IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number: 2009-NMSC-021
Filing Date: April 29, 2009
Docket No. 30,536
LAURA A. CORDOVA,
Plaintiff-Respondent,
v.
WORLD FINANCE CORPORATION OF
NEW MEXICO,
Defendant-Petitioner.
ORIGINAL PROCEEDING ON CERTIORARI
Eugenio S. Mathis, District Judge
Barnett Law Firm, P.A.
Mickey D. Barnett
Phillip W. Cheves
David A. Garcia
Amy B. Bailey
Albuquerque, NM
Wolf and Fox, P.C.
Amy B. Bailey
Albuquerque, NM
for Petitioner
Feferman & Warren
Richard N. Feferman
Robert Dale Treinen
Albuquerque, NM
Public Justice, P.C.
F. Paul Bland, Jr.
Washington, D.C.
1
for Respondent
Doerr & Knudson, P.A.
Randy J. Knudson
Portales, NM
AARP Foundation
Deborah M. Zuckerman
Washington, D.C.
for Amicus Curiae
AARP
Gary K. King, Attorney General
David K. Thomson, Assistant Attorney General
Scott Fuqua, Assistant Attorney General
Santa Fe, NM
for Amicus Curiae
Office of the Attorney General
OPINION
DANIELS, Justice.
{1} This case requires us to review the validity of a small loan company’s form
arbitration provision that would limit a borrower to mandatory arbitration as a forum to settle
all disputes whatsoever, while reserving for the lender the exclusive option of access to the
courts for all remedies the lender is most likely to pursue against a borrower. We hold that
such an inherently one-sided agreement is against New Mexico public policy and is therefore
void as unconscionable. Although we differ somewhat in our legal analysis, we affirm the
decision of the Court of Appeals and hold that the district court was correct in denying the
loan company’s motion to compel arbitration of the borrower’s judicial claims.
I. BACKGROUND
{2} Defendant World Finance Corporation of New Mexico (World Finance) specializes
in small loans at over 100% annual interest rates. Over the course of several years, Plaintiff
Laura Cordova (Cordova) signed ten separate loan agreements with World Finance that grew
out of just two original loans. The loans were repeatedly rolled over into new loans, and
Cordova never succeeded in paying off any of them before signing each new agreement.
{3} All ten of World Finance’s loan agreements included the company’s separately-
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signed form arbitration attachment. The first paragraph of the printed arbitration provision
broadly stated that the parties must arbitrate all disputes arising under, but not limited to:
• the Loan Agreement and any previous or subsequent loan from Lender and
any previous or subsequent retail installment sales contract made with/or
assigned to Lender including all documents relating to same and insurance
purchased in connection with the transaction;
• whether the claim or dispute must be arbitrated and the validity of this
Agreement;
• any claim based upon fraud or misrepresentation;
• any claim based upon a federal or state statute including, but not limited to,
the Truth-in-lending Act and Regulation Z; the Equal Credit Opportunity
Act and Regulation B, state insurance laws, state usury and lending laws
including state consumer protection statutes and regulations;
• any dispute about closing, servicing, collecting or enforcing the Loan
Agreement or other loan or retail installment sales agreements between
Lender and Borrower
{4} However, a separate paragraph in the form also provided that the lender alone had
the exclusive and unlimited alternative to seek any judicial remedies it might otherwise have
available to it in law or in equity in the event of a default by the borrower:
Notwithstanding this Agreement, in the event of a Default under the
Loan Agreement, Lender may seek its remedies in an action at law or in
equity, including but not limited to, judicial foreclosure or repossession.
Lender may also exercise its other remedies provided by law (such as, but not
limited to, the right of self-help repossession under Article 9 of the Uniform
Commercial Code or other applicable law and/or the foreclosure power of
sale). This section shall not constitute a waiver of Lender’s rights thereafter
to seek specific enforcement of its rights under this Agreement in the event
Borrower shall assert a counterclaim or right of setoff in such judicial or
non-judicial action.
{5} Cordova ultimately sought the assistance of an attorney, who filed on her behalf in
the district court for San Miguel County a complaint for injunctive relief and damages,
alleging that World Finance had engaged in unfair, deceptive, and unconscionable trade
practices within the meaning of the New Mexico Unfair Practices Act. See NMSA 1978, §§
57-12-1 to -24 (1967, as amended through 2003).
