In July I wrote about a NM Court of Appeals case dealing with the enforceability of an arbitration clause, Felts v. CLK Management, 2011-NMCA-062, cert. granted. I suggested the decision was not consistent with then-emergent SCOTUS precedent, or the subsequently issued AT&T Mobility LLC v. Concepcion, No. 09-893 (Apr. 27, 2011), because of its quickness to accord itself—rather than the arbitrator—the right to determine the arbitrability question.
Those employed or regularly engaged in the arbitration field know that this is no light question. As I wrote in the earlier blog, “if an agreement to arbitrate includes
an agreement that the arbitrator will determine the enforceability of the agreement in the first instance, the district court only hears challenges to the enforceability of that ‘gateway’ or ‘delegation’ clause, and the arbitrator continues to hear challenges to the enforceability of the overall agreement.” See Rent-a-Center, 130 S.Ct. 2772, 2776-81 (2010). Thus, this issue creates tremendous “tension” between the Federal Arbitration Act (FAA) and courts, and a “major fault line in contract law.” See Stephen Friedman, Arbitration Provisions: Little Darlings and Little Monsters, 79Fordham Law Rev. 2035.
an agreement that the arbitrator will determine the enforceability of the agreement in the first instance, the district court only hears challenges to the enforceability of that ‘gateway’ or ‘delegation’ clause, and the arbitrator continues to hear challenges to the enforceability of the overall agreement.” See Rent-a-Center, 130 S.Ct. 2772, 2776-81 (2010). Thus, this issue creates tremendous “tension” between the Federal Arbitration Act (FAA) and courts, and a “major fault line in contract law.” See Stephen Friedman, Arbitration Provisions: Little Darlings and Little Monsters, 79Fordham Law Rev. 2035.
Nonetheless, since Felts, the State Supreme Court issued a subsequent decision that renewed its commitment to cut in line before arbitrators. Specifically, "[a]lthough no longer technically necessary to [its] disposition," the court went to great lengths to "correct the analysis .. that imposes an overly narrow construction on New Mexico's unconscionability jurisprudence." Regrettably, it also suggests that court jurisdiction will inevitably lie based on the disbandment of the National Arbitration Forum (NAF). See Rivera v. American General Financial Services, Inc., 2011-NMSC-033.
As one law professor puts it, “in the eyes of the Federal Arbitration Act (FAA), arbitration provisions are ‘little darlings’—favored contract terms presumptively entitled to full enforcement. To courts applying the unconscionability doctrine, however, such provisions are often viewed as “little monsters…Jurisprudence and commentary to date have assumed that courts have the authority to use the unconscionability doctrine to refuse to enforce one-sided arbitration provisions," although the argument's detractors suggest that "Congress, in passing the FAA, intended to strip courts of that power." See Stephen Friedman, Arbitration Provision: Little Darlings and Little Monsters, 79 Fordham Law Review 2035; but see also David Horton's response, Unconscionability Wars, 106 Northwestern Univ. Law Review Colloquy 106. That New Mexico courts will go to great lengths to apply the unconsionability doctrine is amply evident in its cases on the subject, including Rivera.
In Rivera, the Court first concluded that arbitration through NAF was "integral" to the agreement to arbitrate. It concluded this because NAF was referenced several times. However, as many other state courts have concluded, it is easy and non-controversial enough to substitute one forum for another since, although a preferred forum may be indicated, obviously the overriding preference is arbitration generally over adjudication if push comes to shove. Then, although the matter was fully settled on the basis of that ruling, the Court went on for two more pages of dicta to conclude that a finding of unconscionability could be based on either procedural or substantive due process, although prior case law had required both.
The case is quite lengthy and has the tang of tortured, goal-oriented reasoning. This is not to say that good arguments could not have been made to support the Court's conclusions. However, they weren't made here. Instead, the Court seems bent on achieving the goal of undermining an arbitration agreement in a case in which it found the merits to be juicy and compelling, and that it therefore wanted the courts to hear in the first instance.
In Rivera, the Court first concluded that arbitration through NAF was "integral" to the agreement to arbitrate. It concluded this because NAF was referenced several times. However, as many other state courts have concluded, it is easy and non-controversial enough to substitute one forum for another since, although a preferred forum may be indicated, obviously the overriding preference is arbitration generally over adjudication if push comes to shove. Then, although the matter was fully settled on the basis of that ruling, the Court went on for two more pages of dicta to conclude that a finding of unconscionability could be based on either procedural or substantive due process, although prior case law had required both.
The case is quite lengthy and has the tang of tortured, goal-oriented reasoning. This is not to say that good arguments could not have been made to support the Court's conclusions. However, they weren't made here. Instead, the Court seems bent on achieving the goal of undermining an arbitration agreement in a case in which it found the merits to be juicy and compelling, and that it therefore wanted the courts to hear in the first instance.
If you are interested in thoughtful arbitration or other neutral services, please contact Pilar Vaile, P.C. at (505) 247-0802 or info@pilarvailepc.com.
