Hegerty v. Skilled Health
34,846
| N.M. Ct. App. | Feb 15, 2017Background
- Joan Hegerty was admitted to St. Catherine in Nov. 2011; her son (Michael Hegerty) signed admission forms including an arbitration agreement on her behalf.
- The Arbitration Agreement required arbitration of disputes but carved out "claims for monetary damages" within the jurisdictional limits of New Mexico small claims courts.
- Appellee (Michael, as personal representative) sued for wrongful death in 2014; defendants moved to compel arbitration under the Agreement and the Federal Arbitration Act (FAA).
- The district court found the arbitration contract valid but ruled the small-claims carve-out substantively unconscionable on its face and denied arbitration; a later judge granted Appellee summary judgment finding the carve-out unconscionable.
- On appeal, the Court of Appeals, relying on the New Mexico Supreme Court’s decision in Dalton, reversed the summary judgment, held the small-claims exception not substantively unconscionable as a matter of law, and remanded for further proceedings; it also rejected defendants’ argument that Tenth Circuit precedent preempted the state unconscionability analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the small-claims carve-out is substantively unconscionable | The carve-out unfairly gives the facility access to judicial forum for collection claims while forcing residents into arbitration for claims residents would pursue, making it one-sided | The clause is bilateral in form and reasonable; arbitration should be compelled; federal law preempts state unconscionability invalidation if it disfavors arbitration | Reversed district court: under Dalton, a bilateral small-claims exception is not substantively unconscionable on its face; remanded for further proceedings |
| Whether an evidentiary hearing was required under Bargman before invalidating the clause | Bargman requires an evidentiary hearing when a facial showing of unconscionability is made | No hearing necessary where, as a matter of law under Dalton, the clause is not unconscionable | Court concluded Dalton controlled and reversed; did not require an evidentiary hearing on the small-claims issue here |
| Whether FAA preempts state unconscionability analysis (invoking Tenth Circuit Patton) | Appellee: state unconscionability defense is a generally applicable contract defense and not preempted | Defendants: Tenth Circuit’s Patton holds state unconscionability doctrine impermissibly disfavors arbitration and should control | Court held New Mexico precedent (Rivera, Strausberg) controls; FAA does not preempt generally applicable unconscionability defense; rejected Patton as controlling here |
| Standard of review for refusal to compel arbitration and unconscionability | N/A (contextual) | N/A | Issues reviewed de novo by the Court of Appeals |
Key Cases Cited
- Dalton v. Santander Consumer USA, Inc., 385 P.3d 619 (N.M. 2016) (bilateral small-claims carve-out in arbitration clause not substantively unconscionable)
- Cordova v. World Fin. Corp. of N.M., 208 P.3d 901 (N.M. 2009) (doctrine of unconscionability; standards for procedural and substantive unconscionability)
- Strausberg v. Laurel Healthcare Providers, LLC, 304 P.3d 409 (N.M. 2013) (state may invalidate arbitration agreements under generally applicable contract defenses)
- Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803 (N.M. 2011) (agreements to arbitrate can be invalidated by generally applicable defenses such as unconscionability)
- Bargman v. Skilled Healthcare Grp., Inc., 292 P.3d 1 (N.M. Ct. App. 2013) (discusses when evidentiary hearing may be required to resolve factual disputes about substantive unconscionability)