{6} The complaint alleged that World Finance had engaged in unreasonable and tortious
debt collection practices, including personal visits and almost daily phone calls that caused
Cordova to lose her job, despite her repeated pleas for World Finance to cease contacting her
employers and to cease contacting her at work. Agents of World Finance allegedly also
called her at home nearly every day during her six-week recuperation from lung surgery.
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She claimed damages resulting from lost wages, lost employment benefits, lost time,
invasion of privacy, and emotional distress.
{7} In response to the complaint, World Finance filed a motion to compel arbitration,
arguing that Cordova was bound by the mandatory arbitration clauses that had been a
standard part of all ten of the form loan agreements. The motion argued that the arbitration
provisions were enforceable against Cordova pursuant to the Federal Arbitration Act (FAA),
9 U.S.C. §§ 1-16 (2006), and the New Mexico Uniform Arbitration Act, NMSA 1978, §§
44-7A-1 to -32 (2001), and that Cordova was precluded from seeking judicial relief for any
resolution of her claims.
{8} Cordova countered with a legal memorandum in opposition, arguing that World
Finance’s arbitration clause was “so one-sided that it cannot be enforced” by providing that
“any claims brought against [World Finance] by a consumer must be submitted to
arbitration, but that any claims that it would conceivably want to bring . . . may proceed in
court.”
{9} After a hearing, the district court denied World Finance’s motion to compel
arbitration, and World Finance appealed.
{10} The Court of Appeals affirmed the district court, holding that the conflicting and one-
sided arbitration provisions rendered the entire arbitration agreement illusory and
unenforceable. Cordova v. World Fin. Corp. of N.M., No. 27,436, slip op. at 3 (N.M. Ct.
App. June 20, 2007). This Court granted World Finance’s petition for writ of certiorari to
review that decision.
II. STANDARD OF REVIEW
{11} All issues before us are subject to a de novo standard of review. We apply a de novo
standard of review to a district court’s denial of a motion to compel arbitration. See Piano
v. Premier Distrib. Co., 2005-NMCA-018, ¶ 4, 137 N.M. 57, 107 P.3d 11. “Similarly,
whether the parties have agreed to arbitrate presents a question of law, and we review the
applicability and construction of a contractual provision requiring arbitration de novo.” Id.
By both statute and case law, we review whether a contract is unconscionable as a matter of
law. See NMSA 1978, § 55-2-302 (1961) (providing that courts, as a matter of law, may
police against contracts or clauses found unconscionable); Fiser v. Dell Computer Corp.,
2008-NMSC-046, ¶ 19, 144 N.M. 464, 188 P.3d 1215 (providing the issue of the
unconscionability of a contract “is a matter of law and is reviewed de novo”).
III. DISCUSSION
A. The Theories Underlying the Opinions Below
{12} While the primary concern of the courts below was the completely one-sided nature
4
of the arbitration clauses, there is some uncertainty about the legal theories employed in
reaching the conclusions of all judges concerned. Cordova’s district court briefing had
specifically relied on case law that articulated either “illusory” theories or
“unconscionability” theories in striking down one-sided arbitration agreements. In its
succinct order denying World Finance’s motion to compel arbitration as “not well taken,”
the district court did not specify any particular legal theory underlying its ruling.
{13} In an unpublished memorandum opinion, the Court of Appeals affirmed the district
court’s ruling, without specifically mentioning the terms “substantive unconscionability” or
“procedural unconscionability,” on the basis of precedents that held particular one-sided
arbitration agreements to be “illusory” and therefore unenforceable: “[B]ecause the
arbitration agreements attempt to bind Defendant (the Lender) only to arbitrate when it so
chooses, but they do not extend the same rights to Plaintiff, the arbitration agreements are
illusory and unenforceable.” Cordova, No. 27,436, slip op. at 2, 3.
{14} The opinions specifically relied on by the Court of Appeals were Piano, 2005-
NMCA-018, and Heye v. Am. Golf Corp., 2003-NMCA-138, 134 N.M. 558, 80 P.3d 495.
