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New Mexico Compilation
Commission, Santa Fe, NM
'00'05- 15:18:40 2016.02.10
Certiorari Denied, January 12, 2016, No. S-1-SC-35652
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2016-NMCA-017
Filing Date: November 19, 2015
Docket No. 33,657
BERNADETTE TENNYSON,
ROLLIE A. GRANDBOIS, LYDIA LEYBA,
GURU SHABD KHALSA, ESTER BAEHR,
and ARAMATI ISHAYA, on behalf of themselves
and all others similarly situated,
Plaintiffs-Appellees,
v.
SANTA FE DEALERSHIP ACQUISITION II, INC.
d/b/a PREMIER MOTORCARS OF SANTA FE,
DON BONNER, STEVE GALLEGOS,
and MONTY MITCHELL,
Defendants-Appellants.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
Francis J. Mathew, District Judge
The Vargas Law Firm, LLC
Ray M. Vargas, II
Albuquerque, NM
Jaramillo Touchet
David Jaramillo
Maria E. Touchet
Albuquerque, NM
for Appellees
Guebert Bruckner P.C.
Terry R. Guebert
Christopher J. DeLara
1
David C. Odegard
Albuquerque, NM
for Appellants
OPINION
HANISEE, Judge.
{1} Defendants appeal the district court’s denial of their motion to compel arbitration
against absent class members. We affirm.
BACKGROUND
{2} Plaintiffs filed a putative class-action lawsuit against Defendants on December 10,
2010. The complaint alleged Defendants sold used cars to Plaintiffs and others without
disclosing their accident history, in violation of New Mexico common law and various
statutes. In lieu of answering the complaint, Defendants filed a motion to dismiss, which the
district court denied on May 4, 2011. Defendants filed an answer the next day, and a second
answer on November 3, 2011 after the district court permitted Plaintiffs to amend their
complaint to include additional allegations of fact and two new claims against Defendants.
{3} On November 15, 2011, Defendants filed a motion for summary judgment on the
named Plaintiffs’ claims. On February 20, 2012, the district court granted in part and denied
in part Defendants’ motion. More than a year of discovery and discovery-related motions
practice ensued. On July 29, 2013, Defendants filed renewed motions for summary judgment
on Plaintiffs’ remaining claims. The motions remain pending before the district court.
{4} The day after Defendants filed their renewed motions for summary judgment,
Plaintiffs filed a motion to certify this case as a class action under Rule 1-023(B)(2), (B)(3)
NMRA. On September 24, 2013, the district court granted Plaintiffs’ motion to certify.
Defendants sought leave to appeal the district court’s order certifying the case as a class
action, a request that our Court denied by written order on January 7, 2014. See Rule 1-
023(F) (“The Court of Appeals may in its discretion permit an appeal from an order of a
district court granting or denying class action certification.”).
{5} On December 9, 2013, Defendants filed a motion to compel arbitration against class
members who had been joined to the action by the district court’s certification order.
Defendants’ motion asserted that Plaintiffs and all absent members of the class had signed
a Buyers Order Agreement (the Agreement) that contained a clause requiring all disputes
arising from the Agreement to be decided by arbitration.
{6} On February 19, 2014, the district court denied Defendants’ motion to compel
arbitration. The district court found that Defendants had waived their right to invoke the
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arbitration clause in the Agreement. The district court made the following findings of fact
in support of this conclusion.
1. Plaintiffs filed their initial class action complaint on December 10, 2010.
2. Defendants filed a motion to strike and dismiss Plaintiffs’ complaint on
January 31, 2011, and the motion did not “[refer] to arbitration or [seek] to
compel arbitration.”
3. Defendants filed an answer to Plaintiffs’ complaint on May 5, 2011. The
answer made no reference to the arbitration clause and did not seek to compel
arbitration.
