Harry Clay borrowed $2,400 from New Mexico Title Loans, secured by his vehicle. When he failed to repay it, two employees of Certified Adjusters tried to repossess it. Clay resisted, and one of the employees shot him, leaving him unable to walk.
Clay sued New Mexico Title Loans, the repossession company, and the employee who shot him, for various tort claims, and, in the case of the lender, for breach of contract. The lender moved to compel arbitration, invoking a provision in the lending agreement that committed to arbitration any dispute or claim “that in any way arises from or relates to this Agreement or the Motor Vehicle … securing this agreement.” The arbitration provision, however, excluded the lender’s right to enforce its security interest “by using self-help.” (¶ 17).
The Court of Appeals, in Clay v. New Mexico Title Loans, Inc., held that Clay’s tort claims against New Mexico Title Loans were not subject to the arbitration agreement, but that his contract claim fell within its scope.
Clay argued, however, that the arbitration agreement was unconscionable because it contained an “escape hatch,” which provides that the single arbitrator’s decision would be final, but “if the amount of the Claim exceeds $100,000 . . ., any party can appeal the award to a three-arbitrator panel” with authority to reconsider the “initial award.”
Judge Bustamante’s opinion for the Court agreed that this provision was unconscionable because the lender would be more likely than the consumer to appeal claims over the $100,000 threshold, and therefore the agreement was unfairly one-sided. (¶¶ 34-35). The lender would benefit because “small claims, over which it is unlikely to initiate proceedings anyway, are required to be arbitrated, whereas it is free to litigate large claims in any way it chooses.” And “[a]lthough the consumer also has” the option to appeal, “the consumer’s claims are more likely to fall below the threshold, and, therefore, be subject to arbitration only.” (¶ 35).
This result seems strange to me. The appeals clause applies to all “claims” over $100,000, not to the initial arbitrator’s “award.” If a consumer brings a claim for over $100,000 (as Clay presumably did, given his severe injuries), and the consumer loses, then the consumer has just as much right to appeal to a three-arbitrator panel as would the lender if the consumer had prevailed.
Moreover, it is unclear why the Court believed that a lender is more likely to bring claims over $100,000 than a consumer. When a lender makes a small loan to a consumer, such as the $2,400 loan to Clay, it is hard to imagine what sort of claim the lender could have against the consumer that would exceed $100,000 in value. On the other hand, it is easier to imagine a consumer bringing, say, a punitive damages claim or a class action seeking over $100,000 from the lender.
Perhaps the parties presented evidence on this point in the district court, but if so, the Court of Appeals does not discuss it. If you believe the Court’s decision on this point makes sense, and think that I’ve missed something, please do leave a comment!