Patterson v. Nine Energy Services, LLC
Filing
32
MEMORANDUM OPINION AND ORDER denying 25 MOTION for Reconsideration re 21 Memorandum Opinion and Order by District Judge James O. Browning. (vv)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
RYAN PATTERSON,
Plaintiff,
vs.
No. CIV 17-1116 JB\GBW
NINE ENERGY SERVICE, LLC,
Defendant.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on the Plaintiff’s Reconsideration Motion, filed
September 15, 2018 (Doc. 25)(“Reconsideration Motion”). The Court held a hearing on October
25, 2018. The primary issues are: (i) whether the Court committed manifest legal error in its
Memorandum Opinion and Order, 330 F. Supp. 3d 1280, filed August 30, 2018
(Doc. 21)(“MOO”), where it relied on Padilla v. State Farm Mutual Automobile Insurance
Company, 2003-NMSC-011, 68 P.3d 901 (“Padilla”), as well as Cordova v. World Finance
Corporation of New Mexico, 2009-NMSC-021, 208 P.3d 901 (“Cordova”), and Rivera v.
American General Financial Services, Inc., 2011-NMSC-033, 259 P.3d 803 (“Rivera”), in
concluding that, “although the injunctive relief provision in the Confidentiality and Dispute
Resolution Agreement at 6, filed December 6, 2017 (Doc. 5-2)(“Arbitration Agreement”) is
substantively unconscionable, it is also severable,” MOO at 20, 330 F. Supp. 3d at 1287; and
(ii) whether the Court should certify the question of whether the substantively unconscionable
provision is severable to the Supreme Court of New Mexico for the Supreme Court of New
Mexico’s determination. The Court has carefully reconsidered its MOO and concludes that the
injunctive relief provision in the Arbitration Agreement is severable, and the Court declines to
certify the question to the Supreme Court of New Mexico for its determination.
FACTUAL BACKGROUND
The Court recites the factual background as stated in its MOO, as neither party has objected
to the Court’s recitation of facts in the MOO. The footnotes associated with the quoted text are
also quoted in full from the MOO.
Patterson worked for Nine Energy, an oilfield services company, from
March to October of 2017. See First Amended Class Action Complaint ¶ 5, at 2,
filed November 13, 2017 (Doc. 3)(“Amended Complaint”). His “primary job
duty consisted of operating pressure control equipment and tools.” Amended
Complaint ¶ 15, at 3. Nine Energy first offered Patterson employment via letter
on February 28, 2017. See Letter from Sally Haynes, Human Resources
Manager, to Ryan Patterson at 1-2, (dated February 28, 2017), filed January 3,
2018 (Doc. 14-2)(“Offer Letter”). Patterson’s Offer Letter states that his
employment is contingent upon an enumerated list of items, including drug
testing, physical capacity testing, and other things. See Offer Letter at 1. The
Offer Letter does not mention arbitration. See Offer Letter at 1-2. Patterson
accepted the employment offer by signing the Offer Letter on March 1, 2017. See
Offer Letter at 2. Patterson did not begin work at Nine Energy until March 20,
2017. See Supplemental Declaration of Sharon Warren ¶ 7, at 2 (dated January
3, 2018), filed January 3, 2018 (Doc. 14-1).
On March 1, 2017 -- the same day that Patterson signed the Offer Letter - he also signed the Confidentiality and Dispute Resolution Agreement at 6, filed
December 6, 2017 (Doc. 5-2)(“Arbitration Agreement”). The Arbitration
Agreement states that “the Company and the Employee agree to submit
exclusively to final and binding arbitration any and all Disputes as defined herein
in accordance with the following understanding and terms.” Arbitration
Agreement at 3. The Arbitration Agreement defines the word “dispute” as
all legal and equitable claims, demands, disputes, controversies,
issues, and disagreements, of whatever nature or kind, whether in
contract, tort, under statute or regulation, or any other law or source
of legal obligation, including but not limited to those relating to,
concerning, or arising out of this Agreement; the interpretation or
subject matter of this Agreement or program . . . wages or other
compensation received by or owed to any Employee, including
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minimum wage and overtime pay.
Arbitration Agreement at 2. The Arbitration Agreement continues:
Each Dispute shall be arbitrated on an individual basis. The parties
forego and waive any right to join or consolidate their Disputes or
claims with those of any other employee . . . or to assert any Disputes
or claims in arbitration as a representative or as a member of a class.
. . . Neither the Company nor any employee or applicant for
employment may pursue any Dispute or claim on a class action,
collective action, or consolidated basis or in a representative
capacity on behalf of other individuals, or participate as a class or
collective action member in such a proceeding. . . . The Parties
waive any right to a jury trial and to pursue or participate in class or
collective actions with respect to Disputes that are subject of this
Agreement and for which a jury trial, class action, and collective
action would otherwise be available.
Arbitration Agreement at 3. The Arbitration Agreement contains several other
important provisions. See Arbitration Agreement at 3-4. One states that
“arbitration shall be commenced by either Party filing a demand for arbitration
with the AAA [1] within 60 days after such Dispute has arisen.” Arbitration
Agreement at 3. Another notes:
Notwithstanding the provisions of this Agreement, the Company
may bring an action in any court of competent jurisdiction for
injunctive relief to enforce the Employee’s obligations with respect
to the confidentiality and protection of trade secrets and other nonpublic information belonging to the Company, or with respect to any
non-competition, non-solicitation, or any other restrictive covenant
provisions in any separate agreement between the Company and the
Employee.
Arbitration Agreement at 4. Still another provision states: “The Parties
acknowledge and agree that this Agreement and the Parties’ employment
relationship affect and involve interstate commerce, and that this Agreement is
governed by the Federal Arbitration Act.”2 Arbitration Agreement at 5. Finally,
1
AAA stands for the American Arbitration Association.
2
9 U.S.C. §§ 1-16 (“FAA”).
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the Arbitration Agreement contains an integration clause, stating:
No agreements or representations, oral or otherwise express or
implied, with respect to the subject matter hereof have been made
by either Party that are not set forth expressly in this Agreement. . . .
This Agreement sets forth the entire agreement of the Parties hereto
with respect to the subject matter herein, in particular the Parties’
agreement regarding the protection of Confidential Information and
the procedural mechanism for the final resolution of Disputes and
supersedes all prior understandings, agreements, clauses,
provisions, representations, or promises, whether oral or written, of
the Parties to the extent they relate to or concern the subject matter
herein.
Arbitration Agreement at 5. Patterson now alleges in this class action that Nine
Energy failed to pay him and other employees overtime wages in violation of the
New Mexico Minimum Wage Act, N.M. Stat. Ann. § 50-4-22(D). See Amended
Complaint ¶ 3, at 1.
MOO at 2-3, 330 F. Supp. 3d, at 1287-89 (alteration in original).
PROCEDURAL BACKGROUND
The Court adopts the procedural background until the filing of MOO, as the MOO recites
it. The footnotes associated with the quoted text are also quoted in full from the MOO.
Patterson filed his original Complaint on November 8, 2017. See Original
Class Action Complaint, filed November 8, 2017 (Doc. 1)(“Original Complaint”).
Patterson subsequently filed the Amended Complaint on November 13, 2017. See
Amended Complaint at 1. Nine Energy filed the Motion on December 6, 2017.
See Motion at 1.
1.
The Motion.
Nine Energy moves the Court to dismiss this case for lack of subject-matter
jurisdiction and to compel arbitration. See Motion at 1. Nine Energy first contends
that Patterson’s claims fall within the Arbitration Agreement’s scope, because the
Arbitration Agreement’s provisions “cover all disputes, claims, or disagreements
relating to Plaintiff’s employment.” Motion at 5. Nine Energy then argues that the
Arbitration Agreement contains adequate consideration, asserting that “the
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bargained for exchange in this case was Plaintiff’s offer of employment with Nine
Energy in exchange for signing the Confidentiality and Dispute Resolution
Agreement as well as the Parties’ mutual agreement to submit all employment
disputes to arbitration.” Motion at 6. Turning to the class action allegations, Nine
Energy avers that the Arbitration Agreement expressly states that the parties waive
any right to participate in a class or collective action regarding any disputes subject
to the agreement. See Motion at 7-8. Nine Energy concludes that the Court should
grant the Motion and compel Patterson to arbitrate his claims on an individual basis.
See Motion at 8.
2.
The Response.
Patterson responds. See Response to Defendant’s Motion to Dismiss the
First Amended Class Action Complaint and Compel Arbitration, filed January 2,
2018 (Doc. 13-1)(“Response”). Patterson first asserts that the Arbitration
Agreement is substantively unconscionable. See Response at 4. According to
Patterson, the Arbitration Agreement section allowing Nine Energy to bring an
action for injunctive relief in court to enforce an employee’s confidentiality
obligations, such as the protection of trade secrets, represents a unilateral carve-out
favoring Nine Energy and is therefore unconscionable. See Response at 4-5.
Second, Patterson avers that the Arbitration Agreement contains no consideration
and is thus illusory. See Response at 5. According to Patterson “continued at-will
employment cannot serve as consideration for an agreement to arbitrate,” which
Patterson asserts is the Arbitration Agreement’s purported consideration. Response
at 6-7.3
2.
The Reply.
3
Patterson also submits a Notice of Supplemental Authorities, filed
December 27, 2017 (Doc. 12)(“Notice”). The Notice briefly mentions two cases
discussing consideration in arbitration agreements. See Notice at 1. In the first
case, the Honorable Richard Puglisi, then-United States Magistrate Judge for the
United States District Court for the District of New Mexico, held that the plaintiff
“was hired prior to agreeing to arbitration. Upon starting her employment she was
asked to surrender a valuable right -- the right to a jury trial -- with no detriment to
[the defendant] and no benefit to her. Thus, the purported agreement is
unenforceable.” Zamprelli v. Am. Golf Corp., No. CIV 00-0181 BB/RLP, at *4
(Doc. 46) (D.N.M. 2000)(Puglisi, M.J.). In the second case, the Honorable Bruce
Black, United States District Judge, affirmed Magistrate Judge Puglisi’s holding.
See Zamprelli v. Am. Golf Corp., No. CIV 00-0181, 2001 WL 37119362, at *4
(D.N.M. 2001)(Black, J.).
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Nine Energy replies. See Defendant’s Reply in Support of Motion to
Dismiss the First Amended Class Action Complaint and Compel Arbitration, filed
January 3, 2018 (Doc. 14)(“Reply”). Nine Energy first asserts that the Arbitration
Agreement’s consideration is Patterson’s initial offer of employment and not
continued at-will employment, because Patterson signed the Arbitration Agreement
on the same day he accepted his employment offer and did not begin working for
Nine Energy until twenty days later. See Reply at 5. Additionally, Nine Energy
contends that “there was separate, valid consideration for the Agreement. In
exchange for Plaintiff agreeing to arbitrate his employment-related disputes, Nine
Energy promised not only to hire Plaintiff, but also to provide him access to its
confidential information and trade secrets.” Reply at 11.
Second, Nine Energy argues that, while part of the Arbitration Agreement
may exempt Nine Energy from arbitration, other parts of the agreement contain
“exclusions for numerous types of employment-related claims that Plaintiff alone
would be able to pursue.” Reply at 9. Nine Energy continues that “the exclusion
of which Plaintiff complains relates to one limited form of relief -- injunctive relief
-- that only the employer might be able to pursue to protect its confidential
information and trade secrets.” Reply at 9. According to Nine Energy, “[i]t is
impossible that the Plaintiff would be able to bring such a claim, just as it is
impossible that Nine Energy would be able to bring any of the claims excluded for
Plaintiff (i.e. EEOC charges, NLRB charges, unemployment claims).” Reply at 9.
Finally, Nine Energy contends that, “[e]ven if the Court were to find this
provision unconscionable, the Court can and should modify or sever the provision
rather than invalidating the entire Agreement.” Reply at 11. According to Nine
Energy, the provision allowing it to bring an action for injunctive relief to protect
confidential information “is not relevant or intertwined with the agreement to
arbitrate compensation disputes, and severability is in line with the strong federal
policy underlying the FAA favoring enforcement of arbitration agreements.” Reply
at 11-12.
3.
The Surreply.
Patterson filed a surreply. See Surreply in Opposition to Defendant’s
Motion to Dismiss the Class Action Complaint and Compel Arbitration, filed
January 10, 2018 (Doc. 16-1)(“Surreply”).4 Patterson first asserts that Nine
4
Patterson “requests that the Court grant leave to file Plaintiff’s surreply.”
Surreply Motion at 2. Although Patterson’s request was opposed to the extent that
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Energy’s employment offer was not contingent on signing the Arbitration
Agreement, so the employment offer is not consideration for the agreement. See
Surreply at 4. According to Patterson, Nine Energy’s employment offer cannot be
consideration for Patterson agreeing to arbitration, because the Offer Letter
provides a list of contingencies, none of which include signing the Arbitration
Agreement. See Surreply at 6. Further, according to Patterson, the Arbitration
Agreement “contains an explicit merger clause that prevents the Offer Letter -- or
any other oral/written agreement -- from being incorporated into the Arbitration
Agreement or for serving as the consideration for the Agreement.” Surreply at 6.
Second, Patterson takes issue with Nine Energy’s assertion that it promised
to provide confidential information and trade secrets to Patterson as consideration
for him signing the Arbitration Agreement. See Surreply at 6-7. According to
Patterson, the Arbitration Agreement “does not require Defendant to disclose any
specific confidential information or trade secrets.” Surreply at 7. Patterson adds
that “no New Mexico court has reached the conclusion that an agreement to provide
confidential information is adequate consideration for an agreement to arbitrate.”
Surreply at 7.
Third, Patterson argues for the first time that the Arbitration Agreement is
unconscionable, because “the terms of the agreement prevent Plaintiff from
vindicating his statutory rights under the FLSA.”5 Surreply at 7. Specifically,
his Surreply “advanced new issues or arguments,” Surreply Motion at 4, the Court
grants this request. In the summary judgment context, the Court has noted: “‘When
a moving party advances in a reply new reasons and evidence in support of its
motion for summary judgment, the nonmoving party should be granted an
opportunity to respond.’” Shattuck v. Lucero, No. CIV 04-1287, 2005 WL
2295555, at *2 (D.N.M. 2005)(Browning, J.)(quoting Beaird v. Seagate Tech., Inc.,
145 F.3d 1159, 1164-65 (10th Cir. 1998)). This logic applies equally to motions to
compel arbitration. If a party raises new evidence about an arbitration agreement
in a reply, then the nonmovant should be able to respond. Here, Nine Energy
introduces new evidence regarding the Arbitration Agreement in the reply,
specifically the facts that Patterson signed the agreement on the same day as the
Offer Letter and that Patterson did not begin working for Nine Energy until twenty
days later. See Reply at 2-3; Offer Letter at 2. Given this new evidence, the Court
will grant leave for Patterson to file a surreply. Also, there is no prejudice to Nine
Energy, because the Court held a hearing, giving both parties a full opportunity to
argue all issues.
5
The FLSA is the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.
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Patterson contends that the Arbitration Agreement’s provision requiring arbitration
to commence within 60 days after a dispute arises is unconscionable, because “the
FLSA’s limitations period may not be shortened by contract.” Surreply at 8.
Finally, Patterson avers that the Court should not sever any allegedly
unconscionable provisions of the Arbitration Agreement, because the agreement
contains no severance clause. See Surreply at 9-10. Patterson instead concludes
that the Court should refuse to enforce the entire Arbitration Agreement and deny
the Motion. See Surreply at 10.
4.
The Hearing.
The Court held a hearing. See Draft Transcript of Motion Hearing at 1:1011 (taken June 27, 2018)(Court)(“Tr.”).6 Nine Energy began by asserting that “Mr.
