Rivera v. Am. Gen. Financial Svcs., Inc.

• Decision Date: 02 June 2010
• Docket Number: No. 28,691.,28,691.
• Citation: 148 N.M. 784,242 P.3d 351,2010 -NMCA- 046
• Parties: Kim RIVERA, Plaintiff-Appellant, v. AMERICAN GENERAL FINANCIAL SERVICES, INC., a/k/a American General Finance, Inc., American Security Insurance Company, a/k/a American Security Group, Linda Callahan, and Jane Doe, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

242 P.3d 351

148 N.M. 784

2010 -NMCA- 046

Kim RIVERA, Plaintiff-Appellant,

v.AMERICAN GENERAL FINANCIAL SERVICES, INC., a/k/a American General Finance, Inc., American Security Insurance Company, a/k/a American Security Group, Linda Callahan, and Jane Doe, Defendants-Appellees.

No. 28,691.

Court of Appeals of New Mexico.

Feb. 18, 2010.

Certiorari Granted, June 2, 2010, No. 32,340.

Martinez & Hart, P.C., Bruce E. Thompson, Albuquerque, NM, for Appellant.

Rodey, Dickason, Sloan, Akin & Robb, P.A., Charles K. Purcell, Albuquerque, NM, for Appellees.

OPINION

WECHSLER, Judge.

{1} Plaintiff Kim Rivera appeals from the district court's grant of Defendants' motion to compel arbitration and stay proceedings. Plaintiff raises five issues on appeal: (1) whether the Arbitration Provisions of the Loan Agreement (the agreement) between Plaintiff and Defendant American General Financial Services, Inc. (American General) were substantively unconscionable; (2) whether the Arbitration Provisions were procedurally unconscionable; (3) whether American General's promise to arbitrate was illusory; (4) whether it was inappropriate for the district court to grant equitable relief to Defendants when Defendants came to the district court with unclean hands; and (5) whether Defendant American Security Insurance Company (American Security) had a right to enforce the Arbitration Provisions of the agreement. We affirm.

BACKGROUND

{2} On August 15, 2000, Plaintiff entered into an agreement for a title loan with American General in the amount of $8474.90. The agreement provided that all "Covered Claims" would be resolved through arbitration at the request of either party. The agreement defined "Covered Claims" to include "any and all claims and disputes not expressly excluded by the Arbitration Provisions." Among the claims that were excluded were "[American General's] self-help or judicial remedies including, without limitation, repossession or foreclosure, with respect to any property that secures [the loan]." The agreement also provides that if Plaintiff defaulted, American General could, "to the extent not prohibited by law, exercise any other rights [American General] may have at law or equity or under [the loan note] or any instrument securing [the loan note], such as, among others, suing [Plaintiff] for amounts owed or repossessing any Property given as security."

{3} As a condition of the loan, Plaintiff was required to maintain insurance for the full value of the vehicle. Plaintiff acquired such insurance through American Security, an affiliate of American General. The premium, which was added to the principal of the loan, covered the vehicle from August 22, 2000 until August 22, 2001.

{4} Plaintiff alleges that, on September 3, 2000, her truck was involved in an accident that rendered the vehicle inoperable. Plaintiff claims that she made several attempts to

[148 N.M. 787, 242 P.3d 354]

file a claim with American Security based on this loss but that American Security was unresponsive. Although the precise time line is unclear from the record on appeal, it appears that Plaintiff continued to make payments to American General for some time before defaulting on the loan. Thereafter, American General made several collection attempts before eventually closing the loan and returning the vehicle title to Plaintiff in August 2004.

{5} On September 1, 2006, Plaintiff sued Defendants. Plaintiff's amended complaint contained ten claims, including breach of contract and fraud, along with violations of the Fair Credit Reporting Act, the Insurance Practices Act, and the Unfair Trade Practices Act. Defendants removed the case to federal district court, and the federal court remanded the case to state court after Plaintiff voluntarily dismissed the federal law claims. Defendants filed a motion to compel arbitration, arguing that the claim that Plaintiff was attempting to resolve was a Covered Claim under the Arbitration Provisions. The district court granted Defendants' motion on April 9, 2008. Plaintiff appeals.

SUBSTANTIVE UNCONSCIONABILITY OF THE ARBITRATION PROVISIONS

{6} Plaintiff argues that the Arbitration Provisions are substantively unconscionable because the right to compel arbitration is impermissibly one-sided. Plaintiff contends that the Arbitration Provisions would allow American General to compel arbitration to resolve any dispute that Plaintiff might raise but would not allow Plaintiff a similar right to compel arbitration of collection and foreclosure actions that Defendants might bring against Plaintiff. Plaintiff further contends that because of this unconscionability, the Arbitration Provisions are unenforceable.

