Lead Opinion
OPINION
{1} A party who seeks to compel arbitration has the burden to prove the existence of a valid agreement to arbitrate. In this case, however, the district court shifted the burden to Plaintiff to prove that the agreement is invalid, and granted Defendants’ motion to compel arbitration under a nursing home mandatory arbitration agreement. We reverse and remand.
BACKGROUND
{2} Plaintiff was required to sign an arbitration agreement in order to be admitted into a nursing home, Arbor Brook Healthcare (Arbor Brook) to rehabilitate from back surgery. Notwithstanding the agreement to arbitrate, Plaintiff filed a complaint for damages in the district court against the operator of Arbor Brook, Arbor Brook LLC, d/b/a Arbor Brook Healthcare, and Laurel Healthcare Providers, LLC as its owner, operator, or manager (Defendants). Plaintiff alleged that during her stay at Arbor Brook, she developed painful and preventable decubitus ulcers at or near her surgical wound; that her surgical wound became infected; that the infection was ignored or not properly treated, leading to a staph infection; and that her care was negligent in several other respects.
{3} Defendants responded by filing a motion to dismiss the complaint and compel arbitration, alleging that under the arbitration agreement between Plaintiff and Arbor Brook, all of Plaintiffs claims are subject to arbitration. Plaintiff replied that the arbitration agreement is invalid because it is unconscionable. The district court first ruled that the arbitration agreement is not substantively unconscionable and then held an evidentiary hearing to determine whether the arbitration agreement is procedurally unconscionable. At the hearing, Plaintiff and the nurse liaison who obtained Plaintiffs signature to the arbitration agreement testified what they recalled about the circumstances under which Plaintiff signed the arbitration agreement.
{4} The district court then issued a letter decision setting forth its ruling and reasoning. The district court said,
the issue presented was difficult because of the credibility of the witnesses, not in the sense of their truthfulness, but in the sense of their ability to recall the events surrounding the signing of the contract. Only two witnesses testified, one for the Plaintiff and one for Defendant. Ultimately, however, it was Plaintiff’s burden to establish the contract she signed is unenforceable.
The district court specifically noted that Plaintiff’s testimony demonstrated she was confused about signing the arbitration agreement and attributed her confusion to the pain medication she was under at the time. The district court also ruled that the factors considered to determine the validity of the arbitration agreement “generally are evenly balancedf.]” One of the factors it considered was whether Plaintiff had the option of going to another nursing home facility. As to this factor, the district court found, “Plaintiff believed that her only option was to be discharged from the hospital to Defendants’] care, but did not testify whether she looked into other placement options, and it was her burden to prove the contract at issue is unenforceable.” Ultimately, the district court ruled that the arbitration agreement was not procedurally unconscionable. A formal order was filed granting Defendants’ motion to dismiss and to compel arbitration, and Plaintiff appeals.
{5} To place our holding in context, we first address our standard of review, followed by a discussion of: (1) the enforcement of a valid arbitration agreement; (2) the elements of substantive unconscionability in an arbitration agreement; and (3) the elements ofprocedural unconscionability in an arbitration agreement. Within this context we then address: (4) which party has the burden of proof when one party seeks dismissal of a suit to compel arbitration under an arbitration agreement, and the other party asserts it is unconscionable; and (5) whether shifting the burden of proof resulted in reversible error.
DISCUSSION
Standard of Review
{6} “Whether a contract provision is unconscionable and unenforceable is a question of law that we review de novo.” Rivera v. Am. Gen. Fin. Servs., Inc.,
The Enforcement of Arbitration Agreements
{7} Arbitration agreements are enforced under both New Mexico and federal law. See Piano,
{8} However, unconscionability is an equitable doctrine rooted in public policy under which an arbitration agreement may be deemed unenforceable. Rivera,
{9} When a contractual term is deemed to be unconscionable, two possible remedial actions can be taken.