Patterson in the briefing concedes that this Court has recognized . . . that an offer
of at will employment is sufficient consideration for an arbitration agreement. And
that’s exactly what we have here.” Tr. at 4:19-24 (Mann). Patterson responded
that the Arbitration Agreement’s integration clause precludes any outside oral or
written agreement -- including Patterson’s employment offer -- from being
incorporated into the Arbitration Agreement. See Tr. at 10:1-9 (Siegel). Patterson
added that the Offer Letter lists several contingencies that Patterson had to meet to
accept his employment offer, none of which includes signing the Arbitration
Agreement. See Tr. at 13:2-9 (Siegel).
The parties then discussed unconscionability. See Tr. at 17:1-5 (Mann).
Nine Energy asserted that Patterson “latches onto a portion of the agreement . . .
that reserves to Nine the right to seek injunctive relief to enforce certain aspects of
the agreement pertaining to confidential information. . . . What Mr. Patterson
chooses to ignore [is] that the same paragraph on which he bases this argument
contains multiple carve-outs solely for the . . . plaintiff here.” Tr. at 17:1-14
(Mann). Nine Energy thus contended that the carve-outs in the Arbitration
Agreement are bilateral and not unilateral. See Tr. at 18:3-6 (Mann).
Patterson then returned to the podium and asserted that the Arbitration
Agreement is substantively unconscionable for the separate reason that it “has
effectively shortened the statute of limitations period.” Tr. at 22:15-16 (Siegel).
Specifically, Patterson argued that the Arbitration Agreement shortens the
limitations period from three years to sixty days. See Tr. at 22:21-24 (Siegel). Nine
6
The Court’s citations to the hearing’s transcript refer to the court reporter’s
original, unedited version. Any final transcript may contain slightly different page
and/or line numbers.
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Energy responded that “the parties cannot limit statute[s] of limitations by contract.
So even if that language is contained in the agreement [, were] it be attempted to be
enforced it could not.” Tr. at 25:9-13 (Mann).
The Court then asked if Nine Energy contended that, if the Court were to
find any provision unconscionable, it should sever the provision rather than not
enforcing the entire agreement. See Tr. at 28:25-29:7 (Court, Mann). Nine Energy
responded that, if the Court concluded that a provision is unconscionable, then Nine
Energy would prefer the rest of the agreement enforced. See Tr. at 29:8-16 (Mann).
At the hearing’s conclusion, the Court stated that it was inclined to grant the
Motion. See Tr. at 35:2 (Court).
MOO at 3-10, 330 F. Supp. 3d, at 1289-92 (alterations in original).
5.
The MOO.
In the MOO, the Court concludes “that the parties have not established diversity
jurisdiction, so the Court will order the parties to show cause why the Court should not dismiss
this case for lack of subject-matter jurisdiction.” MOO at 1, 330 F. Supp. 3d at 1287. The Court
also concluded that, “[o]n the merits, if the Court has subject-matter jurisdiction, the Court is
inclined to conclude that the Arbitration Agreement contains adequate consideration, and, although
the injunctive relief provision is substantively unconscionable, it is also severable.” MOO at 1-2,
330 F. Supp. 3d at 1287. The Court stated that it was not inclined to hold the Arbitration
Agreement’s sixty-day limitations period unconscionable. See MOO at 2, 330 F. Supp. 3d at 1287.
Finally, the Court stated in the MOO that, if the Court has subject-matter jurisdiction, it is “inclined
to stay proceedings in this case, rather than dismissing it.” MOO at 2, 330 F. Supp. 3d, at 1287.
The Court stated that, if it had subject-matter jurisdiction, it is inclined to grant the Motion in part.
See MOO at 2, 330 F. Supp. 3d at 1287.
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The Court now summarizes the portions of the Court’s MOO that Patterson requests the
Court to reconsider -- specifically, the severability analysis of the injunctive relief provision. In
the MOO, the Court began its analysis regarding the injunctive relief provision’s severability by
quoting Cordova: “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.” MOO at 41, 330 F. Supp. 3d at 1311 (internal quotation marks
omitted)(quoting Cordova, 2009-NMSC-021, ¶ 39, 208 P.3d at 911). The Court also cited to the
Supreme Court of New Mexico’s opinion in Dalton v. Santander Consumer USA, Inc., for the
proposition that “[c]ourts may render a contract or portions of a contract unenforceable under the
equitable doctrine of unconscionability when the terms are ‘unreasonably favorable to one party
while precluding a meaningful choice of the other party.’” MOO at 41, 330 F. Supp. 3d at 1311
(emphasis omitted)(quoting Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 6, 385
P.3d at 621 (internal quotation marks omitted)(quoting Cordova, 2009-NMSC-021, ¶ 21, 208 P.3d
at 907)). The Court cited to Padilla for the principle that, if a provision is severable, the agreement
that remains after its severance will be a “mutual agreement to binding arbitration.” MOO at 41,
330 F. Supp. 3d at 1311 (internal quotation marks omitted)(quoting Padilla, 2003-NMSC-011,
¶ 18, 68 P.3d at 909). The Court concluded that, without the substantively unconscionable
injunctive relief provision, the Arbitration Agreement is a mutual agreement to binding arbitration
and, furthermore, that it “would make little sense for the Court to trash the entire Arbitration
Agreement because of an unconscionable provision unrelated to this case.” MOO at 42, 330 F.
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Supp. 3d at 1311. For these reasons, the Court concluded that the injunctive relief provision is
severable. See MOO at 42, 330 F. Supp. 3d at 1311.
The Court also performed a severability analysis for the sixty-day limitations period
provision at issue in the Arbitration Agreement. See MOO at 45-46, 330 F. Supp. 3d, at 1312-14.
The Court compared Rivera, in which the Supreme Court of New Mexico struck an entire
arbitration agreement, with Padilla, in which the Supreme Court of New Mexico upheld the
agreement and severed only the unconscionable provision. See MOO at 45, 330 F. Supp. 3d, at
1313 (discussing Rivera and Padilla). In Rivera, the Court noted, the Supreme Court of New
Mexico stated that “it would not rewrite a contract ‘that is laced with unenforceable terms that
were central to the original mechanism [] for resolving disputes between the parties.’” MOO at
45, 330 F. Supp. 3d, at 1313 (alterations in Rivera)(internal quotations omitted)(quoting Rivera,
2011-NMSC-033, ¶ 56, 259 P.3d at 819 (quoting Cordova, 2009-NMSC-021, ¶ 40, 208 P.3d at
912)). The Court concluded that the sixty-day provision is not central to the Arbitration Agreement
and could be “severed without substantially altering the method of dispute resolution contractually
agreed on by the parties.” MOO at 46, 330 F. Supp. 3d, at 1313 (quoting Rivera, 2011-NMSC033, ¶ 56, 259 P.3d at 819). The Court stated that severance is “an appropriate remedy, because
both federal and New Mexico law reflect a public policy in favor of arbitration agreements.” MOO
at 46, 330 F. Supp. 3d, at 1313 (citing Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39
F.3d 1482, 1488-89 (10th Cir. 1994)(“There is a strong federal policy encouraging the expeditious
and inexpensive resolution of disputes through arbitration.”); United Tech. & Res., Inc. v. Dar Al
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Islam, 1993-NMSC-005, ¶ 11, 846 P.2d 307, 309 (“The legislature and the courts of New Mexico
‘have expressed a strong policy preference for resolution of disputes by arbitration.’”)).
6.
The Reconsideration Motion.
In the Reconsideration Motion, Patterson contends that the Court committed manifest legal
error in reaching the MOO’s conclusion that, “although the injunctive relief provision in the
Arbitration Agreement is substantively unconscionable, it is also severable.” Reconsideration
Motion at 1 (quoting MOO at 20, 330 F. Supp. 3d at 1305). Patterson agrees with the Court’s
determination that the injunctive relief provision is a unilateral carve-out benefitting exclusively
the stronger party, and therefore substantively unconscionable and unenforceable under New
Mexico law. See Reconsideration Motion at 1. Patterson contends that the Court should have
followed Cordova, and Rivera, in determining whether the provision could be severed from the
Arbitration Agreement, and that the Court’s reliance on Padilla, constitutes manifest legal error
based on the Supreme Court of New Mexico’s decision in Cordova. See Reconsideration Motion
at 1-2.
Patterson contends that the Supreme Court of New Mexico distinguished Padilla in
Cordova as follows:
In Padilla, 2003-NMSC-011, ¶¶ 10, 18, 133 N.M. 661, 68 P.3d 901, 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 [v. Dell Comp. Corp.],
2008-NMSC-046, ¶ 24, 144 N.M. 464, 188 P.3d 1215, we must strike down the
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arbitration clause in its entirety to avoid a type of judicial surgery that would
inevitably 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.
Cordova, 2009-NMSC-021, ¶¶ 39-40, 208 P.3d at 911. Patterson contends that the MOO
“contravenes Cordova’s precedent that unilateral carve-out agreements are non-severable under
New Mexico law.” Reconsideration Motion at 2. Patterson argues that Padilla’s provision,
because it is a post-arbitration provision, presented a different case, and that the Padilla court’s
analysis, therefore, is inapposite. See Reconsideration Motion at 2. Patterson asks, accordingly,
that the Court grant the Reconsideration Motion, deny Nine Energy’s Motion to Dismiss, and
compel discovery in accordance with Supreme Court of New Mexico precedent.
See Reconsideration Motion at 2. Patterson requests, in the alternative, that the Court certify the
severability question to the Supreme Court of New Mexico. See Reconsideration Motion at 2-3.
Patterson argues that rule 54(b) of the Federal Rules of Civil Procedure permits the Court to freely
reconsider the MOO, with no limit or governing standard on its ability to do so, other than that it
must do so “before the entry of judgment.” Reconsideration Motion at 3 (quoting Anderson Living
Tr. v. WPX Energy Prod., LLC, No. CIV 12-0040 JB/KBM, 2015 WL 9703298 (D.N.M. Dec. 31,
2015)(Browning, J.)(citing Fed. R. Civ. P. 54(b); Been v. O.K. Indus., 495 F.3d 1217, 1225 (10th
Cir. 2007)).
Patterson asserts that, like the arbitration clauses in Rivera and Cordova, the clause at issue
here is so central to the Arbitration Agreement that it may not be separated, irrespective of any
savings clause. See Reconsideration Motion at 3 (citing Figueroa v. THI of N.M. at Casa Arena
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Blanca, LLC, 2013-NMCA-077, ¶ 39, 306 P.3d 480, 494). Patterson asserts that the Court
correctly determined that the injunctive relief provision at issue is substantively unconscionable
by relying on Rivera and Cordova:
In light of the Supreme Court of New Mexico precedent in Rivera v.
American General Financial Services, Inc., 2011-NMSC-033, ¶¶ 51-54, 150 N.M.
398, 259 P.3d at 818-19, and Cordova v. World Fin. Corp. of N.M., 2009-NMSC021, ¶ 20, 146 N.M. 256, 208 P.3d at 907, the Court is inclined to conclude that the
Supreme Court of New Mexico would hold that this unilateral carve-out to benefit
exclusively the stronger party is substantively unconscionable under New Mexico
law and thus unenforceable.
Reconsideration Motion at 4 (quoting MOO at 21, 330 F. Supp. 3d, at 1310).
Patterson argues that, although the Court correctly determined that the injunctive relief
provision is substantively unconscionable, the Court’s determination that the provision is severable
constitutes manifest legal error. See Reconsideration Motion at 5. Patterson contends that the
Court should not have relied on Padilla in determining the provision’s severability, because Padilla
dealt with a “post-arbitration appeal provision that has nothing to do with the unilateral carve out
for injunctive relief here.” Reconsideration Motion at 4 (internal quotation marks omitted)(quoting
Padilla, 2003-NMSC-011, ¶¶ 10, 18, 68 P.3d at 905, 908-09). Patterson argues that the Supreme
Court of New Mexico in Padilla never considered the severability of unilateral carve-out
provisions, whereas the Supreme Court of New Mexico considered a unilateral carve-out in
Cordova and determined that the unilateral carve-out could not be severed from the arbitration
agreement particularly “in light of the categorization in the agreements of specific kinds of access
to the courts [defendant] had insisted on for itself.” Reconsideration Motion at 5 (alteration in
Reconsideration Motion)(quoting Cordova, 2009-NMSC-021, ¶¶ 39-40, 208 P.3d at 911).
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Patterson argues that the parties never agreed on the arbitration that the Court, by severing
the injunctive relief provision, drafted, because the provision that the Court severed involves the
arbitration scheme itself. See Reconsideration Motion at 5. Patterson cites to two Court of Appeals
of New Mexico cases determining that unreasonably one-sided provisions exempting certain
claims from arbitration could not be severed. See Reconsideration Motion at 5-6 (citing Ruppelt
v. Laurel Healthcare Providers, LLC, 2013-NMCA-014, ¶¶ 19-21, 293 P.3d 902, 908-09; Abram
ex rel. Lopez v. Paloma Blanca Health Care Assocs., L.L.C., No. 31,850, 2013 WL 4516398, at
*1 (N.M. Ct. App. June 17, 2013)). Patterson argues that, because the Arbitration Agreement lacks
a savings or severance clause manifesting the parties’ intent to save the contract if a provision is
rendered unenforceable, and, under New Mexico law, the parties’ manifested intention governs
the severability determination, the Court committed manifest legal error in severing the provision
despite the parties’ lack of manifested intention to save the agreement. See Reconsideration
Motion at 7-8 (citing Arrow Gas Co. of Dell City v. Lewis, 1962-NMSC-145, ¶ 24, 377 P.2d 655,
659; Fancher v. Bd. of Comm’rs of Grant Cty., 1921-NMSC-039, ¶ 63, 210 P. 237, 248). Patterson
asserts that even if the parties had included a savings clause, the unilateral carve-out would still
not be severable under New Mexico Law. See Reconsideration Motion at 8 n.9.
7.
The Reconsideration Response.
On October 5, 2018, Nine Energy responded to the Reconsideration Motion.
See Defendant’s Memorandum in Opposition to Plaintiff’s Reconsideration Motion, filed October
5, 2018 (Doc. 27)(“Reconsideration Response”). Nine Energy argues that the Court should reject
the Reconsideration Motion in its entirety, “because even if the injunctive relief provision in the
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[Arbitration Agreement] is unconscionable, the Court did not commit clear legal error by severing
it, and Plaintiff has not met his burden to demonstrate that certification is proper.” Reconsideration
Response at 1. First, Nine Energy argues that the Reconsideration Motion is procedurally
deficient, because: (i) it prematurely seeks reconsideration before the Court has dismissed the
action or compelled arbitration; and (ii) Patterson does not seek the Court’s leave to file what Nine
Energy contends is no more than a supplemental briefing, not requiring a response.
See Reconsideration Response at 1 n.1.7
Nine Energy argues that Patterson uncritically analyzes Cordova, which confronts
“predatory lending agreements.” Reconsideration Response at 1. Nine Energy contends that the
Supreme Court of New Mexico has never held that an unconscionable arbitration provision may
not be severed as a matter of law and contends that the Supreme Court of New Mexico has never
overruled Padilla. See Reconsideration Response at 1-2. First, Nine Energy argues that Cordova
and cases like it are distinguishable from the present case. See Reconsideration Response at 2.
Nine Energy asserts that the arbitration agreement at issue in Cordova was attached to a loan
agreement and permitted the lender to litigate all claims important to it, while prohibiting
borrowers from litigating any claims important to them. See Reconsideration Response at 2. Nine
7
Although the parties do not address the issue of appealability in their briefings, the Court
notes that an order to stay proceedings and compel arbitration is not a final judgment on the merits
and is not immediately appealable. See Comanche Indian Tribe of Okla. v. 49, L.L.C., 391 F.3d
1129, 1133 (10th Cir. 2004)(“The district court’s order staying the proceedings and compelling
arbitration was not a final decision on the merits. As such, we lack jurisdiction over this
appeal . . . .”). See also Armijo v. Prudential Ins. of Am., 72 F.3d 793, 796-97 (concluding that, if
a motion to stay had been properly granted, “the order granting arbitration would then not have
been a final order” and therefore not immediately appealable).