4. Plaintiffs moved to amend their complaint on May 16, 2011.
5. Defendants filed their response to the motion to amend on May 27, 2011. The
response made no mention of the arbitration clause and did not seek to
compel arbitration.
6. Defendants filed an answer to Plaintiffs’ first amended complaint on
November 3, 2011. The answer did not mention the arbitration clause or seek
to compel arbitration.
7. Defendants filed a motion for summary judgment on November 15, 2011.
Attached to the motion was an affidavit executed by one of the named
Defendants, Monty Mitchell. Attached to Mitchell’s affidavit was a copy of
the Agreement between Defendants and Plaintiff Guru Shabd Khalsa.
Defendant Mitchell’s affidavit states that the attached Agreement “is true,
correct and complete,” but the Agreement does not contain an arbitration
clause.
8. Between June 1, 2011, and December 9, 2013, the parties engaged in
substantial discovery, including written discovery, depositions of the parties,
and designated witnesses under Rule 1-030 NMRA.
9. Between June 1, 2011, and December 9, 2013, the parties engaged in
substantial judicial activity, including motions to compel, motions for
protective orders, scheduling conferences, and class certification without any
Defendant asserting a right to arbitration.
10. Throughout these proceedings, Defendants acted inconsistently with any
intent to enforce any right to arbitration or to assert any right to arbitrate.
11. All parties have incurred substantial costs and expenses in the discovery
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process and in participating in judicial proceedings since December 10, 2010.
12. Compelling arbitration after Defendants delayed in asserting a right to
arbitrate would substantially prejudice Plaintiffs as the amount of time and
expenses incurred by them in prosecuting the class claims could have been
avoided with a timely demand for arbitration.
13. Defendants waived any right to compel arbitration with respect to the named
Plaintiffs and the unnamed class members.
{7} On March 10, 2014, Defendants appealed the district court’s order denying their
motion to compel arbitration. See NMSA 1978, § 44-7A-29(a)(1) (2001) (“An appeal may
be taken from[] an order denying a motion to compel arbitration[.]”).
STANDARD OF REVIEW
{8} Substantial evidence must support a district court’s conclusion that a party has
waived its right to arbitrate a dispute. United Nuclear Corp. v. Gen. Atomic Co., 1979-
NMSC-036, ¶ 36, 93 N.M. 105, 597 P.2d 290. Three principles govern our review of the
district court’s waiver finding in the context of a motion to compel arbitration: (1) the strong
public policy preference in favor of arbitration, (2) “relief [should] only be granted upon a
showing of prejudice to the party opposing arbitration[,]” and (3) “the extent to which the
party now urging arbitration has previously invoked the machinery of the judicial system.”
Bd. of Educ. Taos Mun. Sch. v. Architects, 1985-NMSC-102, ¶¶ 7-10, 103 N.M. 462, 709
P.2d 184.
DISCUSSION
{9} Defendants do not challenge the district court’s finding that the named Plaintiffs
would be prejudiced by an order compelling arbitration. Nor do Defendants offer any
argument that the public policy favoring enforcement of arbitration clauses requires reversal
in this case. Instead, Defendants challenge (A) the district court’s factual findings underlying
its conclusion that Defendants failed to invoke their right to arbitrate this dispute until two
years after Plaintiffs filed their complaint, and (B) the district court’s conclusion that
Defendants had waived their right to compel arbitration against absent class members who
were joined to this action by the district court’s order certifying this case as a class action.
The District Court’s Findings of Fact Were Supported by Substantial Evidence
{10} Defendants challenge the district court’s finding that Defendants’ answer to
Plaintiffs’ first complaint on May 5, 2011, did not refer to the arbitration clause or otherwise
seek to compel arbitration. Defendants say they invoked the arbitration clause in the ninth
affirmative defense, which states that “Plaintiffs’ claims are subject to terms, conditions,
exclusions, and limitations as provided by contract, and Plaintiffs’ claims are limited or
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barred by said provisions.”