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
Id. ¶ 39 (internal quotation marks and citation omitted); see also Smith v. Price’s Creameries,
Substantive Unconscionability
{10} Contractterms themselves determine whether they are illegal, contrary to public policy, or grossly unfair, and therefore, substantively unconscionable. Rivera,
{11} InNew Mexico, a contract provision that unreasonably benefits one party over another is substantively unconscionable. Rivera,
Procedural Unconscionability
{12} A contract or provision therein is procedurally unconscionable where there is such gross inequality in bargaining power between the parties that one party’s choice is effectively non-existent. Guthmann,
{13} While not a prerequisite, a contract of adhesion may result in a procedurally unconscionable agreement. Rivera,
{14} Thus, to determine if a contractual provision has the stigma of procedural unconscionability, the circumstances surrounding the formation of the contract must be examined. Cordova,
Who Has the Burden of Proof
{15} A legally enforceable contract is a prerequisite to arbitration under the New Mexico Uniform Arbitration Act, and without such a contract, the parties will not be forced to arbitrate. Piano,
{16} The foregoing rules are well embedded in New Mexico jurisprudence. For example, in Shaw v. Kuhnel & Associates, Inc.,
{17} We acknowledge and recognize that most courts that have considered the question, place the burden on the party seeking to set aside an arbitration agreement on unconscionability grounds.
{18} The case before us is not a mere commercial transaction. When individuals are dealing with admission into a nursing home, the health issue making nursing home care a necessity is often so grave, critical, or severe, that the only focus is on getting proper treatment, with everything else being secondary. In a nutshell, such individuals are often at their most vulnerable, emotionally or physically, or both. And this often includes immediate family members. Moreover, the context does not usually allow for measured consideration of what nursing homes are available, the terms required for admission, and the like. Thus, we have already noted that admission agreements and other admission-related documents such as mandatory arbitration agreements are often presented to aging and infirmed individuals and their families “when they are at their most vulnerable, in need of quick assistance, and potentially can easily be taken advantage of.” Barron v. The Evangelical Lutheran Good Samaritan Soc’y, 2011 -NMCA-094, ¶ 41,
{19} In recognition of these realities, the West Virginia Supreme Court has declared that all mandatory arbitration clauses in nursing home admission agreements are unconscionable and unenforceable. Brown v. Genesis Healthcare Corp., No. 35494,
Because of illness, incapacitation, or physical or mental impairment, people being admitted to a nursing home are usually quite vulnerable ....
[I]n the 1980s, the government changed the way hospitals were paid for their Medicare patients; since the change, discharge planning occurs “quicker and sicker.” The weakened physical and emotional condition of a person from an acute illness is one of the most significant factors that compels a decision to seek post-hospital nursing home placement. Compounding the dangers of this decision-making time, not only is the person being discharged “quicker and sicker,” but the hospital treatment itself often further debilitates the person. A person’s “decision” to enter a nursing home is, therefore, often made when the person’s decision-making abilities are seriously impaired.
Unlike the situation that exists when a consumer signs a contract for a product or service, people entering a nursing home have to sign admissions contracts in the midst of a crisis, without time to comparison shop or to negotiate the best service and price combination. Put simply, there is usually little time to investigate options or to wait for an opening at a nursing home of choice. Time pressure during the hospital discharge process significantly impairs people’s ability to seek and carefully consider alternatives.
Ultimately, people being admitted to long-term care facilities and their families have to sign admission contracts without time to comparison shop or to negotiate the best service and price combination. The pressures of deciding placement at such a time, coupled with physical and/or mental infirmities, facing discharge from the hospital, financial limitations, and/or lack of knowledge about long-term care options make consumers vulnerable and dependent on full disclosure by facilities.
(internal quotation marks and footnotes omitted).
{20} We therefore hold that when a nursing home relies upon an arbitration agreement signed by a patient as a condition for admission to the nursing home, and the patient contends that the arbitration agreement is unconscionable, the nursing home has the burden of proving that the arbitration agreement is not unconscionable.
Shifting The Burden of Proof Resulted in Reversible Error
{21} Defendants had the burden of proving that the arbitration agreement is not unconscionable. However, the district court shifted the burden to Plaintiff to prove that the arbitration agreement is not unconscionable. We conclude this was reversible error.
{22} We have demonstrated that many factual issues must be decided by a district court in determining whether an arbitration agreement is unconscionable. In determining whether the contract is procedurally unconscionable, the district court said the issues were difficult to decide because neither Plaintiff nor the nurse who obtained her signature on the arbitration agreement had clear recollections of the factual circumstances, and that the factors it considered to determine whether the arbitration agreement is unconscionable “generally are evenly balanced}.]” The district court said that the “deciding factor” in its mind was Plaintiff’s understanding of the arbitration agreement at the time she signed it. However, we have no way of assessing what weight the court would have given this evidence, or whether the district court would have come to the same conclusion if the burden of proof had been properly allocated to Defendants. In addition, we have no way of determining whether the district court applied the correct burden of proof in ruling that the mandatory arbitration agreement is not substantively unconscionable. Moreover, when the issue of substantive unconscionability was first considered, the parties and the district court did not have the benefit of our Supreme Court’s opinion in Rivera,
{23} On remand, we encourage the district court to enter findings of fact and conclusions of law pursuant to Rule 1-052 NMRA to facilitate appellate review of its factual determinations relating to unconscionability and its legal ruling on whether the arbitration is legally unconscionable.
