Cordova v. World Finance Corp. of NM

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.

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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

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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

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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

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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

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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.

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{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

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(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

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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

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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