10th Circuit Holds FAA Preempts New Mexico Law in Nursing Home Dispute

The United States Court of Appeals for the 10th Circuit has held the Federal Arbitration Act (FAA) preempts a state law that says “a compulsory-arbitration provision in a contract may be unconscionable, and therefore unenforceable, if it applies only, or primarily, to claims that just one party to the contract is likely to bring.”  In THI of New Mexico at Hobbs Ctr, LLC v. Patton, No. 13-2012, (10^th Cir., Jan. 28, 2014), a man, Patton, signed an agreement to arbitrate any claims that may arise in connection with the care he might receive at the THI of New Mexico at Hobbs Center, LLC nursing home (THI).  After his death, Patton’s wife filed a negligence and misrepresentation lawsuit against the nursing home.   In response, THI asked a New Mexico federal court to compel arbitration in the case.

Initially, the federal court ordered the parties’ dispute to arbitration, but later reversed itself after the New Mexico Court of Appeals found that an identical arbitration agreement was unconscionable in Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC.  According to the district court, the FAA did not preempt the law on which the Figueroa decision was based “because the New Mexico appellate court “applied . . . generally applicable unconscionability law against grossly unreasonable one-sided contracts,” as allowed by § 2 of the FAA, 9 U.S.C. § 2 (2006).”  THI then appealed the district court’s decision to the 10th Circuit.

According to the appellate court, the lower court’s decision was “inconsistent with Supreme Court precedent.”  The court continued,

The rationale for the state unconscionability rule runs counter to Supreme Court precedent.  A court may not invalidate an arbitration agreement on the ground that arbitration is an inferior means of dispute resolution. Common-law defenses to an arbitration demand are preempted by the FAA if they “derive their meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 131 S. Ct. at 1746.  The rule of Figueroa derives its meaning from the fact that the agreement is an arbitration agreement because the heart of the asserted unfairness is the disparity in what claims must be arbitrated.

Next, the 10th Circuit distinguished a case out of the Fifth Circuit that invalidated an unconscionable arbitration clause by stating,

In Iberia the court followed Louisiana case law in holding unconscionable an agreement that required consumers to arbitrate all their claims but allowed the cellular-telephone provider to choose between arbitration and litigation for its claims. See id. at 168. The court held that the state law was not preempted by the FAA because it “d[id] not necessarily express the impermissible view that arbitration is inferior to litigation, for a choice of remedies is better than being limited to one forum.” Id. at 170. We are not certain that we agree with the Fifth Circuit’s conclusion. But we do not need to decide that issue because under the agreement in this case, neither party can unilaterally choose a dispute-resolution forum. Some claims are to be arbitrated and some are to be litigated. Only an agreement of both parties could change the forum. As we read Iberia, it actually supports our analysis. The unconscionability determination in that case survived preemption because the state law “d[id] not necessarily express the impermissible view that arbitration is inferior to litigation.” Id.  Here, the state law does express the view that arbitration is inferior, and that is “impermissible.”

Because the FAA preempted the New Mexico law on which the district court based its decision, the United States Court of Appeals for the 10th Circuit reversed the lower court’s decision and remanded the case with instructions to compel the parties’ dispute to arbitration.

Disputing would like to thank Liz Kramer at Arbitration Nation for alerting us to this interesting decision.  Whether nursing home residents may be compelled to arbitrate their claims against the facilities in which they reside is currently a hotly contested issue that will likely have broad implications for other healthcare providers in the future.  Stay tuned to Disputing for more on this fascinating issue!