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Energy contends that Patterson’s reliance on Cordova ignores the differences between the Cordova
agreement, and the Arbitration Agreement. See Reconsideration Response at 3. Nine Energy
contends that the Arbitration Agreement is unlike that in Cordova, because: (i) “the Agreement
does not concern a predatory lending or consumer loan agreement,” Reconsideration Response at
3; (ii) the Agreement permitted Patterson to pursue multiple claims outside of arbitration, and to
file complaints with State and Federal administration agencies which could litigate claims against
Nine Energy on Patterson’s behalf, see Reconsideration Response at 3; and (iii) the injunctive
relief provision at issue is narrow in scope and situated in a stand-alone section of the Agreement,
Nine Energy “can only seek injunctive relief to enforce Plaintiff’s obligations under restrictive
covenants,” and there is a low likelihood that Nine Energy could enforce the restrictive covenants
against Patterson, Reconsideration Response at 3. Nine Energy argues, accordingly, that the
Arbitration Agreement is less one-sided than the agreement in Cordova, and that the injunctive
relief provision that the Court severed in the MOO is not so central to the Arbitration Agreement
that it is incapable of severance. See Reconsideration Response at 4.
Next, Nine Energy argues that Padilla, in which the Supreme Court of New Mexico
recognized a court’s discretion to sever a provision in an arbitration agreement, is still good law.
See Reconsideration Response at 4. Nine Energy argues that even Cordova recognized the remedy
of severance:
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
agreement.
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Reconsideration Response at 5 (emphasis and internal quotation marks omitted)(quoting Cordova,
2009-NMSC-021, ¶ 39, 208 P.3d at 911). Nine Energy argues that the Court should not read
Cordova to mean that courts may never sever a provision from an arbitration provision when equity
demands. See Reconsideration Response at 5.
Last, Nine Energy argues that the Court should decline to grant certification.
See Reconsideration Response at 6.
Nine Energy argues that the Arbitration Agreement’s
enforceability “is not determinative of the merits of Plaintiff’s underlying claims.”
Reconsideration Response at 6. Nine Energy also argues that the Reconsideration Motion does
not present a “novel, significant, and unsettled issue of law under the New Mexico Constitution,
nor does it present an issue of significant public interest.” Reconsideration Response at 6. Nine
Energy argues, accordingly, that Patterson has not met his burden to demonstrate that certification
is warranted. See Reconsideration Response at 5.
8.
The Reconsideration Reply.
On October 20, 2018, Patterson replied to Nine Energy.
See Reply in Support of
Reconsideration Motion, filed October 20, 2018 (Doc. 29)(“Reconsideration Reply”). In the
Reconsideration Reply, Patterson asserts:
Defendant was Plaintiff’s employer and drafted a form contract without any input
or negotiations with Plaintiff. Defendants took advantage of being the stronger
party by drafting a one-sided, stand-alone arbitration agreement (“Agreement”) that
contains a non-mutual exclusion from the “Agreement” that allows it unilateral
access to the courts to obtain injunctive relief to enforce any restrictive covenant in
any separate agreement between the parties.
Reconsideration Reply at 1 (emphasis omitted). Patterson reiterates the arguments from the
Reconsideration Motion, see Reply at 1-2, and asserts that the unilateral carve-out provision here
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contains no language that limits Nine Energy’s unilateral ability to seek permanent injunctive relief
to enforce Patterson’s obligations with respect to any other restrictive covenant in any other
agreement between Patterson and Nine Energy in any court of competent jurisdiction,
see Reconsideration Reply at 2. Patterson contends, therefore, that the provision at issue here is
more unconscionable than the provision at issue in Cordova, because, here, Nine Energy can take
advantage of its employees by having them sign separate agreements with restrictive covenants
and then enforce those agreements at will. See Reconsideration Reply at 2-3.
Patterson argues that courts of other jurisdictions agree with the Supreme Court of New
Mexico that unfairly one-sided contract provisions are unconscionable and non-severable.
See Reconsideration Reply at 3-4 (citing Taylor v. Butler, 142 S.W. 3d 277, 280 (Tenn. 2004);
Batory v. Sears, Roebuck & Co., 456 F. Supp. 2d 1137 (D. Ariz. 2006)). Patterson next addresses
Nine Energy’s distinction between the unilateral judicial relief mechanism at issue and the lenderborrower provisions in Cordova and like cases. See Reconsideration Reply at 4. Patterson argues
that the Supreme Court of New Mexico rejected this distinction, explaining that an employer may
not reserve the unilateral right to grant the same relief as a court. See Reconsideration Reply at 4.
Patterson argues that Nine Energy poses more of a threat to Patterson as an employer than Nine
Energy would pose if it were a lender, because the “Defendant has made it pertinently clear that it
intends to use the unilateral provision to its employees’ disadvantage in regards to ‘any other
restrictive covenant provisions in any separate agreement between the Company and the
Employee.’” Reconsideration Reply at 4 (quoting Arbitration Agreement ¶ H, at 4). Patterson
contends that the provision at issue is more unconscionable than the provision at issue in Rivera,
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because Patterson cannot identify the subject matter which the Arbitration Agreement controls.
See Reconsideration Reply at 4.
Patterson next argues that California courts faced with similar issues, and to which
Patterson contends the Supreme Court of New Mexico often cites, do not sever similar agreements.
See Reconsideration Reply at 5. Patterson requests that the Court follow the guidance of the
United States Court of Appeals for the Ninth Circuit and decline to sever the provision.
See Reconsideration Reply at 5-6. Patterson argues that, under United States Court of Appeals for
the Tenth Circuit precedent, the Court should strictly construe the Arbitration Agreement against
Nine Energy as the drafter. See Reconsideration Reply at 6 & n.3 (citing Dumais v. Am. Golf
Corp., 299 F.3d 1216, 1219 (10th Cir. 2002)).
Next, Patterson cites to decisions by the Honorable Karen B. Molzen, United States
Magistrate Judge for the District of New Mexico, and by the Honorable Gregory B. Wormuth,
United States Magistrate Judge for the District of New Mexico, in which Judge Molzen and Judge
Wormuth determined that the Court’s task in deciding a provision’s severability is to determine
“whether the arbitration clause must be struck in its entirety or can be reformed into a ‘fair and
balanced’ agreement.” Reconsideration Reply at 9 (citing Clark v. UnitedHealth Grp., Inc., No.
CIV 13-0372 MV/CG, 2018 WL 2932735 (D.N.M. June 12, 2018)(Molzen, J.))(quoting Gorman
v. S/W Tax Loans, Inc., No. CIV 14-0089 GBW/KK, 2015 WL 12751710, at *8 (D.N.M. March
17, 2015)(Wormuth, M.J.)). Patterson contends that the most important question in an arbitration
provision is what claims must be resolved in arbitration -- the question that the unilateral carveout provision at issue addresses. See Reconsideration Reply at 10.
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Patterson likens this case to several other New Mexico cases which have held that unilateral
carve-outs favoring the stronger party are unenforceable and not severable. See Reconsideration
Reply at 10-11 (citing Ruppelt v. Laurel Healthcare Providers, LLC, 2013-NMCA-014, 293 P.3d
902; Figueroa v. THI of N.M. at Casa Arena Blanca, LLC, 2013-NMCA-077, 306 P.3d 480; Rivera
v. Am. Gen. Fin. Servs., Inc., 2011-NMSC-033, 259 P.3d 803; Cordova, Dalton v. Santander
Consumer U.S.A., Inc., 2015-NMCA-030, 345 P.3d 1086, rev’d on other grounds, 2016-NMSC035, 385 P.3d 619; Pool v. DriveTime Car Sales Co., LLC, No. 33,894, 2016 WL 3416372, at *6
(N.M. Ct. App. May 10, 2016)).
9.
The Notice of Supplemental Authorities.
On October 25, 2018, Patterson filed a Notice of Supplemental Authorities. See Notice of
Supplemental Authorities, filed October 25, 2018 (Doc. 30)(“Reconsideration Notice”). In the
Reconsideration Notice, Patterson asserts that, since the time he filed his Reconsideration Reply,
he has become aware of a District of New Mexico case supporting his position, which Patterson
requests the Court consider. See Reconsideration Notice at 1. Patterson cites to Tatum v. ProBuild
Co., LLC, No. CIV 12-1060 LH/LFG, 2013 WL 12329840, at *10 (D.N.M. July 17, 2013)(Hansen,
J.), and contends that the Honorable Leroy Hansen, United States Senior District Judge for the
District of New Mexico, concludes in Tatum v. ProBuild Co., LLC that a nearly mutual injunctive
relief clause for the enforcement of restrictive covenants rendered the entire arbitration agreement
at issue unenforceable. See Reconsideration Notice at 1. Patterson provides the Court with a copy
of Judge Hansen’s opinion in Tatum v. ProBuild Co., LLC. See Tatum v. ProBuild Co., LLC
Opinion, filed October 25, 2018 (Doc. 30-1).
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10.
The Hearing.
The Court held a hearing on October 25, 2018. See Draft Transcript of Reconsideration
Motion Hearing at 1 (taken Oct. 25, 2018)(Court)(“Oct. 25 Tr.”).8 Patterson began by asserting
that the Court’s decision in the MOO is contrary to Supreme Court of New Mexico precedent,
which, Patterson contended, dictates that the provision at issue “renders the agreement
unenforceable, and severance is not proper because the provision is central to the agreement.” Oct.
25 Tr. at 2:20-22 (Siegel).
Patterson asserted that, while the Court based its substantive
unconscionability determination in the MOO on Rivera and Cordova, it cited to neither Cordova
nor Rivera in its analysis of the appropriateness of severance of the provision at issue. See Oct. 25
Tr. at 2:23-25 (Siegel); id. at 3:7-10 (Siegel). Patterson contends that the Court instead relied on
Padilla, which Patterson alleges was “improper,” because Padilla, unlike the present case, concerns
an appeals provision that came into effect only after arbitration was over. Oct. 25 Tr. at 3:10-17
(Siegel). Patterson argues that, in Clay v. New Mexico Title Loans, Inc., 2012-NMCA-102, ¶ 40,
288 P.3d 888, 900, the Court of Appeals of New Mexico concluded that an escape hatch appeals
clause in an arbitration agreement was severable by citing to Padilla for the proposition that an
appeal provision was severable because it governed only a post-award proceeding. See Oct. 25
Tr. at 3:16-23 (Siegel).
Patterson asserted: “This all boils down to whether the unilateral carve-out for judicial
relief is central to the agreement or collateral.” Oct. 25 Tr. at 3:23-4:2 (Siegel). Patterson
The Court’s citations to the hearing’s transcript refer to the court reporter’s original,
unedited version. Any final transcript may contain slightly different page and/or line numbers.
8
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contended that the carve-out provision at issue in the Arbitration Agreement is central to the
Arbitration Agreement, and therefore, the entire Arbitration Agreement is unenforceable if it is
unconscionable. See Oct. 25 Tr. at 4:2-12 (Siegel). Patterson argues that the key is that the
provision at issue is not merely a unilateral carve-out, but a unilateral carve-out for judicial relief.
See Oct. 25 Tr. at 4:18-21 (Siegel). Patterson argues that, although the Court in its MOO and Nine
Energy in its briefing pointed to provisions in the Arbitration Agreement allowing Patterson to
bring unemployment or workers compensation claims outside of the arbitration context, many
courts have found that these provisions are not carve-outs for judicial relief, because they have
their own adjudicatory frameworks. See Oct. 25 Tr. at 4:2-5:3 (Siegel). Patterson asserted that
the provision at issue is entirely one-sided. See Oct. 25 Tr. at 5:6-8 (Siegel).
The night before the hearing, Patterson discovered Tatum v. ProBuild Co., LLC., and filed
the Notice of Supplemental Authorities to inform the Court of that case. See Oct. 25 Tr. at 5:9
(Siegel). See also Tatum v. ProBuild Co., LLC Opinion at 1. Patterson contended that the most
important claim he might raise against Defendant is for injunctive relief. See Oct. 25 Tr. at 6:4-6
(Siegel). Patterson contended that in the Arbitration Agreement, Nine Energy is the only person
that has the unilateral right to go to court and enforce the provisions for injunctive relief. See Oct.
25 Tr. at 7:8-10 (Siegel).
Nine Energy then argued that Senior Judge Hansen did not discuss severability at all in
Tatum v. ProBuild Co., LLC. See Oct. 25 Tr. at 9:7-11 (Mann). Nine Energy noted that, in several
of the cases which Patterson cites, the courts opted to sever the provisions at issue. See Oct. 25
Tr. at 9:10-14 (Mann). Nine Energy argued that the “key, as the Court noticed, is whether the
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substantive unconscionability clause is essential to the agreement as a whole.” Oct. 25 Tr. at 9:1416 (Mann). Nine Energy noted that the provision at issue in the Arbitration Agreement contains
eleven paragraphs, addressing eleven separate points, but that the Court opted to strike only one
sentence in one paragraph out of eleven, so that the remaining agreement requires both parties to
submit all disputes to arbitration. See Oct. 25 Tr. at 9:20-25 (Mann). Nine Energy argued that the
Court found a justifiable way to sever and quoted from the MOO: “Further, it would make little
sense for the Court to trash the entire Arbitration Agreement because of an unconscionable
provision unrelated to this case.” Oct. 25 Tr. at 10:12-15 (Mann)(quoting MOO at 42, 330
F. Supp. 3d, at 1311).
Patterson then argued that the provision at issue pertains to the most likely actions that
Nine Energy might bring against its employees. See Oct. 25 Tr. at 11:3-5 (Siegel). Patterson
reiterated that no case in New Mexico has allowed the severance of an arbitration agreement
provision that is a unilateral carve-out for judicial relief. See Oct. 25 Tr. at 11:5-8 (Siegel).
Patterson argues that Nine Energy imposed the Arbitration Agreement on Patterson without
negotiations and that Nine Energy is now asking the Court to “save them from themselves.” Oct.
25 Tr. at 11:8-13 (Siegel).
Patterson quoted from Cordova:
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.
Oct. 25 Tr. at 11:14-25 (Siegel)(internal quotation marks omitted)(quoting Cordova, 2009-NMSC-
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021, ¶ 40, 208 P.3d at 911). Patterson argued that Nine Energy, like World Finance in Cordova,
insisted that it have access to the courts to apply for injunctive relief. See Oct. 25 Tr. at 12:1-2
(Siegel).
Patterson then argued that, in Tatum v. ProBuild Co., LLC, Senior Judge Hansen concluded
that the provision at issue was one-sided, because both parties could not go to court to address the
same occurrence at the same time. See Oct. 25 Tr. at 12:3-7 (Siegel). Patterson contends that,
unlike in Cordova and Rivera, here the parties do not have bilateral access to the courts -- and that
this is a major distinction between this case, and Cordova and Rivera. See Oct. 25 Tr. at 12:7-13
(Siegel). Patterson contended that the Arbitration Agreement here explicitly states that only Nine
Energy may go to court. See Oct. 25 Tr. at 12:13-22 (Siegel).
The Court indicated that, while it believed it had “worked hard on the opinion,” it would
go back and look at the cases to which the parties referred in the hearing and would try to get them
an opinion by the end of November. See Oct. 25 Tr. at 13:13-23 (Court). This is the Memorandum
Opinion and Order that the Court promised the parties at the hearing.
LAW REGARDING ARBITRATION AGREEMENTS
An arbitration agreement is a contract or a provision in a contract whereby parties agree to
“settle by arbitration a controversy . . . arising out of such contract or transaction.” 9 U.S.C. § 2.