{11} We disagree. In Architects, our Supreme Court reversed the district court’s order
compelling arbitration, finding that the defendants had “clearly waived their right to demand
arbitration.” Id. ¶ 17. In Architects, the Court noted that the defendants had made express
mention of a contractual right to arbitrate their dispute with the plaintiff in their first
affirmative defense in their answer to the plaintiff’s complaint. Id. ¶ 3. The court noted that:
Had they not done so, waiver might be presumed. Had they moved promptly
thereafter to dismiss the claim against them and to compel arbitration, their
motion would have been granted, and upheld by this court on appeal.
. . . Instead, Architects raised other affirmative defenses, did not press the
issue of arbitration, and proceeded with discovery, after the matter had been
set for trial. Furthermore, Architects requested the assistance of the trial court
to allow more time for and to compel discovery. At no time prior to the July
30, 1984, motion did they give notice that they intended to demand
arbitration.
Id. ¶¶ 11-12.
{12} This case is distinguishable from Architects, but not in a manner that favors
Defendants. Here, unlike the defendants in Architects, Defendants did not mention their
entitlement to arbitration in their ninth affirmative defense; they simply stated that Plaintiffs’
claims were subject to the terms and provisions of the Agreement. But even assuming
Defendants’ generic invocation of the contract as a whole was sufficient to invoke the
arbitration clause, see Rule 1-008(C) NMRA (“In pleading to a preceding pleading, a party
shall set forth affirmatively . . . arbitration and award[.]”), Architects makes clear that waiver
may still be found when the defendant “[does] not press the issue of arbitration” and
otherwise invokes the judicial process in a manner inconsistent with an intent to compel
arbitration. Architects, 1985-NMSC-102, ¶ 12. In other words, even if we were to agree with
Defendants’ challenge to this aspect of the district court’s findings of fact, Defendants need
to show why the district court’s additional findings—i.e., that Defendants continued to act
in a manner inconsistent with an intent to arbitrate even after filing their answer—are not
supported by substantial evidence.
{13} In this regard, Defendants next argue that the district court’s finding that “Between
June 1, 2011, and December 9, 2013, the parties engaged in substantial judicial activity . .
. without any Defendant asserting a right to arbitration” was erroneous because Defendants
invoked their right to arbitration in their renewed motions for summary judgment filed July
29, 2013. Although it is true that Defendants quote the arbitration clause in each motion, the
quotations were not provided to support any contention that the court should compel
arbitration. Instead, Defendants asked the court to enter summary judgment on the Plaintiffs’
claims as either time-barred or failing to create a genuine issue of material fact as to liability.
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We see no error in the district court’s finding that Defendants’ motions did not assert their
right to arbitration because the motions did not ask the district court to compel arbitration;
rather, the motions merely quoted the arbitration clause and then asked the district court to
enter judgment on Plaintiffs’ claims based upon their tardiness or the absence of disputed
material facts within them. See Rule 1-007(B)(1) NMRA (“An application to the court for
an order shall be by motion which, unless made during a hearing or trial, shall be made in
writing . . . and shall set forth the relief or order sought.” (emphasis added)). Accordingly,
there is no error in the district court’s finding that Defendants failed to assert their right to
arbitration between June 1, 2011, and December 9, 2013.
Defendants Waived Their Right to Compel Absent Class Members to Arbitrate Their
Claims Against Defendants
{14} Defendants argue that even if the district court’s findings of fact support its
conclusion that Defendants waived their right to compel arbitration against the named
Plaintiffs, the facts the district court relied on to make its conclusion did not support a
finding of waiver as to absent members of the class action. In other words, Defendants
contend that the district court’s finding of waiver as to the absent class members was not
supported by substantial evidence because its findings of prejudice and the extent that
Defendants had invoked the machinery of the judicial system related only to the named
Plaintiffs, not absent class members. Defendants maintain that an order compelling
arbitration would not bind absent class members until the district court entered an order
certifying this case as a class action, so moving to compel arbitration before this case was
certified as a class action would have been futile.
