Lead Opinion
OPINION
{1} This case requires us to examine the substantive conscionability of an arbitration agreement that a nursing home requires patients to sign as a condition of admission to the home. Defendants Laurel Healthcare Providers, L.L.C., Laurel Meadows, L.L.C., AT Health Ventures, L.L.C., A & J Ventures, L.L.C., Healthcare Management Services, L.L.C., Marion Scott Athans, Christopher A. Tapia and Alan Zampini (collectively, Laurel Defendants), and Defendants Belen Meadows Healthcare and Rehabilitation Center, L.L.C., Skilled Healthcare, L.L.C., and Skilled Healthcare Group, Inc. (collectively, Belen Defendants; combined, the Laurel Defendants and Belen Defendants shall be referred to as Defendants) appeal the district court’s denial of their respective motions to dismiss and compel arbitration pursuant to the terms of their arbitration agreement (the Agreement) entered into with one of their residents, Theodore Lendeen. The district court found the Agreement was substantively unconscionable under New Mexico law because it was unfairly one-sided in favor of Defendants. Defendants ask this Court to reverse the district court’s decision and remand to the district court with instructions to dismiss the complaint and compel arbitration. W e affirm the ruling of the district court in favor of Plaintiff.
BACKGROUND
{2} This appeal arises from a personal injury lawsuit filed by Plaintiff, as personal representative of the wrongful death estate of her father, Theodore Lendeen. Plaintiff’s complaint is based on facts that arose out of the care provided to Mr. Lendeen while he was a resident at a nursing home known as Laurel Meadows Healthcare (Laurel Meadows) and/or Belen Meadows Healthcare and Rehabilitation Center (Belen Meadows). Laurel Defendants owned and operated the nursing home until September 1, 2007, when Belen Defendants thereafter assumed operation of the nursing home. The Agreement at issue in this case was a separate attachment to the Laurel Meadows admission agreement (the Admission Agreement) that Plaintiff signed on behalf of her father in March 2006. In September 2007, when Belen Defendants assumed operation of the nursing home, they assumed all rights and responsibilities under the Agreement.
{3} Under the terms of the Agreement, both parties “relinquish[ed] their right to have any and all disputes associated with [the Agreement] and the relationship created by the Admission Agreement... resolved through a lawsuit, . . . except to the extent that New Mexico law provides for judicial action in arbitration proceedings.” The Agreement made two exceptions to the requirement that the parties resolve all disputes through arbitration. It stated, “[t]his [arbitration [ajgreement shall not apply to disputes pertaining to collections or discharge of residents.”
{4} Based on the language in the Agreement, Defendants responded to Plaintiffs complaint by filing motions to dismiss and compel arbitration (motions to compel). Defendants argued that the claims raised in Plaintiffs complaint were the type of claims that were to be arbitrated under the terms of the Agreement and that challenges to the enforceability of the Agreement should b e decided by an arbitrator. Plaintiff opposed the motions to compel alleging, among other things, that the Agreement was substantively unconscionable.
{5} Relying on the New Mexico Supreme Court’s opinion in Cordova v. World Finance Corp. of N. M.,
DISCUSSION
A. Standard of Review
{6} We review de novo a district court’s order denying a motion to compel arbitration. Felts v. CLK Mgm’t, Inc.,
B. Arbitrability
{7} We first review Defendants’ argument that the district court did not have authority to decide that the Agreement was unconscionable because the terms of the Agreement delegated this decision to an arbitrator. The arbitrability of a particular dispute is generally a threshold issue to be decided by the district court. Felts,
{8} On appeal, Defendants argue that the Agreement contained a clear delegation provision that Plaintiff did not challenge and, therefore, it would be improper to permit the district court to determine arbitrability. We agree that by requiring both parties to relinquish the right to access a judicial forum for all claims except those related to collections or discharge of residents, the terms of the Agreement may have delegated the threshold question of enforceability to the arbitrator. Id. ¶ 23; see Bd. of Educ. of Carlsbad Mun. Schs. v. Harrell,
{9} Similarly, counsel for Laurel Defendants did not address or even mention the question of authority to decide arbitrability during arguments to the district court. See Rule 12-216(A) NMRA (“To preserve a question for review it must appear that a ruling or decision by the district court was fairly invoked, but formal exceptions are not required[.]”); State v. Reyes,
C. Substantive Unconscionability
{10} Defendants contend that the district court erred when it ruled that the Agreement was substantively unconscionable. They assert that the Agreement’s exemption provision is not unreasonably one-sided because it bilaterally allows either party to pursue claims regarding collections and discharge of residents in a judicial forum. Thus, the key question is whether the type of exemption clause in the Agreement is sufficiently fair to avoid being substantively unconscionable as a matter of law.
