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                                                      New Mexico Compilation
                                                    Commission, Santa Fe, NM
                                                   '00'05- 17:23:05 2013.01.11

Certiorari Granted, December 6, 2012, No. 33,898

       IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2013-NMCA-006

Filing Date: October 11, 2012

Docket No. 31,088

LORAYNE and GENE BARGMAN,

       Plaintiffs-Appellees,

v.

SKILLED HEALTHCARE GROUP, INC.,
SKILLED HEALTHCARE, L.L.C., CANYON
TRANSITIONAL REHABILITATION
CENTER, L.L.C., and ANMARIE DVORAK,
Administrator,

       Defendants-Appellants.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Valerie A. Huling, District Judge

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

for Appellees

Rodey, Dickason, Sloan, Akin & Robb, P.A.
W. Robert Lasater, Jr.
Sandra L. Beerle
Jocelyn Drennan
Albuquerque, NM

for Appellants

                                    OPINION


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SUTIN, Judge.

{1}     Plaintiff LoRayne Bargman was admitted to Defendant Canyon Transitional
Rehabilitation Center, L.L.C. (Canyon) for inpatient rehabilitative care. She sued Canyon
and other related Defendants on claims arising out of the care she received there. The issue
in the district court was whether she was required to arbitrate the claims pursuant to an
arbitration agreement she signed upon admission into Canyon. The court ruled that the
arbitration agreement was substantively unconscionable. Defendants appeal. We reverse
and remand for further proceedings consistent with this Opinion.

BACKGROUND

{2}     After Ms. Bargman fractured a hip and an ankle, her doctors ordered her to seek
inpatient rehabilitative care. She was admitted to Canyon to receive treatment. After about
a month of treatment, Ms. Bargman was provided with an admission agreement. The
signature page of the admission agreement explained that parts of it existed in attachments.

{3}    A three-page arbitration agreement was included as a separate attachment to the
admission agreement. The second paragraph on the first page of the arbitration agreement
explained that by entering into the admission agreement, Canyon and “the Resident” were
exchanging “mutual promises” to arbitrate “any [d]ispute” as later defined. It further
explained that if a dispute arose, the parties desired to use alternative dispute resolution to
resolve the dispute “in an expeditious manner[.]”

{4}     Another paragraph, in addition to describing the informal and binding aspects of
arbitration, explained:

       By signing this Arbitration Agreement, [Canyon] and the Resident relinquish
       their right to have any and all disputes associated with this Arbitration
       Agreement and the relationship created by the Admission Agreement . . .
       (including, without limitation, . . . claims for negligent care or any other
       claims of inadequate care provide[d] by [Canyon]; claims against [Canyon]
       or any of its employees, managers, or members) (each, a “[d]ispute” and,
       collectively, the “[d]isputes”), resolved through a lawsuit, namely by a judge,
       jury[,] or appellate court, except to the extent that New Mexico law provides
       for judicial action in arbitration proceedings. This Arbitration Agreement
       shall not apply to either [Canyon] or the Resident in any disputes pertaining
       to collections or discharge of residents.

Another paragraph stated:

       BY SIGNING THIS AGREEMENT, [CANYON] AND THE RESIDENT
       UNDERSTAND THAT THEY ARE GIVING UP THEIR
       CONSTITUTIONAL RIGHT TO A TRIAL IN COURT BY A JUDGE OR

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       JURY, AND THE RIGHT TO APPEAL CONCERNING ANY DISPUTES.


{5}     A further paragraph encouraged the resident to “ask any questions” about the
arbitration agreement “and/or to seek the advice of an attorney prior to signing [the]
Agreement.” The arbitration agreement provided a line for the resident to initial,
acknowledging these considerations.