{15} We disagree. Whether a party has waived its right to arbitrate a dispute depends on
whether the party “intentional[ly] relinquish[ed] . . . the right to arbitrate.” United Nuclear
Corp., 1979-NMSC-036, ¶ 36. There is no way to answer this question directly, see id. ¶ 51,
so a district court must look to a party’s outward manifestations in order to determine
whether the party “act[ed] inconsistent[ly] with its right to demand arbitration.” Id. ¶ 36.
There is no reported New Mexico case analyzing a motion to compel arbitration against
absent class members. And while United Nuclear Corp. and Architects provide the
controlling analysis of waiver in this case, United Nuclear Corp. looked exclusively to
federal courts’ analyses of waiver under the Federal Arbitration Act in determining what
considerations should apply in analyzing New Mexico’s statutory counterpart. See United
Nuclear Corp., 1979-NMSC-036, ¶¶ 32-47. The Tenth Circuit Court of Appeals recently
dealt with the issue in In re Cox Enters., Inc. Set-Top Cable Television Box Antitrust Litig.,
790 F.3d 1112 (10th Cir. 2015), petition for cert. filed, Cox v. Healy, (Oct. 14, 2015) (No.
15-466), and we find that case to provide helpful footing to our analysis of the Defendants’
argument that the district court should have ordered absent class members to arbitrate their
claims against Defendants.
{16} In In re Cox, the plaintiffs were consumers who had filed putative class action
lawsuits relating to the defendant’s provision of cable television service. 790 F.3d at 1114.
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Actions pending in different jurisdictions were consolidated, and the defendant filed a
motion to dismiss all of the named plaintiffs’ claims. Id. While the motion to dismiss was
pending, the defendant began inserting mandatory arbitration clauses into its contracts with
customers, “including putative class members.” Id. The plaintiffs’ efforts to certify a
nationwide class failed, id. at 1115, so the plaintiffs amended their complaint to assert a
more discrete geographical class definition. Id. The defendant again moved to dismiss the
plaintiffs’ claims for failure to state a claim for relief, and “did not mention the arbitration
agreements in that motion.” Id.
{17} After the district court denied the defendant’s motion to dismiss,
[t]he parties then engaged in extensive pretrial discovery, issuing
interrogatories, submitting declarations, exchanging tens of thousands of
documents, locating and hiring experts, and deposing witnesses. In
September 2013, named [the plaintiff] moved to certify a class. [The
defendant] opposed the motion and moved to exclude the testimony of [the
plaintiff]’s experts in support of the motion. Nowhere in its answer did [the
defendant] inform the district court of its arbitration agreements or raise the
presence of these agreements as an impediment to the alleged numerosity,
typicality, and commonality of the class.
During the pendency of the motion for class certification, the parties
continued to engage in discovery. [The defendant] also filed a surreply in
opposition to the motion for certification, which again did not mention the
arbitration provisions. In January 2014, in an order that extensively addressed
[the defendant’s] arguments relating to the requirements for certification, the
court granted class certification. [The defendant] moved for reconsideration
on several grounds, but the impact of the arbitration clauses was not among
them. That motion was denied. In March 2014, [the defendant] sought
permission from this [C]ourt to appeal the certification decision, arguing that
the district court erred in analyzing the Federal Rule of Civil Procedure 23
factors. It did not mention arbitration in that petition, which was denied. In
April 2014—two years into the litigation—[the defendant] moved to compel
arbitration. That same day, it also moved for summary judgment. In its
original motion to compel, [the defendant] suggested that it sought to compel
arbitration against both the absent class and named [the plaintiff], and
attached his arbitration agreement to the motion. It was not until its reply
brief that [the defendant] firmly clarified that it was not seeking to arbitrate
[the plaintiff]’s claims.