Both federal and New Mexico law reflect a public policy in favor of arbitration agreements.
See Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d at 1488-89 (“There is a strong
federal policy encouraging the expeditious and inexpensive resolution of disputes through
arbitration.”); United Tech. & Res., Inc. v. Dar Al Islam, 1993-NMSC-005, ¶ 11, 846 P.2d at 309
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(“The legislature and the courts of New Mexico ‘have expressed a strong policy preference for
resolution of disputes by arbitration.’”(quoting Dairyland Ins. v. Rose, 1979-NMSC-021, ¶ 14, 591
P.2d at 284)). To be enforceable, an arbitration agreement must be validly formed pursuant to
state contract law principles -- e.g., the arbitration agreement must not be illusory or
unconscionable. See Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 8, 90 P.3d 466, 469
(“To determine whether the agreement to arbitrate is valid, courts look to general state contract
law . . . .”). See also Jerry Erwin Assocs., Inc. v. Estate of Asher by & through Zangara, 290
F. Supp. 3d 1213, 1249 (D.N.M. Nov. 30, 2017)(Browning, J.)(concluding that where parties to
an arbitration agreement agreed to submit all claims to arbitration, the parties intended that
agreement to mean that no claims are excluded from the arbitration agreement’s scope (citing
Christmas v. Cimmaron Realty Co., 1982-NMSC-079, ¶ 8, 648 P.2d 788, 790 (holding that “the
terms of the arbitration agreement are to be interpreted by the rules of contract law” and that
“courts will apply the plain meaning of contract language as written in interpreting terms of a
contract”))).
1.
Federal Law.
“The FAA reflects the fundamental principle that arbitration is a matter of contract.” RentA-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). “[T]he basic purpose of the Federal
Arbitration Act is to overcome courts’ refusals to enforce agreements to arbitrate.” Allied-Bruce
Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 270 (1995). “The FAA thereby places arbitration
agreements on an equal footing with other contracts, and requires courts to enforce them according
to their terms.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. at 67-68 (citations omitted).
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Under § 4 of the FAA, a party “aggrieved” by another party’s failure “to arbitrate under a
written agreement for arbitration” may petition a federal court “for an order directing that such
arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. If one party’s
refusal to arbitrate under a written agreement aggrieves another party, the district court, upon
petition, “shall hear the parties, and upon being satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in issue, the court shall make an order directing
the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4.
Section 2, the “primary substantive provision of the Act,” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24 (1983), provides: “A written provision in . . . a contract evidencing
a transaction involving commerce to settle by arbitration a controversy thereafter arising out of
such contract . . . 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. “If a party challenges the
validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the
challenge before ordering compliance with that agreement under § 4.” Rent-A-Center, West, Inc.
v. Jackson, 561 U.S. at 64.
Upon a finding that a matter is referable to arbitration, the FAA also indicates that the
district court “shall on application of one of the parties stay the trial of the action until such
arbitration has been had in accordance with the terms of the agreement.”
9 U.S.C. § 3.
Notwithstanding 9 U.S.C. § 3’s terms, however, several Courts of Appeals have concluded that
“dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable.” Choice
Hotels Int’l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001). See Green
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v. Ameritech Corp., 200 F.3d 967, 973 (6th Cir. 2000)(“The weight of authority clearly supports
dismissal of the case when all of the issues raised in the district court must be submitted to
arbitration.”); Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 156 n.21 (1st Cir. 1998); Alford v.
Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); Sparling v. Hoffman Constr.
Co., 864 F.2d 635, 638 (9th Cir. 1988).
The Tenth Circuit has cautioned that, when one of the parties petitions the court to stay an
action pending compulsory arbitration, 9 U.S.C. § 3’s mandatory language is binding, and it is
error for the court to dismiss the action. See Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d
953, 955 (10th Cir. 1994). When, however, the party seeking to compel arbitration requests the
court for dismissal, and there is no evidence in the record of any party requesting a stay, it is not
error for the district court to dismiss the case. See Armijo v. Prudential Ins. of Am., 72 F.3d 793,
797 (10th Cir. 1995); Evangelical Lutheran Good Samaritan Soc’y v. Moreno, 277 F. Supp. 3d
1191, 1210 (D.N.M. 2017)(Browning, J.); Cornoyer v. AT&T Mobility Servs., LLC, No. CIV 150474, 2016 WL 6404853, at *7-8 (D.N.M. Oct. 5, 2016)(Browning, J.); Thompson v. THI of New
Mexico at Casa Arena Blanca, LLC, No. CIV 05-1331, 2006 WL 4061187, at *16 (D.N.M. Sept.
12, 2006)(Browning, J.)(dismissing a case where the plaintiff neither requested a stay nor argued
that some claims may not be arbitrable).
2.
New Mexico Law.
New Mexico’s Uniform Arbitration Act, N.M. Stat. Ann. §§ 44-7a-1 to -7a-32
(“NMUAA”), provides that an agreement to submit any controversy arising between the parties to
arbitration is “valid, enforceable and irrevocable except upon a ground that exists at law or in
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equity for the revocation of a contract.” N.M. Stat. Ann. § 44-7A-7(a). If the court concludes that
there is an enforceable agreement to arbitrate, it shall order the parties to arbitrate. See N.M. Stat.
Ann. § 44-7A-8(a). Where the provision for arbitration is disputed, the court’s function is to
determine whether there is an agreement to arbitrate and to order arbitration where an agreement
is found. See N.M. Stat. Ann. § 44-7A-8(a). Courts must decide whether the parties agreed to
submit their claims to arbitration. See La Frontera Ctr., Inc., v. United Behavioral Health, Inc.,
268 F. Supp. 3d 1167, 1206 (D.N.M. 2017)(Browning, J.)(citing Belnap v. Iasis Healthcare, 844
F.3d 1272, 1280 (10th Cir. 2017)(“Because arbitration is simply a matter of contract, . . . the
arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that
dispute . . . .” (internal quotation marks and citations omitted))). The Supreme Court of the United
States of America has held that “courts should not assume that the parties agreed to arbitrate
arbitrability unless there is ‘clea[r] and unmistakabl[e] evidence that they did so.’” Perez v. Qwest
Corp., 883 F. Supp. 2d 1095, 1113-14 (D.N.M. 2012)(Browning, J.)(alterations in Perez v. Qwest
Corp.)(quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 79 (2010).
Like the federal courts’ interpretation of the FAA, New Mexico courts have viewed the
NMUAA as an expression of a public policy favoring arbitration. See United Tech. & Res., Inc.
v. Dar Al Islam, 1993-NMSC-005, ¶ 11, 846 P.2d at 309 (“The legislature and the courts of New
Mexico ‘have expressed a strong policy preference for resolution of disputes by arbitration.’”
(quoting Dairyland Ins. v. Rose, 1979-NMSC-021, ¶ 14, 591 P.2d at 284)). More specifically,
New Mexico courts have construed the NMUAA’s legislative purpose as an attempt to reduce the
court’s caseload. See Bd. of Educ. Taos Mun. Sch. v. Architects, Taos, 1985-NMSC-102, ¶ 10,
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709 P.2d 184, 186 (“A concern for preserving scarce judicial resources lies at the heart of the
preference for arbitration.”); Dairyland Ins. v. Rose, 1979-NMSC-021, ¶ 19, 591 P.2d at 285
(concluding that “the legislative intent in enacting the [NMUAA], and the policy of the courts in
enforcing it, is to reduce caseloads in the courts, not only by allowing arbitration, but also by
requiring controversies to be resolved by arbitration where contracts or other documents so
provide”). In New Mexico, when the court finds that an arbitration agreement exists and is valid,
then, in accordance with the NMUAA, the court has a duty to enforce the agreement’s provisions
and order adherence to that arbitration agreement. See Bernalillo Cty. Med. Ctr. Emps’ Ass’n
Local 2370 v. Cancelosi, 1978-NMSC-086, ¶¶ 4-5, 587 P.2d 960, 961. Consistent with this
understanding, the Supreme Court of New Mexico has interpreted the NMUAA to limit the court’s
role to determining if an arbitration agreement exists and, if so, to order the parties to arbitration:
When a broad and general arbitration clause is used, as in this case, the court should
be very reluctant to interpose itself between the parties and the arbitration upon
which they have agreed. When the parties agree to arbitrate any potential claims
or disputes arising out of their relationships by contract or otherwise, the arbitration
agreement will be given broad interpretation unless the parties themselves limit
arbitration to specific areas or matters. Barring such limiting language, the courts
only decide the threshold question of whether there is an agreement to arbitrate. If
so, the court should order arbitration. If not, arbitration should be refused.
K.L. House Constr. Co. v. City of Albuquerque, 1978-NMSC-025, ¶ 8, 576 P.2d 752, 754.
Accordingly, in New Mexico, parties entering a contract providing for the resolution of disputes
through arbitration are bound by their agreement to arbitrate. See; Evangelical Lutheran Good
Samaritan Soc’y v. Moreno, 277 F. Supp. 3d at 1211; Christmas v. Cimarron Realty Co., 1982NMSC-079, ¶¶ 7-10, 648 P.2d 788, 790.
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3.
Public Policy Favoring Enforcement of an Arbitration Agreement.
“There is a strong federal policy encouraging the expeditious and inexpensive resolution
of disputes through arbitration.” Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d at
1488-89. See Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)(“Congress declared a national
policy favoring arbitration.”); Hill v. Ricoh Americas Corp., 603 F.3d 766, 771 (10th
Cir. 2010)(“[T]he FAA is a ‘congressional declaration of a liberal federal policy favoring
arbitration agreements.’” (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. at 24)).
Congress enacted the FAA with the express purpose of granting arbitration
agreements the same enforceability as any other contract provision. See Volt Info. Sciences, Inc.
v. Bd. of Trs., 489 U.S. 468, 474 (1989)(stating that Congress designed the FAA to “overrule the
judiciary’s longstanding refusal to enforce agreements to arbitrate and place such agreements upon
the same footing as other contracts.”). When arbitration’s applicability is in dispute, “as a matter
of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626
(1985)(internal quotation marks omitted)(quoting Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. at 24-25). New Mexico state courts also view arbitration as a “highly
favored” method of resolving disputes, “in part because ‘[i]t promotes both judicial efficiency and
conservation of resources by all parties.’” Piano v. Premier Distrib. Co.,9 2005-NMCA-018, ¶ 5,
9
The Court predicts that, if presented with the issue, the Supreme Court of New Mexico
would agree with the Court of Appeals of New Mexico’s statements in Piano v. Premier Distrib.
Co. and Santa Fe Techs. Inc. v. Argus Networks, Inc. that arbitration is New Mexico’s favored
method of resolving disputes because it promotes judicial efficiency and conservation of parties’
resources. The Court bases its prediction on McMillan v. Allstate Indem. Co., 2004-NMSC-002,
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107 P.3d 11, 13 (alteration in original)(quoting Santa Fe Techs. Inc. v. Argus Networks, Inc., 2002NMCA-030, ¶ 51, 42 P.3d 1221). See Cornoyer v. AT&T Mobility Servs., LLC, 2016 WL
6404853, at *8.
4.
A Valid Arbitration Agreement’s Existence.
The Supreme Court has noted that “[a]rbitration is simply a matter of contract between
parties; it is a way to resolve those disputes -- but only those disputes -- that the parties have agreed
to submit to arbitration.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995)( citations
omitted). Courts must interpret arbitration clauses liberally, and all doubts must be resolved in
favor of arbitration.
See Hicks v. Cadle, Co., 355 F. App’x 186, 192 (10th
Cir. 2009)(unpublished)10(“We resolve any doubts in favor of arbitrability.” (citing Litton Fin.
Printing Div. v. NLRB, 501 U.S. 190, 209 (1991))); Armijo v. Prudential Ins., 72 F.3d 793, 79798 (10th Cir. 1995)(stating that “questions of arbitrability must be addressed with a healthy regard
¶ 9, 84 P.3d 65, 69, in which the Supreme Court of New Mexico recognized “that in New Mexico
there is a strong public-policy preference in favor of resolving disputes through arbitration . . . as
a means of relieving congestion in the court system, speeding up resolution of disputes, and making
the resolution of cases more economical to all parties.” McMillan v. Allstate Indem. Co., 2004NMSC-002, ¶ 9, 84 P.3d at 69.
Hicks v. Cadle, Co. is an unpublished opinion, but the Court can rely on an unpublished
opinion for the Tenth Circuit to the extent its reasoned analysis is persuasive in the case before it.
See 10th Cir. R. 32.1(A) (“Unpublished opinions are not precedential, but may be cited for their
persuasive value.”). The Tenth Circuit has stated: “In this circuit, unpublished orders are not
binding precedent, . . . and . . . citation to unpublished opinions is not favored. However, if an
unpublished opinion . . . has persuasive value with respect to a material issue in a case and would
assist the court in its disposition, we allow a citation to that decision.” United States v. Austin,
426 F.3d 1266, 1274 (10th Cir. 2005). The Court concludes that Hicks v. Cadle, Co., Pennington
v. Northrop Grumman Space & Mission System Corp., and Jones v. United States have persuasive
value with respect to material issues and will assist the Court in its disposition of this Memorandum
Opinion and Order.
10
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for the federal policy favoring arbitration,” and that “arbitration clauses must be interpreted
liberally, and any doubts should be resolved in favor of arbitration,” and holding that the plaintiffs
had “failed to rebut the presumption of arbitrability”). While “the presumption in favor of
arbitration is properly applied in interpreting the scope of an arbitration agreement, . . . this
presumption disappears when the parties dispute the existence of a valid arbitration agreement.”
Dumais v. Am. Golf Corp., 299 F.3d at 1220. See Riley Mfg. Co., Inc. v. Anchor Glass Container
Corp., 157 F.3d 775, 779 (10th Cir. 1998)(“When the dispute is whether there is a valid and
enforceable arbitration agreement in the first place, the presumption of arbitrability falls away.”);
Presbyterian Healthcare Servs. v. Goldman, Sachs & Co., 112 F. Supp. 3d, 1157, 1206 (D.N.M.
2015)(Browning, J.).
In the Tenth Circuit, and in the courts of New Mexico, the “existence of an agreement to
arbitrate is a threshold matter which must be established before the FAA can be invoked.” Avedon
Eng’g Inc. v. Seatex, 126 F.3d 1279, 1287 (10th Cir. 1997). See K.L. House Constr. Co. v. City
of Albuquerque, 1978-NMSC-025, ¶ 8, 576 P.2d at 754 (“[T]he courts only decide the threshold
question of whether there is an agreement to arbitrate. If so, the court should order arbitration.”).
“Like other contracts . . . [arbitration agreements] may be invalidated by ‘generally applicable
contract defenses, such as fraud, duress, or unconscionability.’” Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. at 68 (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).
See Cornoyer v. AT&T Mobility Servs., LLC, 2016 WL 6404853, at *8-11. Cf. K.L. House
Construction Co. v. City of Albuquerque, 1978-NMSC-025, ¶ 8, 576 P.2d at 754 (holding that,
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because a valid arbitration clause existed, the parties had to arbitrate all disputes when the “subject
matter of the dispute has a reasonable relationship to the subject matter of the contract”).
5.
Consideration and Illusory Arbitration Agreements.
“To determine whether the agreement to arbitrate is valid, courts look to general state
contract law, with the caveat that state laws that are specifically hostile to arbitration agreements
are preempted by the FAA.” Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 8, 90 P.3d
at 469 (citations omitted). It is a fundamental tenet of contract law “that each party to a contract
has a duty to read and familiarize himself with the contents of the contract, each party generally is
presumed to know the terms of the agreement, and each is ordinarily bound thereby.” Ballard v.
Chavez, 1994-NMSC-007, ¶ 8, 868 P.2d 646, 648.