{6}     The second page of the arbitration agreement contained paragraphs outlining how
the arbitration process would work in practice. For example, Canyon and the resident would
each select an arbitrator, each of whom, in turn, would select a third arbitrator who would
serve as the lead arbitrator and resolve any pre-arbitration disputes. Further, the lead
arbitrator would establish “a reasonable, but limited scheduling order” that would enable the
arbitration hearing to take place “within twelve . . . months following the appointment of the
arbitrators.” Other paragraphs addressed mutual discovery rights, identified the arbitration
venue, and explained that while Canyon would “pay 100% of the arbitrators’ fees[,]” each
side would pay their own attorney fees and costs incurred during the arbitration process. A
“governing law” paragraph explained that New Mexico law, including the New Mexico
Uniform Arbitration Act (the Arbitration Act) and any applicable federal laws would govern
the enforceability of the arbitration agreement.

{7}   A third page was the signature page. By signing, the resident, among other things,
acknowledged:

       I REPRESENT AND AGREE THAT I FULLY UNDERSTAND AND
       AGREE TO BE LEGALLY BOUND BY [THE ARBITRATION
       AGREEMENT’S] PROVISIONS. I UNDERSTAND THAT I HAVE A
       CHOICE IN SELECTING A PROVIDER . . . . I HAVE BEEN GIVEN
       ADEQUATE TIME AND THE OPPORTUNITY TO REVIEW THIS
       ARBITRATION AGREEMENT. I . . . FREELY AND VOLUNTARILY
       CONSENT TO ALL OF THE TERMS OF THIS ARBITRATION
       AGREEMENT.

{8}    After reviewing the admission agreement and its attachments, Ms. Bargman signed
the admission agreement, acknowledging, among other things, that she had read the
admission agreement and each of its attachments or had each part explained to her. In
addition, Ms. Bargman signed the two acknowledgments in the arbitration agreement.
Preceding the first acknowledgment was an explanation that the terms of the arbitration
agreement would be binding on the resident and, among others, the resident’s “family
members[.]”

{9}    After signing the admission and arbitration agreements, Ms. Bargman continued to
receive treatment at Canyon for a short period of time. After she was discharged, Ms.
Bargman, joined by her husband, Plaintiff Gene Bargman, filed a lawsuit against Canyon,

                                              3
Skilled Healthcare Group, Inc., Skilled Healthcare, L.L.C., and the administrator for Canyon,
AnMarie Dvorak (collectively, Defendants). The complaint alleged negligence,
misrepresentation, unfair trade practices, and punitive damages counts on behalf of Ms.
Bargman and a loss of consortium count on behalf of her husband, all of which allegedly
arose out of Ms. Bargman’s care at Canyon. Pursuant to Section 44-7A-8(a)(2) of the
Arbitration Act, NMSA 1978, §§ 44-7A-1 to -32 (2001), Canyon filed a motion to dismiss
and/or stay the litigation and to compel arbitration based on the admission agreement and
the arbitration agreement. The district court denied the motion on the ground that the
arbitration agreement was substantively unconscionable.

{10} Defendants appeal, contending that (1) the district court misapprehended the
standards that apply to the analysis of whether an arbitration agreement is substantively
unconscionable; (2) application of the relevant standards reveals that the arbitration
agreement is substantively conscionable; and (3) in light of the Supreme Court’s ruling in
Rivera v. Am. Gen. Fin. Servs., Inc., 2011-NMSC-033, 150 N.M. 398, 259 P.3d 803, remand
may be appropriate.

DISCUSSION

{11} We review de novo the 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. Whether a
contract is unconscionable presents a question of law that we review de novo. Id.

