OPINION
This case requires us to examine whether an arbitration agreement that a nursing home requires to be signed as a condition of admission is substantively unconscionable. Agreeing with the district court that the agreement is unfairly and unreasonably one-sided in favor of the nursing home, we affirm.
I. BACKGROUND
Defendant, THI of New Mexico at Casa ArenaBlanca, LLC (THICAB), operates Casa Arena Blanca, a nursing home in Alamogordo, NewMexico. Marlene Urbina sought to admit her mother, Dolores Figueroa, to Casa Arena Blanca in August 2008. Ms. Urbina had been granted a general power of attorney by Ms. Figueroa, upon which she acted during the admissions process. As a condition of Ms. Figueroa’s admission to Casa Arena Blanca, Ms. Urbina was required to sign various admission agreements, including an arbitration agreement. The agreement states: “Resident/Representative understands that signing this Agreement to arbitrate is a precondition for medical treatment or admission to the Health Care Center.” It further provides in pertinent part:
In the event of any controversy or dispute between the parties arising out of or relating to Resident’s stay at the Health Care Center, the Health Care Center’s Admission Agreement, or breach thereof, or relating to the provision of care or services to Resident, including but not limited to any alleged tort, personal injury, negligence, contract, consumer protection, claims under the New Mexico Unfair Practices Act, or other claim; or any federal or state statutory or regulatory claim of any kind; or whether or not there has been a violation of any right or rights granted under State law (collectively “Disputes”), and the parties are unable to resolve such through negotiation, then the parties agree that such Dispute(s) shall be resolved by arbitration, as provided by the National Arbitration Forum Code of Procedure or other such association.
The parties agree that guardianship proceedings, collection and eviction actions initiated by the Health Care Center, any dispute where the amount in controversy is less than Two Thousand Five Hundred Dollars ($2,500.00) will be excluded from binding arbitration and may be filed and litigated in any court which may have jurisdiction over the dispute.
Ms. Figueroa was a resident at Casa Arena Blanca for four months: from her admission on September 2, 2008, to the date of her death, January 18, 2009. After her death, Ms. Figueroa’s son, Didier Figueroa (Plaintiff), individually, and as her personal representative, filed a complaint in the district court against Defendant. The complaint contained allegations of: wrongful death; personal injury; negligent hiring, training, and supervision; negligence per se; misrepresentation; violation of the Unfair Practices Act; and loss of consortium. Plaintiff stated that “[djespite her advanced age, Ms. Figueroa was relatively active at the time of her admission,” but her health “rapidly declined” following her admission to Casa Arena Blanca due to Defendants’ failure to provide proper care. Plaintiff further alleged that while residing at Casa Arena Blanca, Ms. Figueroa suffered unsanitary hygiene conditions, numerous avoidable falls and resulting injuries, skin breakdown, urinary tract infections, dehydration, bruises, pain and suffering, mental anguish, humiliation, and wrongful death.
In response to Plaintiffs complaint, Defendant filed a motion to dismiss the lawsuit from district court for lack of subject matter jurisdiction, to compel arbitration, and to stay litigation. Defendant asserted that the causes of action in the complaint were subject to arbitration under the terms of the agreement that Ms. Urbina had signed on behalf of Ms. Figueroa when she was admitted to Casa Arena Blanca.
The district court ruled that the arbitration agreement was unenforceable under Cordova v. World Finance Corporation of New Mexico, in which our Supreme Court held an arbitration agreement that was unfairly and unreasonably one-sided in favor of the drafter was substantively unconscionable and unenforceable.
Defendant appeals pursuant to NMSA 1978, Section 44-7A-29(a)(l) (2001) (allowing an appeal to be taken from an order denying a motion to compel arbitration). The district court stayed further proceedings pending our decision on appeal.
II. ANALYSIS
Defendant argues: (1) that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-6 (2006), preempts our state law that applies a substantive unconscionability analysis to the terms of arbitration agreements; (2) that the agreement was not unfairly and unreasonably one-sided in favor of Defendant, because the district court misinterpreted the meaning and effect of the exemptions from arbitration; and (3) that even if the exemptions from arbitration are substantively unconscionable, the remainder of the arbitration agreement should be severed and enforced, because the parties have bilateral obligations to arbitrate tort claims. We address each argument in turn.