Under New Mexico law, “[a] legally
enforceable contract requires evidence supporting the existence of an offer, an acceptance,
consideration, and mutual assent.” Piano v. Premier Distrib. Co.,11 2005-NMCA-018, ¶ 6, 107
P.3d at 14 (internal quotation marks omitted)(quoting Heye v. Am. Golf Corp., Inc., 2003-NMCA138, ¶ 9, 80 P.3d 495).
“Consideration consists of a promise to do something that a party is under no legal
obligation to do or to forbear from doing something he has a legal right to do.” Talbott v. Roswell
Hosp. Corp., 2005-NMCA-109, ¶ 16, 118 P.3d 194, 198. “A valid contract must possess mutuality
11
The Court predicts that the Supreme Court of New Mexico would agree with the
statement of a legally-enforceable contract’s requirements under New Mexico law in Piano v.
Premier Distrib. Co. and Heye v. Am. Golf Corp., Inc., because the Supreme Court of New Mexico
has stated the same proposition in Hartbarger v. Frank Paxton Co., 1993-NMSC-029, ¶ 7, 857 P.2d
776, 780 (“Ordinarily, to be legally enforceable, a contract must be factually supported by an offer,
an acceptance, consideration, and mutual assent.”)
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of obligation. Mutuality means both sides must provide consideration.” Heye v. Am. Golf Corp.,
2003-NMCA-138, ¶ 12, 80 P.3d 495, 499.12 Absent evidence of a “bargained-for exchange
between the parties,” an agreement lacks consideration and is unenforceable. Smith v. Vill. of
Ruidoso, 1999-NMCA-151, ¶ 33, 994 P.2d 50, 58.13 “Under general New Mexico contract law,
an agreement that is subject to unilateral modification or revocation is illusory and unenforceable.”
Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 9, 90 P.3d at 469. “This principle applies
equally to agreements to arbitrate.” Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 9,
90 P.3d at 469. The Supreme Court of New Mexico has concluded that, if a party “reserves the
right to change the agreement unilaterally, and at any time,” the party “has not really promised
anything at all and should not be permitted to bind the other party.” Salazar v. Citadel Commc’ns
Corp., 2004-NMSC-013, ¶ 9, 90 P.3d at 469.
Several cases arising in New Mexico provide examples of illusory agreements to arbitrate.
For instance, in Dumais v. American Golf Corp., 150 F. Supp. 2d 1182 (D.N.M. 2001)(Vazquez,
J.), aff’d, 299 F.2d 1216 (10th Cir. 2002), the Honorable Martha Vazquez, United States District
Judge for the District of New Mexico, was asked to determine if an arbitration provision in an
employment handbook was enforceable, and precluded an employee from bringing a claim for
12
The Court is confident that the Supreme Court of New Mexico agrees with the Court of
Appeals of New Mexico’s assertion in Heye v. Am. Golf Corp., based on Vanzandt v. Heilman,
in which the Supreme Court of New Mexico stated the same proposition. See 1950-NMSC-009,
¶ 11, 214 P.2d 864, 866.
13
The Court is confident that the Supreme Court of New Mexico agrees with the Court of
Appeals of New Mexico’s assertion in Smith v. Vill. of Ruidoso, based on Romero v. Earl, 1991NMSC-042, ¶ 6, 810 P.2d 808, 810, in which the Supreme Court of New Mexico stated the same.
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sexual harassment and constructive discharge under Title VII against her employer. See 150
F. Supp. 2d at 1193. The employer suggested that two documents which the employee executed
when she became an employee constituted a valid agreement to arbitrate such disputes. See 150
F. Supp. 2d at 1193. The documents included: (i) a form acknowledging that the employee had
read and would abide by the employer’s arbitration program -- the “We Can Work It Out” program;
and (ii) an acknowledgment form that the employee would comply with the employment handbook
and the “We Can Work It Out” program. 150 F. Supp. 2d at 1193. Judge Vazquez concluded that
the arbitration agreement embodied in the “We Can Work It Out” program was illusory, because
it was executed over two months after the employee began her employment. 150 F. Supp. 2d at
1193. The agreement also modified the employment terms -- it divested the employee’s right to
have disputes heard in an Article III court -- without consideration in return for that divestiture.
See 150 F. Supp. 2d at 1193. Judge Vazquez noted that inconsistent provisions in the employment
agreement made it unclear whether the arbitration agreement was binding on the employer and
that, therefore, the potentially unilateral character of the promise to arbitrate made it illusory.
See 150 F. Supp. 2d at 1194. The Tenth Circuit affirmed Judge Vazquez’ holding in a de novo
review on appeal. See 299 F.3d at 1220. In affirming Judge Vazquez, the Tenth Circuit stated:
“We join other circuits in holding that an arbitration agreement allowing one party the unfettered
right to alter the arbitration agreement’s existence or its scope is illusory.” 299 F.3d at 1219.
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Additionally, in Heye v. American Golf Corp.,14 the Court of Appeals of New Mexico
considered a question like the one that the federal court addressed in Dumais v. American Golf
Corp. See Heye v. American Golf Corp., 2003-NMCA-138, ¶¶ 10-15, 80 P.3d at 499-500. The
Court of Appeals of New Mexico assessed the validity of an arbitration agreement in an
employment contract that bound the employee, but not the employer, to arbitrate and that the
employee signed after she was hired. See 2003-NMCA-138, ¶¶ 10-15, 80 P.3d at 499-500. In
concluding that the agreement was illusory, the Court of Appeals of New Mexico noted that the
agreement permitted the employer to “amend, supplement, rescind or revise the policy regarding
arbitration at its whim.” 2003-NMCA-138, ¶ 13, 80 P.3d at 499. Although the employee was
bound to arbitrate, the employer “remain[ed] free to selectively abide by its promise to arbitrate,”
14
The Court predicts that, if presented with the issue, the Supreme Court of New Mexico
would agree with the Court of Appeals’ reasoning and decision in Heye v. American Golf Corp.,
based on the Supreme Court of New Mexico’s decision in Salazar v. Citadel Commc’ns Corp., in
which the Supreme Court of New Mexico stated that, under general New Mexico contract law, an
agreement that is subject to unilateral modification or revocation is illusory and unenforceable.”
Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 9, 90 P.3d at 469. “This principle applies
equally to agreements to arbitrate.” Salazar v. Citadel Commc’ns Corp., 2004-NMSC-013, ¶ 9,
90 P.3d at 469. The Supreme Court of New Mexico has concluded that, if a party “reserves the
right to change the agreement unilaterally, and at any time,” the party “has not really promised
anything at all and should not be permitted to bind the other party.” Salazar v. Citadel Commc’ns
Corp., 2004-NMSC-013, ¶ 9, 90 P.3d at 469. In Heye v. American Golf Corp., the employer
reserved the right to “amend, supplement, rescind or revise” the arbitration policy at its whim,
2003-NMCA-138, ¶ 13, 80 P.3d at 499, and, accordingly, “has not really promised anything at
all,” 2004-NMSC-013, ¶ 9, 90 P.3d at 469. The Supreme Court of New Mexico, on these facts,
would likely agree with the Court of Appeals of New Mexico’s decision to find such an agreement
illusory.
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and therefore the employer’s “promise to arbitrate [did] not provide the consideration necessary to
enforce the arbitration agreement.” 2003-NMCA-138, ¶ 15, 80 P.3d at 500.
Next, in Piano v. Premier Distributing Co.,15 the plaintiff worked as an administrative
assistant for the defendant on an at-will employment basis. See 2005-NMCA-018, ¶¶ 2-3, 107
P.3d at 13. During her employment, the defendant presented the plaintiff with an arbitration
agreement to sign, with the understanding that, if she did not sign it, the defendant would terminate
her employment. See 2005-NMCA-018, ¶¶ 2-3, 107 P.3d at 13. The plaintiff signed the
agreement, and, later, when her employment was terminated, she sued the defendant for wrongful
termination; the defendant moved to compel arbitration. See 2005-NMCA-018, ¶¶ 2-3, 107 P.3d
at 13. On appeal of the district court’s denial of the defendant’s motion to compel arbitration, the
Court of Appeals of New Mexico addressed whether an employer’s promise of continued at-will
employment constitutes enough consideration for an employee’s promise to submit her claims to
arbitration. See 2005-NMCA-018, ¶¶ 6-8, 107 P.3d at 14. The Court of Appeals of New Mexico
concluded that the employer’s promise was illusory and explained: “The implied promise of
continued at-will employment placed no constraints on Defendant’s future conduct; its decision to
continue Plaintiff’s at-will employment was entirely discretionary.” 2005-NMCA-018, ¶ 8, 107
P.3d at 14.
15
For the reasons stated supra, n.14, the Court predicts that the Supreme Court of New
Mexico, if presented with the issue, would agree with the Court of Appeals of New Mexico’s
reasoning and decision in Piano v. Premier Distributing Co. and find the agreement illusory.
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In Lumuenemo v. Citigroup, Inc., No. 08-cv-0830, 2009 WL 371901 (D. Colo. Feb. 12,
2009), the Honorable Wiley Y. Daniel, Chief United States District Judge for the District of
Colorado, distinguished the facts in Piano v. Premier Distributing Co. from the facts in
Lumuenemo v. Citigroup, Inc., stating:
Plaintiff cites Piano v. Premier Distributing Co., 107 P.3d 11 (N.M. Ct. App. 2004),
as support for her argument. However, the holding in Piano turned on the fact that
the plaintiff was an at-will employee prior to signing the arbitration agreement, and
therefore, the implied promise of continued at-will employment did not constitute
consideration. Id. at 60. Piano is distinguishable from the facts before this Court.
Here, Defendant’s initial hiring of Plaintiff was conditioned on her consent to the
terms of the Arbitration Agreement; thus, there was consideration in the form of
employment. Further, Defendant does need Plaintiff’s approval -- Plaintiff had up
to 30 days to contest any changes to the Arbitration Agreement and/or to decide
whether to continue employment based on such changes. Moreover, the holding in
Piano is not binding on this court.
Lumuenemo v. Citigroup, Inc., 2009 WL 371901, at *5.
Further, in Salazar v. Citadel Communications Corp., the Supreme Court of New Mexico
held that, because Citadel Communications reserved the right to modify any provision of its
employee handbook at any time, including the arbitration agreement contained therein, the
agreement to arbitrate was “an unenforceable illusory promise.” Salazar v. Citadel Commc’n
Corp., 2004-NMSC-013, ¶ 16, 90 P.3d at 471. In contrast, the Court of Appeals of New Mexico
in Sisneros v. Citadel Broadcasting Co. concluded that the arbitration policy at issue restricted
Citadel Broadcasting’s right to terminate or amend the agreement to arbitrate, and, thus, when
Citadel Broadcasting terminated Sisneros’ employment, Citadel Broadcasting was bound to
arbitrate the dispute, just as Sisneros was bound to arbitrate, and therefore mutual obligation
existed and the arbitration agreement was not illusory. See Sisneros v. Citadel Broad. Co., 2006-
- 39 -
NMCA-102, ¶ 34, 142 P.3d at 43. Similarly, in Hardin v. First Cash Financial Services, Inc., 465
F.3d 470 (10th Cir. 2006), the arbitration agreement required the employer to provide ten-days’
notice to its current employees before amending or terminating the arbitration agreement, and
provided that the employer could not amend the agreement if it had actual notice of a potential
dispute or claim, nor could it terminate the agreement as to any claims which arose before the
termination date. See 465 F.3d at 478. The Tenth Circuit, applying Oklahoma contract law,
concluded that “[t]he . . . limitations [were] sufficient to avoid rendering the parties’ Agreement
to arbitrate illusory.” Hardin v. First Cash Fin. Servs., Inc., 465 F.3d at 478. See Pennington v.
Northrop Grumman Space & Mission Sys. Corp., 269 F. App’x 812, 820 (10th
Cir. 2008)(unpublished)(holding that “the reciprocal obligation to arbitrate provides the requisite
consideration.”); Cornoyer v. AT&T Mobility Servs., LLC, 2016 WL 6404853, at *8.
In Laurich v. Red Lobster Restaurants, LLC, 295 F. Supp. 3d 1186 (D.N.M.
2017)(Browning, J.), the Court concluded that the arbitration agreement at issue was not illusory
where the employee provided consideration by agreeing to arbitrate certain claims outside of a
courtroom and to work for the employer, and the employer provided consideration by also agreeing
to arbitrate certain claims outside of a courtroom and to employ the employee, and where neither
party was under any legal obligation to do these things. See 295 F. Supp. 3d at 1216-17.
NEW MEXICO LAW ON CONTRACT INTERPRETATION
AND EXTRINSIC EVIDENCE
In contract cases, “the role of the court is to give effect to the intention of the contracting
parties.” Bogle Farms, Inc. v. Baca, 1996-NMSC-051, ¶ 21, 925 P.2d 1184, 1190. “The primary
- 40 -
objective in construing a contract is not to label it with specific definitions or to look at form above
substance, but to ascertain and enforce the intent of the parties as shown by the contents of the
instrument.” Bogle Farms, Inc. v. Baca, 1996-NMSC-051, ¶ 21, , 925 P.2d at 1190 (citing Shaeffer
v. Kelton, 1980-NMSC-117, ¶ 8, 619 P.2d 1226, 1229). In C.R. Anthony Co. v. Loretto Mall
Partners, 1991-NMSC-070, ¶ 12, 817 P.2d 238, 242, the Supreme Court of New Mexico abolished
the four-corners standard of contract interpretation, which required a court to determine whether a
contract was ambiguous without considering evidence of the circumstances surrounding the
contract’s negotiation. The Supreme Court of New Mexico held that, “in determining whether a
term or expression to which the parties have agreed is unclear, a court may hear evidence of the
circumstances surrounding the making of the contract and of any relevant usage of trade, course
of dealing, and course of performance.” 1991-NMSC-070, ¶ 12, 817 P.2d at 242-43 (footnote
omitted). The Supreme Court of New Mexico went on to discuss the parol-evidence rule:
The parol evidence rule is a rule of substantive law that bars admission of evidence
extrinsic to the contract to contradict and perhaps even to supplement the
writing. . . . The rule should not bar introduction of evidence to explain terms. As
Professor Corbin observes, “No parol evidence that is offered can be said to vary
or contradict a writing until by process of interpretation the meaning of the writing
is determined.” [A.] Corbin, The Parol Evidence Rule, 53 Yale L.J. 603, 622
(1944). The operative question then becomes whether the evidence is offered to
contradict the writing or to aid in its interpretation.
C.R. Anthony Co. v. Loretto Mall Partners, 1991-NMSC-070, ¶ 16, 817 P.2d at 243 (footnote
omitted).
The question whether an agreement contains an ambiguity is a matter of law. See Mark
V., Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 845 P.2d 1232, 1235 (“Mark V”)(citing Levenson v.
- 41 -
Mobley, 1987-NMSC-102, ¶ 7, 744 P.2d 174, 176). In Mark V, the Supreme Court of New Mexico
made it clear that when a term or expression in an agreement is unclear, consideration of extrinsic
evidence was not only allowed, but required. See 1993-NMSC-001, ¶ 12, 845 P.2d at 1235
(holding that court committed error when it “relied solely on the face or the ‘four corners’ of the
document”). See also Schultz & Lindsay Const. Co., 1972-NMSC-013, ¶ 6, 494 P.2d 612, 614.
The Supreme Court of New Mexico summarized the law of contract interpretation in New Mexico
as follows:
The court may consider collateral evidence of the circumstances surrounding the
execution of the agreement in determining whether the language of the agreement
is unclear. C.R. Anthony, 112 N.M. at 508-09, 817 P.2d at 242-43. If the evidence
presented is so plain that no reasonable person could hold any way but one, then
the court may interpret the meaning as a matter of law. Id. at 510, 817 P.2d at 244.