{12} We start with controlling New Mexico precedent. See Rivera, 2011-NMSC-033;
Cordova, 2009-NMSC-021; Figueroa v. THI of N.M. at Casa Arena Blanca, LLC, 2012-
NMCA-___, ___ P.3d ___ (No. 30,477, July 18, 2012); Ruppelt v. Laurel Healthcare
Providers, LLC, 2012-NMCA-___, ___ P.3d ___ (No. 30,191, Aug. 16, 2012). The
appellate briefs in this case were filed before this Court’s opinions in Figueroa and Ruppelt
were filed. We held oral argument in this case to permit the parties to discuss Figueroa and
Ruppelt. The parties were asked to focus on whether, under our Supreme Court cases and
this Court’s cases, (1) there now exists a bright-line, fixed, and inflexible rule that the
exception from arbitration of collection claims admittedly most likely to be pursued by the
defendant facility are substantively unconscionable because that exception is unreasonably
or unfairly one-sided and against New Mexico public policy; or (2) as the case law stands,
the issue is to be analyzed and on a case-by-case basis based on evidence presented on the
issues of unreasonableness, unfairness, one-sidedness, and public policy.

{13} In oral argument, Canyon distinguished what it saw as “narrow” and “nuanced”
analytic approaches. The narrow approach sees a virtually irrebuttable presumptive
substantive unconscionability resulting from an imbalance that is observable from the face
of the arbitration agreement. The nuanced approach involves a case-by-case “holistic”
(arbitration agreement as a whole) analysis that recognizes that the parties’ rights do not
have to be identical and that courts should entertain evidence tending to show that a
particular exclusion is not unreasonably or unfairly one-sided. Canyon argued against the

                                             4
narrow approach and for the nuanced approach. Ms. Bargman agreed that a case-by-case
analysis was proper but argued that there was no basis for any further analysis because there
was no evidence presented to the district court and thus before this Court on which to engage
in any further analysis.

{14} In Cordova, the lender reserved for itself, for resolution by a court, the judicial
foreclosure or repossession remedies and other remedies provided by law. 2009-NMSC-021,
¶ 4. Our Supreme Court held the arbitration clause “void as unconscionable” in that the
lender reserved for itself “the exclusive option of access to the courts for all remedies [it
was] most likely to pursue against a borrower” and that it was “an inherently one-sided
agreement [that was] against New Mexico public policy[.]” Id. ¶ 1. As well, in Rivera, the
lender excepted foreclosure and repossession remedies from arbitration. 2011-NMSC-033,
¶ 53. Our Supreme Court applied the rule that “[c]ontract provisions that unreasonably
benefit one party over another are substantively unconscionable” to the arbitration clause at
issue. Id. ¶¶ 46, 53-54 (internal quotation marks and citation omitted). The Court determined
that the lender’s “ability under the arbitration clause to seek judicial redress of its likeliest
claims while forcing [the borrower] to arbitrate any claim she may have [was] unreasonably
one-sided.” Id. ¶ 53. The Court held that the arbitration clause was “unfairly one-sided and
void under New Mexico law” and substantively unconscionable. Id. ¶ 54.

{15} Recently, this Court filed two opinions relating specifically to the health care
industry, Figueroa and Ruppelt. In Figueroa, the health care facility excepted from
arbitration guardianship proceedings as well as collection and eviction actions. 2012-
NMCA-___, ¶¶ 2, 26. Looking to Cordova and Rivera, where “[o]ur Supreme Court
invalidated arbitration agreements that were unfairly and unreasonably one-sided in favor
of the drafter[,]” Figueroa, 2012-NMCA-012-___, ¶ 24, we concluded in Figueroa that the
arbitration agreement was “unreasonably and unfairly one-sided in favor of [the health care
facility].” Id. ¶ 30. This Court further stated that

        [w]hile we agree that arbitration obligations do not have to be completely
        equal, and that parties may freely enter into reasonable agreements to exempt
        certain claims from arbitration, we refuse to enforce an agreement where the
        drafter unreasonably reserved the vast majority of [its] claims for the courts,
        while subjecting the weaker party to arbitration on essentially all of the
        claims that party is likely to bring.

Id. Determining that “unconscionability voids a contract when it is unfair and grossly
unreasonable, even if otherwise legally enforceable under contract formation principles[,]”
id. ¶ 34, we affirmed the district court’s holding that “the terms of [the] arbitration agreement
were unfairly and unreasonably one-sided and thereby, substantively unconscionable.” Id.
¶ 35.

