In an August 16, 2012 decision from the Court of Appeals of New Mexico (“the Court”), the Court affirmed that an agreement to arbitrate claims contained in a nursing home agreement between the nursing home resident and the nursing home was “substantively unconscionable” under New Mexico law because it was unfairly one-sided in favor of the Defendants. The wrongful death claim against the nursing home was filed by the daughter of the nursing home resident that alleged that the nursing home’s care provided to her father was negligent and that the negligent care caused her father’s death.
At the time of her father’s nursing home admission in March 2006, a separate attachment to the admission agreement signed by the daughter on behalf of her father provided that both parties “relinquish[ed] their right to have any and all disputes associated with [the Agreement] and the relationship created by the Admission Agreement . . . resolved through a lawsuit, . . . except to the extent that New Mexico law provides for judicial action in arbitration proceedings,” with two exceptions: “[t]his [a]rbitration [a]greement shall not apply to disputes pertaining to collections or discharge of residents.”
The district court (the trial court) had determined that the arbitration agreement was inherently one-sided in favor of the Defendants because it required residents to arbitrate their most common claims but allowed the Defendants to litigate the claims they were most likely to bring—those relating to collections or discharge of residents.
The Court defined “substantive unconscionability” as follows: Unconscionability is an equitable doctrine, rooted in public policy, which allows courts to render unenforceable an agreement that is unreasonably favorable to one party while precluding a meaningful choice of the other party. Substantive unconscionability concerns the legality and fairness of the contract terms themselves. Substantive unconscionability relates to the content of the contract terms and whether they are illegal, contrary to public policy, or grossly unfair. As such, the Court 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 to determine whether a contract provision is substantively unconscionable.
The Court referred to an earlier decision of the Supreme Court of New Mexico (“Supreme Court” – New Mexico’s highest appellate court) in which the Supreme Court held that the arbitration clause at issue was unfairly one-sided because it gave one party the ability “to seek judicial redress of its likeliest claims while forcing [the other party] to arbitrate any claim she may have.” As a result, the Supreme Court held that it was void under New Mexico law. In holding that the arbitration agreement was substantively unconscionable, the Supreme Court clarified that substantive unconscionability requires a focus on fairness, not complete one-sidedness.
Turning its attention back to the case before it, the Court noted that common sense dictates that claims relating to collection of fees and discharge of residents are the types of remedies that a nursing home, not its resident, is most likely to pursue. The Court stated that while no single, precise definition of substantive unconscionability can be articulated, substantive unconscionability broadly refers to whether the material terms of a contract are patently unfair and more beneficially one-sided in favor of the more powerful party. By excepting disputes pertaining to collections and discharge of residents from arbitration, the Defendants chose the forum to resolve their disputes that were presumptively deemed to be “most likely,” while simultaneously forcing the Plaintiff, the weaker party, to arbitrate her most likely disputes. As a result, although the exemption provision may facially appear to apply evenhandedly, its practical effect unreasonably favors the Defendants, and the provision’s bilateral appearance is inaccurate.
The Court further held that the exemption provision of the arbitration agreement could not be separately unenforced while allowing the remaining provisions of the arbitration agreement to be effective: the one-sided arbitration provisions were central to the overall arbitration scheme and, therefore, the unconscionable provisions could not be severed from the arbitration provisions so as to save the parties’ general agreement to arbitrate.
Source: Ruppelt v. Laurel Healthcare Providers, LLC
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