Cordova v. World Finance Corp. of Nm

• Decision Date: 29 April 2009
• Docket Number: No. 30,536.,30,536.
• Citation: 208 P.3d 901,2009 NMSC 021
• Parties: Laura A. CORDOVA, Plaintiff-Respondent, v. WORLD FINANCE CORPORATION OF NEW MEXICO, Defendant-Petitioner.
• Court: New Mexico Supreme Court

208 P.3d 901

2009 NMSC 021

Laura A. CORDOVA, Plaintiff-Respondent, v. WORLD FINANCE CORPORATION OF NEW MEXICO, Defendant-Petitioner.

No. 30,536.

Supreme Court of New Mexico.

April 29, 2009.

Barnett Law Firm, P.A., Mickey D. Barnett, Phillip W. Cheves, David A. Garcia, Amy B. Bailey, Wolf and Fox, P.C., Albuquerque, NM, for Petitioner.

Feferman & Warren, Richard N. Feferman, Robert Dale Treinen, Albuquerque, NM, Public Justice, P.C., F. Paul Bland, Jr., Washington, D.C., for Respondent.

Doerr & Knudson, P.A., Randy J. Knudson, Portales, NM, AARP Foundation, Deborah M. Zuckerman, Washington, D.C., for Amicus Curiae AARP.

Gary K. King, Attorney General, David K. Thomson, Assistant Attorney General, Scott Fuqua, Assistant Attorney General, Santa Fe, NM, for Amicus Curiae Office of the Attorney General.

OPINION

DANIELS, Justice.

{1} This case requires us to review the validity of a small loan company's form arbitration provision that would limit a borrower to mandatory arbitration as a forum to settle all disputes whatsoever, while reserving for the lender the exclusive option of access to the courts for all remedies the lender is most likely to pursue against a borrower. We hold that such an inherently one-sided agreement is against New Mexico public policy and is therefore void as unconscionable. Although we differ somewhat in our legal analysis, we affirm the decision of the Court of Appeals and hold that the district court was correct in denying the loan company's motion to compel arbitration of the borrower's judicial claims.

I. BACKGROUND

{2} Defendant World Finance Corporation of New Mexico (World Finance) specializes in small loans at over 100% annual interest rates. Over the course of several years, Plaintiff Laura Cordova (Cordova) signed ten separate loan agreements with World Finance that grew out of just two original loans. The loans were repeatedly rolled over into new loans, and Cordova never succeeded in paying off any of them before signing each new agreement.

{3} All ten of World Finance's loan agreements included the company's separately-signed form arbitration attachment. The first paragraph of the printed arbitration provision broadly stated that the parties must arbitrate all disputes arising under, but not limited to:

• the Loan Agreement and any previous or subsequent loan from Lender and any previous or subsequent retail installment sales contract made with/or assigned to Lender including all documents relating to same and insurance purchased in connection with the transaction;

• whether the claim or dispute must be arbitrated and the validity of this Agreement;

• any claim based upon fraud or misrepresentation;

• any claim based upon a federal or state statute including, but not limited to, the Truth-in-lending Act and Regulation Z; the Equal Credit Opportunity Act and Regulation B, state insurance laws, state usury and lending laws including state consumer protection statutes and regulations;

• any dispute about closing, servicing, collecting or enforcing the Loan Agreement or other loan or retail installment sales agreements between Lender and Borrower

{4} However, a separate paragraph in the form also provided that the lender alone had the exclusive and unlimited alternative to seek any judicial remedies it might otherwise have available to it in law or in equity in the event of a default by the borrower:

Notwithstanding this Agreement, in the event of a Default under the Loan Agreement, Lender may seek its remedies in an action at law or in equity, including but not limited to, judicial foreclosure or repossession. Lender may also exercise its other remedies provided by law (such as, but not limited to, the right of self-help repossession under Article 9 of the Uniform Commercial Code or other applicable law and/or the foreclosure power of sale). This section shall not constitute a waiver of Lender's rights thereafter to seek specific enforcement of its rights under this Agreement in the event Borrower shall assert a counterclaim or right of setoff in such judicial or non-judicial action.

{5} Cordova ultimately sought the assistance of an attorney, who filed on her behalf in the district court for San Miguel County a complaint for injunctive relief and damages, alleging that World Finance had engaged in unfair, deceptive, and unconscionable trade practices within the meaning of the New Mexico Unfair Practices Act. See NMSA 1978, §§ 57-12-1 to -24 (1967, as amended through 2003).

{6} The complaint alleged that World Finance had engaged in unreasonable and tortious debt collection practices, including personal visits and almost daily phone calls that caused Cordova to lose her job, despite her repeated pleas for World Finance to cease contacting her employers and to cease contacting her at work. Agents of World Finance allegedly also called her at home nearly every day during her six-week recuperation from lung surgery. She claimed damages resulting from lost wages, lost employment benefits, lost time, invasion of privacy, and emotional distress.