Id. (citations omitted). The district court found that the defendant had waived its right to
compel arbitration against the absent class members, and denied the defendant’s motion to
compel arbitration. Id. Defendant appealed. Id.
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{18} Like the district court below, the Tenth Circuit applied the following six-factor test
from Peterson v. Shearson/Am. Express, Inc., 849 F.2d 464 (10th Cir. 1988) to determine
whether the defendant had waived its right to arbitrate:
(1) whether the party’s actions are inconsistent with the right to arbitrate; (2)
whether the litigation machinery has been substantially invoked and the
parties were well into preparation of a lawsuit before the party notified the
opposing party of an intent to arbitrate; (3) whether a party either requested
arbitration enforcement close to the trial date or delayed for a long period
before seeking a stay; (4) whether a defendant seeking arbitration filed a
counterclaim without asking for a stay of the proceedings; (5) whether
important intervening steps [e.g., taking advantage of judicial discovery
procedures not available in arbitration] had taken place; and (6) whether the
delay affected, misled, or prejudiced the opposing party.
In re Cox, 790 F.3d at 1116 (quoting Peterson, 849 F.2d at 467-68). Although these factors
differ from those set out in Architects, 1985-NMSC-102, ¶¶ 7-10, the first five
Peterson factors can be subsumed within Architects’ invocation of the machinery of the
judicial system factor. See Architects, 1985-NMSC-102, ¶ 10. The remaining Peterson factor
is the prejudice suffered by the party opposing arbitration, which corresponds exactly with
Architects’ “prejudice” factor. See Architects, 1985-NMSC-102, ¶ 9.
{19} Turning to the Tenth Circuit’s application of the Peterson factors to the district
court’s motion to compel arbitration against absent class members in In re Cox, the court
upheld the district court’s finding that the defendant had acted inconsistently with its right
to arbitrate against absent class members by failing to mention the clause in its opposition
to the plaintiffs’ motion to certify a class. In re Cox, 790 F.3d at 1116-17. Specifically, the
district court found, and the Tenth Circuit agreed, that the defendant’s failure to mention the
arbitration clause in its response to the motion to certify was strong evidence that the
defendant did not intend to compel arbitration because the clause covered the vast majority
of absent class members, undermining the plaintiffs’ argument that absent class members
were too numerous to be joined to the action. Id. Further, the Tenth Circuit agreed with the
district court that the defendant’s invocation of other class-wide bars to relief as grounds
against satisfaction of the federally applicable numerosity requirement was strong evidence
of an intent not to arbitrate. In re Cox, 790 F.3d at 1116-17. Finally, the court noted that the
defendant had moved to compel arbitration on the same day as it moved for summary
judgment on the plaintiffs’ claims, and did not seek a stay of ruling on the summary
judgment motions pending the court’s ruling on the motion to compel. Id. at 1117.
{20} The facts in this case are similar to the facts in In re Cox. Defendants made no
argument to the district court that the binding arbitration clause in the Agreement limited the
number of class members who could be joined to the action. Like the defendant in In re Cox,
Defendants instead argued that Plaintiffs’ putative class action failed to meet the
requirements of numerosity and commonality because absent class members’ claims were
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barred for the same reasons as those set out in its motion for summary judgment on the
named Plaintiffs’ claims. Thus, Defendants in effect conceded that the district court should
grant Plaintiffs’ motion to certify if it was going to deny Defendants’ pending motions for
summary judgment on the named Plaintiffs’ claims. Like the defendant in In re Cox,
Defendants did not present the arbitration clause as an alternative class-wide basis for
denying Plaintiffs’ motion to certify, wholly divorced from the merits of the underlying
claims at issue.
