304 P.3d 409
N.M.2013Background
- Strausberg signed a mandatory arbitration agreement presented by an Arbor Brook nurse liaison as a condition of nursing-home admission after spinal surgery; both she and the liaison signed on April 10, 2007.
- Over a year after discharge Strausberg sued Arbor Brook and related defendants for alleged negligent care; defendants moved to compel arbitration and dismiss.
- Strausberg argued the arbitration agreement was procedurally and substantively unconscionable (e.g., signed under medication/pressure, one-sided terms reserving non-arbitration remedies to the facility).
- The district court held an evidentiary hearing, found Strausberg failed to prove procedural unconscionability (noting she understood the agreement despite medication) and granted the motion to compel arbitration.
- The Court of Appeals reversed, holding that when a nursing home conditions admission on an arbitration clause the nursing home bears the burden to prove the clause is not unconscionable; defendants petitioned for certiorari.
- The New Mexico Supreme Court granted certiorari, held unconscionability is an affirmative defense that the challenger must prove, found the Court of Appeals’ burden-shifting rule preempted by the FAA, and remanded for further review of whether the district court erred in compelling arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who bears burden to prove unconscionability of arbitration clause? | Strausberg: nursing home should bear burden because admission contracts are adhesive and residents are vulnerable; Court of Appeals majority: facility must prove clause is not unconscionable. | Defendants: challengers must prove affirmative defenses (including unconscionability); initial burden to show a valid arbitration contract rests with party seeking enforcement. | New Mexico Supreme Court: challenger (Strausberg) bears burden to prove unconscionability; party seeking enforcement bears initial burden to prove contract formation. |
| Does FAA/UAA allow a special rule for nursing-home arbitration clauses? | Strausberg/AARP: nursing-home context justifies special allocation of burden given vulnerability and federal regulation. | Defendants: FAA requires arbitration agreements be treated like other contracts; state rules singling out arbitration are preempted. | Court: Court of Appeals’ rule singling out nursing-home arbitration is preempted by FAA; arbitration clauses must be treated as ordinary contracts under generally applicable defenses. |
| Is unconscionability treated as an affirmative defense in NM contract law? | Strausberg: unconscionability can void contract and thus should affect initial validity inquiry. | Defendants: unconscionability is an affirmative equitable defense and the proponent must prove it. | Court: Unconscionability is an affirmative defense; proponent of the defense bears burden of persuasion. |
| Should this Court decide the substantive unconscionability merits now? | Strausberg: yes — clause is substantively one-sided and similar cases raise significant public interest. | Defendants: decline; remand to Court of Appeals for fuller consideration, more briefing from related litigants. | Court: declined to reach merits; remanded to Court of Appeals to reassess whether district court erred in compelling arbitration. |
Key Cases Cited
- Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (states may apply generally applicable contract defenses to arbitration clauses)
- Perry v. Thomas, 482 U.S. 483 (FAA creates federal substantive law of arbitrability enforceable in state courts)
- Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49 (distinguishing burden of persuasion and production)
- Fiser v. Dell Computer Corp., 144 N.M. 464, 188 P.3d 1215 (New Mexico unconscionability analysis)
- Cordova v. World Finance Corp. of N.M., 146 N.M. 256, 208 P.3d 901 (substantive unconscionability; treatment of arbitration clauses)
- Rivera v. American General Financial Servs., Inc., 150 N.M. 398, 259 P.3d 803 (applying unconscionability doctrine to arbitration provisions)
- Cunningham v. Springer, 82 P. 232 (proof required to establish existence and terms of contract)
- Padilla v. State Farm Mut. Auto. Ins. Co., 133 N.M. 661, 68 P.3d 901 (remedies when contract or term is unconscionable)