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John v. The Rehabilitation Center of Albuquerque, LLC

Court of Appeals of New Mexico

February 15, 2017

HARLEY JOHN and CHRISTINA PARKETT, Plaintiffs-Appellees,

         APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY Sarah M. Singleton, District Judge

          Guebert Bruckner, P.C. Terry R. Guebert Christopher J. DeLara David C. Odegard Albuquerque, NM for Appellees

          Rodey, Dickason, Sloan, Akin, & Robb, P.A. Ellen Thorne Skrak Valerie Denton Jocelyn Drennan Albuquerque, NM for Appellants


          TIMOTHY L. GARCIA, Judge

         (1} This case is before us on the question of whether the district court erred in finding that the arbitration clause exception for small claims was substantively unconscionable as a matter of law and supported granting summary judgment. Harley John and his wife Christina Parkett (collectively Appellees) brought suit against the Rehabilitation Center of Albuquerque, LLC (RCA), and others (Appellants) alleging negligence related to the care of Harley John (John) while in the RCA facility. Appellants moved to compel arbitration in compliance with the arbitration agreement language (Arbitration Agreement) included in John's RCA admission paperwork. Appellees filed a motion for summary judgment arguing that the arbitration clause was substantively unconscionable. The district court agreed with Appellees and 2 granted summary judgment. We reverse in light of our Supreme Court's recent decision in Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, 385 P.3d 619, and remand for further proceedings. In addition, we conclude that the district court did not err in refusing to consider a recent Tenth Circuit case arguing that substantive unconscionability is preempted in arbitration cases by federal law. We also find no error in the district court's ruling that Appellees did not waive their substantive unconscionability argument.


         (2} In August 2012, Appellees were traveling on State Road 371 when they lost control of the vehicle and it flipped off the road. John suffered a spinal cord injury that left him a quadriplegic. Following treatment at a hospital and two rehabilitation centers, John was transferred to RCA. After arriving, John signed admission agreement paperwork (Admission Agreement) that included the challenged Arbitration Agreement. The Arbitration Agreement explained that, by signing, both the facility and patient agreed to arbitrate all "[d]isputes, " to be defined as:

[A]ll disputed claims the [f]acility and [the r]esident may have against each other associated with this Arbitration Agreement, the relationship created by the Admission Agreement and/or the provision of services under the Admission Agreement, including all disputed claims arising out of or related to treatment or services provided by the [f]acility to [the r]esident, including disputed claims as to whether any services . . . were improperly, negligently[, ] or incompetently rendered.

         An exception to arbitration was made for "disputes" involving "claims for monetary damages that fall within the jurisdictional limit of New Mexico metropolitan, magistrate[, ] or other small claims court[s]." This is commonly referred to as the "small claims carve-out" provision or the "small claims exception." See Dalton, 2016-NMSC-035, ¶¶ 17, 24; Dalton v. Santander Consumer USA, Inc., 2015-NMCA-030, ¶ 16, 345 P.3d 1086, rev'd 2016-NMSC-035. The Arbitration Agreement also excluded from arbitration "claims related to eviction, transfer[, ] or discharge of [the r]esident that are subject to a federal or state administrative hearing process." On August 26, 2013, after leaving the facility, Appellees filed suit against Appellants alleging negligence and negligence per se arising from John's care at RCA and Christina Parkett's asserted loss of consortium.

         (3} Appellants moved to dismiss and to compel arbitration of the claims based upon the Arbitration Agreement. Appellees raised the defense of unconscionability to enforcement of the Arbitration Agreement. Although the cited case law included both substantive and procedural unconscionability, Appellees urged the court to deny Appellants' motion on the basis of procedural unconscionability only. Appellants limited their response to Appellees' procedural unconscionability arguments. At a status conference, set to discuss scheduling an evidentiary hearing regarding the Arbitration Agreement and other issues, Appellants' counsel asked Appellees to confirm that they would be arguing only procedural rather than substantive unconscionability at the future hearing. Appellees did so confirm.

         (4} Appellees subsequently filed a motion for summary judgment arguing that the Arbitration Agreement at issue was substantively unconscionable as a matter of law. In their response, Appellants attached an affidavit from the administrator of RCA claiming that the facility had never filed a lawsuit against a resident in small claims court since opening because to do so would be too costly. Appellants also argued that they should be afforded the opportunity to present evidence on the issue.

         (5} The district court granted Appellees' motion for summary judgment. The district court's order rejected Appellants' arguments that Appellees waived their substantive unconscionability argument and that the reasoning and holding from THI of New Mexico at Hobbs Center, LLC v. Patton, 741 F.3d 1162 (10th Cir. 2014) should apply over New Mexico precedent. The district court further cited several New Mexico cases supporting Appellees' argument that such a small claims exception is substantively unconscionable as a matter of law. The court wrote: "[T]he clause as written gives [Appellants] the right to choose litigation if it wishes in its most likely type of claims while requiring [Appellees] to arbitrate their most likely types of claims. Whether or not [Appellants] decide[] to bring suit or not does not do away with this inequality." The district court also denied Appellants' request for an evidentiary hearing in order to present evidence showing that the arbitration clause, and included exceptions, was not substantively unconscionable in this particular case.

         (6} This appeal followed. We requested supplemental briefing from the parties following our Supreme Court's recent decision in Dalton. 2016-NMSC-035. In light of the precedent established by Dalton, we reverse summary ...

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