{16} In Ruppelt, with a provision similar to those in Cordova, Rivera, and Figueroa, we
did not vary the analysis and result. The arbitration agreement in Ruppelt excepted from

                                               5
arbitration the claims of “collections or discharge of residents.” 2012-NMCA-___, ¶ 3
(internal quotation marks omitted). As in the forerunners, we determined that the arbitration
agreement was unreasonably one-sided and substantively unconscionable. Id. ¶ 18.

{17} It is noteworthy that in none of the foregoing cases did the defendant drafter of the
arbitration provision offer evidence tending to prove that it was not unreasonable or unfair
to except certain claims from arbitration even if they were claims most likely to be pursued
by the defendant. Nothing in these cases expressly lays down a bright-line, inflexible rule
that excepting from arbitration any claim most likely to be pursued by the defendant drafter
will void the arbitration clause as substantively unconscionable. As our case law stands,
cases should still be examined on a case-by-case basis.

{18} As noted earlier, Canyon’s arbitration agreement with Plaintiffs provided two
exclusions: discharge of residents and collections. Thus, the agreement at issue in this case
provided exclusions identical to those that existed in the agreement at issue in Ruppelt. Id.
¶ 3. Yet in this case, different from Ruppelt, the parties acknowledge and agree that, under
both federal and state law, resident-discharge-related issues are to be handled in
administrative proceedings with notice and a hearing and the right to appeal the decision,
thus requiring the exclusion of resident-discharge-related issues from arbitration agreements.
42 C.F.R. § 483.12 (2011); 8.354.2.9 NMAC (11/1/1996) (amended 3/1/2012). Therefore,
the parties agree that the focus of our inquiry into the substantive unconscionability issue is
limited to whether the collections exclusion renders the arbitration agreement unreasonably
or unfairly one-sided.

{19} In their briefs, Defendants do not present arguments significantly different from those
presented in Figueroa and Ruppelt. In an effort to distinguish the present arbitration
agreement from the agreements at issue in Rivera, 2011-NMSC-033, ¶ 3, and Cordova,
2009-NMSC-021, ¶ 4, Canyon asserts that the arbitration agreement in this case did not
explicitly reserve, solely for itself, the right to go to court to resolve any collections issues.
See Rivera, 2011-NMSC-033, ¶ 3 (stating that “[a]lthough the arbitration provisions
require[d] [the borrower] to arbitrate any claims she may have [had] against [the lender], the
arbitration provisions exempt[ed] from binding arbitration certain claims that the [l]ender
might have against [the borrower]”); Cordova, 2009-NMSC-021, ¶ 4 (explaining that the
arbitration agreement “provided that the lender alone had the exclusive and unlimited
alternative to seek any judicial remedies it might . . . have . . . in the event of a default by the
borrower”). In Canyon’s view, the bilateral collections exclusion in the arbitration
agreement is substantively conscionable because it enables a resident to pursue collections-
related claims against Canyon or, if Canyon initiated a collections proceeding, any
corresponding counterclaims. Having considered and rejected similar arguments in
Figueroa and in Ruppelt, we likewise reject Canyon’s argument.

{20} In both Figueroa and in Ruppelt, the defendants pointed to the bilateral nature of the
arbitration exemptions in an effort to persuade this Court that the respective arbitration
agreements were not unreasonably or egregiously one-sided. See Ruppelt, 2012-NMCA- __,

                                                 6
¶ 10 (explaining that the defendants argued that the arbitration agreement’s exemption
provision “[was] not unreasonably one-sided because it bilaterally allow[ed] either party to
pursue claims regarding collections and discharge of residents in a judicial forum”);
Figueroa, 2012-NMCA-__, ¶ 28 (explaining that the defendant nursing home argued “that
residents’ rights under the [arbitration] agreement to bring claims under $2,500 and
guardianship proceedings in a judicial forum [were] sufficient to prevent [the] agreement
from being egregiously one-sided”). In both cases, this Court rejected the defendants’
contentions.