{7} "We review an order to compel arbitration de novo when it appears that the district court determined as a matter of law that an agreement to arbitrate existed." Medina v. Holguin, 2008-NMCA-161, ¶ 7, 145 N.M. 303, 197 P.3d 1085. A valid agreement to arbitrate is a prerequisite to compelling arbitration under the Federal Arbitration Act. Salazar v. Citadel Commc'ns Corp., 2004-NMSC-013, ¶ 8, 135 N.M. 447, 90 P.3d 466. An agreement to arbitrate is valid and enforceable unless a provision of generally applicable state contract law would allow such an agreement to be revoked. See Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) ( "[S]tate law, whether of legislative or judicial origin, is applicable [to arbitration agreements] if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally."), abrogation on other grounds recognized by Casarotto v. Lombardi, 268 Mont. 369, 886 P.2d 931 (1994).

{8} Plaintiff's argument is essentially that state contract law regarding unconscionability renders the Arbitration Provisions unenforceable. Unconscionability is an equitable doctrine that allows courts to invalidate contracts that are unreasonably favorable to one party. Guthmann v. La Vida Llena, 103 N.M. 506, 510, 709 P.2d 675, 679 (1985), overruled on other grounds by Cordova v. World Fin. Corp. of N.M., 2009-NMSC-021, ¶ 31, 146 N.M. 256, 208 P.3d 901. When evaluating whether to apply the doctrine, courts can analyze contracts from both a substantive and a procedural perspective. Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 20, 144 N.M. 464, 188 P.3d 1215. Although the presence of both forms of unconscionability increases the likelihood of a court invalidating the agreement, there is no strict requirement that both forms must be present. See id. ¶ 22 (invalidating an arbitration clause based on substantive unconscionability alone).

{9} The Arbitration Provisions of the agreement state that:

[Plaintiff] or [American General] can elect to have "Covered Claims"... resolved by binding arbitration in accordance with the Arbitration Provisions, except for matters not covered by arbitration ....

"Covered Claims" are any and all claims and disputes not expressly excluded by the Arbitration Provisions ... includ[ing], without limitation, all claims and disputes arising out of [the] loan from [American General] ....

Notwithstanding any other terms of the Arbitration Provisions, [Plaintiff] cannot

[148 N.M. 788, 242 P.3d 355]

elect to arbitrate [American General]'s self-help or judicial remedies including, without limitation, repossession or foreclosure, with respect to any property that secures [the loan]. In the event of a default under those transactions, [American General] can enforce its rights to [Plaintiff's] property in court or as otherwise provided by law, and [Plaintiff] cannot require that [American General's] actions be arbitrated.

Another provision in the agreement states that, in the event of Plaintiff's defaulting on the loan, American General may,

to the extent not prohibited by law, exercise any other rights [American General] may have at law or equity or under [the loan note] or any instrument securing [the loan note], such as, among others, suing [Plaintiff] for amounts owed or repossessing any Property given as security.

Plaintiff contends that these two passages, read together, create a completely one-sided right to compel arbitration for American General because American General retains the right to compel arbitration of any claim that Plaintiff might bring concerning the agreement while Plaintiff does not have the right to compel arbitration of any claims that American General might bring. We agree with Plaintiff that completely one-sided arbitration provisions are substantively unconscionable under New Mexico law. Cordova, 2009-NMSC-021, ¶¶ 32, 41, 146 N.M. 256, 208 P.3d 901. In Cordova, our Supreme Court held that an agreement obligating the borrower to submit her claims to binding arbitration but not obligating the lender was substantively unconscionable because the agreement granted rights that were impermissibly one-sided. Id. ¶¶ 26, 27. However, unlike the agreement at issue in Cordova, the agreement in this case is not completely one-sided in favor of the lender, and we conclude that the Arbitration Provisions are not substantively unconscionable.

{10} The Arbitration Provisions allow either party to compel arbitration of any claim or dispute that might arise with the exception of claims that American General might bring with respect to its security interest in the property securing the loan—that is, Plaintiff's truck. This exception does give American General greater access to the courts for the resolution of actions that American General could bring. But, different from the agreement in Cordova, the agreement in this case still allows Plaintiff to compel arbitration of disputes about the loan note itself. For example, neither a suit for money damages in default nor a deficiency suit following an Article 9 sale of the truck is part of this exception to Plaintiff's right to compel arbitration.

{11} Moreover, although the section of the agreement labeled "DEFAULT" reserves American General's right to sue for amounts owed in the event of...