Both Piano and Heye involved at-will employees who signed employer-drafted arbitration
agreements after they had already entered into employment contracts, but in both cases the
employers specifically reserved the right to change their own obligations at any time. Piano,
2005-NMCA-018, ¶ 8; Heye, 2003-NMCA-138, ¶ 1. Both of those arbitration agreements
had been declared unenforceable for lack of consideration. Piano, 2005-NMCA-018, ¶ 1;
Heye, 2003-NMCA-138, ¶ 15. The only possible consideration provided by the employers
for the later-added arbitration agreements was an apparent promise to be mutually bound by
mandatory arbitration. Piano, 2005-NMCA-018, ¶ 11; Heye, 2003-NMCA-138, ¶ 9. Heye
and Piano determined that any such promises were meaningless, in light of the employers’
reservation of the unilateral option to modify or terminate those promises at any time.
Piano, 2005-NMCA-018, ¶ 14; Heye, 2003-NMCA-138, ¶ 15. The apparent covenants of
the employers were therefore illusory, and the arbitration contract clauses were resultingly
void for lack of consideration to the employees. Piano, 2005-NMCA-018, ¶ 14; Heye,
2003-NMCA-138, ¶ 15.
{15} In its opinion below, the Court of Appeals similarly considered the arbitration
provisions in this case to be illusory. Cordova, No. 27,436, slip op. at 3. Unlike the
contracts in Piano and Heye, however, the arbitration provisions at issue here were not
capable of being modified by World Finance after the fact. They were one-sided from the
beginning.
{16} Because World Finance did not reserve the unilateral right to modify or eliminate any
of its contractual obligations, and because consideration was provided in the new extensions
of credit that accompanied each of the questioned arbitration agreements, we agree with the
position of World Finance that this case does not fit within the Piano and Heye analytical
framework. We have concluded that the most appropriate way in which to evaluate these
agreements is through the framework of a traditional unconscionability analysis, as urged
5
by Cordova and by amici curiae AARP and the Attorney General of New Mexico.
B. Reviewability of the Unconscionability Doctrine
{17} World Finance contends that the unconscionability issue has not been properly
presented and preserved, and is therefore not before us for consideration. We disagree. To
support Cordova’s arguments in the district court that “World Finance Company’s arbitration
agreement is so one-sided that it cannot be enforced,” Cordova did not rely solely on the
void-as-illusory contract precedents of Piano and Heye. Cordova’s counsel specifically
relied on, and provided copies of, reported opinions striking down similar one-sided small-
loan company arbitration clauses on an explicit unconscionability theory. See Brown v.
Tenn. Title Loans, Inc., 216 S.W.3d 780 (Tenn. Ct. App. 2006); Wis. Auto Title Loans, Inc.
v. Jones, 714 N.W.2d 155 (Wis. 2006). The district court ruled in favor of Cordova without
stating the basis for its order. In the Court of Appeals, this case was disposed of with a
memorandum opinion on the basis of World Finance’s docketing statement and
memorandum in opposition to summary affirmance, without opportunity for Cordova to
submit further briefing. In her briefing before this Court, Cordova has continued to argue
both her unconscionability and illusory-contract theories. Cordova therefore has not
abandoned the preserved issue of unconscionability.
{18} Even if the issue had not been preserved below, it is established law that our
appellate courts will affirm a district court’s decision if it is right for any reason, so long as
the circumstances do not make it unfair to the appellant to affirm. State v. Gallegos,
2007-NMSC-007, ¶ 26, 141 N.M. 185, 152 P.3d 828; see State v. Vargas, 2008-NMSC-019,
¶ 8, 143 N.M. 692, 181 P.3d 684 (“Under the ‘right for any reason’ doctrine, ‘we may affirm
the district court’s order on grounds not relied upon by the district court if those grounds do
not require us to look beyond the factual allegations that were raised and considered
below.’” (citation omitted)). “Generally, an appellee has no duty to preserve issues for
review and may advance any ground for affirmance on appeal.” State v. Todisco, 2000-
NMCA-064, ¶ 11, 129 N.M. 310, 6 P.3d 1032 (citation omitted). The factual allegations that
are addressed in this opinion are the factual allegations that have been the basis of all the
litigation throughout the course of this case.
{19} It is not unfair to World Finance for us to address a central issue in these
circumstances, one which World Finance has had ample opportunities to address and has in
fact addressed. Unconscionability was the primary focus of all of the appellate briefs of
Cordova and amici, and World Finance’s able counsel availed themselves of the opportunity
to file replies to each one of those briefs, albeit while objecting to consideration of the issue
by this Court. Unconscionability was a central focus of the oral arguments in this case.
There is no principled reason why it should not be addressed and resolved by this Court.
