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 1       IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
      
 2   BEVERLY PEAVY, Deceased, by
 3   THE PERSONAL REPRESENTATIVE
 4   OF THE WRONGFUL DEATH ESTATE,
 5   KEITH PEAVY,

 6          Plaintiff-Appellee,

 7 v.                                                                       No. A-1-CA-35494

 8   SKILLED HEALTHCARE GROUP,
 9   INC., SKILLED HEALTHCARE, LLC,
10   THE REHABILITATION CENTER OF
11   ALBUQUERQUE, LLC, and
12   PATRICIA WALKER, LPN,

13          Defendants-Appellants.

14 APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
15 Denise Barela Shepherd, District Judge

16 Feliz A. Real
17 Albuquerque, NM

18 Pitman, Kalkhoff, Sicula & Dentice
19 Jeffrey A. Pitman
20 Milwaukee, WI

21 for Appellee

22   Rodey, Dickason, Sloan, Akin & Robb, P.A.
23   Sandra Beerle
24   Jocelyn Drennan
25   Albuquerque, NM
                                                                                         



 1 for Appellants



 2                           MEMORANDUM OPINION

 3 VANZI, Chief Judge.

 4   {1}   Defendants appeal the district court’s denial of their motion to compel

 5 arbitration. After an evidentiary hearing, the district court concluded that the

 6 arbitration agreement at issue was substantively unconscionable and therefore

 7 unenforceable and invalid. We agree with the district court’s ruling that the

 8 arbitration agreement is substantively unconscionable and affirm. We also affirm

 9 the district court’s subsequent denial of Defendants’ motion for summary judgment

10 on federal preemption grounds.

11 BACKGROUND

12   {2}   Beverly Peavy, a resident of the Rehabilitation Center of Albuquerque (the

13 Facility), designated her son, Keith Peavy (Plaintiff), as her durable power of

14 attorney for health care. After she was readmitted to the Facility in October 2008,

15 Plaintiff signed a seventy-eight page admission agreement with the Facility on his

16 mother’s behalf. The admission agreement included an arbitration agreement, the

17 relevant provisions of which we briefly set out. The agreement provided that any

18 dispute between the parties would be resolved by arbitration. The agreement

19 defined “dispute” as “any and all disputes associated with this [a]rbitration
                                            2
      
                                                                                             


 1 [a]greement and the relationship created by the [a]dmission [a]greement and/or the

 2 provision of services under the [a]dmission [a]greement (including, without

 3 limitation, . . . claims for negligent care or any other claims of inadequate care

 4 provide[d] by the Facility; claims against the Facility . . .)[.]” However, the

 5 agreement excepted from arbitration “any disputes pertaining to collections or

 6 discharge of residents.”

 7   {3}   Ms. Peavy died in April 2010. Plaintiff, as personal representative of his

 8 mother’s wrongful death estate, filed suit against Skilled Healthcare Group, Inc.;

 9 Skilled Healthcare LLC; The Rehabilitation Center of Albuquerque, LLC; and

10 Patricia Walker, LPN (collectively, Defendants). The complaint alleged wrongful

11 death, negligence, negligent or intentional misrepresentation, unfair trade practices,

12 and sought punitive damages, all of which allegedly arose out of Ms. Peavy’s care

13 at the Facility. Pursuant to NMSA 1978, Section 44-7A-8(a)(2) (2001) of the

14 Uniform Arbitration Act, NMSA 1978, §§ 44-7A-1 to -32 (2001), Defendants filed

15 a motion to dismiss and/or stay litigation and to compel arbitration based on the

16 admission agreement and the arbitration agreement. In reply to Plaintiff’s argument

17 that the arbitration agreement was unconscionable because it contained an unfairly

18 one-sided exception for collections actions and pursuant to our decision in

19 Bargman v. Skilled Healthcare Group, Inc., 2013-NMCA-006, 292 P.3d 1,

20 Defendants requested an opportunity to show that the discharge and collections


                                             3
      
                                                                                           


 1 exceptions did not make the arbitration agreement “unfairly and unreasonably one-

 2 sided.” The district court granted Defendants’ request and held an evidentiary

 3 hearing after which it entered extensive findings of fact and conclusions of law.