A. Preemption by the Federal Arbitration Act
We agree with Defendant that the FAA applies to its arbitration agreement. See 9 U.S.C. §§ 1-2 (stating that the FAA governs all arbitration agreements that involve commerce). The FAA requires that state courts enforce arbitration agreements unless the agreement is otherwise revocable under existing legal or equitable principles. See 9 U.S.C. § 2 (“A written provision ... or a contract [to arbitrate] . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”). Accordingly, arbitration agreements must be placed on “equal footing” with other contracts, and are revocable only by “generally applicable contract defenses, such as fraud, duress, or unconscionability,” but not by defenses that single out arbitration agreements or “that derive their meaning from the fact that an agreement to arbitrate is at issue.” Rivera v. Am. Gen. Fin. Servs. Inc., 201 l-NMSC-033, ¶¶ 16-17,
For example, in Fiser v. Dell Computer Corp., the defendant sought to enforce an arbitration agreement that precluded the consumer from bringing a class action against the defendant.
Additionally, in Cordova, in concluding that the application of unconscionability was not preempted by the FAA, the Court stated:
New Mexico’s legal doctrine of contractual unconscionability, like that of other jurisdictions, was not developed to target or invalidate this or any other arbitration agreement. Our unconscionability analysis, which is applied in the same manner to arbitration clauses as to any other clauses of a contract, is therefore not inconsistent with the dictates of the FAA. The FAA is intended to promote inexpensive, fair, and reasonable arbitration alternatives to litigation. It is not a license for businesses to take advantage of consumers by the imposition of one-sided, unfair, and legally unconscionable arbitration schemes. We will not allow our courts to be used to enforce unconscionable arbitration clauses any more than we will allow them to be used to enforce any other unconscionable contract in New Mexico.
Id. ¶ 38 (citation omitted).
In spite of the clarity of these Supreme Court cases, Defendant contends that New Mexico’s unconscionability analysis, as applied to arbitration agreements, is preempted by the FAA. In support of its argument, Defendant cites Concepcion, in which the United States Supreme Court overturned California’s Discover Bank rule, that invalidated class action waivers in arbitration agreements on the grounds of substantive unconscionability. The Discover Bank rule provides:
When [a class action] waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then . . . the waiver becomes in practice the exemption of the party “from responsibility for [its] own fraud, or willful injury to the person or property of another.” Under these circumstances, such waivers are unconscionable under California law and should not be enforced.
See Concepcion,___U.S. at_,
Based on Concepcion’s reference to the substantive unconscionability analysis of Discover Bank, Defendant argues that Fiser was implicitly overruled, that Cordova is likewise “inapposite,” and therefore, the district court erred in relying on Cordova as authority for precluding enforcement of its agreement. We disagree that Concepcion controls. As an initial matter, we note that Concepcion is inapplicable to the issues raised by the arbitration agreement in this case. No class action ban is before us. Furthermore, to the extent that Defendant argues that the substantive unconscionability analysis as applied to class action bans in Fiser was overruled by Concepcion, we conclude that different public policies underlie the Court’s holdings in Fiser from the Court’s holding in Cordova.
Our substantive unconscionability analysis as applied in Cordova to one-sided arbitration agreements is distinguishable from the application of the Discover Bank rule at issue in Concepcion. The equitable doctrine of substantive unconscionability is not a rule that directly targets a specific term of an agreement or an entire class of agreements. See Concepcion,__U.S. at__,
Thus, we decline to construe Concepcion in the broad manner that Defendant requests. See Concepcion, _ U.S. at___,
Furthermore, after the United States Supreme Court issued Concepcion, our own Supreme Court reaffirmed its holding in Cordova. See Rivera,
Defendant further asserts that the district court’s ruling is inconsistent with the dictates of the FAA because it requires “mutuality of obligation” for arbitration agreements, and mandates the “type” of consideration required for arbitration agreements. Defendant argues: “the FAA would preempt a judicial rule classifying as unconscionable contracts lacking symmetrical promises to arbitrate because such a rule would impose a special consideration requirement applicable solely and uniquely to arbitration agreements.” Thus, Defendant contends that the substantive unconscionability analysis acts to treat arbitration agreements differently from other contracts, because we don’t generally inquire into the adequacy of consideration to support a contract.
