Strausberg v. Laurel Healthcare Providers, LLC, 304 P.3d 409

Background

Nina Strausberg signed a mandatory arbitration agreement presented by a nursing-home nurse liaison as a condition of admission to Arbor Brook after spinal surgery; she later sued for negligent care.
Defendants moved to compel arbitration and dismiss; Strausberg argued the arbitration clause was procedurally and substantively unconscionable.
The district court held an evidentiary hearing, found Strausberg failed to prove procedural unconscionability, and granted the motion to compel arbitration.
The New Mexico Court of Appeals reversed, holding that when a nursing home conditions admission on an arbitration agreement, the nursing home must prove the agreement is not unconscionable.
The New Mexico Supreme Court granted certiorari to decide which party bears the burden to prove unconscionability and whether the Court of Appeals’ rule is preempted by federal law.
The Supreme Court reversed the Court of Appeals: (1) unconscionability is an affirmative defense and the party asserting it (Strausberg) bears the burden of proof; and (2) the Court of Appeals’ rule treating nursing-home arbitration clauses differently is preempted by the Federal Arbitration Act (FAA). The case was remanded for further proceedings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Who bears the burden to prove unconscionability of an arbitration agreement?	Strausberg: Nursing homes should bear the burden when arbitration is required for admission; admission context creates vulnerability.	Defendants: Unconscionability is an affirmative defense; the party attacking enforcement bears the burden.	Held: Unconscionability is an affirmative contract defense; the party asserting it (Strausberg) has the burden of persuasion.
Whether the Court of Appeals’ rule (shifting burden to nursing homes for admission agreements) is permissible under the FAA	Strausberg/AARP: The rule does not categorically prohibit arbitration and addresses vulnerable parties; FAA does not preempt it.	Defendants: The rule singles out arbitration agreements and is preempted; arbitration must be treated like other contracts.	Held: The Court of Appeals’ rule is preempted by the FAA because it singles out nursing-home arbitration clauses for special treatment.
Whether the proponent of arbitration must prove a valid contract exists before defenses are considered	Strausberg: Defendants cannot show a valid contract if unconscionability voids it; burden should be on proponent.	Defendants: Proponent must show contract formation; defenses (like unconscionability) are proved by the opponent.	Held: Proponent must first prove formation of a valid arbitration agreement; once proven, the opponent must prove affirmative defenses (e.g., unconscionability).
Should the Supreme Court resolve the substantive unconscionability merits now?	Strausberg: Court should rule the clause substantively unconscionable (one-sided arbitration vs. collection exceptions).	Defendants: Merits should be addressed first by Court of Appeals and with participation by other interested litigants.	Held: Court declined to decide merits; remanded to Court of Appeals to review the district court’s decision.

Key Cases Cited

Rivera v. American Gen. Fin. Servs., Inc., 150 N.M. 398, 259 P.3d 803 (N.M. 2011) (New Mexico unconscionability framework and application to arbitration clauses)
Cordova v. World Finance Corp. of N.M., 146 N.M. 256, 208 P.3d 901 (N.M. 2009) (substantive unconscionability and remedial options)
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (states may apply general contract defenses to arbitration clauses but may not single out arbitration for disfavored treatment)
Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530 (U.S. 2012) (state categorical bans on nursing-home arbitration are preempted by the FAA)
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that interfere with arbitration’s purposes)