 4 Based on the evidence presented, the court concluded that the arbitration

 5 agreement was substantively unconscionable and denied Defendants’ motion.

 6   {4}   Several witnesses testified at the hearing. With regard to the substantive

 7 unconscionability claim, the district court relied primarily on the testimony of the

 8 Facility’s administrator, Kathy Correa. The court’s unchallenged findings are as

 9 follows. As the administrator, Ms. Correa is responsible for the supervision of

10 accounts receivable and collections owed by residents for services rendered. She

11 testified that the Facility’s accounts receivable typically range from $1 to $10,000

12 for each patient. The Facility has a collections policy that provides, in relevant

13 part:

14         It is the responsibility of each facility to ensure timely and effective
15         collections measures. . . . Once a private balance meets the criteria for
16         Collections, a team of dedicated collectors in the Collection Agency
17         will assume full responsibility for sustaining aggressive collective
18         efforts through resolution of the account. . . . Private accounts will be
19         placed with a collection agency for collection when all the following
20         criteria are met: Resident has been discharged for at least 60 days;
21         private account balance is greater than $100; and no private payment
22         has been made within 60 days. . . . Exceptions: In the situation of
23         estate claims, the [F]acility will file a claim with the probate court
24         within the allowable time frame. The [F]acility may opt to take an
25         account to small claims if assets are available[.]



                                              4
      
                                                                                          


 1   {5}   After the Facility has exhausted all internal efforts to collect a payment, the

 2 account receivable is deemed uncollectible, and it is the Facility’s “policy and

 3 practice to write off the account as a bad debt and to refer it to a consultant for

 4 possible placement with a collection agency.” Notwithstanding the above policy or

 5 that the Facility has the option to sue a resident or her agent for an unpaid bill,

 6 “neither [the Facility] nor any collection agency [acting on its] behalf has ever filed

 7 a lawsuit for collection in district court, probate court, metropolitan court or

 8 otherwise.” According to Ms. Correa, it would not be practical or cost effective for

 9 the Facility to hire an attorney to pursue a lawsuit or arbitrate claims under

10 $10,000, particularly if it was required to arbitrate due to the costs associated with

11 arbitration, namely the arbitrators’ fees. The Facility appears to have offered no

12 independent evidence to support this contention.

13   {6}   Based on Ms. Correa’s testimony, as well as its review of the relevant

14 provisions of the admission agreement, arbitration agreement, and collections

15 policy, the district court reached the following conclusions. First, the court

16 concluded that the arbitration provision “at issue herein is facially bilateral as it

17 allows both the nursing home and nursing home residents to take to court ‘disputes

18 pertaining to collections or discharge of residents.’ ” The court nevertheless

19 concluded that, although Defendants were afforded the opportunity to provide

20 evidence to factually rebut that it is not unfair or unreasonable to except such


                                              5
      
                                                                                           


 1 claims from arbitration, “[t]he evidence presented by Defendants as to the

 2 application of the [a]rbitration provision failed to rebut that the practical effect of

 3 the [a]greement unreasonably favors . . . Defendants.” The district court elaborated

 4 on its reasoning, stating that “[w]hile ostensibly bilateral on its face, this

 5 [a]rbitration [a]greement provision is substantively unconscionable since it

 6 mandates arbitration of Plaintiff’s most important and most likely claims while

 7 exempting from arbitration the claims most likely to be brought by . . . Defendants

 8 and, as such, is unfair and unreasonably one-sided.” Consequently, the arbitration

 9 agreement was unenforceable and invalid.

10   {7}   Defendants subsequently filed a motion to amend the district court’s

11 findings and conclusions and to “alter” its substantive unconscionability

12 determination. Defendants argued that the district court erred in relying on Ruppelt

13 v. Laurel Healthcare Providers, LLC, 2013-NMCA-014, 293 P.3d 902, as outcome

14 determinative and that it failed to follow the Bargman case-by-case analytical

15 approach. Defendants also filed a motion for summary judgment based on a recent

16 Tenth Circuit holding that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16

17 (2012), “preempts the type of substantive unconscionability challenge that Plaintiff

18 made to the [a]rbitration [a]greement in this case—i.e., one that is based on state

19 law which views arbitration as providing an inferior means of dispute resolution.”