If the court determines that the contract is reasonably and susceptible of different
constructions, an ambiguity exists. Vickers v. North Am. Land Dev., Inc., 94 N.M.
65, 68, 607 P.2d 603, 606 (1980). At that point, if the proffered evidence of
surrounding facts and circumstances is in dispute, turns on witness credibility, or is
susceptible of conflicting inferences, the meaning must be resolved by the
appropriate fact finder . . . .
Mark V, 1993-NMSC-001, ¶ 12, 845 P.2d at 1235.
LAW REGARDING NEW MEXICO’S UNCONSCIONABILITY DEFENSE TO
CONTRACT ENFORCEMENT
In New Mexico, “unconscionability is an affirmative defense to contract enforcement.”
Strausberg v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, ¶ 3, 304 P.3d 409, 412.
Consequently, “[c]ourts may render a contract or portions of a contract unenforceable under the
equitable doctrine of unconscionability when the terms are ‘unreasonably favorable to one party
while precluding a meaningful choice of the other party.’” Dalton v. Santander Consumer USA,
Inc., 2016-NMSC-035, ¶ 6, 385 P.3d 619, 621 (quoting Cordova v. World Fin. Corp. of N.M.,
- 42 -
2009-NMSC-021, ¶ 21, 208 P.3d 901, 907). The party asserting an unconscionability defense
“bears the burden of proving that a contract or a portion of a contract should be voided as
unconscionable.” Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 7, 385 P.3d at
621 (citing Strausberg v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, ¶¶ 24, 39, 48, 304
P.3d at 415). “The burden of proving unconscionability refers only to ‘the burden of persuasion,
i.e., the burden to persuade the factfinder’ and not ‘the burden of production, i.e., the burden to
produce evidence.’” Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 7, 385 P.3d
at 621 (quoting Strausberg v. Laurel Healthcare Providers, LLC, 2013-NMSC-032, ¶ 24, 304 P.3d
at 415).
“A contract can be procedurally or substantively unconscionable.” Dalton v. Santander
Consumer USA, Inc., 2016-NMSC-035, ¶ 7, 385 P.3d at 621 (citing Cordova v. World Fin. Corp.
of N.M., 2009-NMSC-021, ¶ 21, 208 P.3d at 907). See Fiser v. Dell Comput. Corp., 2008-NMSC046, ¶ 20, 188 P.3d 1215, 1221 (“The classic articulation of unconscionability is that it is
comprised of two prongs: substantive unconscionability and procedural unconscionability.”
(citing 7 Joseph M. Perillo, Corbin on Contracts § 29.4, at 388 (2002 ed.))). “Substantive
unconscionability relates to the content of the contract terms and whether they are illegal, contrary
to public policy, or grossly unfair.” Fiser v. Dell Comput. Corp., 2008-NMSC-046, ¶ 20, 188 P.3d
at 1221 (citing Padilla, 2003-NMSC-011, ¶ 14, 68 P.3d 901, 907; Guthmann v. La Vida Llena,
1985-NMSC-106, ¶ 16, 709 P.2d 675, 679, disapproved of on other grounds by Cordova, 2009NMSC-021, ¶ 31, 208 P.3d at 909). “Procedural unconscionability,” by contrast, “is determined
by analyzing the circumstances surrounding the contract’s formation, such as whether it was an
- 43 -
adhesive contract and the relative bargaining power of the parties.” Fiser v. Dell Comput. Corp.,
2008-NMSC-046, ¶ 20, 188 P.3d at 1221 (citing Guthmann v. La Vida Llena, 1985-NMSC-106,
¶ 16, 709 P.2d at 679).
“The weight given to procedural and substantive considerations varies with the
circumstances of each case.” Fiser v. Dell Comput. Corp., 2008-NMSC-046, ¶ 20, 188 P.3d at
1221 (quotation marks omitted)(quoting Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 16, 709
P.2d at 679).
“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.” Cordova, 2009-NMSC-021, ¶ 24, 208 P.3d at 908 (citing Fiser v. Dell
Comput. Corp., 2008-NMSC-046, ¶ 22, 188 P.3d at 1221 (invalidating an arbitration clause
without a finding of procedural unconscionability where “there has been such an overwhelming
showing of substantive unconscionability”)); Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 16,
709 P.2d at 679; 7 Joseph M. Perillo, Corbin on Contracts § 29.1, at 377 (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)).
Moreover, “[p]rocedural 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.” Cordova, 2009-NMSC-021, ¶ 24, 208 P.3d at 908 (citing Circuit
City Stores, Inc. v. Mantor, 335 F.3d 1101, 1106 (9th Cir. 2003); 1 E. Allan Farnsworth,
- 44 -
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.”)). See Laurich v. Red Lobster Rests., LLC, 295 F. Supp. 3d at
1211.
1.
Procedural Unconscionability.
“Procedural unconscionability may be found where there was inequality in the contract
formation.” State ex rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-024, ¶ 27, 329 P.3d 658, 669
(citing Cordova, 2009-NMSC-021, ¶ 23, 208 P.3d at 907-08).
A contract is procedurally
unconscionable “only where the inequality is so gross that one party’s choice is effectively nonexistent.” Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 18, 709 P.2d at 679. Whether a party
has meaningful choice is “determined by examining the circumstances surrounding the contract
formation . . . , including the particular party’s ability to understand the terms of the contract and
the relative bargaining power of the parties.” Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 16,
709 P.2d at 679 (citations omitted). Consequently, “[a]nalyzing procedural unconscionability
requires the court to look beyond the four corners of the contract and examine factors ‘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.’” State ex rel. King v. B & B Inv. Grp.,
Inc., 2014-NMSC-024, ¶ 27, 329 P.3d at 669 (quoting Cordova, 2009-NMSC-021, ¶ 27, 208 P.3d
at 907-08). See City of Raton v. Ark. River Power Auth., 760 F. Supp. 2d 1132, 1154 (D.N.M.
2009)(Browning, J.)(“In analyzing whether a contract or a term in a contract is procedurally
unconscionable, New Mexico courts consider several factors, including the use of high pressure
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tactics, the relative scarcity of the subject matter of the contract, and the relative education,
sophistication and wealth of the parties.” (citing Guthmann v. La Vida Llena, 1985-NMSC-106,
¶ 16, 709 P.2d at 679)).
“When assessing procedural unconscionability, courts should consider whether the
contract is one of adhesion.” Rivera, 2011-NMSC-033, ¶ 44, 259 P.3d 803, 817. An adhesion
contract is a standardized contract that a transacting party with superior bargaining strength offers
to a “weaker party on a take-it-or-leave-it basis, without opportunity for bargaining.” Rivera,
2011-NMSC-033, ¶ 44, 259 P.3d at 817 (citing Cordova, 2009-NMSC-021, ¶ 33, 208 P.3d at 910).
“Adhesion contracts generally warrant heightened judicial scrutiny because the drafting party is in
a superior bargaining position.” Rivera, 2011-NMSC-033, ¶ 44, 259 P.3d at 817 (citing Wis. Auto
Title Loans, Inc. v. Jones, 714 N.W.2d 155, 170 (Wis. 2006)). “Although not all adhesion
contracts are unconscionable, an adhesion contract is procedurally unconscionable and
unenforceable ‘when the terms are patently unfair to the weaker party.’” Rivera, 2011-NMSC033, ¶ 44, 259 P.3d at 817 (quoting Cordova, 2009-NMSC-021, ¶ 33, 208 P.3d at 910).
For example, in State ex rel. King v. B & B Investment Group, Inc., the Supreme Court of
New Mexico decided whether loan contracts offered by certain small-loan lenders were
unconscionable. See 2014-NMSC-024, ¶ 27, 329 P.3d at 669-70. The Supreme Court of New
Mexico concluded that substantial evidence supported “the finding of procedural
unconscionability as understood in common law.” 2014-NMSC-024, ¶ 27, 329 P.3d at 669-70.
The Supreme Court of New Mexico predicated its holding that the loan contracts at issue were
procedurally unconscionable on several facts regarding contract formation, including
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the relative bargaining strength and sophistication of the parties is unequal.
Moreover, borrowers are presented with Hobson’s choice: either accept the
quadruple-digit interest rates, or walk away from the loan. The substantive terms
are preprinted on a standard form, which is entirely nonnegotiable. The interest
rates are set by drop-down menus in a computer program that precludes any
modification of the offered rate. Employees are forbidden from manually
overriding the computer to make fee adjustments without written permission from
the companies’ owners: manual overrides will be considered in violation of
company policy and could result with . . . criminal charges brought against the
employee and or termination.
2014-NMSC-024, ¶ 27, 329 P.3d at 669 (internal quotation marks omitted). The Supreme Court
of New Mexico further concluded that, on these facts, the loan contracts at issue were contracts of
adhesion, because the “contracts are prepared entirely by Defendants, who have superior
bargaining power, and are offered to the weaker party on a take-it-or-leave-it basis.” 2014-NMSC024, ¶ 27, 329 P.3d at 669. The Supreme Court of New Mexico added that, “although they will
not be found unconscionable in every case, an adhesion contract is procedurally unconscionable
and unenforceable when the terms are patently unfair to the weaker party.” 2014-NMSC-024,
¶ 27, 329 P.3d at 669 (citing Rivera , 2011-NMSC-033, ¶ 44, 259 P.3d at 817). See La Frontera
Ctr., Inc. v. United Behavioral Health, Inc., 268 F. Supp. 3d 1167, 1204 (D.N.M. 2017)(Browning,
J.).
2.
Substantive Unconscionability.
Substantive unconscionability requires courts “to consider ‘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’” to determine “the legality and fairness of the
contract terms themselves.” Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 8, 385
P.3d at 621 (quotation marks omitted)(quoting Cordova, 2009-NMSC-021, ¶ 22, 208 P.3d at 907).
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Accordingly, when examining a contract for substantive unconscionability, courts must “examine
the terms on the face of the contract and . . . consider the practical consequences of those terms.”
Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, ¶ 8, 385 P.3d at 621 (citing State ex
rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-024, ¶ 32, 329 P.3d at 670 (“[S]ubstantive
unconscionability can be found by examining the contract terms on their face.”)). “Thus, the party
bearing the burden of proving substantive unconscionability need not make any particular
evidentiary showing and can instead persuade the factfinder that the terms of a contract are
substantively unconscionable by analyzing the contract on its face.”
Dalton v. Santander
Consumer USA, Inc., 2016-NMSC-035, ¶ 8, 385 P.3d at 622.
“When its terms are unreasonably favorable to one party, a contract may be held to be
substantively unconscionable.” Monette v. Tinsley, 1999-NMCA-040, ¶ 19, 975 P.2d 361, 365
(citing State ex rel. State Highway Transp. Dep’t v. Garley, 1991-NMSC-008, ¶ 30, 806 P.2d 32,
39; Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 23, 709 P.2d 675, 680). The Supreme Court
of New Mexico noted in Guthmann v. La Vida Llena:
In determining reasonableness or fairness, the primary concern must be with the
terms of the contract considered in light of the circumstances existing when the
contract was made. The test is not simple, nor can it be mechanically applied. The
terms are to be considered “in the light of the general commercial background and
the commercial needs of the particular trade or case.” Corbin suggests the test as
being whether the terms are “so extreme as to appear unconscionable according to
the mores and business practices of the time and place.”
Guthmann v. La Vida Llena, 1985-NMSC-106, ¶ 23, 709 P.2d at 680 (quoting Bowlin’s, Inc. v.
Ramsey Oil Co., 1983-NMCA-038, ¶ 22, 662 P.2d 661, 669). Further, for a court to hold that a
contract is substantively unconscionable, the court must conclude that one or more of the contract’s
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terms was grossly unfair “at the time the contract was formed.” Guthmann v. La Vida Llena, 1985NMSC-106, ¶ 24, 709 P.2d at 680.
With respect to arbitration agreements specifically, the Supreme Court of New Mexico
has held that arbitration agreements are substantively unconscionable and thus unenforceable
where the arbitration agreement contains a unilateral carve-out that explicitly exempts from
mandatory arbitration those judicial remedies that a lender is likely to need, while providing no
such exemption for the borrower. See Rivera, 2011-NMSC-033, ¶¶ 51-54, 259 P.3d at 818-19;
Cordova v, 2009-NMSC-021, ¶ 32, 208 P.3d at 907-10. In Cordova, for example, the Supreme
Court of New Mexico stated that “[c]ontract provisions that unreasonably benefit one party over
another are substantively unconscionable.” 2009-NMSC-021, ¶ 25, 208 P.3d at 908. In that case,
a loan contract included a purportedly bilateral arbitration clause containing a unilateral carve-out
provision that exempted the lender from mandatory arbitration when the lender sought remedies,
“including[,] but not limited to, judicial foreclosure or repossession” in the event of the borrower’s
default. 2009-NMSC-021, ¶ 3, 208 P.3d at 904 (internal quotation marks omitted). The Supreme
Court of New Mexico held that the arbitration clause was “grossly unreasonable” and against New
Mexico public policy, because the agreement required the borrower to arbitrate any of the
borrower’s claims while reserving to the lender “the exclusive option of seeking its preferred
remedies through litigation.” 2009-NMSC-021, ¶ 20, 208 P.3d at 907. Accordingly, the Supreme
Court of New Mexico held that the arbitration agreement was substantively unconscionable.
See 2009-NMSC-021, ¶ 32, 208 P.3d at 910.
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Next, in Rivera, the Supreme Court of New Mexico confronted a similar loan contract in
which an arbitration agreement required the borrower to arbitrate any claims against the lender
while exempting from mandatory arbitration the lender’s “self-help or judicial remedies”
concerning the property securing the transaction and any claims that the lender might have “[i]n
the event of a default.” 2011-NMSC-033, ¶ 3, 259 P.3d at 807-08. As in Cordova, 2009-NMSC021, ¶ 32, 208 P.3d at 910, in Rivera, the Supreme Court of New Mexico again held the arbitration
agreement substantively unconscionable, because the arbitration clause allowed the lender to
“retain . . . the right to obtain through the judicial system the only remedies it [is] likely to need,”
while “forcing [the borrower] to arbitrate any claim she may have.” 2011-NMSC-033, ¶ 53, 259
P.3d at 818-19. Accordingly, the Supreme Court of New Mexico held that the arbitration
agreement was unreasonably one-sided and, therefore, unenforceable qua substantively
unconscionable. See 2011-NMSC-033, ¶ 54, 259 P.3d at 818-19.
By contrast, in Dalton v. Santander Consumer USA, Inc., the Supreme Court of New
Mexico held that an arbitration agreement between a lender and a borrower which included a
bilateral exception for small claims less than $10,000.00 was not substantively unconscionable,
“even if one party is substantively more likely to bring small claims actions.” 2016-NMSC-035,
¶ 21, 385 P.3d at 624. See 2016-NMSC-035 ¶ 22, 385 P.3d at 625 (“We are hesitant to adopt a
holding that might discourage bilateral small claims carve-outs, and thereby curtail the availability
of small claims proceedings to New Mexico consumers . . . .”). The Supreme Court of New
Mexico stated that “[g]ross unfairness is a bedrock principle of our unconscionability analysis,”
2016-NMSC-035, ¶ 21, 385 P.3d at 624, and refused to conclude that an arbitration agreement that
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exempts, for both parties, claims less than $10,000.00 from mandatory arbitration is either
unreasonably one-sided or grossly unfair, see 2016-NMSC-035, ¶¶ 21-25, 385 P.3d at 624-25.
See Thompson v. THI of New Mexico at Casa Arena Blanca, LLC, 2006 WL 4061187, at *10.
