New Mexico’s appellate courts have held that arbitration agreements are unconscionable if they allow one party to bring its most likely claims in court, while requiring the other party to bring its most likely claims in arbitration. This view is reflected in cases like Cordova v. World Finance Corp. of New Mexico and Figueroa v. THI of New Mexico at Casa Arena Blanca LLC (about which I blogged here).
Under the Federal Arbitration Act, arbitration agreements are enforceable “save upon grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. New Mexico’s courts, however, believe that the FAA does not preempt state law requiring that arbitration agreements apply (more or less) equally to both parties, because unconscionability is a ground on which any contract could be revoked.
But in THI of New Mexico at Hobbs Center, LLC v. Patton, the Tenth Circuit held that the FAA preempts New Mexico’s fair-balance requirement. The case involved a nursing home arbitration agreement that allowed the nursing home to bring the claims it was most likely to have against a resident in court, but required the resident to bring his most likely claims (e.g. personal injury claims) in arbitration.
As Judge Harris Hartz’s opinion explains, the notion that a contract is unconscionable if it allows one party to bring some claims in court, while requiring another to bring his or her claims in arbitration, assumes “the inferiority of arbitration to litigation.” But this sort of analysis, Judge Hartz noted, is exactly what the FAA prohibits: “A court may not invalidate an arbitration agreement on the ground that arbitration is an inferior means of dispute resolution.”
This decision opens up a split between the Tenth Circuit, and New Mexico’s state courts, about whether the FAA preempts the fair-balance principle. It is possible that New Mexico’s appellate courts will adopt Judge Hartz’s analysis on the next occasion they have to consider the issue.
If New Mexico’s appellate courts will not reconsider the rule in Cordova and Figueroa, this increases the likelihood that the U.S. Supreme Court will review the issue. The U.S. Supreme Court denied the petition for writ of certiorari in Figueroa. A similar petition in Toll Brothers, Inc. v. Noohi, a case from the Fourth Circuit, was thought to have a good chance of being granted, but it apparently settled while the petition was pending.
Do you agree, or disagree, with the Tenth Circuit’s decision? Please feel free to leave a comment with your thoughts.