20 The district court denied both motions. This appeal followed.


                                              6
      
                                                                                              


 1 DISCUSSION

 2   {8}    On appeal, Defendants make two arguments. First, Defendants argue that the

 3 district court erred by failing to apply the substantive unconscionability analysis set

 4 forth in Bargman and finding the collections exception unconscionable. Second,

 5 Defendants argue that the district court erred by failing to follow recent Tenth

 6 Circuit case law holding that the FAA preempts New Mexico’s substantive

 7 unconscionability doctrine.

 8 Standard of Review

 9   {9}    A district court’s denial of a motion to compel arbitration is subject to de

10 novo review. Cordova v. World Fin. Corp. of N.M., 2009-NMSC-021, ¶ 11, 146

11 N.M. 256, 208 P.3d 901. Whether an arbitration agreement is unconscionable also

12 presents a question of law subject to de novo review. Id. And we interpret statutes,

13 such as the FAA, de novo as well. Strausberg v. Laurel Healthcare Providers,

14 LLC, 2013-NMSC-032, ¶ 25, 304 P.3d 409. Neither Plaintiff nor Defendants

15 challenge the district court’s findings of fact, and consequently, we accept them as

16 true. See Seipert v. Johnson, 2003-NMCA-119, ¶ 26, 134 N.M. 394, 77 P.3d 298

17 (“An unchallenged finding of the trial court is binding on appeal.”).

18 The Arbitration Agreement Is Substantively Unconscionable

19   {10}   A contract is unenforceable if a court determines it is procedurally or

20 substantively unconscionable or a combination of the two. Rivera v. Am. Gen. Fin.


                                              7
      
                                                                                           


 1 Servs., Inc., 2011-NMSC-033, ¶ 47, 150 N.M. 398, 259 P.3d 803. “Substantive

 2 unconscionability concerns the legality and fairness of the contract terms

 3 themselves.” Cordova, 2009-NMSC-021, ¶ 22. When analyzing a contract for

 4 substantive unconscionability, our courts consider “whether the contract terms are

 5 commercially reasonable and fair, the purpose and effect of the terms, the one-

 6 sidedness of the terms, and other similar public policy concerns.” Id. A court may

 7 render a contract or contract provision unenforceable if it is “unreasonably

 8 favorable to one party while precluding a meaningful choice of the other party.” Id.

 9 ¶ 21.

10   {11}   Our Court has addressed the substantive unconscionability of this exact

11 arbitration agreement on at least two prior occasions. See Bargman, 2013-NMCA-

12 006, ¶¶ 1, 4; Ruppelt, 2013-NMCA-014, ¶¶ 1, 3; see also Figueroa v. THI of N.M.

13 at Casa Arena Blanca, LLC, 2013-NMCA-077, ¶ 28, 306 P.3d 480 (determining

14 that a similar arbitration clause, which contained exclusions for guardianship

15 actions and small claims, was substantively unconscionable). In Ruppelt, we

16 determined that, although the collections exception at issue may facially have

17 appeared to apply evenhandedly, the “practical effect” of the ostensibly bilateral

18 clause was to unreasonably favor the nursing home. 2013-NMCA-014, ¶¶ 15, 18

19 (“Common sense dictates that claims relating to collection of fees and discharge of

20 residents are the types of remedies that a nursing home, not its resident, is most


                                            8
      
                                                                                           


 1 likely to pursue.”). Thus, we held that the arbitration agreement was substantively

 2 unconscionable because it allowed the defendants to choose “the forum to resolve

 3 their disputes that were presumptively deemed to be ‘most likely,’ while

 4 simultaneously forcing . . . the weaker party[] to arbitrate her most likely disputes.”