{21} The Tenth Circuit also adopted the district court’s application of the second, third and
fifth Peterson factors. In re Cox, 790 F.3d at 1117-18. The court found that the defendant’s
extensive use of discovery procedure, filing of dispositive motions, and interlocutory appeal
of the district court’s certification order constituted extensive use of the judicial process that
was inconsistent with an intent to arbitrate. Id. So too here: Defendants have availed
themselves of discovery rules that might not otherwise be available in arbitration. Likewise,
Defendants have accessed judicial processes by filing multiple dispositive motions below
and seeking interlocutory review in this Court of the district court’s certification order. The
defendant in In re Cox could at least point to the fact that the arbitration clauses had been
inserted into its contracts with putative class members after litigation had commenced. In
this case, the arbitration clause was in effect from the inception of litigation. Thus, the facts
in this case provide even stronger support for the district court’s finding that Defendants
sought to invoke the machinery of litigation in a manner inconsistent with their right to
arbitrate.
{22} Finally, the Tenth Circuit agreed with the district court that the In re Cox plaintiffs
had shown prejudice resulting from the defendant’s tardy filing of a motion to compel
arbitration:
Both parties conducted extensive discovery, at great expense, with an eye
toward establishing an ascertainable class[.] . . . Now, after briefing and
discovery is complete and after [the defendant] lost on the merits, it seeks to
remove up to 87% of the class. [S]uch a redo [of the class certification
analysis] would surely impose costs on [the plaintiff]—costs that would have
been entirely preventable had [defendant] informed the court about the
presence of the agreements in the first instance.
Id. at 1118 (internal quotation marks, citation omitted). We acknowledge that the putative
class in this appeal contains little more than one hundred members. But the Tenth Circuit
analyzed the prejudice created by the defendant’s tardy motion to compel arbitration from
the perspective of named plaintiffs who sought to represent absent class members. Id. The
same principle applies in this case: Plaintiffs manifested their intent to seek class
certification in their initial complaint filed December 10, 2010. Only after nearly three years
of extensive litigation, discovery, and an order certifying the class from which Defendants
unsuccessfully appealed, did Defendants file a motion to compel arbitration.
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{23} Defendants retort that an order compelling arbitration would not bind absent class
members until the district court entered an order certifying this case as a class action, so
moving to compel arbitration before this case was certified as a class action would have been
futile. But the question is not whether or when absent class members would be bound by an
order compelling arbitration; the question is whether Defendants waived their right to invoke
their right to arbitrate disputes with absent class members. Simply because the district court
did not have jurisdiction to compel absent class members to arbitrate their claims does not
mean that Defendants had no obligation to rely upon the clause before the district court
granted Plaintiffs’ motion to certify. See id. at 1119 (“The [district] court may not have been
able to compel arbitration of absent class members [before it certified a class], but [the
defendant’s] assertion or mention of its right at that point would have fundamentally changed
the course of the litigation, ensured a more expedient and efficient resolution of the trial, and
prevented [the defendant’s] gamesmanship.” (emphasis omitted)).
{24} Ample evidence in the record supports the district court’s conclusion that Defendants
waived their right to compel absent class members to arbitrate their claims. Plaintiffs sought
class certification at the outset of their case. Only after nearly three years of extensive
litigation, discovery, and an order certifying the action did Defendants file a motion to
compel arbitration. We perceive no error in the district court’s finding that Defendants’
manner of litigation—moving for dismissal of Plaintiffs’ complaint, engaging in extensive
discovery, filing multiple motions for summary judgment, opposing class certification and
appealing the district court’s certification order, all the while omitting any mention of an
intent to compel arbitration—manifested an intent to waive their right to compel arbitration
against absent class members to such a degree that allowed Plaintiffs and the district court
to rely on the waiver.
CONCLUSION
{25} The district court’s denial of Defendants’ motion to compel arbitration against absent
class members is affirmed.
{26} IT IS SO ORDERED.
____________________________________
J. MILES HANISEE, Judge
WE CONCUR:
_______________________________________
MICHAEL D. BUSTAMANTE, Judge
_______________________________________
JONATHAN B. SUTIN, Judge
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