Clay v. N.M. Title Loans, Inc.

Decision Date20 September 2012
Docket NumberNo. 31,356.,31,356.
Citation288 P.3d 888
PartiesHarry CLAY, individually and as natural father of Bre Clay and Austin Clay, minor children, Plaintiffs–Appellees, v. NEW MEXICO TITLE LOANS, INC., Defendant–Appellant.
CourtCourt of Appeals of New Mexico


Fine Law Firm, Mark Fine, Albuquerque, NM, for Appellees.

Butt Thornton & Baehr PC, Emily A. Franke, Jane A. Laflin, Raúl P. Sedillo, Albuquerque, NM, for Appellant.



{1} New Mexico Title Loans, Inc. (Lender) appeals from the district court's denial of its motion to compel arbitration. The district court ruled that (1) the arbitration clause is substantively unconscionable because it is against public policy and because the appeals clause unfairly benefits Lender over borrowers, and (2) the arbitration provision is ambiguous as to whether Chris “Harry” Clay's (Borrower) tort claims are subject to arbitration, and the provision is, therefore, unenforceable. We conclude that Borrower's tort claims are not within the scope of the arbitration provision and that the appeals clause is substantively unconscionable and, therefore, unenforceable. We affirm in part, reverse in part, and remand for further proceedings consistent with this Opinion.

I. BACKGROUNDA. Factual Background

{2} On March 5, 2010, Borrower signed a loan agreement (Agreement) with Lender in which he agreed to pay $3,177.84 for a loan of $2400. He agreed to use his 1999 Dodge Ram truck as collateral to secure the loan. The Agreement included an arbitration provision purporting to apply to “any claim, dispute or controversy between you and us that in any way arises from or relates to this Agreement or the Motor Vehicle ... securing this Agreement.” Borrower did not pay back the loan when it was due on April 5, 2010. On the evening of May 21, 2010, two employees of Certified Adjusters attempted to repossess the truck on behalf of Lender. The parties dispute the details of the encounter but not the two essential facts: (1) Borrower resisted Certified Adjusters' attempts to take the vehicle; and (2) one of Certified Adjusters' employees, Ryan Browning, shot Borrower while Borrower's daughter watched. As a result, Borrower is unable to walk.

B. Procedural Background

{3} Borrower filed a twelve-count complaint against Lender, Certified Adjusters, and Ryan Browning, alleging tort claims including negligence per se, negligent hiring and retention, breach of duty during ultra-hazardous activity, loss of consortium, negligent infliction of emotional distress, and breach of non-delegable duty. He also alleged breach of contract by Lender. After providing written notice of intent to compel arbitration, Lender filed a motion and memorandum to stay litigation and compel arbitration in district court. The district court found that the arbitration provision in the Agreement was substantively unconscionable, “both as a matter of public policy and due to an impermissible ‘escape hatch’ clause” and, therefore, unenforceable. It also found, in the alternative, that the applicability of the arbitration provision to Borrower's claims was ambiguous. Since it was ambiguous, the district court [c]onstru[ed], as it must, this ambiguity against the drafter of the contract, [Lender, and found] that [Borrower's] allegations do not fall within the scope of the arbitration provision.”


{4} Borrower argues that the arbitration provision in the Agreement is both substantively and procedurally unconscionable because the terms are unreasonably unfair, there was fraud in the inducement, and there was a gross disparity in bargaining power between Borrower and Lender. He asserts further that, even if it were not unconscionable, his claims do not fall within the scope of the arbitration provision. Lender contends that the arbitration provision is not unconscionable because it is not “illegal, contrary to any public policy, or unreasonably favorable to [Lender].” Lender also argues that the plain language of the provision encompasses all of Borrower's theories of recovery and, therefore, the district court erred in finding ambiguity.