 5 Id. ¶ 18. Because the defendants did not present any factual evidence to the district

 6 court rebutting the one-sided nature of the claims exempted from arbitration,

 7 however, we did not “rule out the possibility that probative evidence could be

 8 offered in this type of case.” Id. ¶ 17.

 9   {12}   Shortly after Ruppelt, we issued our decision in Bargman—another case

10 involving an arbitration agreement with the same collections exemption. See

11 Bargman, 2013-NMCA-006, ¶ 18. The defendants there argued that the collections

12 exception was conscionable because it would not be cost effective for them to

13 pursue collections if they had to arbitrate due to “non-specific ‘sums involved’ in

14 collections disputes” and the cost of paying for the arbitrators. Id. ¶ 22. However,

15 they did not present any evidence regarding these matters at the district court level

16 and requested we remand the case for an evidentiary hearing. Id. ¶ 23. Noting that

17 no New Mexico case has laid down a “bright-line, inflexible rule that excepting

18 from arbitration any claim most likely to be pursued by the defendant drafter will

19 void the arbitration clause as substantively unconscionable[,]” we said that “cases

20 should . . . be examined on a case-by-case basis.” Id. ¶ 17. Accordingly, we


                                              9
      
                                                                                             


 1 remanded the matter in order to give the defendants “the opportunity to present

 2 evidence tending to show that the collections exclusion is not unreasonably or

 3 unfairly one-sided such that enforcement of it is substantively unconscionable.” Id.

 4 ¶ 24.

 5   {13}   It is against this backdrop that we decide this case. Defendants argue that the

 6 district court did not fully apprehend Bargman’s clarification that substantive

 7 unconscionability should be analyzed on a case-by-case basis to determine if the

 8 exception is reasonable and fair in light of the actual evidence presented. Instead,

 9 Defendants argue, the district court viewed our analysis in Ruppelt as outcome

10 determinative, holding that the exception was unconscionable because Defendants

11 failed to prove that the practical effect of the exception was not one-sided.

12 According to Defendants, had the district court correctly applied Bargman and

13 focused on whether the exception was reasonable and fair, despite its one-

14 sidedness, it would have held that the exception was conscionable in light of the

15 evidence presented. We disagree.

16   {14}   At the outset, we reiterate that, because unconscionability is an affirmative

17 defense to contract enforcement, the party claiming that defense bears the burden

18 of proving that a contract, or a portion thereof, should be voided as

19 unconscionable. Strausberg, 2013-NMSC-032, ¶¶ 39, 48. However, the party

20 bearing the burden of proving unconscionability need not make any “particular


                                              10
      
                                                                                                


 1 evidentiary showing and can instead persuade the fact[-]finder that the terms of a

 2 contract are substantively unconscionable by analyzing the contract on its face.”

 3 Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 8, 385 P.3d 619.

 4 Once a facial threshold of unconscionability has been met by the moving party, the

 5 opposing party is then allowed to present evidence tending to show that the

 6 arbitration exclusion “is not unreasonably or unfairly one-sided such that

 7 enforcement of it is substantively unconscionable.” Bargman, 2013-NMCA-006, ¶

 8 24.

 9   {15}   While there is no “bright-line, inflexible rule” that excepting from arbitration

10 any claims the drafter is most likely to pursue will void the arbitration clause as

11 substantively unconscionable, id. ¶ 17, we have previously decided that this

12 specific arbitration exception is facially unconscionable.  Ruppelt, 2013-NMCA-

13 014, ¶ 15; see Figueroa, 2013-NMCA-077, ¶ 31 (“Common sense dictates that the

14 most likely claims [the d]efendant would have against a resident would be related

15 to its provision of services to that resident: i.e., the collection of fees for

16 services[.]”). The question here, therefore, is whether Defendants presented

17 sufficient evidence to show why—despite our prior ruling to the contrary—the

18 collections exclusion was not unfairly one-sided and was justified. We agree with

19 the district court that they did not and that Defendants “failed to rebut that the

20 practical effect of the [arbitration a]greement unreasonably favors . . . Defendants.”