{21} In Figueroa, we concluded that although the agreement could be construed as
granting a resident rights to a judicial forum for certain claims, nevertheless, those rights did
not “sufficiently act to remedy the gross disparity that result[ed] from [the d]efendant’s
reservation of its most likely claims to a judicial forum, while the resident’s most likely
claims [were] subject to arbitration.” 2012-NMCA-__, ¶ 28. And, in Ruppelt, we held that
“[a]lthough the exemption provision [was] facially bilateral in the sense that it [did] not
completely extinguish [the p]laintiff’s right to access the courts, in effect this distinction
from Cordova and Rivera is illusory. . . [because c]ommon sense dictates that claims
relating to collection of fees and discharge of residents are the types of [claims] that a
nursing home, not its resident, is most likely to pursue.” Ruppelt, 2012-NMCA-__, ¶ 15.
In both cases, we concluded that the exclusion from arbitration of the health care facilities’
most likely claims, including collections, while excluding access to courts for negligence,
the type of claim most likely to be brought by a resident, rendered the arbitration agreements
substantively unconscionable. See Ruppelt, 2012-NMCA-__, ¶¶ 16, 18; Figueroa, 2012-
NMCA-__, ¶ 32.

{22} Canyon argues that excluding collections claims from arbitration is not unreasonable
or unfair, that owing to the “non-complex nature of collections disputes and the small sums
typically involved, it is faster and cheaper for a resident—and, Canyon . . . to litigate such
claims rather than arbitrate them[.]” Canyon also points to the fact that under the arbitration
agreement, it must pay the fees of three arbitrators and, making a reference to non-specific
“sums involved” in collections disputes, Canyon argues that it would not be cost-effective
for it to pursue arbitration for collections-related claims. Thus, in Canyon’s view, the
pragmatic effect of requiring arbitration of collections-related disputes would be to deprive
Canyon of a remedy when a resident fails to pay for services rendered.

{23} None of the assumptions underlying Canyon’s argument regarding the
reasonableness of the collections exclusion, however, are supported by evidence presented
in the district court. Recognizing the lack of evidence, Canyon requested in its appellate
briefing that we remand the case for an evidentiary hearing so that it may develop a record
related to the collections exclusion and to show why the collections exclusion is not
unreasonably or unfairly one-sided and is justified. Ms. Bargman argues against remand,
contending that Canyon could have presented evidence in the district court but failed to do
so and should not now be heard to seek remand for an opportunity to present evidence.
Because at the time this matter was in the district court, Rivera, Figueroa, and Ruppelt had

                                               7
not been decided and the burden of proof was not all that clearly determined, and also
because it is unclear that the district court would have considered evidence, we do not agree
that Defendants have somehow waived or not preserved its remand position.

{24} We agree with Canyon that, under the circumstances in this case, remand is in order
for the purpose of allowing Canyon the opportunity to present evidence tending to show that
the collections exclusion is not unreasonably or unfairly one-sided such that enforcement of
it is substantively unconscionable.

CONCLUSION

{25} We reverse the district court’s order denying Canyon’s motion to compel arbitration
and remand to the district court for further proceedings consistent with this Opinion.

{26}   IT IS SO ORDERED.

                                              ____________________________________
                                              JONATHAN B. SUTIN, Judge

WE CONCUR:

____________________________________
CYNTHIA A. FRY, Judge

____________________________________
LINDA M. VANZI, Judge

Topic Index for Bargman v. Skilled Healthcare Grp., Inc., No. 31,088

APPEAL AND ERROR
Remand
Standard of Review

CIVIL PROCEDURE
Arbitration

CONTRACTS
Unconscionable

REMEDIES
Arbitration

TORTS
Medical Malpractice

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