The Supreme Court of the United States has also held that state courts may not use
unconscionability to subvert the FAA’s purposes. See AT&T Mobility LLC v. Concepcion, 563
U.S. 333, 341 (2011)(Scalia, J.)(“Concepcion”). To be sure, the FAA says that arbitration
agreements may be rendered unenforceable “upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. “But the inquiry becomes more complex when a
doctrine normally thought to be generally applicable, such as . . . unconscionability, is alleged to
have been applied in a fashion that disfavors arbitration.” Concepcion, 563 U.S. at 341. “The
FAA’s preemptive effect might extend even to grounds traditionally thought to exist ‘at law or in
equity for the revocation of any contract.’” Concepcion, 563 U.S. at 341 (quoting 9 U.S.C. § 2).
“Although § 2’s saving clause preserves generally applicable contract defenses, nothing in it
suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of
the FAA’s objectives.” Concepcion, 563 U.S. at 343. “A federal statute’s saving clause ‘cannot
in reason be construed as [allowing] a common law right, the continued existence of which would
be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to
destroy itself.’” Concepcion, 563 U.S. at 343 (quoting Am. Tel. & Tel. Co. v. Cent. Office Tel.,
Inc., 524 U.S. 214, 227-28 (1998)).
The Tenth Circuit has held that the FAA “limits state-law grounds for refusing to enforce
an arbitration clause.” Walker v. BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir.
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2013). “In particular, states ‘may not . . . decide that a contract is fair enough to enforce all its
basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.’” Walker
v. BuildDirect.com Techs., Inc., 733 F.3d at 1005 (quoting Allied-Bruce Terminix Cos., Inc. v.
Dobson, 513 U.S. at 281). See Parrish v. Valero Retail Holdings, Inc., 727 F. Supp. 2d 1266, 1279
(“[T]he Court believes that such hostility to arbitration in employment contracts may begin to
infringe the FAA’s intent to protect against judicial hostility towards arbitration.”). The Court
therefore must ensure that state courts are not using contract defenses such as unconscionability to
destroy the FAA. See Jerry Erwin Assocs., Inc. v. Estate of Asher by & through Zangara, 290
F. Supp. 3d at 1244. See also Wallace Mendelson, The Judge’s Art, 109 U. Pa. L. Rev. 524, 533
(1961)(“Even Plato recognized that a philosopher king would be unacceptable unless he could hide
his naked power by a ‘noble fiction.’ It follows, of course, that platonists on the bench do not
avow, but only practice, activism.”).
LAW REGARDING CERTIFICATION TO
THE SUPREME COURT OF NEW MEXICO
N.M.R.A.-Civ. Rule 12-607 provides:
A. Power to answer.
(1) The Supreme Court may answer by formal written opinion questions of law
certified to it by a court of the United States, an appellate court of another state, a
tribe, Canada, a Canadian province or territory, Mexico or a Mexican state if the
answer may be determinative of an issue in pending litigation in the certifying court
and the question is one for which answer is not provided by a controlling:
(a) appellate opinion of the New Mexico Supreme Court or the New Mexico
Court of Appeals; or
(b) constitutional provision or statute of this state.
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N.M.R.A.-Civ. § 12-607(A)(1). See, e.g., Walker v. United States, 2007-NMSC-038, ¶ 1, 162
P.3d 882 (answering questions that the United States Court of Federal Claims certified); Campos
v. Murray, 2006-NMSC-020, ¶ 2, 134 P.3d 741 (answering questions that the Honorable Bruce D.
Black, United States District Judge for the District of New Mexico, certified). Federal courts have
the option of determining what a state court would do if confronted with the same issue, see Erie
R.R. v. Tompkins, 304 U.S. 64, 78 (1938), or of certifying the question to the state appellate court
for review, see Allstate v. Stone, 1993-NMSC-066, ¶ 1, 863 P.2d 1085, 1086 (“This matter comes
before us by way of certification from the United States District Court for the District of New
Mexico . . . .”). See Lehman Bros. v. Schein, 416 U.S. 386, 390-91 (1974)(stating that the decision
to certify a question to the state supreme court “rests in the sound discretion of the federal court”).
Pursuant to N.M. Stat. Ann. § 39-7-4, the Supreme Court of New Mexico may answer questions
that the federal district court certifies to it if they involve propositions of New Mexico law that
may be determinative of the matter before the certifying court and there are no controlling
precedents from the New Mexico appellate court. See Swink v. Fingado, 1993-NMSC-013, ¶ 1
n.1, 850 P.2d 978, 979 n.1; Schlieter v. Carlos, 1989-NMSC-037, ¶ 2, 775 P.2d 709, 710.
The Supreme Court of New Mexico may answer questions that the federal district court
certifies to it only “‘if the answer may be determinative of an issue in pending litigation in the
certifying court and there is no controlling appellate decision, constitutional provision or statute of
this state.’” Arnold v. Farmers Ins. of Ariz., 827 F. Supp. 2d 1289, 1294 (D.N.M. 2011)(Browning,
J.)(quoting N.M. Stat. Ann. § 39-7-4). See N.M.R.A.-Civ. 12-607(A). In explaining when it will
accept certification from a federal court, the Supreme Court of New Mexico has noted:
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To date, we by and large have limited our acceptance of certifications prior to
judgment to those cases in which there is no dispute over the factual predicates to
the Court’s determination of the questions certified, and our answer either disposes
of the entire case or controversy, or disposes of a pivotal issue that defines the future
course of the case.
Schlieter v. Carlos, 1989-NMSC-037, ¶ 5, 775 P.2d 709, 710-11 (citations omitted).
The
Honorable Barbara Smith Evans, United States Magistrate Judge for the District of New Mexico
has stated that litigation is not pending under this statute when the district court “has already ruled
upon the issue for which [the party] seek[s] certification.” Hartford Ins. of the Midwest v. Cline,
367 F. Supp. 2d 1342, 1344 (D.N.M. 2005)(Smith, M.J.).
In Stoner v. New York Life Insurance Co., 311 U.S. 464 (1940), the Supreme Court of the
United States explained that, “in cases where jurisdiction rests on diversity of citizenship, federal
courts, under the doctrine of Erie Railroad Co. v. Tompkins . . . must follow the decisions of
intermediate state courts in the absence of convincing evidence that the highest court of the state
would decide differently.” 311 U.S. at 467. “In particular, this is true where the intermediate state
court has determined the precise question in issue in an earlier suit between the same parties, and
the highest court of the state has refused review.” Stoner v. N.Y. Life Ins., 311 U.S. at 467.
See Adams-Arapahoe Joint Sch. Dist. No. 28-J v. Cont’l Ins., 891 F.2d 772, 774 (10th Cir.
1989)(“With respect to issues which the Colorado Supreme Court has not addressed, we may
consider all available resources, including Colorado appellate court decisions, other state and
federal decisions, and the general trend of authority, to determine how the Colorado Supreme
Court would construe the law in this case.”). As the Tenth Circuit explained in Wade v. Emcasco
Ins., 483 F.3d 657 (10th Cir. 2007):
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In cases arising under diversity jurisdiction, the federal court’s task is not to reach
its own judgment regarding the substance of the common law, but simply to
ascertain and apply the state law. The federal court must follow the most recent
decisions of the state’s highest court. Where no controlling state decision exists,
the federal court must attempt to predict what the state’s highest court would do.
In doing so, it may seek guidance from decisions rendered by lower courts in the
relevant state, appellate decisions in other states with similar legal principles,
district court decisions interpreting the law of the state in question, and the general
weight and trend of authority in the relevant area of law. Ultimately, however, the
Court’s task is to predict what the state supreme court would do. Our review of the
district court's interpretation of state law is de novo.
483 F.3d at 665-66 (citations and internal quotation marks omitted).
The Tenth Circuit “generally will not certify questions to a state supreme court when the
requesting party seeks certification only after having received an adverse decision from the district
court.” Massengale v. Okla. Bd. of Exam’rs in Optometry, 30 F.3d 1325, 1331 (10th Cir. 1994).
See Armijo v. Ex Cam, Inc., 843 F.2d 406, 407 (10th Cir.1988)(noting that “[c]ertification is not
to be routinely invoked whenever a federal court is presented with an unsettled question of state
law,” and that “the plaintiff did not request certification until after the district court made a decision
unfavorable to her”); Boyd Rosene & Assoc., Inc. v. Kan. Mun. Gas Agency, 178 F.3d 1363, 1364
(10th Cir. 1999)(“Late requests for certification are rarely granted by this court and are generally
disapproved, particularly when the district court has already ruled.”); Harvey E. Yates Co. v.
Powell, 98 F.3d 1222, 1229 n.6 (10th Cir. 1996)(denying request for certification in removed case
where the moving party had not moved for certification in the district court and had received an
adverse ruling).
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LAW REGARDING MOTIONS TO RECONSIDER
Except where the Federal Rules of Civil Procedure specify, motions to reconsider fall into
three categories:
(i) a motion to reconsider filed within [twenty-eight] days of the entry of judgment
is treated as a motion to alter or amend the judgment under rule 59(e); (ii) a motion
to reconsider filed more than [twenty-eight] days after judgment is considered a
motion for relief from judgment under rule 60(b); and (iii) a motion to reconsider
any order that is not final is a general motion directed at the Court's inherent power
to reopen any interlocutory matter in its discretion. See Price v. Philpot, 420 F.3d
1158, 1167 & n.9 (10th Cir. 2005).
Pedroza v. Lomas Auto Mall, Inc., 258 F.R.D. 453, 462 (D.N.M. 2009)(Browning, J.). See Price
v. Philpot, 420 F.3d at 1167; Computerized Thermal Imaging, Inc. v. Bloomberg. L.P., 312 F.3d
1292, 1296 (10th Cir. 2002).
1.
Motions for Reconsideration Under Rules 59(e) and 60(b).
Courts may treat motions for reconsideration as a rule 59(e) motion when the movant files
within twenty-eight days of a court’s entry of judgment. See Price v. Philpot, 420 F.3d at 1167
n.9. If the movant files outside that time period, courts should treat the motion as seeking relief
from judgment under rule 60(b). See Price v. Philpot, 420 F.3d at 1167 n.9. “[A] motion for
reconsideration of the district court’s judgment, filed within [rule 59’s filing deadline], postpones
the notice of appeal’s effect until the motion is resolved.” Jones v. United States, 355 F. App’x
117, 121 (10th Cir. 2009)(unpublished). The time limit in rule 59(e) is now twenty-eight days
from the entry of a judgment. See Fed. R. Civ. P. 59(e).
Whether a motion for reconsideration should be considered a motion under rule 59 or rule
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60 of the Federal Rules of Civil Procedure is not only a question of timing, but also “depends on
the reasons expressed by the movant.” Commonwealth Prop. Advocates, LLC v. Mortg. Elec.
Registration Sys., Inc., 680 F.3d 1194, 1200 (10th Cir. 2011). Where the motion “involves
‘reconsideration of matters properly encompassed in a decision on the merits,’” a court considers
the motion under rule 59(e). Phelps v. Hamilton, 122 F.3d 1309, 1323-24 (10th Cir. 1997)(quoting
Martinez v. Sullivan, 874 F.2d 751, 753 (10th Cir. 1989)). In other words, if the reconsideration
motion seeks to alter the district court’s substantive ruling, then it should be considered a rule 59
motion and be subject to rule 59’s constraints. Phelps v. Hamilton, 122 F.3d at 1324. In contrast,
under rule 60,
[o]n motion and just terms, the court may relieve a party or its legal representatives
from a final judgment, order, or proceeding for the following reasons:
(1)
mistake, inadvertence, surprise, or excusable neglect;
(2)
newly discovered evidence that, with reasonable diligence, could
not have been discovered in time to move for a new trial under Rule
59(b);
(3)
fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party;
(4)
the judgment is void;
(5)
the judgment has been satisfied, released or discharged; it is based
on an earlier judgment that has been reversed or vacated; or applying
it prospectively is no longer equitable; or
(6)
any other reason that justifies relief.
Fed. R. Civ. P. 60(b). Neither a rule 59 nor a rule 60 motion for reconsideration
- 57 -
are appropriate vehicles to reargue an issue previously addressed by the court when
the motion merely advances new arguments, or supporting facts which were
available at the time of the original motion. . . . Grounds warranting a motion to
reconsider include (1) an intervening change in the controlling law, (2) new
evidence previously unavailable, and (3) the need to correct clear error or prevent
manifest injustice.
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000). “[A] motion for
reconsideration is appropriate where the court has misapprehended the facts, a party’s position, or
the controlling law.” Servants of the Paraclete v. Does, 204 F.3d at 1012. A district court has
considerable discretion in ruling on a motion to reconsider. See Phelps v. Hamilton, 122 F.3d at
1324.
Rule 60 authorizes a district court to, “[o]n motion and just terms[,] . . . relieve a party or
its legal representative from a final judgment, order, or proceeding for the following reasons,”
including “any other reason that justifies relief.” Fed. R. Civ. P. 60(b). A court cannot enlarge the
time for filing a rule 59(e) motion. See Brock v. Citizens Bank of Clovis, 841 F.2d 344, 347 (10th
Cir. 1988)(holding that district courts lack jurisdiction over untimely rule 59(e) motions); Plant
Oil Powered Diesel Fuel Sys., Inc. v. ExxonMobil Corp., No. CIV 11-0103 JB/WPL, 2012 WL
869000, at *2 (D.N.M. March 8, 2012)(Browning, J.)(“The Court may not extend the time period
for timely filing motions under Rule 59(e) . . . .”). “A motion under rule 59 that is filed more than
28 days after entry of judgment may be treated as a Rule 60(b) motion for relief from judgment.”
12 James Wm. Moore et al., Moore’s Federal Practice § 59.11[4][b], at 59-32 (3d ed.
2012)(citations omitted). Nevertheless, a court will not generally treat an untimely rule 59(e)
motion as a rule 60(b) motion when the party is seeking “‘reconsideration of matters properly
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encompassed in a decision on the merits’ contemplated by Rule 59(e).” Jennings v. Rivers, 394
F.3d 850, 854 (10th Cir. 2005)(quoting Osterneck v. Ernst & Whinney, 489 U.S. 169, 174 (1989)).
Under some circumstances, parties can rely on rule 60(b)(1) for a mistake by their attorney
or when their attorney acted without their authority. See Yapp v. Excel Corp., 186 F.3d 1222,
1231 (10th Cir. 1999)(“Rule 60(b)(1) motions premised upon mistake are intended to provide
relief to a party . . . when the party has made an excusable litigation mistake or an attorney has
acted without authority . . . .”). Mistake in this context entails either acting without the client’s
consent or making a litigation mistake, such as failing to file or to comply with deadlines.
See Yapp v. Excel Corp., 186 F.3d at 1231. If the alleged incident entails a mistake, then it must
be excusable, meaning that the party was not at fault. See Pioneer Inv. Servs. v. Brunswick Assocs.
LP, 507 U.S. 380, 394 (1993); Cashner v. Freedom Stores, Inc., 98 F.3d 572, 577 (10th Cir.
1996)(“If the mistake alleged is a party’s litigation mistake, we have declined to grant relief under
Rule 60(b)(1) when the mistake was the result of a deliberate and counseled decision by the
party.”); Pelican Prod. Corp. v. Marino, 893 F.2d 1143, 1146 (10th Cir. 1990)(holding that attorney
carelessness is not a basis for relief under Rule 60(b)(1)).
Courts will not grant relief when the mistake of which the movant complains is the result
of an attorney’s deliberate litigation tactics. See Cashner v. Freedom Stores, Inc., 98 F.3d at 577.
This rule exists because a party
voluntarily chose [the] attorney as his representative in the action, and he cannot
now avoid the consequences of the acts or omissions of this freely selected agent.
Any other notion would be wholly inconsistent with our system of representative
litigation, in which each party is deemed bound by the acts of his lawyer agent and
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is considered to have notice of all facts, notice of which can be charged upon the
attorney.