However, Defendant’s argument fails to appreciate that consideration and unconscionability are two different analyses under contract law. Consideration is a prerequisite to the legal formation of a valid contract. See Nance v. L.J. Dolloff Assocs., Inc.,
New Mexico law does not equate adequate consideration with a conscionable contract. As Fraser v. State Savings Bank, states:
Mere inadequacy of price, or any other inequality in a bargain, we are told, is not to be understood as constituting per se a ground to avoid a bargain in equity. For courts of equity, as well as courts of law, act upon the ground that every person who is not . . . under disability, is entitled to dispose of his property in such manner and upon such terms as he chooses; and whether his bargain be wise and discreet or otherwise, or profitable or unprofitable, are considerations not for the courts of justice, but for the party himself to deliberate upon. . . . Still there may be such unconscionableness or inadequacy of consideration in a bargain, as to demonstrate some gross imposition or some undue influence; and in such case, courts of equity ought to interfere, upon satisfactory ground of fraud.
We find further support for the separate treatment of unconscionability and consideration in the Supreme Court’s analysis of the arbitration agreement in Cordova. There, the Court concluded that the consideration to support the contract was not illusory, and therefore, the proper analysis of the alleged unfair terms should be examined “through the framework of a traditional unconscionability analysis.” Cordova,
Thus, because unconscionability and consideration are different analyses under New Mexico law, we disagree with Defendant’s contention that our unconscionability analysis equates to a disparate treatment of arbitration agreements. Consideration to support the arbitration agreement is not the issue. Rather, the district court’s ruling is predicated on the agreement’s unenforceability under the equitable doctrine of substantive unconscionability.
We inquire, on an equal basis for all contracts, whether terms of a contract are so unfairly unequal as to prevent enforcement of the contract under the equitable doctrine of unconscionability. See, e.g., Bowlin’s, Inc. v. Ramsey Oil Co.,
B. Unconscionability of the Arbitration Agreement
Unconscionability “can be analyzed from both procedural and substantive perspectives.” Cordova,
“While there is a greater likelihood of a contract’s being invalidated for unconscionability if there is a combination of both procedural and substantive unconscionability, there is no absolute requirement in our law that both must be present to the same degree or that they both be present at all.” Id. ¶ 24. Thus, our courts have concluded that where an agreement is so one-sided that the substantive unconscionability is apparent on the face of the contract, analysis of the procedural unconscionability of the formation of the contract is unnecessary to establish that the contract is unconscionable. See id. ¶¶ 32-34 (concluding that an arbitration provision that gave no judicial remedies to the consumer while reserving the right to take almost all of the claims the lender would have to court was one-sided, and stating “the substantive unconscionability of these one-sided arbitration provisions is so compelling that we need not rely on any finding of procedural unconscionability”); Rivera, 2011-NMSC033, ¶ 54 (same). Likewise, here, only the substantive unconscionability of the one-sided terms of the agreement are at issue. We review issues relating to the unconscionability of an arbitration agreement de novo. See Cordova,
Our Supreme Court invalidated arbitration agreements that were unfairly and unreasonably one-sided in favor of the drafter in Cordova and in Rivera. In Cordova, the Court invalidated an arbitration agreement in a loan contract. The provision required that the parties arbitrate all their claims, but in the event of a default, the lender was entitled to “seek its remedies in an action at law or in equity, including but not limited to, judicial foreclosure or repossession.” Cordova,
Likewise, in Rivera, the Court addressed the substantive unconscionability of an arbitration agreement in a car title loan contract that required the borrower to arbitrate any claims that she might have against the lender, but exempted from arbitration the lender’s “self-help or judicial remedies including, without limitation, repossession or foreclosure.”