{7} In response to the complaint, World Finance filed a motion to compel arbitration, arguing that Cordova was bound by the mandatory arbitration clauses that had been a standard part of all ten of the form loan agreements. The motion argued that the arbitration provisions were enforceable against Cordova pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (2006), and the New Mexico Uniform Arbitration Act, NMSA 1978, §§ 44-7A-1 to -32 (2001), and that Cordova was precluded from seeking judicial relief for any resolution of her claims.

{8} Cordova countered with a legal memorandum in opposition, arguing that World Finance's arbitration clause was "so one-sided that it cannot be enforced" by providing that "any claims brought against [World Finance] by a consumer must be submitted to arbitration, but that any claims that it would conceivably want to bring ... may proceed in court."

{9} After a hearing, the district court denied World Finance's motion to compel arbitration, and World Finance appealed.

{10} The Court of Appeals affirmed the district court, holding that the conflicting and one-sided arbitration provisions rendered the entire arbitration agreement illusory and unenforceable. Cordova v. World Fin. Corp. of N.M., No. 27,436, slip op. at 3 (N.M. Ct.App. June 20, 2007). This Court granted World Finance's petition for writ of certiorari to review that decision.

II. STANDARD OF REVIEW

{11} All issues before us are subject to a de novo standard of review. We apply a de novo standard of review to a district court's denial of a motion to compel arbitration. See Piano v. Premier Distrib. Co., 2005-NMCA-018, ¶ 4, 137 N.M. 57, 107 P.3d 11. "Similarly, whether the parties have agreed to arbitrate presents a question of law, and we review the applicability and construction of a contractual provision requiring arbitration de novo." Id. By both statute and case law, we review whether a contract is unconscionable as a matter of law. See NMSA 1978, § 55-2-302 (1961) (providing that courts, as a matter of law, may police against contracts or clauses found unconscionable); Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 19, 144 N.M. 464, 188 P.3d 1215 (providing the issue of the unconscionability of a contract "is a matter of law and is reviewed de novo").

III. DISCUSSION

A. The Theories Underlying the Opinions Below

{12} While the primary concern of the courts below was the completely one-sided nature of the arbitration clauses, there is some uncertainty about the legal theories employed in reaching the conclusions of all judges concerned. Cordova's district court briefing had specifically relied on case law that articulated either "illusory" theories or "unconscionability" theories in striking down one-sided arbitration agreements. In its succinct order denying World Finance's motion to compel arbitration as "not well taken," the district court did not specify any particular legal theory underlying its ruling.

{13} In an unpublished memorandum opinion, the Court of Appeals affirmed the district court's ruling, without specifically mentioning the terms "substantive unconscionability" or "procedural unconscionability," on the basis of precedents that held particular one-sided arbitration agreements to be "illusory" and therefore unenforceable: "[B]ecause the arbitration agreements attempt to bind Defendant (the Lender) only to arbitrate when it so chooses, but they do not extend the same rights to Plaintiff, the arbitration agreements are illusory and unenforceable." Cordova, No. 27,436, slip op. at 2, 3.

{14} The opinions specifically relied on by the Court of Appeals were Piano, 2005-NMCA-018, 137 N.M. 57, 107 P.3d 11, and Heye v. Am. Golf Corp., 2003-NMCA-138, 134 N.M. 558, 80 P.3d 495. Both Piano and Heye involved at-will employees who signed employer-drafted arbitration agreements after they had already entered into employment contracts, but in both cases the employers specifically reserved the right to change their own obligations at any time. Piano, 2005-NMCA-018, ¶ 8, 137 N.M. 57, 107 P.3d 11; Heye, 2003-NMCA-138, ¶ 1, 134 N.M. 558, 80 P.3d 495. Both of those arbitration agreements had been declared unenforceable for lack of consideration. Piano, 2005-NMCA-018, ¶ 1, 137 N.M. 57, 107 P.3d 11; Heye, 2003-NMCA-138, ¶ 15, 134 N.M. 558, 80 P.3d 495. The only possible consideration provided by the employers for the later-added arbitration agreements was an apparent promise to be mutually bound by mandatory arbitration. Piano, 2005-NMCA-018, ¶ 11, 137 N.M. 57, 107 P.3d 11; Heye, 2003-NMCA-138, ¶ 9, 134 N.M. 558, 80 P.3d 495. Heye and Piano determined that any such promises were meaningless, in light of the employers' reservation of the unilateral option to modify or terminate those promises at any time. Piano, 2005-NMCA-018, ¶ 14, 137 N.M. 57, 107 P.3d 11; Heye, 2003-NMCA-138, ¶ 15, 134 N.M. 558, 80 P.3d...