C. Unconscionability Analysis
{20} Cordova has argued from the outset that the form arbitration provisions
6
accompanying the loan agreements in this case are grossly unfair and one-sided, and
therefore substantively unconscionable, in prohibiting any access to the courts by World
Finance’s borrowers, while reserving to World Finance alone the exclusive option of seeking
its preferred remedies through litigation.
{21} 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. Guthmann v. La Vida Llena, 103
N.M. 506, 510, 709 P.2d 675, 679 (1985); see also Builders Contract Interiors, Inc. v. Hi-Lo
Industries, Inc., 2006-NMCA-053, ¶ 8, 139 N.M. 508, 134 P.3d 795 (“We will allow equity
to interfere . . . only when ‘well-defined equitable exceptions, such as unconscionability,
mistake, fraud, or illegality’ justify deviation from the parties’ contract.” (quoted authority
omitted)). The doctrine of contractual unconscionability can be analyzed from both
procedural and substantive perspectives. See Fiser, 2008-NMSC-046, ¶ 20 (striking down
a substantively unconscionable arbitration clause as violative of New Mexico public policy).
{22} Substantive unconscionability concerns the legality and fairness of the contract terms
themselves. See id. (“Substantive unconscionability relates to the content of the contract
terms and whether they are illegal, contrary to public policy, or grossly unfair.”). The
substantive analysis 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. Guthmann, 103 N.M. at 511, 709 P.2d at 680.
{23} Procedural unconscionability goes beyond the mere facial analysis of the contract and
examines the particular factual circumstances surrounding the formation of the contract,
including the relative bargaining strength, sophistication of the parties, and the extent to
which either party felt free to accept or decline terms demanded by the other. Id. at 510, 709
P.2d at 679.
{24} While there is a greater likelihood of a contract’s being invalidated for
unconscionability if there is a combination of both procedural and substantive
unconscionability, there is no absolute requirement in our law that both must be present to
the same degree or that they both be present at all. See Fiser, 2008-NMSC-046, ¶ 22
(invalidating an arbitration clause without a finding of procedural unconscionability where
“there has been such an overwhelming showing of substantive unconscionability”);
Guthmann, 103 N.M. at 510, 709 P.2d at 679 (“The weight given to procedural and
substantive considerations varies with the circumstances of each case.”); see also 7 Joseph
M. Perillo, Corbin on Contracts § 29.1, at 377 (rev. ed. 2002) (observing that there is “no
basis in the text” of Article 2 of the Uniform Commercial Code for concluding that the
defense of unconscionability cannot be invoked unless the contract or clause is both
procedurally and substantively unconscionable). Procedural and substantive
unconscionability often have an inverse relationship. The more substantively oppressive a
contract term, the less procedural unconscionability may be required for a court to conclude
that the offending term is unenforceable. See Circuit City Stores, Inc. v. Mantor, 335 F.3d
7
1101, 1106 (9th Cir. 2003); see also 1 E. Allan Farnsworth, Farnsworth on Contracts § 4.28,
at 585 (3d ed. 2004) (“A court will weigh all elements of both substantive and procedural
unconscionability and may conclude that the contract is unconscionable because of the
overall imbalance.”).
{25} Contract provisions that unreasonably benefit one party over another are
substantively unconscionable. Padilla v. State Farm Mut. Auto. Ins. Co., 2003-NMSC-011,
¶¶ 10, 14, 133 N.M. 661, 68 P.3d 901. In Padilla, an automobile liability insurance policy’s
arbitration clause required both parties to arbitrate their claims, but the agreement contained
a one-sided appeal provision that only allowed an appeal to the courts from an arbitration
award where it was greater than, but not less than, the minimum liability coverage required
by the Mandatory Financial Responsibility Act, NMSA 1978, §§ 66-5-201 to -239 (1978,
as amended through 2001). Id. ¶ 2. In striking down the one-sided appeal provision as
substantively unconscionable, this Court observed that
such escape hatch clauses are not truly equal in their effect on the parties.
This is true because both parties are bound by a low award, when an
insurance company is unlikely to appeal, and not bound when there is a high
award, when an insurance company is more likely to appeal. Thus, the
benefits of the clause truly only favor the insurer, which can use the clause
to escape the unwary claimant.
Id. ¶ 10 (quoted authority omitted).