The arbitration agreement signed on behalf of Ms. Figueroa exempts: “guardianship proceedings, collection and eviction actions initiated by the Health Care Center, any dispute where the amount in controversy is less than Two Thousand Five Hundred Dollars ($2,500.00).” Defendant argues that the district court misinterpreted “collection actions” to mean suits against a resident for fees, because in drafting the clause, Defendant meant that exemption to be construed solely to the “enforcement of judgments.” Thus, Defendant asserts that the practical effect of the arbitration clause does not reserve its most likely claims for a judicial forum. Defendant asserts that “collection actions” must be construed as being limited to judgment enforcement actions because of its proximity between guardianship and eviction actions in the clause that Defendant asserts require judicial enforcement, like judgment enforcement actions; and because “any dispute” in the exemption for claims under $2,500 covers claims against residents for fees. We disagree with Defendant’s construction of the arbitration agreement.
Terms in a contract are to be afforded their usual and ordinary meaning. See H-B-S P’ship v. Aircoa Hospitality Servs., Inc.,
Defendant asserts that even if the “collection actions” exemption is construed to include lawsuits against residents for fees, that this arbitration clause is distinguishable from those in Rivera and Cordova because they prevented the resident from bringing any claims to court. See Rivera,
First, we question when a circumstance could arise where the resident would have a guardianship action against the nursing home. See Black’s Law Dictionary 116 (9th ed. 2009) (stating that “[a] guardianship is almost always an involuntary procedure imposed by the state on the ward},]” and defining guardianship as “}t]he fiduciary relationship between a guardian and a ward or other incapacitated person, whereby the guardian assumes the power to make decisions about the ward’s person or property”). If there are any, Defendant has failed to point the Court to them. Further, although the exemption from arbitration for claims under $2,500 grants some judicial rights to the resident, this bilateral right to a judicial forum is de minimis. Rather, the practical effect of this agreement is no different from Cordova and Rivera: the resident is precluded from bringing any claims that he or she would likely have, while the most likely claims the nursing home would have against the resident are excluded from arbitration.
Thus, we conclude that like the arbitration agreements in Rivera and Cordova, the arbitration agreement in this case is unreasonably and unfairly one-sided in favor of Defendant. While we agree that arbitration obligations do not have to be completely equal, and that parties may freely enter into reasonable agreements to exempt certain claims from arbitration, we refuse to enforce an agreement where the drafter unreasonably reserved the vast majority of his claims for the courts, while subjecting the weaker party to arbitration on essentially all of the claims that party is likely to bring. See Rivera,
In further support of its claim, Defendant asserts that Plaintiff failed to present evidence that the arbitration agreement exempts the most likely claims Defendant would bring against a resident. We conclude that the inference that guardianship, collection, and eviction proceedings would be the most likely claims of the nursing home is self-evident. These claims are, by definition, more likely to be initiated by the nursing home against the resident, as they involve proceedings that are incident to the nursing home’s relationship with its resident tenants. See generally NMSA 1978, § 47-8-3(G) (1999) (‘“[E]viction’ means any action initiated by the owner to regain possession of a dwelling unit and use the premises under terms of the Uniform Owner-Resident Relations Act.”); Black’s Law Dictionary 635 (9th ed. 2009) (defining eviction as “[t]he act or process of legally dispossessing a person of land or rental property”); NMSA 1978, § 45-5A-102(F) (2011) (effective January 1, 2012) (“ ‘[G]uardianship proceeding’ means a judicial proceeding in which an order for the appointment of a guardian is sought or has been issued.”)
Defendant also argues that the agreement is not unfairly one-sided because it is subject to arbitration on many potential lawsuits it could have against the resident, including the following: (1) tort actions against a resident to recover money damages for negligent or intentional destruction of facility property or injury to other residents or staff; (2) claims for contribution or equitable indemnification arising from tort injuries inflicted by residents on other residents; (3) malicious abuse of process; (4) declaratory judgment to adjudicate resident rights and for injunctive relief; and (5) defamation actions. Despite Defendant’s argument that it is conceivable that some claims could be brought by the nursing home that would be subject to arbitration, we reiterate that the agreement nonetheless exempts the most likely claims that the nursing home would have against a resident at its facility: guardianship proceedings, collection actions, and evictions. These bilateral obligations that both parties may have to arbitrate certain types of claims do not act to rescind the gross disparity in reservation of the nursing home’s most likely claims to a judicial forum, while subjecting the resident’s most likely claims to arbitration. See Cordova,
Defendant further argues that the arbitration clause was drafted to exclude guardianship proceedings, collection actions, and evictions because those actions result in remedies that a court must enforce, and because small claims are not cost-effective in arbitration. Therefore, Defendant argues that the clause was drafted to exclude claims from arbitration that are better suited to a judicial forum. However, our Supreme Court rejected a similar proposition in Rivera.