                                               11
      
                                                                                               


 1   {16}   The undisputed evidence demonstrated that the Facility’s accounts

 2 receivable were typically below $10,000 for each resident. Although neither the

 3 Facility nor any collection agency on the Facility’s behalf ever filed a lawsuit for

 4 collection, the Facility never told any resident or resident’s agent that it would not

 5 sue them for an unpaid bill. Indeed, the collection letters sent by the Facility to

 6 residents/agent included a provision stating, “Your account is seriously past due.

 7 Please make payment arrangements with the business office to avoid legal action.”

 8 Our review of the unchallenged findings establish that Defendants offered nothing

 9 further below to rebut the thrust of our prior holdings: that the collections

10 exemption here is another way of exempting from arbitration claims Defendants

11 are most likely to bring, and that that it is unreasonably or unfairly one-sided such

12 that enforcement of it is substantively unconscionable. We reject Defendant’s

13 argument that there may be some reasonable justification for the collections

14 exemption because paying arbitrators would be cost-prohibitive. Defendants could

15 have, but did not, present evidence to the district court regarding the costs involved

16 for hiring arbitrators, even though the burden was theirs to do so.

17   {17}   The dissent maintains that the fact that “neither the Facility nor a collection

18 agency acting on its behalf had ever filed a collection lawsuit in any court[,]” and

19 that the price “paid [to] a lawyer to conduct an asset search to help determine

20 whether a lawsuit would be worthwhile,” in large part satisfies the evidentiary


                                              12
      
                                                                                             


 1 threshold contemplated by the Facility. Dissent Op. ¶¶ 26, 28. But to so conclude

 2 would not only serve to enforce an agreement identical to that which we have

 3 twice concluded was unenforceable based upon the same concerns about

 4 substantive unconscionability as were previously resolved as a matter of law, it

 5 would also leave open to future litigation the very same sort of non-arbitrable

 6 action that the Facility has heretofore determined to be cost-prohibitive to pursue

 7 despite its research into the feasibility of such a lawsuit or collection effort. Where,

 8 as here, an agreement contains language that has been determined to be

 9 substantively unconscionable, we consider the mere fact that thus far it is too

10 expensive for a facility to pursue to be little assurance that one day it will not be.

11   {18}   Finally, we reject Defendants’ argument that the district court “did not fully

12 apprehend and follow this Court’s substantive conscionability analysis in

13 Bargman” because it did not cite Bargman in its findings and conclusions.

14 Defendants requested an evidentiary hearing pursuant to Bargman. The district

15 court granted that request. The fact that it did so demonstrates the court’s

16 awareness of and compliance with Bargman. We note as well that the district

17 court’s conclusions of law necessarily demonstrate that it understood Bargman’s

18 requirement that arbitration cases should be decided on a case-by-case basis. Thus,

19 we disagree that the absence of a citation to Bargman commands the conclusion

20 that the district court failed to “apprehend and follow” Bargman’s substantive


                                              13
      
                                                                                            


 1 conscionability analysis. As a final matter, Defendants do not point to anything in

 2 the district court’s ruling that suggests the court did not consider all of the evidence

 3 presented or that it did not examine this case individually.

 4   {19}   Defendants also cite to a recent New Mexico Supreme Court case, Dalton, in

 5 support of their position that the collections exception was conscionable. In

 6 Dalton, our Supreme Court held that an arbitration clause provision excepting

 7 small claims of less than $10,000 from arbitration was “neither grossly unfair nor

 8 unreasonably one-sided on its face.” 2016-NMSC-035, ¶ 1. In that case, the

 9 plaintiff filed suit against the defendant relating to the circumstances surrounding

10 the purchase of two cars. Id. ¶ 2. Each of the separate sales contracts allowed either

11 party to compel arbitration of any claim or dispute arising out of the contracts that

12 exceeded the jurisdiction of a small claims court, which was $10,000 at the time.

13 Id. ¶ 3. In response to the defendant’s motion to compel arbitration, the plaintiff

14 argued that the small claims exception was substantively unconscionable because

15 the defendant was substantially more likely to bring a small claim. Id. ¶¶ 17-18.