{11} “Unconscionability is an equitable doctrine, rooted in public policy, which allows courts to render unenforceable an agreement that is unreasonably favorable to one party while precluding a meaningful choice of the other party.” Cordova,
{12} In this case, the district court relied on Cordova to determine that the Agreement was substantively unconscionable. In Cordova our Supreme Court voided an arbitration provision used by a small loan company as inherently one-sided because it required the borrower to submit its claims to arbitration but allowed the lender the option of litigating the type of claim it was most likely to seek against the borrower. Id. ¶¶ 1, 32. Our Supreme Court focused its conscionability analysis exclusively on the one-sidedness of the agreement’s terms, which the Court described as “egregious.” Id. ¶¶ 26-27, 32. It determined that an arbitration provision, exempting the lender from arbitration in cases of default, its most likely type of claim, but required the borrower to arbitrate all of its claims was unfairly one-sided. Id. The Court explained:
It is highly unlikely that [the lender] will find itself at odds with the contractual terms of its own form agreements, or the circumstances of its lending or collection practices, or claim it was the victim of a fraudulent consumer scheme, or have any other reason to make a claim against its borrowers for violation of consumer protection laws.
Id. ¶ 27. Thus, it was highly unlikely that the lender would be limited to arbitration when seeking its remedies against the borrower. See id. ¶ 26. As a result, the Court held that the arbitration agreement was substantively unconscionable and struck the arbitration agreement in its entirety from the loan agreement. Id. ¶ 40.
{13} Two years later, our Supreme Court again concluded that an arbitration agreement was substantively unconscionable. See Rivera,
{14} Although the issue of unconscionability was not necessary to render the decision in Rivera, our Supreme Court decided that it would specifically address the issue in order to “correct the Court of Appeals’ overly narrow construction of [the] holding in Cordova,” which focused on the fact that the arbitration provision was not completely one-sided. Rivera,
{15} Although the exemption provision is facially bilateral in the sense that it does not completely extinguish Plaintiff’s right to access the courts, in effect this distinction from Cordova and Rivera is illusory. This Court recently addressed similar issues in Figueroa. 2012-NMCA-__ , ¶¶ 28-33. Common sense dictates that claims relating to collection of fees and discharge of residents are the types of remedies that a nursing home, not its resident, is most likely to pursue. Id. ¶ 31 (noting that it is self-evident that guardianship, collections, and eviction proceedings would be the most likely claims brought by the nursing home).
{16} Defendants did argue that it is not “completely outside of the realm of possibilities” that a resident may pursue a legal remedy against nursing home with respect to debt collection or the discharge of a resident, although they did acknowledge that such situations are rare. Thus, Defendants recognized the practical reality of their exemption provision. It provides Defendants with a judicial forum to litigate its most likely and beneficial claims while totally excluding access to the judicial system for claims regarding negligent care, the most likely claims to be pursued by a resident such as Plaintiff. See id. ¶ 32 (stating that the exemption of the nursing home’s most likely claims from arbitration rendered the agreement sufficiently one-sided to be deemed unconscionable).
{17} Defendants did not provide any factual evidence regarding the one-sided nature of the claims exempted from arbitration. We do not rale out the possibility that probative evidence could be offered in this type of case. Here, however, Defendants declined the suggestion made at oral argument that this Court consider remanding the matter for further factual development regarding the facial one-sidedness of the exempted claims. Defendants agreed that further factual development was unnecessary. As a result, the district court approach regarding the lopsided nature of the claims removed from mandatory arbitration was proper in this case.
{18} While no single, precise definition of substantive unconscionability can be articulated, substantive unconscionability broadly refers to whether the material terms of a contract are patently unfair and more beneficially one-sided in favor of the more powerful party. See Rivera, 2011 -NM SC-03 3, ¶¶43, 53. By excepting disputes pertaining to collections and discharge of residents from arbitration, Defendants chose the forum to resolve their disputes that were presumptively deemed to be “most likely,” while simultaneously forcing Plaintiff, the weaker party, to arbitrate her most likely disputes. As a result, although the exemption provision may facially appear to apply evenhandedly, its practical effect unreasonably favors Defendants, and the provision’s bilateral appearance is inaccurate. See Fitz v. NCR Corp.,
D. The Arbitration Savings Clause and Severability
{19} Defendants next argue that even if the portion of the Agreement exempting disputes pertaining to collections and discharge of residents is substantively unconscionable, the Agreement’s savings clause should act to sever the offending portion and enforce the remainder of the arbitration agreement. The Agreement’s “savings clause” states: “If any provision of this [arbitration [agreement is found to be invalid, the other provisions shall remain enforceable.
{20} “When [the Court of Appeals] determines that contract provisions are unenforceable we can either strike the provisions in their entirety or reform the provisions into a fair and balanced agreement.” Rivera,
{21} In Figueroa, we directly addressed and rejected the defendants’ savings clause argument. 2012-NMCA-__, ¶¶ 38-40. Consistent with Figueroa, we shall also follow Rivera and Cordova, thereby refusing to sever Defendants’ exemption provision from the remainder of the Agreement. Rivera, 2011-NMSC-033456; Cordova,
CONCLUSION
{22} The arbitration provision in the Agreement is unenforceable. For the foregoing reasons, we affirm the decision of the district court.
{23} IT IS SO ORDERED.
I CONCUR:
Concurrence Opinion
(specially concurring).
{24} I concur. I ask, has our Supreme Court already decided that an arbitration clause is substantively unconscionable as unfairly one-sided when the clause excludes from arbitration one or more claims most likely to be pursued by the healthcare or loan company, even if the healthcare or loan company might be able to establish that litigating a claim in court is in the best interests of both parties in terms of economy and perhaps even speed? It would appear so. See Rivera,