Finally, Defendant asserts that even if the arbitration agreement is unconscionable on the grounds of its one-sided terms; the agreement was supported by other consideration and is therefore enforceable. Defendant argues that it gave alternate consideration in allowing Ms. Figueroa’s admission to the nursing home in exchange for her promise to arbitrate, and thus, the fact that mutual promises to arbitrate were not given by both parties is immaterial. However, we reiterate that the unconscionability analysis is a separate matter from whether consideration existed to support the legal formation of a contract. Rather, unconscionability voids a contract when it is unfair and grossly unreasonable, even if otherwise legally enforceable under contract formation principles. See Cordova,
We recognize Defendant’s argument that other jurisdictions do not inquire into the substantive unconscionability of the terms of an arbitration agreement, provided there is adequate consideration to support the agreement. See Motsinger,
C. Severability of the Arbitration Provision
Defendant next argues that even if we affirm the district court’s ruling that the “collection” portion of the arbitration agreement is substantively unconscionable, the agreement’s savings clause should act to sever and enforce the remainder of the arbitration agreement, including the portion that bilaterally subjects the nursing home and the resident’s tort claims to arbitration. The Arbitration Agreement’s “savings clause” states: “In the event a court having jurisdiction finds any portion of this Agreement unenforceable, that portion shall not be effective and the remainder of the Agreement shall remain effective.”
Defendant did not preserve its argument that the arbitration agreement could be severed from the provisions that were unconscionable. However, Defendant argues that we should address the argument in spite of the lack of preservation because it is a matter of widespread public interest. See Andrews v. Saylor,
When a provision of a contract is deemed unconscionable, “we may refuse to enforce the contract, or we may enforce the remainder of the contract without the unconscionable clause, or we may so limit the application of any unconscionable clause as to avoid any unconscionable result.” See Fiser,
Here, like the arbitration clauses in Cordova and Rivera, the exemptions of certain claims from arbitration are so central to the agreement that they are incapable of separation from the agreement to arbitrate, irrespective of any savings clause included in the agreement. See Rivera,
Defendant argues that even if Cordova applies to prevent severance of the unconscionable provisions, the agreement should still be enforced under the savings clause because Cordova was not decided until 2009, one year after the arbitration agreement had been signed by the parties. We are required to presume that judicial decisions in civil cases apply retroactively, unless the case announcing the new rule states that it should only be applied prospectively, or the presumption of retroactivity is overcome. Jordan v. Allstate Ins. Co.,
Cordova did not create new law, but rather, applied the well-settled equitable doctrine of unconscionability to a contract, and clarified our standard for substantive unconscionability. See Cordova,
III. CONCLUSION
The judgment of the district court is affirmed.
IT IS SO ORDERED.
Notes
We note that Judge Browning of the United States District Court for the District of New Mexico ruled contrarily to Judge Singleton on an identical arbitration clause in a different case. See THI of N.M. at Hobbs Ctr., LLC v. Patton, Civ. No. 11-537 LH/CG,
Section 44-7A-5 states: “In the arbitration of a dispute between a consumer, borrower, tenant or employee and another party, a disabling civil dispute clause contained in a document relevant to the dispute is unenforceable against and voidable by the consumer, borrower, tenant or employee.” Section 44-7A-1 (b)(4)(f) defines “disabling civil dispute clause” as: “a provision modifying or limiting procedural rights necessary or useful to a consumer, borrower, tenant or employee in the enforcement of substantive rights against a party drafting a standard form contract or lease, such as, by way of example, a clause requiring the consumer, tenant or employee to ... decline to participate in a class action.” (Emphasis added.)
See Brewer v. Mo. Title Loans, No. SC 90647,
We note that Judge Browning came to the same conclusion in THI of New Mexico at Hobbs Center, LLC, Civ. No. 11-537 LH/CG,
Defendant points out in its brief that “the Facility pursues fee collections through the formation of a deceased resident’s estate or through guardianship proceedings (to obtain Medicaid payments).”