Strausberg v. Laurel Healthcare Providers, LLC

• Decision Date: 06 January 2012
• Docket Number: No. 29,238.,29,238.
• Citation: 2012 -NMCA- 006,269 P.3d 914
• Parties: Nina R. STRAUSBERG, Plaintiff–Appellant, v. LAUREL HEALTHCARE PROVIDERS, LLC, and Arbor Brook, LLC, d/b/a Arbor Brook Healthcare, Defendants–Appellees.
• Court: Court of Appeals of New Mexico

2012 -NMCA- 006

269 P.3d 914

Nina R. STRAUSBERG, Plaintiff–Appellant,

v.LAUREL HEALTHCARE PROVIDERS, LLC, and Arbor Brook, LLC, d/b/a Arbor Brook Healthcare, Defendants–Appellees.

No. 29,238.

Court of Appeals of New Mexico.

Nov. 4, 2011.Certiorari Granted Jan. 6, 2012, No. 33,331.

Harvey Law Firm, LLC, Dusti D. Harvey, Jennifer J. Foote, Albuquerque, NM, for Appellant.

Keleher & McLeod, P.A., Mary Behm, Hari–Amrit Khalsa, Albuquerque, NM, for Appellees.

OPINION

VIGIL, Judge.

{1} A party who seeks to compel arbitration has the burden to prove the existence of a valid agreement to arbitrate. In this case, however, the district court shifted the burden to Plaintiff to prove that the agreement is invalid, and granted Defendants' motion to compel arbitration under a nursing home mandatory arbitration agreement. We reverse and remand.

BACKGROUND

{2} Plaintiff was required to sign an arbitration agreement in order to be admitted into a nursing home, Arbor Brook Healthcare (Arbor Brook) to rehabilitate from back surgery. Notwithstanding the agreement to arbitrate, Plaintiff filed a complaint for damages in the district court against the operator of Arbor Brook, Arbor Brook LLC, d/b/a Arbor Brook Healthcare, and Laurel Healthcare Providers, LLC as its owner, operator, or manager (Defendants). Plaintiff alleged that during her stay at Arbor Brook, she developed painful and preventable decubitus ulcers at or near her surgical wound; that her surgical wound became infected; that the infection was ignored or not properly treated, leading to a staph infection; and that her care was negligent in several other respects.

{3} Defendants responded by filing a motion to dismiss the complaint and compel arbitration, alleging that under the arbitration agreement between Plaintiff and Arbor Brook, all of Plaintiff's claims are subject to arbitration. Plaintiff replied that the arbitration agreement is invalid because it is unconscionable. The district court first ruled that the arbitration agreement is not substantively unconscionable and then held an evidentiary hearing to determine whether the arbitration agreement is procedurally unconscionable. At the hearing, Plaintiff and the nurse liaison who obtained Plaintiff's signature to the arbitration agreement testified what they recalled about the circumstances under which Plaintiff signed the arbitration agreement.

{4} The district court then issued a letter decision setting forth its ruling and reasoning. The district court said,

the issue presented was difficult because of the credibility of the witnesses, not in the sense of their truthfulness, but in the sense of their ability to recall the events surrounding the signing of the contract. Only two witnesses testified, one for the Plaintiff and one for Defendant. Ultimately, however, it was Plaintiff's burden to establish the contract she signed is unenforceable.

The district court specifically noted that Plaintiff's testimony demonstrated she was confused about signing the arbitration agreement and attributed her confusion to the pain medication she was under at the time. The district court also ruled that the factors considered to determine the validity of the arbitration agreement “generally are evenly balanced[.]” One of the factors it considered was whether Plaintiff had the option of going to another nursing home facility. As to this factor, the district court found, “Plaintiff believed that her only option was to be discharged from the hospital to Defendant[s'] care, but did not testify whether she looked into other placement options, and it was her burden to prove the contract at issue is unenforceable.” Ultimately, the district court ruled that the arbitration agreement was not procedurally unconscionable. A formal order was filed granting Defendants' motion to dismiss and to compel arbitration, and Plaintiff appeals.

{5} To place our holding in context, we first address our standard of review, followed by a discussion of: (1) the enforcement of a valid arbitration agreement; (2) the elements of substantive unconscionability in an arbitration agreement; and (3) the elements of procedural unconscionability in an arbitration agreement. Within this context we then address: (4) which party has the burden of proof when one party seeks dismissal of a suit to compel arbitration under an arbitration agreement, and the other party asserts it is unconscionable; and (5) whether shifting the burden of proof resulted in reversible error.