{26} In this case, World Finance’s one-sided arbitration provisions are even more
egregious than those in Padilla. The non-arbitration options that World Finance reserved
exclusively to itself in paragraph two of its form agreement did not depend on the amount
of any prior arbitration award, as was required in Padilla. In all cases of default, which is
the most likely reason for lenders to take action against their borrowers, it broadly reserved
the option of availing itself directly of any and all “remedies in an action at law or in equity,
including but not limited to, judicial foreclosure or repossession.”
{27} In striking contrast, as one of World Finance’s borrowers, Cordova had no rights
under the form agreement to go to any court for any reason whatsoever, including disputes
about the validity of any of World Finance’s form loan or arbitration documents, issues
about the terms of World Finance’s contract, claims for fraud and misrepresentation,
grievances related to servicing or collection, or claims based on federal or state consumer
protections, such as the New Mexico Unfair Practices Act, and tortious debt-collection
causes of actions asserted in Cordova’s complaint. Those are the claims a borrower is most
likely to litigate in a dispute with a lender, and the very ones the lender is least likely to want
to litigate. It is highly unlikely that World Finance will find itself at odds with the
contractual terms of its own form agreements, or the circumstances of its lending or
collection practices, or claim it was the victim of a fraudulent consumer scheme, or have any
other reason to make a claim against its borrowers for violation of consumer protection laws.
8
{28} These same kinds of one-sided arbitration schemes in consumer loan agreements
have been found to be substantively unconscionable by other courts. See Wis. Auto, 714
N.W.2d at 172 (“In many of the cases in which a contract provision has been held to be
substantively unconscionable, a creditor has unduly restricted a debtor’s remedies or unduly
expanded its own remedial rights.”). Wis. Auto addressed an arbitration clause that required
a consumer to arbitrate all claims, disputes, or controversies related to a loan agreement,
while permitting the lender to enforce any payment obligations owed by way of judicial
process, or “any other procedure that a lender might pursue to satisfy the borrower’s
obligation under the loan agreement.” Id. The court concluded that the arbitration provision
was overly one-sided in allowing the lender to carve out a choice of forum for its own
preferred claims. Id. at 173; see id. at 173 n.56 (compiling unconscionability precedents that
similarly invalidated one-sided arbitration provisions that required the weaker parties to
arbitrate).
{29} In Taylor v. Butler, 142 S.W.3d 277, 286 (Tenn. 2004), the Tennessee Supreme Court
held that an arbitration clause in an automobile finance agreement that required consumers
to bring all claims in arbitration, while permitting “practically all” of the car dealer’s
potential claims the option of resolution in a judicial forum, was unreasonably favorable to
the car dealer and oppressive to the consumer. The court noted that “it is hard to imagine
what other claims it would have against her other than one to recover the vehicle or collect
a debt.” Id.; see also Arnold v. United Cos. Lending Corp., 511 S.E.2d 854, 862 (W. Va.
1998) (“[W]e hold that where an arbitration agreement entered into as part of a consumer
loan transaction contains a substantial waiver of the borrower’s rights, including access to
the courts, while preserving the lender’s right to a judicial forum, the agreement is
unconscionable and, therefore, void and unenforceable as a matter of law.”).
{30} The courts that have criticized businesses that insert unfair and one-sided arbitration
clauses into their agreements with their customers have not done so because they are hostile
to arbitration agreements per se:
The laudable policy behind enforcing arbitration agreements is the belief that
they provide a less expensive, more expeditions [sic] means of settling
litigation and relieving congested court dockets. However, they should not
be used as a shield against litigation by one party while simultaneously
reserving solely to itself the sword of a court action.
Showmethemoney Check Cashers, Inc. v. Williams, 27 S.W.3d 361, 367 (Ark. 2000).
{31} World Finance argues that this agreement does not meet the test of unconscionability
because it is not one that “only someone out of his or her senses, or delusional, would enter
into.” This colorful language, transplanted to the United States long ago from English
courts, has occasionally been used to characterize an unconscionable contract as one “‘such
as no man in his senses and not under delusion would make on the one hand, and as no
honest and fair man would accept on the other.’” Hume v. United States, 132 U.S. 406, 411
9
(1889) (quoting Earl of Chesterfield v. Janssen, 2 Ves. Sen. 125, 155, 28 Eng. Rep. 82, 100
(Ch. 1750)). While this dramatically expressive characterization concededly has made it into
New Mexico case law, such as Guthmann, 103 N.M. at 511, 709 P.2d 675 at 680, if literally
applied it would be inconsistent with all the New Mexico cases that have struck down
contracts for unconscionability, as well as most of those from other jurisdictions. Our law
has never really required that a person seeking relief from an unconscionable contract must
first establish that he or she actually had to have been a madman or a fool to sign it. It is
sufficient if the provision is grossly unreasonable and against our public policy under the
circumstances. The repetition of this unhelpful terminology from a bygone age only serves
to confuse the unconscionability issues without serving any constructive purpose. We
specifically disapprove of its use as a controlling standard of unconscionability analysis
under New Mexico law.