16 Both the district court and this Court agreed with the plaintiff. Id. ¶ 5. Our

17 Supreme Court reversed, reasoning that the small claims exception did not

18 “unambiguously benefit the drafting party alone[.]” Id. ¶ 20. The Court

19 acknowledged the defendant’s argument that there were “ ‘legitimate, neutral

20 reasons’ for the parties to exclude small claims actions from arbitration, including


                                              14
      
                                                                                         


 1 streamlined pretrial and discovery rules[.]” Id. ¶ 21. The Court concluded that the

 2 small claims exception was not unfair, even if the drafting party was substantially

 3 more likely to bring a small claim, because “[b]oth parties benefit from the

 4 economy and efficiency of a small claims court[.]” Id. ¶ 22.

 5   {20}   Defendants contend that the Dalton analysis compels the conclusion that it is

 6 reasonable and fair to exclude the collections dispute exemption at issue in this

 7 case from arbitration. We disagree. As an initial matter, contrary to Defendants’

 8 assertion, Dalton did not hold that the party seeking to enforce an arbitration

 9 agreement need only show “that there is a legitimate reason for the exception.” Nor

10 do we agree that the rationale allowing the small claims exception in Dalton

11 applies to the collections and discharge exceptions here. As we have noted above,

12 the small claims exception in Dalton allows both parties complete access to small

13 claims proceedings and the exception benefits both sides by allowing each to take

14 advantage of the economy and efficiency of a small claims court compared to

15 arbitration. Here, on the other hand, Defendants are the most likely to bring

16 collection actions and to be exempted from arbitration while forcing “claims for

17 negligent care or any other claims of inadequate care”—claims the resident is most

18 likely to bring—into arbitration. See Figueroa, 2013-NMCA-077, ¶ 31 (“Common

19 sense dictates that the most likely claims [the d]efendant would have against a

20 resident would be related to its provision of services to that resident: i.e., the


                                              15
      
                                                                                                


 1 collection of fees for services[.]); Ruppelt, 2013-NMCA-014, ¶ 15 (“Common

 2 sense dictates that claims relating to collection of fees . . . are the types of remedies

 3 that a nursing home, not its resident, is most likely to pursue.”). Thus, Defendants

 4 reliance on Dalton is misplaced. The agreement in this case is realistically for the

 5 sole benefit of Defendants. The collections exception is for a claim most likely to

 6 be pursued by Defendants, and they have failed to provide sufficient evidence to

 7 prove that the exception is not unreasonably or unfairly one-sided. Accordingly,

 8 we affirm the district court’s ruling that the arbitration agreement is

 9 unconscionable and unenforceable.

10 New Mexico’s Substantive Unconscionability Doctrine Is Not Preempted by
11 Federal Law

12   {21}   Under the FAA, an arbitration agreement may be struck down as

13 unenforceable where “grounds . . . exist at law or in equity for the revocation of

14 any contract.” 9 U.S.C. § 2. “Agreements to arbitrate may accordingly ‘be

15 invalidated by generally applicable contract defenses, such as fraud, duress, or

16 unconscionability.’ ” Rivera, 2011-NMSC-033, ¶ 17 (quoting Rent-A-Center, W.,

17 Inc. v. Jackson, 561 U.S. 63, 68 (2010)). “But states cannot invalidate arbitration

18 agreements through the application of ‘defenses that apply only to arbitration or

19 that derive their meaning from the fact that an agreement to arbitrate is at issue.’ ”

20 Id. ¶ 17 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).

21 Our Supreme Court has repeatedly held that New Mexico courts may invalidate
                                              16
      
                                                                                            


 1 arbitration agreements through the doctrine of substantive unconscionability

 2 without violating the FAA. See Cordova, 2009-NMSC-021, ¶ 38 (“Our

 3 unconscionability analysis, which is applied in the same manner to arbitration

 4 clauses as to any other clauses of a contract, is therefore not inconsistent with the

 5 dictates of the FAA.”); see also Rivera, 2011-NMSC-033, ¶ 17 (“Despite the

 6 policy favoring enforcement of arbitration agreements, under the FAA an

 7 arbitration agreement is not enforceable where grounds exist at law or in equity for

 8 the revocation of any contract.” (internal quotation marks and citation omitted));

 9 Fiser v. Dell Computer Corp., 2008-NMSC-046, ¶ 23, 144 N.M. 464, 188 P.3d

10 1215 (“While the FAA prevents states from singling out arbitration provisions for

11 suspect status, it does not give arbitration provisions special protection either.”).

