In THI of New Mexico v. Patton, No. 13-202 (10th Cir. Jan. 28, 2014) (click here for a copy of the decision), the plaintiff, on behalf of her deceased husband’s estate, sued a nursing home for negligence and misrepresentation. The nursing home responded by asking a federal district court to enforce an arbitration agreement between the parties. The agreement required the parties to arbitrate any claims regarding the husband’s care at the nursing home, except for claims relating to guardianship proceedings, collection, or eviction actions initiated by the nursing home. In sum, the arbitration clause covered claims most likely to be brought by residents, but not claims most likely to be brought by the nursing home.
In an earlier case called Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC, 306 P.3d 480 (N.M.Ct.App. 2012), a New Mexico appellate court had previously found the identical arbitration clause to be unconscionable under New Mexico law. The state appellate court explained that an arbitration agreement is one-sided or unconscionable “where the drafter unreasonably reserved the vast majority of his claims for the courts, while subjecting the weaker party to arbitration on essentially all of the claims that party is likely to bring.”
The federal district court followed this state appellate decision finding the clause to be unconscionable. However, the Tenth Circuit reversed and enforced the arbitration agreement, finding that the FAA preempts New Mexico’s unconscionability analysis. The Tenth Circuit reasoned that the state unconscionability analysis (i.e., an arbitration agreement is unconscionable if the stronger party retains litigation rights) presumed the inferiority of arbitration as a means of dispute resolution, and the FAA does not permit such a presumption. The Tenth Circuit, relying on Supreme Court cases like Perry and Concepcion, explained that the FAA preempts state law that derives its “meaning from the fact that an agreement to arbitrate is at issue.” Under this rationale, the FAA preempts the New Mexico ruling because the state law focused on the unfairness of arbitrating certain claims.