{32} Applying the settled standards of New Mexico unconscionability law, we conclude
that World Finance’s self-serving arbitration scheme it imposed on its borrowers is so
unfairly and unreasonably one-sided that it is substantively unconscionable. In fact, the
substantive unconscionability of these one-sided arbitration provisions is so compelling that
we need not rely on any finding of procedural unconscionability, any more than have other
courts invalidating similar schemes in the cases cited above. It is unnecessary to remand for
further fact-finding to assess particular procedural unconscionability factors surrounding the
formation of each of these particular contracts, such as the relative bargaining power,
sophistication, or wealth of the lender and borrower in this particular case, or in any case of
a small loan company’s pre-prepared agreement that is as one-sided on its face as the one
before us. See Wis. Auto, 714 N.W.2d at 169 (observing that even without specifics of the
borrower’s particular financial situation in the record, it was sufficiently clear that the
borrower needed money badly and would have been in a relatively weak bargaining
position).
{33} We do not find it necessary to make a formal determination that these were contracts
of adhesion, which will not be enforced when the terms are patently unfair to the weaker
party, although they certainly appear to have all the characteristics.
Three elements must be satisfied before an adhesion contract may be
found. First, the agreement must occur in the form of a standardized contract
prepared or adopted by one party for the acceptance of the other. Second, the
party proffering the standardized contract must enjoy a superior bargaining
position because the weaker party virtually cannot avoid doing business
under the particular contract terms. Finally, the contract must be offered to
the weaker party on a take-it-or-leave-it basis, without opportunity for
bargaining.
Guthmann, 103 N.M. at 509, 709 P.2d at 678 (citations omitted).
{34} Even in the computer-purchase situation in Fiser, this Court held it was unnecessary
10
to find contracts of adhesion or to conduct a procedural unconscionability inquiry into the
individual circumstances relating to each separate customer before striking down arbitration
clauses as substantively unconscionable on their faces. 2008-NMSC-046, ¶ 22. We come
to the same conclusion with regard to the patently one-sided nature of the arbitration clauses
in this small loan company context. They are so substantively unconscionable that they are
unenforceable.
C. Preemption Considerations Under the Federal Arbitration Act
{35} World Finance argues that the arbitration agreements at issue are governed by the
FAA, which provides that arbitration agreements “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. While we acknowledge the controlling nature of that principle of
law, we disagree that it can save the one-sided arbitration scheme in this case.
{36} We recently held in Fiser that the FAA did not preclude our addressing and
invalidating an arbitration agreement’s class action ban, because our holding was based on
neutral and generally applicable New Mexico public policy contract principles. 2008-
NMSC-046, ¶ 23. In Fiser, a computer manufacturer argued that a purchaser was not
permitted to file a class action lawsuit for misrepresentation in the sale of computers, where
each similarly situated consumer suffered damages of less than twenty dollars. Id. ¶¶ 2-4.
We held the class action ban was contrary to New Mexico public policy because “[t]he
opportunity for class relief and its importance to consumer rights is enshrined in the
fundamental policy of New Mexico and evidenced by our statutory scheme.” Id. ¶ 13. The
arbitration agreement in Fiser that banned any form of class action relief was unenforceable
because it would have been “tantamount to allowing Defendant to unilaterally exempt itself
from New Mexico consumer protection laws.” Id. ¶ 21. Because the Fiser ruling rested on
a New Mexico doctrine that existed for the revocation of any contract, the FAA did not
preclude our examination of the enforceability of the suspect arbitration clause. See id. ¶ 23
(“‘[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may
be applied to invalidate arbitration agreements without contravening [the FAA].’” (quoting
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996))).
