NM Court of Appeals strikes down another nursing home arbitration agreement

In response to a wrongful death lawsuit arising from the death of a resident, a Belen nursing home sought to enforce an arbitration agreement, which required that all disputes between the resident (or his family) and the nursing home be resolved in arbitration, except for “disputes pertaining to collections or discharge of residents.”  The district court refused to enforce the agreement on unconscionability grounds.

Last week the Court of Appeals issued its opinion in Ruppelt v. Laurel Healthcare Providers, LLC, affirming the district court.  Writing for the Court, Judge Timothy Garcia said that the agreement was substantively unconscionable because it was unfairly one-sided, in that it preserved the nursing home’s right to bring to court its most likely claims (i.e. collection and discharge lawsuits), but forced the resident to arbitrate his most likely claims. 

This result is unsurprising, given the New Mexico Supreme Court’s decisions in Cordova v. World Finance Corporation and Rivera v. American General Financial Services, and the Court of Appeals’ recent decision in Figueroa v. THI of NM at Casa Arena Blanca, LLC (which I discussed here), all of which refused to enforce arbitration agreements due to provisions which allowed the corporate defendants to bring certain claims in court, while requiring consumers to bring all (or most) of their claims in arbitration.

While these decisions state that it’s possible for a consumer arbitration agreement that excepts certain sorts of claims from its scope can be enforceable, the only sure way to safeguard an arbitration agreement from attack under Cordova and Rivera is to draft it so that all possible claims by both parties are subject to arbitration.

I still think, however, that this entire line of cases may be preempted by the Federal Arbitration Act.  Section 2 of the Act provides that an arbitration agreement may be invalidated on state-law grounds that apply to all contracts, and on its face, unconscionability is such a principle.  But if our courts strike down arbitration agreements as being “unfairly one-sided,” and do not strike down other contracts that are equally one-sided, that amounts to treating arbitration contracts differently from other contracts.  And that’s exactly what the Act prohibits.

I don’t know whether New Mexico appellate decisions applying the “unfairly one-sided” principle of unconscionability actually treat non-arbitration contracts differently.  It may be that they do not, and in that event Cordova and Rivera would likely not be pre-empted.  But for defense attorneys, the argument may be worth exploring.

What do you think?

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