CONCLUSION
{24} We reverse and remand for further proceedings in accordance with this Opinion.
{25} IT IS SO ORDERED.
I CONCUR:
Notes
See, e.g., Rogers v. Royal Caribbean Cruise Line,
Dissenting Opinion
(dissenting).
{26} Our Supreme Court has stated the “fundamental principle that arbitration is a matter of contract.” Rivera, 201 l-NMSC-033, ¶ 16 (internal quotation marks and citation omitted). To this end, “courts must place arbitration agreements on an equal footing with other contracts}.]” Id. (internal quotation marks and citation omitted). I therefore do not agree with shifting the burden to the party seeking to enforce an arbitration agreement to prove that an arbitration agreement is not unconscionable, because this position does not have a basis in well-established contract law. As a result, I respectfully dissent.
{27} The majority correctly states that “[t]he party who seeks to compel arbitration has the burden of proof to establish the existence of a valid agreement to arbitration.” Majority Opinion ¶ 15. However, the cases cited by the majority indicate that this burden applies to contract formation issues, not to defenses by a party seeking to stop the enforcement of an otherwise valid contract. For example, in DeArmond,
{28} Unconscionability, on the other hand, is an equitable doctrine that is a defense or “exception” to enforcing an otherwise valid contract. See Montano v. N.M. Real Estate Appraiser’s Bd.,
we believe that where the meaning of a material contract term is in dispute a party seeking affirmative relief based upon its interpretation necessarily bears the burden of establishing that its interpretation controls. This approach is consistent with the general default rule allocating the burden of persuasion in civil cases to the party who invokes the authority of a court to alter the extrajudicial status quo.
Id. (citation omitted).
{29} As the majority acknowledges, most courts that have addressed the issue have placed the burden on the party seeking to set aside an arbitration agreement on unconscionability grounds. Majority Opinion ¶ 17 n.l. Consistent with these other courts, this Court has recently clarified that the party challenging a provision of an arbitration agreement that banned class action claims on unconscionability grounds has the burden of proof. See Felts v. CLK Mgmt., Inc.,
{30} The majority distinguishes Felts and cases from other jurisdictions because the cases involve “commercial transactions.” Majority Opinion ¶ 17. However, even cases in other jurisdictions specifically involving challenges to arbitration agreements in nursing home admission documents impose the burden of proof upon the party challenging the agreement. See, e.g., Briarcliff Nursing Home, Inc. v. Turcotte,
{31} I also note that in Brown,
{32} Although I share the majority’s concern that “individuals are often at their most vulnerable, emotionally or physically, or both” when seeking admission to a nursing home, I do not believe this concern justifies a sweeping exception to well-established law for nursing home patients that the majority creates. Majority Opinion ¶ 18. I would therefore treat an arbitration agreement signed by a patient as a condition for nursing home admission the same as any other arbitration agreement and would hold that, generally, a party seeking to set aside the arbitration agreement has the burden of proving that the arbitration agreement is unconscionable. A party’s vulnerability is a fact for the court to consider in determining the issue of procedural unconscionability.
{33} Moreover, even assuming that there may be appropriate cases for a district court to shift the burden of proof to a party seeking to set aside an arbitration agreement when the facts of the case indicate that the party seeking to enforce the arbitration agreement would be in a better position to prove whether an arbitration agreement is unconscionable, this is not such a case. The district court found that upon admission to the nursing home on April 11, 2007, Plaintiff was confused as the result of pain medication, that she had ten minutes to complete forty minutes of paperwork during the admission process, and that she did not have her glasses. However, the district court further found that Plaintiff signed the arbitration agreement on April 10, 2007, before the transfer to the nursing home; and Plaintiff presented no testimony regarding her state of mind or condition on that date. Additionally, the district court stated that the “deciding factor” in determining that the arbitration agreement was not unconscionable was Plaintiffs understanding ofthe agreement at the time she signed it. Importantly, Plaintiff admitted that she understood that the arbitration agreement “significantly limited her rights,” even though she was medicated. Under these circumstances, the district court did not err in determining that Plaintiff had the burden to prove that the arbitration agreement was unconscionable, and I respectfully dissent.