{37} As in Fiser, our invalidation of these arbitration agreements is based on a generally
applicable New Mexico unconscionability analysis. See Perry v. Thomas, 482 U.S. 483, 493
n.9 (1987) (“[S]tate law, whether of legislative or judicial origin, is applicable [and does not
contravene the FAA] if that law arose to govern issues concerning the validity, revocability,
and enforceability of contracts generally.”).
{38} New Mexico’s legal doctrine of contractual unconscionability, like that of other
jurisdictions, was not developed to target or invalidate this or any other arbitration
agreement. See id. (“A court may not, then, in assessing the rights of litigants to enforce an
arbitration agreement, construe that agreement in a manner different from that in which it
otherwise construes nonarbitration agreements under state law.”). Our unconscionability
11
analysis, which is applied in the same manner to arbitration clauses as to any other clauses
of a contract, is therefore not inconsistent with the dictates of the FAA. The FAA is intended
to promote inexpensive, fair, and reasonable arbitration alternatives to litigation. It is not
a license for businesses to take advantage of consumers by the imposition of one-sided,
unfair, and legally unconscionable arbitration schemes. We will not allow our courts to be
used to enforce unconscionable arbitration clauses any more than we will allow them to be
used to enforce any other unconscionable contract in New Mexico.
D. Remedy
{39} There are two possible remedial actions we can take to give effect to our holding that
the one-sided arbitration provisions separately attached to the loan agreements are
unenforceable: We can strike the arbitration provisions in their entirety, or we can attempt
to refashion parts of them into a fair and balanced arbitration arrangement. In Padilla, we
stated:
If a contract or term thereof is unconscionable at the time the contract is
made a court may refuse to enforce the contract, or may enforce the
remainder of the contract without the unconscionable term, or may so limit
the application of any unconscionable term as to avoid any unconscionable
result.
2003-NMSC-011, ¶ 15 (quoting State ex rel. State Highway & Transp. Dep’t v. Garley, 111
N.M. 383, 389, 806 P.2d 32, 38 (1991)).
{40} In Padilla, 2003-NMSC-011, ¶¶ 10, 18, this Court struck from a contract an invalid
post-arbitration appeal provision but left intact the underlying mutual arbitration clause. By
contrast, the invalidity in this case involves the arbitration scheme itself, not just the
procedures for appeal to the courts after the arbitration phase is over. We are reluctant to try
to draft an arbitration agreement the parties did not agree on. This is particularly so in light
of the categorization in the agreements of specific kinds of access to the courts World
Finance had insisted on for itself. As we concluded in Fiser, 2008-NMSC-046, ¶ 24, we
must strike down the arbitration clause in its entirety to avoid a type of judicial surgery that
inevitably would remove provisions that were central to the original mechanisms for
resolving disputes between the parties. As courts in similar situations have found
appropriate under these circumstances, we determine that the arbitration agreements are
unenforceable in their entirety, and must be severed from the accompanying loan
agreements. See Taylor, 142 S.W.3d at 287; Wis. Auto, 714 N.W.2d at 178.
IV. CONCLUSION
{41} Based on our holding that World Finance’s one-sided arbitration clauses are
substantively unconscionable and therefore unenforceable under New Mexico law, we affirm
the order of the district court denying the motion to compel arbitration, and we remand this
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matter to that court for further proceedings consistent with this opinion.
{42} IT IS SO ORDERED.
____________________________________
CHARLES W. DANIELS, Justice
WE CONCUR:
___________________________________
EDWARD L. CHÁVEZ, Chief Justice
___________________________________
PATRICIO M. SERNA, Justice
___________________________________
PETRA JIMENEZ MAES, Justice
___________________________________
RICHARD C. BOSSON, Justice
Topic Index for Cordova v. World Finance Corp., No. 30,536
AE APPEAL AND ERROR
AE-PA Preservation of Issues for Appeal
CP CIVIL PROCEDURE
CP-AT Arbitration
CP-EQ Equitable Claims or Defenses
CM COMMERCIAL LAW
CM-CC Consumer Credit
CM-CP Consumer Protection
CM-UP Unfair Practices Act
CM-UC Uniform Commercial Code
CN CONTRACTS
CN-AC Adhesion Contract
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CN-CS Consideration
CN-CO Contracts Against Public Policy
CN-PP Public Policy
CN-UC Unconscionable
RE REMEDIES
RE-AN Arbitration
RE-EQ Equity
14