12   {22}   Nevertheless, Defendants contend that a recent Tenth Circuit Court of

13 Appeals decision, THI of New Mexico at Hobbs Center, LLC v. Patton, 741 F.3d

14 1162, 1169 (10th Cir. 2014), compels us to readdress the issue of preemption. In

15 Patton, the Tenth Circuit held that our state courts were applying the

16 unconscionability doctrine based on an impermissible “perceived inferiority of

17 arbitration to litigation as a means of vindicating one’s rights.” Id. Defendants

18 argue that our state courts must follow the Tenth Circuit on matters of preemption

19 and that we are not foreclosed from reversing the district court’s decision to the




                                              17
      
                                                                                             


 1 contrary because our Supreme Court has not addressed the merits of the Patton

 2 decision. We disagree.

 3   {23}   While our Supreme Court has not yet addressed the possible preemption of

 4 our substantive unconscionability doctrine in light of Patton, “[a]ppeals in this

 5 Court are governed by the decisions of the New Mexico Supreme Court—

 6 including decisions involving federal law, and ‘even when a United States

 7 Supreme Court decision seems contra.’ ” Dalton v. Santander Consumer USA,

 8 Inc., 2015-NMCA-030, ¶ 30, 345 P.3d 1086 (quoting State v. Manzanares, 1983-

 9 NMSC-102, ¶ 3, 100 N.M. 621, 674 P.2d 511), rev’d on other grounds, Dalton,

10 2016-NMSC-035, ¶ 24. Therefore, we view our Supreme Court’s decisions in

11 Cordova and its progeny as binding precedent that the district court correctly

12 followed. Accordingly, we conclude that the district court did not err in rejecting

13 Defendants’ argument that our unconscionability doctrine is preempted under the

14 FAA in light of Patton.

15 CONCLUSION

16   {24}   For the foregoing reasons, we affirm the district court’s ruling that the

17 arbitration agreement was substantively unconscionable despite Defendants’

18 evidence. Further, we affirm the district court that our unconscionability doctrine is

19 not preempted in light of controlling New Mexico Supreme Court precedent.

20   {25}   IT IS SO ORDERED.


                                             18
      
                                                                      



1                               __________________________________
2                               LINDA M. VANZI, Chief Judge

3 I CONCUR:


4 _________________________________
5 J. MILES HANISEE, Judge


6 KIEHNE, Judge (dissenting).




                                  19
     
                                                                                            


 1 KIEHNE, Judge (dissenting).

 2   {26}   I agree with the majority that the question we are called on to resolve is

 3 “whether Defendants presented sufficient evidence to show why . . . the collections

 4 exclusion was not unfairly one-sided and was justified.” Majority Op. ¶ 15. I

 5 disagree, however, with its conclusion that Defendants failed to present sufficient

 6 evidence. As the majority correctly acknowledges, the evidence was that the

 7 Facility’s accounts receivables were typically below $10,000 per resident, and

 8 neither the Facility nor a collection agency acting on its behalf had ever filed a

 9 collection lawsuit in any court. Majority Op. ¶ 16. The majority then states that the

10 Facility never informed residents that it would not file a collections lawsuit. Id.

11 Finally, the majority rejects the Facility’s argument that the exception for

12 collections claims is justifiable because arbitrating such claims is not cost-

13 effective, on the ground that the Facility failed to present evidence of the cost of

14 hiring the arbitrators. Id.