A. Standard of Review

{5} We apply a de novo standard of review to a district court's denial of a motion to compel arbitration.” Cordova v. World Fin. Corp. of N.M., 2009–NMSC–021, ¶ 11, 146 N.M. 256, 208 P.3d 901. “As contracts, [w]e consider [arbitration agreements] as a whole to determine how they should be interpreted.” Medina v. Holguin, 2008–NMCA–161, ¶ 8, 145 N.M. 303, 197 P.3d 1085 (alterations in original) (internal quotation marks and citation omitted). [I]t is established law that our appellate courts will affirm a district court's decision if it is right for any reason, so long as the circumstances do not make it unfair to the appellant to affirm.” Cordova, 2009–NMSC–021, ¶ 18, 146 N.M. 256, 208 P.3d 901.

B. Analysis

{6} Arbitration is a “highly favored” form of dispute resolution. Santa Fe Techs., Inc. v. Argus Networks, Inc., 2002–NMCA–030, ¶ 51, 131 N.M. 772, 42 P.3d 1221;see9 U.S.C. § 2 (1947); NMSA 1978, §§ 44–7A–1 to –32 (2001) (Uniform Arbitration Act). “It promotes both judicial efficiency and conservation of resources by all parties.” Santa Fe Techs., Inc., 2002–NMCA–030, ¶ 51, 131 N.M. 772, 42 P.3d 1221;see Cordova, 2009–NMSC–021, ¶ 30, 146 N.M. 256, 208 P.3d 901.

{7} The purpose of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–6 (2006), was to combat “widespread judicial hostility to arbitration agreements.” AT & T Mobility LLC v. Concepcion, –––U.S. ––––, ––––, 131 S.Ct. 1740, 1745, 179 L.Ed.2d 742 (2011). Section 2 of the FAA provides that

[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. Section 2 creates a presumption favoring arbitration. [Q]uestions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.”

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Id. at 24–25, 103 S.Ct. 927. A dispute as to whether there is a binding arbitration agreement, however, obviates that presumption. DeArmond v. Halliburton Energy Servs., Inc., 2003–NMCA–148, ¶ 8, 134 N.M. 630, 81 P.3d 573.

{8} In spite of these presumptions, construction of arbitration provisions proceeds along typical contract interpretation avenues. We have described [Section 2] as reflecting both a liberal federal policy favoring arbitration, and the fundamental principle that arbitration is a matter of contract. In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms[.] Concepcion, ––– U.S. at ––––, 131 S.Ct. at 1745 (internal quotation marks and citations omitted). “Equal footing” means that, Section 2 of the FAA notwithstanding, arbitration provisions are not given any special deference or treatment not accorded other contract terms. See Fiser v. Dell Computer Corp., 2008–NMSC–046, ¶ 23, 144 N.M. 464, 188 P.3d 1215. State law limitations specific to arbitration provisions are preempted by the FAA. See Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 688, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (stating that “Montana's law plac[ing] arbitration agreements in a class apart from any contract, and singularly limit[ing] their validity” conflicts with the Act and is, therefore, preempted (internal quotation marks omitted)). Arbitration provisions are, however, subject to state law if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. Thus, generally applicable contract defenses ... may be applied to invalidate arbitration agreements without contravening [Section] 2.” Id. at 686–87, 116 S.Ct. 1652 (internal quotation marks and citations omitted).

{9} The questions before us are whether the arbitration provision or any part thereof is substantively or procedurally unconscionable and whether Borrower's claims fall within the scope of the provision. Because we think the latter issue is potentially dispositive, we address it first.

1. Scope of the Arbitration Provisiona. Arbitrability

{10} We start with a basic preliminary question: Who decides whether an issue is arbitrable under the agreement? Generally, questions of arbitrability are within the purview of a court. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002); see § 44–7A–7(b) (“The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.”). If the parties have “clearly and unmistakably” agreed that this issue is subject to arbitration, however, the reviewing court must enforce that agreement without further inquiry. AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); see Felts v. CLK Mgmt., Inc., 2011–NMCA–062, ¶ 18, 149 N.M. 681, 254 P.3d 124 (stating that an agreement to arbitrate the issue of arbitrability is “an additional, antecedent agreement ... and the FAA operates on this additional arbitration agreement just as it does on any other.” (internal quotation marks and citation omitted)), cert. granted,2011–NMCERT–006, 150 N.M. 764, 266 P.3d 633. The Court uses “ordinary state-law principles that govern the formation of contracts” to determine whether the parties clearly and unmistakably agreed to...

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