DISCUSSIONStandard of Review

{6} “Whether a contract provision is unconscionable and unenforceable is a question of law that we review de novo.” Rivera v. Am. Gen. Fin. Servs., Inc., 2011–NMSC–033, ¶ 42, 150 N.M. 398, 259 P.3d 803. Our review of a district court order granting or denying a motion to compel arbitration is also de novo. Piano v. Premier Distrib. Co., 2005–NMCA–018, ¶ 4, 137 N.M. 57, 107 P.3d 11; Heye v. Am. Golf Corp., Inc., 2003–NMCA–138, ¶ 4, 134 N.M. 558, 80 P.3d 495. Finally, our review of whether the district court applied the correct evidentiary rule or legal standard in deciding the claim before it is likewise de novo. See Mayeux v. Winder, 2006–NMCA–028, ¶ 14, 139 N.M. 235, 131 P.3d 85 (stating that the plaintiff's argument that the district court erred in applying the wrong legal standard to their breach of fiduciary claim is reviewed de novo); see also State v. Torres, 1999–NMSC–010, ¶ 28, 127 N.M. 20, 976 P.2d 20 (“[T]he threshold question of whether the trial court applied the correct evidentiary rule or standard is subject to de novo review on appeal.”).

The Enforcement of Arbitration Agreements

{7} Arbitration agreements are enforced under both New Mexico and federal law. See Piano, 2005–NMCA–018, ¶ 5, 137 N.M. 57, 107 P.3d 11; see also NMSA 1978, § 44–7A–7(a) (2001) (“An agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.”); 9 U.S.C. § 2 (2006) (“[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.”).

{8} However, unconscionability is an equitable doctrine rooted in public policy under which an arbitration agreement may be deemed unenforceable. Rivera, 2011–NMSC–033, ¶ 43, 150 N.M. 398, 259 P.3d 803; Cordova v. World Fin. Corp. of N.M., 2009–NMSC–021, ¶ 21, 146 N.M. 256, 208 P.3d 901. New Mexico recognizes both substantive unconscionability and procedural unconscionability under the doctrine of contractual unconscionability. Rivera, 2011–NMSC–033, ¶ 43, 150 N.M. 398, 259 P.3d 803; Cordova, 2009–NMSC–021, ¶ 21, 146 N.M. 256, 208 P.3d 901. While a mandatory arbitration clause may be invalidated for unconscionability when both substantive and procedural unconscionability are present, “there is no absolute requirement in our law that both must be present to the same degree or that they both be present at all.” Cordova, 2009–NMSC–021, ¶ 24, 146 N.M. 256, 208 P.3d 901.

{9} When a contractual term is deemed to be unconscionable, two possible remedial actions can be taken.

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Id. ¶ 39 (internal quotation marks and citation omitted); see also Smith v. Price's Creameries, 98 N.M. 541, 545, 650 P.2d 825, 829 (1982) (setting forth the same options under Article II of the Uniform Commercial Code).

Substantive Unconscionability

{10} Contract terms themselves determine whether they are illegal, contrary to public policy, or grossly unfair, and therefore, substantively unconscionable. Rivera, 2011–NMSC–033, ¶ 45, 150 N.M. 398, 259 P.3d 803 (“Substantive unconscionability concerns the legality and fairness of the contract terms themselves.” (quoting Cordova, 2009–NMSC–021, ¶ 22, 146 N.M. 256, 208 P.3d 901)); Fiser v. Dell Computer Corp., 2008–NMSC–046, ¶ 20, 144 N.M. 464, 188 P.3d 1215 (“Substantive unconscionability relates to the content of the contract terms and whether they are illegal, contrary to public policy, or grossly unfair.”); Guthmann v. La Vida Llena, 103 N.M. 506, 510, 709 P.2d 675, 679 (1985) (“Substantive unconscionability is concerned with contract terms that are illegal, contrary to public policy, or grossly unfair.”); State ex rel. State Highway & Transp. Dep't v. Garley, 111 N.M. 383, 390, 806 P.2d 32, 39 (1991) (stating that the touchstone for substantive unconscionability is gross unfairness). In determining whether a contract suffers substantive unconscionability, the “analysis focuses on such issues as whether the contract terms are commercially reasonable and fair, the purpose and effect of the terms, the one-sidedness of the terms, and other similar public policy concerns.” Rivera, 2011–NMSC–033, ¶ 45, 150 N.M. 398, 259 P.3d 803 (quoting Cordova, 2009–NMSC–021, ¶ 22, 146 N.M. 256, 208 P.3d 901).

{11} In New Mexico, a contract provision that unreasonably benefits one party over another is substantively unconscionable. Rivera, 2011–NMSC–033, ¶ 46, 150 N.M. 398, 259 P.3d 803; Cordova, 2009–NMSC–021, ¶ 25, 146 N.M. 256, 208 P.3d 901; Guthmann, 103 N.M. at 511, 709 P.2d at 680; Monette v. Tinsley, 1999–NMCA–040, ¶ 19, 126 N.M. 748, 975 P.2d 361. In making this determination, a New Mexico court no longer needs to find that the terms must be “ ‘such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.’ ” Cordova, 2009–NMSC–021, ¶ 31, 146...