470 P.3d 218
N.M.2020Background
- Beverly Peavy was admitted to a skilled nursing facility under a 78‑page admission agreement that included an arbitration agreement requiring mediation then arbitration for most disputes. The agreement expressly excluded disputes "pertaining to collections or discharge of residents."
- Peavy died in 2010 and her son (Keith Peavy) brought a wrongful‑death suit against the Facility and other defendants. Defendants moved to compel arbitration under the admission agreement.
- The district court held a two‑day evidentiary hearing focused on substantive unconscionability and the Facility’s justification for the collections exception.
- The only evidence offered by Defendants to justify the collections exception was testimony by Kathy Correa (a Facility administrator) about collections practice, perceived arbitration costs, and that the Facility had not historically sued residents.
- The district court found the arbitration agreement facially one‑sided (it exempted the Facility’s likeliest claims) and concluded Defendants failed to justify that one‑sidedness; it denied the motion to compel arbitration. The Court of Appeals affirmed.
- The New Mexico Supreme Court affirmed, holding the Facility had not presented sufficient evidence to show the collections exception was fair and reasonable, so the agreement was substantively unconscionable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration agreement is substantively unconscionable because it exempts the Facility’s likeliest claims (collections) while requiring residents to arbitrate their likeliest claims | The Agreement is facially one‑sided and therefore substantively unconscionable; unenforceable | The Agreement’s collections exception is reasonable and fair; Defendants presented evidence at an evidentiary hearing justifying the exception | Agreement is facially one‑sided; Defendants failed to justify the one‑sided exception with admissible, persuasive evidence; agreement is substantively unconscionable and unenforceable |
| Proper analytical framework for evaluating a facially one‑sided arbitration exception (what role evidence plays) | A facial analysis suffices to show unconscionability; evidence unnecessary but may be considered | A drafter may present evidence to show the exception is reasonable/fair and thereby overcome the presumption of unfairness | Two‑step approach: (1) analyze the agreement on its face for one‑sidedness; (2) if facially one‑sided, permit the drafter to present evidence justifying the exception’s fairness — evidence must show reasonableness/fairness, not merely rebut that the clause is one‑sided |
Key Cases Cited
- Cordova v. World Fin. Corp. of N.M., 208 P.3d 901 (establishes substantive unconscionability principles for arbitration clauses and focuses on unfair one‑sidedness)
- Dalton v. Santander Consumer USA, Inc., 385 P.3d 619 (arbitration exceptions that bilaterally exempt claims under a threshold can be reasonable; Court distinguished Dalton from one‑sided, claim‑specific exceptions)
- Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803 (invalidating arbitration clause for unfairly favoring drafting party by excluding its likeliest claims)
- Bargman v. Skilled Healthcare Grp., Inc., 292 P.3d 1 (Court of Appeals: facially one‑sided collections exception may be rebutted by evidence; remanded for evidentiary development)
- Ruppelt v. Laurel Healthcare Providers, LLC, 293 P.3d 902 (identifies facial one‑sidedness where drafter excludes its likeliest claims)
- Figueroa v. THI of N.M. at Casa Arena Blanca, LLC, 306 P.3d 480 (refuses to enforce arbitration where drafter reserved most claims for courts while forcing weaker party to arbitrate likely claims)
- Padilla v. State Farm Mut. Auto. Ins. Co., 68 P.3d 901 (example of substantive unconscionability where only one party’s appellate rights were limited)
- Strausberg v. Laurel Healthcare Providers, LLC, 304 P.3d 409 (affirming unconscionability as an affirmative defense and its burdens)
- Horne v. Los Alamos Nat’l Sec., L.L.C., 296 P.3d 478 (arbitration agreements are subject to generally applicable state contract law)
- Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (states may invalidate arbitration agreements under general contract principles)