court alleging UPA and SLA violations and related claims.
- CLK and CANI moved to compel arbitration and stay proceedings, arguing the arbitration provision is enforceable and allows arbitration of individual claims only.
- The district court declined to compel arbitration, ruling the arbitration clause was unconscionable under New Mexico law; the court then denied CANI’s motion as well, and the appeals were consolidated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability—court or arbitrator? | Felts asserts the court decides arbitrability unless delegation is clear | CLK/CANI argue delegation to arbitrator requires court deferral | District court correctly decided arbitrability issue for court |
| Whether the class action ban is substantively unconscionable under Fiser | Felts argues the ban exculpates the lender and thwarts small-claims remedy | Defendants contend Fiser is distinguishable and damages are not small | Class action ban substantively unconscionable; unenforceable under Fiser |
| Severability of the class action ban from the arbitration provision | Felts contends ban could be severed, leaving rest enforceable | Defendants argue severability should apply where ban is not central to arbitration | Class action ban not severable; entire arbitration provision unenforceable |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (validity of arbitration clause; threshold challenges must be specific)
- Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772 (U.S. 2010) (delegation provision; need specific challenge to delegation to arbitrate to avoid court review)
- Fiser v. Dell Computer Corp., 144 N.M. 464 (2008-NMSC-046) (class action ban; public policy favoring class relief for small claims)
- Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (unconscionability and enforceability defenses to arbitration agreements)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (gateway questions of arbitrability often decided by court unless delegated)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (who decides arbitrability turns on what the parties agreed)