THI of New Mexico, LLC v. Patton, No. 13-2012 (10th Cir. Jan. 28, 2014) [click for opinion]

A nursing home resident entered into an agreement with THI, a nursing home operator, that required arbitration of all claims except guardianship proceedings, collection and eviction actions, and claims under $2,500. After the resident died, his estate sued THI for negligence and misrepresentation.  THI sought to compel arbitration.

The New Mexico district court initially ordered arbitration.  However, inFigueroa v. THI, the New Mexico Court of Appeals held an identical arbitration agreement to be unconscionable, so the district court reversed its prior decision under Federal Rule of Civil Procedure 60(b)(6).  In so ruling, the district court held that the Federal Arbitration Act (“FAA”) did not preempt Figueroa because that decision was based on the generally applicable common law rule that grossly one-sided contracts were unconscionable and, thus, unenforceable.  THI appealed to the Tenth Circuit.

The Tenth Circuit began by noting that the New Mexico Court of Appeals found the arbitration agreement in Figueroa unconscionable because the agreement reserved litigation for THI's most likely claims while subjecting residents to arbitration for their most likely claims.  According to the Tenth Circuit, finding such an arrangement unconscionable was premised on "assuming the inferiority of arbitration to litigation," which is exactly the assumption the FAA prohibits.  Thus, the agreement was not unfair to residents. 

The Tenth Circuit also noted that "the view of the New Mexico courts appears to be that so long as they are applying general unconscionability doctrine, the FAA does not limit their reasons for ruling an arbitration agreement unconscionable."  The Tenth Circuit disagreed with this view, as the reasons for a court's finding of unconscionability must be examined to ensure that those reasons are not "based on a policy hostile to arbitration."  Accordingly, the Tenth Circuit reversed the district court and ordered it to compel arbitration.