15   {27}   With respect to the first ground for rejecting Defendants’ claim—i.e. that

16 Defendants did not inform any resident that they would not file a collections

17 lawsuit—neither Plaintiff, nor the district court, nor the majority has cited any

18 authority for the proposition that this fact matters to our analysis, and I am aware

19 of none. Thus, this fact appears to play no role in the analysis and should be

20 regarded as irrelevant.


                                            20
      
                                                                                              


 1   {28}   As for the second ground—i.e. the lack of evidence—I believe the majority

 2 has taken an overly narrow view of the evidence. As discussed above, the evidence

 3 was that accounts receivable were typically between $1 and $10,000 per resident,

 4 and neither the Facility nor any collections agency had ever filed a collections

 5 lawsuit in any court. Ms. Correa testified that the Facility had not filed any

 6 collections lawsuits because it concluded that doing so would not be cost-effective,

 7 explaining that the Facility had once paid a lawyer to conduct an asset search to

 8 help determine whether a lawsuit would be worthwhile, and the cost for that

 9 service alone had been $7,000. Additionally, the arbitration agreement required

10 that in the event of a dispute, the parties would proceed first to mediation (before a

11 mediator whose fee would be paid by the Facility) and, if that were unsuccessful,

12 to arbitration before a panel of three arbitrators (whose fees would, again, be paid

13 by the Facility). Ms. Correa thus explained that the cost of arbitrating these

14 disputes would also not be cost-effective, since the Facility would not only be

15 paying for its own attorney’s fees, but also the additional fees to hire a mediator

16 and three arbitrators.

17   {29}   Although it is true, as the majority states, that the Facility did not present

18 evidence to quantify the amount of the mediator’s and arbitrators’ fees that would

19 be incurred, it is hard to see why that matters. Here the evidence—which no one

20 disputes—was that the Facility believed it was not cost-effective to file collections


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 1 lawsuits in court, where it would only have to pay its own attorney, and in fact had

 2 never done so. Given these facts, the cost of paying a mediator and three

 3 arbitrators, regardless of the amount, would necessarily make arbitration even less

 4 cost-effective than proceeding in court. Thus, the Facility’s failure to put a specific

 5 dollar figure on those fees is not a defect at all, much less a fatal one.

 6   {30}   Our Supreme Court and this Court have previously stated that in analyzing

 7 an arbitration agreement that excepts certain claims from its scope, we are not to

 8 focus on theoretical possibilities. Instead, we look at the agreement’s “practical

 9 effect,” meaning that we determine whether the agreement unfairly preserves a

10 business’s ability to bring in court its most likely claims against a consumer while

11 requiring consumers to bring their most likely claims in arbitration. See, e.g.,

12 Cordova, 2009-NMSC-021, ¶ 1 (holding that arbitration agreement was

13 unconscionable where it preserved for a lender the option of proceeding in court on

14 “all remedies the lender [was] most likely to pursue against a borrower” (emphasis

15 added)); see also Dalton, 2016-NMSC-035, ¶ 8 (“Substantive unconscionability

16 requires courts to examine the terms on the face of the contract and to consider the

17 practical consequences of those terms.” (emphasis added)); Ruppelt, 2013-NMCA-

18 014, ¶ 16 (rejecting business’s argument that exception for collections claims from

19 arbitration agreement was conscionable because it was bilateral; situations where

20 consumers might have such claims were “rare” and thus did not detract from the


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 1 “practical reality” that the arbitration agreement allowed the business to bring its

 2 most likely claims in court while forcing consumers to bring their most likely

 3 claims in arbitration).

 4   {31}   Under the facts of this case, I do not see how the exception for collections

 5 claims rendered the arbitration agreement unconscionable. The “practical effect” of

 6 the exception was null, since the Facility had never brought any such claims, nor

 7 was it likely to do so. I would therefore reverse and remand for enforcement of the

 8 arbitration agreement. Because I would resolve the case on these grounds, I do not

 9 believe it is necessary to decide the federal preemption issue. My colleagues being

10 of a different view, I respectfully dissent.


11                                          _________________________________
12                                          EMIL J. KIEHNE, Judge




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