Pioneer Inv. Servs. v. Brunswick Assocs. LP, 507 U.S. at 397 (internal quotation marks
omitted)(quoting Link v. Wabash R.R., 370 U.S. 626, 633-34 (1962)). The Tenth Circuit has held
that there is nothing “novel” about “the harshness of penalizing [a client] for his attorney’s
conduct,” and has noted that those “who act through agents are customarily bound,” even though,
when “an attorney is poorly prepared to cross-examine an expert witness, the client suffers the
consequences.” Gripe v. City of Enid, Okla., 312 F.3d 1184, 1189 (10th Cir. 2002).
Rule 60(b)(6) is a “grand reservoir of equitable power to do justice in a particular case.”
Van Skiver v. United States, 952 F.2d 1241, 1244 (10th Cir. 1991)(internal quotation marks
omitted)(quoting Pierce v. Cook & Co., 518 F.2d 720, 722 (10th Cir. 1975)(en banc)). “If the
reasons offered for relief from judgment could be considered under one of the more specific
clauses of Rule 60(b)(1)-(5), those reasons will not justify relief under Rule 60(b)(6).” Moore,
supra § 60.48[2], at 60-182. Accord Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847,
863 n.11 (1988)(“This logic, of course, extends beyond clause (1) and suggests that clause (6) and
clauses (1) through (5) are mutually exclusive.”). “The Rule does not particularize the factors that
justify relief, but we have previously noted that it provides courts with authority ‘adequate to
enable them to vacate judgments whenever such action is appropriate to accomplish justice,’ while
also cautioning that it should only be applied in ‘extraordinary circumstances.’” Liljeberg v.
Health Servs. Acquisition Corp., 486 U.S. at 863.
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Generally, the situation must be one beyond the control of the party requesting relief under
rule 60(b)(6) to warrant relief. See Ackermann v. United States, 340 U.S. 193, 202 (1950)(“The
comparison [of prior precedent] strikingly points up the difference between no choice and choice;
imprisonment and freedom of action; no trial and trial; no counsel and counsel; no chance for
negligence and inexcusable negligence. Subsection 6 of Rule 60(b) has no application to the
situation of petitioner.”). Legal error that provides a basis for relief under rule 60(b)(6) must be
extraordinary, as the Tenth Circuit discussed in Van Skiver v. United States:
The kind of legal error that provides the extraordinary circumstances justifying
relief under Rule 60(b)(6) is illustrated by Pierce [v. Cook & Co., 518 F.2d 720,
722 (10th Cir. 1975)(en banc)]. In that case, this court granted relief under 60(b)(6)
when there had been a post-judgment change in the law “arising out of the same
accident as that in which the plaintiffs . . . were injured.” Pierce v. Cook & Co.,
518 F.2d at 723. However, when the post-judgment change in the law did not arise
in a related case, we have held that “[a] change in the law or in the judicial view of
an established rule of law” does not justify relief under Rule 60(b)(6). Collins v.
City of Wichita, 254 F.2d 837, 839 (10th Cir. 1958).
952 F.2d at 1244-45.
2.
Motions to Reconsider Interlocutory Orders.
Considerable confusion exists among the bar regarding the proper standard for a district
court to apply when ruling on a motion to reconsider one of its prior “interlocutory” or “interim”
orders, i.e., an order that a district court issues while the case is ongoing, as distinguished from a
final judgment. This confusion originates from the fact that the Federal Rules of Civil Procedure
do not mention motions to reconsider, let alone set forth a specific procedure for filing them or a
standard for analyzing them. A loose conflation in terminology in Servants of the Paraclete v.
Does, which refers to rule 59(e) motions -- “motion[s] to alter or amend a judgment” -- as “motions
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to reconsider,”16 compounded that baseline confusion. Fed. R. Civ. P. 59(e) (emphasis added);
Servants of the Paraclete v. Does, 204 F.3d at 1005.
Final judgments are different from interlocutory orders.
See Fed. R. Civ. P. 54(a)
(“‘Judgment’ as used in these rules includes a decree and any order from which an appeal lies.”
(emphasis added)). In addition to ripening the case for appeal, see 28 U.S.C. § 1291 (“The courts
of appeals . . . shall have jurisdiction of appeals from all final decisions of the district courts . . . .”),
the entry of final judgment narrows the district court’s formerly plenary jurisdiction over the case
in three ways. First, for the first twenty-eight days after the entry of judgment, when the court can
entertain motions under rules 50(b), 52(b), 59, and 60, the district court’s jurisdiction trumps that
of the Court of Appeals. See Fed. R. App. P. 4(a)(4)(B). Even if a party files a notice of appeal,
16
The Honorable Paul J. Kelly, Jr., Senior United States Circuit Judge for the Tenth Circuit,
who authored Servants of the Paraclete v. Does, refers to rule 59(e) motions as “motions to
reconsider” several times throughout the opinion. See, e.g., 204 F.3d at 1005. He uses the term
“motion to reconsider” as an umbrella term that can encompass three distinct motions: (i) motions
to reconsider an interlocutory order, which no set standard governs, save that the district court
must decide them “before the entry of . . . judgment,” Fed. R. Civ. P. 54(b); (ii) motions to
reconsider a judgment made within twenty-eight days of the entry of judgment, which the Servants
of the Paraclete v. Does standard governs; and (iii) motions to reconsider a judgment made more
than twenty-eight days after the entry of judgment, which rule 60(b) governs. There is arguably a
fourth standard for motions to reconsider filed more than a year after the entry of judgment, as
three of the rule 60(b) grounds for relief expire at that point. Much confusion could be avoided by
using the term “motion to reconsider” exclusively to refer to the first category, “motion to amend
or alter the judgment” exclusively to refer to the second category, and “motion for relief from
judgment” exclusively to refer to the third category (and arguable fourth category). These are the
terms that the Federal Rules of Civil Procedure -- and other Circuits -- use to describe (ii) and (iii).
The Court agrees with Judge Kelly -- and all he likely meant by using motion to reconsider as an
umbrella term is -- that, if a party submits a motion captioned as a “motion to reconsider” after an
entry of final judgment, the court should evaluate it under rule 59(e) or 60(b), as appropriate, rather
than rejecting it as untimely or inappropriate.
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the Court of Appeals will wait until after the district court has ruled on the post-judgment motion
to touch the case. See Fed. R. App. P. 4(a)(4)(B). Second, after twenty-eight days, when the court
may consider motions under rule 60, if a party has filed a notice of appeal, the Court of Appeals’
jurisdiction trumps the district court’s, and the district court needs the Court of Appeals’
permission even to grant a rule 60 motion. Third, after twenty-eight days, if no party has filed a
notice of appeal, district courts may consider motions under rule 60.
Final judgments implicate two important concerns militating against giving district courts
free reign to reconsider their judgments. First, when a case is not appealed, there is an interest in
finality. The parties and the lawyers expect to go home, quit obsessing about the dispute, and put
the case behind them, and the final judgment -- especially once the twenty-eight-day window of
robust district court review and the thirty-day window of appeal have both closed -- is the
disposition upon which they are entitled to rely. Second, when a case is appealed, there is the need
for a clean jurisdictional handoff from the district court to the Court of Appeals. “[A] federal
district court and a federal court of appeals should not attempt to assert jurisdiction over a case
simultaneously,” as doing so produces a “danger [that] a district court and a court of appeals w[ill]
be simultaneously analyzing the same judgment.” Griggs v. Provident Consumer Discount Co.,
459 U.S. 56, 58-59 (1982).
The Court of Appeals needs a fixed record on which to base its decisions -- especially given
the collaborative nature of appellate decision-making -- and working with a fixed record requires
getting some elbow room from the district court’s continued interference with the case. The
“touchstone document” for this jurisdictional handoff is the notice of appeal, not the final
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judgment, see Griggs v. Provident Consumer Discount Co., 459 U.S. at 58 (“The filing of a notice
of appeal is an event of jurisdictional significance -- it confers jurisdiction on the court of appeals
and divests the district court of its control over those aspects of the case involved in the appeal.”
(citations omitted)); Garcia v. Burlington N. R.R., 818 F.2d 713, 721 (10th Cir. 1987)(“Filing a
timely notice of appeal pursuant to Fed. R. App. P. 3 transfers the matter from the district court to
the court of appeals. The district court is thus divested of jurisdiction. Any subsequent action by
it is null and void.” (citations omitted)); Kirtland v. J. Ray McDermott & Co., 568 F.2d 1166,
1170 (5th Cir. 1978)(“[I]t is the filing of the appeal, not the entering of a final judgment, that
divests the district court of jurisdiction.” (citations omitted)), but, because the final judgment starts
the parties’ thirty-day clock for filing a timely notice of appeal, the Federal Rules and the Tenth
Circuit have chosen to curtail the district court’s jurisdiction over the case in the roughly monthlong period of potentially overlapping trial- and appellate-court jurisdiction that immediately
follows the entry of final judgment, see Servants of the Paraclete v. Does, 204 F.3d at 1009 (noting
that post-final judgment motions at the district court level are “not intended to be a substitute for
direct appeal”).
Basically, rather than suddenly divesting the district court of all jurisdiction over the case
-- potentially resulting in the district court being unable to rectify easily fixable problems with the
final judgment before the case goes to the Tenth Circuit, or even requiring appeal of a case that
might otherwise not need to be appealed -- the Federal Rules set forth a jurisdiction phased deescalation process, wherein the district court goes from pre-final judgment plenary jurisdiction, to
limited review for the first twenty-eight days post-final judgment, and, finally, to solely rule 60
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review after twenty-eight days. In defining the “limited review” that rule 59(e) allows a district
court to conduct in the 28-day flux period, the Tenth Circuit, in Servants of the Paraclete v. Does,
incorporated traditional law-of-the-case grounds -- the same grounds that inform whether a court
should depart from an appellate court’s prior decision in the same case -- into rule 59(e).
See United States v. Alvarez, 142 F.3d 1243, 1247 (10th Cir. 1998)(departing from the law-ofthe-case doctrine in three exceptionally narrow circumstances: “(1) when the evidence in a
subsequent trial is substantially different; (2) when controlling authority has subsequently made a
contrary decision of the law applicable to such issues; or (3) when the decision was clearly
erroneous and would work a manifest injustice” (citation omitted)); Servants of the Paraclete v.
Does, 204 F.3d at 1012 (incorporating those grounds into rule 59(e)).
Neither of these concerns -- finality nor jurisdictional overlap -- is implicated when a
district court reconsiders one of its own interlocutory orders. The Federal Rules do not specifically
mention motions to reconsider interlocutory orders, but rule 54(b) makes the following open-ended
proclamation about their mutability:
When an action presents more than one claim for relief -- whether as a
claim, counterclaim, crossclaim, or third-party claim -- or when multiple parties are
involved, the court may direct entry of a final judgment as to one or more, but fewer
than all, claims or parties only if the court expressly determines that there is no just
reason for delay. Otherwise, any order or other decision, however designated, that
adjudicates fewer than all the claims or the rights and liabilities of fewer than all
the parties does not end the action as to any of the claims or parties and may be
revised at any time before the entry of a judgment adjudicating all the claims and
all the parties’ rights and liabilities.
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Fed. R. Civ. P. 54(b) (emphases added). Rule 54(b) thus (i) provides that a district court can freely
reconsider its prior rulings; and (ii) puts no limit or governing standard on the district court’s ability
to do so, other than that it must do so “before the entry of judgment.” Fed. R. Civ. P. 54(b).
The Tenth Circuit has not cabined district courts’ discretion beyond what rule 54(b)
provides: “[D]istrict courts generally remain free to reconsider their earlier interlocutory orders.”
Been v. O.K. Indus., 495 F.3d at 1225. In the Tenth Circuit, “law of the case doctrine has no
bearing on the revisiting of interlocutory orders, even when a case has been reassigned from one
judge to another.” Rimbert v. Eli Lilly & Co., 647 F.3d 1247, 1252 (10th Cir. 2011)(emphasis
added)(citing Been v. O.K. Indus., Inc., 495 F.3d at 1225). In this context, “the doctrine is merely
a ‘presumption, one whose strength varies with the circumstances.’” Been v. O.K. Indus., Inc.,
495 F.3d at 1225 (quoting Avitia v. Metro. Club of Chi., Inc., 49 F.3d 1219, 1227 (7th Cir. 1995)).
In short, a district court can use whatever standard it wants to review a motion to reconsider an
interlocutory order. It can review the earlier ruling de novo and essentially reanalyze the earlier
motion from scratch, it can review the ruling de novo but limit its review, it can require parties to
establish one of the law-of-the-case grounds, or it can refuse to entertain motions to reconsider
altogether.
The best approach, in the Court’s eyes, is to analyze motions to reconsider differently
depending on three factors. Cf. Been v. O.K. Indus., Inc., 495 F.3d at 1225 (“[T]he doctrine is
merely a ‘presumption, one whose strength varies with the circumstances.’” (citation omitted)).
First, the Court should restrict its review of a motion to reconsider a prior ruling in proportion to
how thoroughly the earlier ruling addressed the specific findings or conclusions that the motion to
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reconsider challenges. How “thoroughly” a point was addressed depends both on the amount of
time and energy the Court spent on it, and on the amount of time and energy the parties spent on
it -- in briefing and orally arguing the issue, but especially if they developed evidence on the issue.
A movant for reconsideration thus faces a steeper uphill challenge when the prior ruling was on a
criminal suppression motion, class certification motion, or preliminary injunction,17 than when the
prior ruling is, e.g., a short discovery ruling. The Court should also look, not to the overall
thoroughness of the prior ruling, but to the thoroughness with which the Court addressed the exact
point or points that the motion to reconsider challenges. A movant for reconsideration thus faces
an easier task when he or she files a targeted, narrow-in-scope motion asking the Court to
reconsider a small, discrete portion of its prior ruling than when he or she files a broad motion to
17
The Court typically makes findings of fact and conclusions of law in ruling on these
motions. At first glance, it appears that the Federal Rules of Civil Procedure set forth additional
standards -- beyond that which applies to other interlocutory orders -- for amending findings of
fact and conclusions of law:
Amended or Additional Findings. On a party’s motion filed no later than 28 days
after the entry of judgment, the court may amend its findings -- or make additional
findings -- and may amend the judgment accordingly. The motion may accompany
a motion for a new trial under Rule 59.
Fed. R. Civ. P. 52(b). This rule appears to limit motions to reconsider orders with findings of fact
and conclusions of law to twenty-eight days. The rule’s use of the term “entry of judgment,” its
reference to rule 59, and its adoption of the same time period that applies to motions to alter or
amend a judgment, all lead the Court to conclude, however, that rule 52(b) -- and its twenty-eightday time limit -- does not apply to interlocutory orders. The time limit applies only to findings of
fact and conclusions of law supporting a case-ending judgment -- such as those entered after a
bench trial -- and to those giving rise to an interlocutory appeal that, if filed, divests the district
court of its jurisdiction -- such as those entered in support of a preliminary injunction.
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reconsider that rehashes the same arguments from the first motion, and essentially asks the Court
to grant the movant a mulligan on its earlier failure to present persuasive argument and evidence.
Second, the Court should consider the case’s overall progress and posture, the motion for
reconsideration’s timeliness relative to the ruling it challenges, and any direct evidence the parties
may produce, and use those factors to assess the degree of reasonable reliance the opposing party
has placed in the Court’s prior ruling. See 18B Charles Alan Wright, et al, Federal Practice &
Procedure § 4478.1 (2d ed.)(“Stability becomes increasingly important as the proceeding nears
final disposition . . . . Reopening should be permitted, however, only on terms that protect against
reliance on the earlier ruling.”). For example, if a defendant (i) spends tens of thousands of dollars
removing legacy computer hardware from long-term storage; then (ii) obtains a protective order
in which the Court decides that the defendant need not produce the hardware in discovery; then
(iii) returns the hardware to long-term storage, sustaining thousands more in expenses; and
(iv) several months pass, then the plaintiffs should face a higher burden in moving the Court to
reconsider its prior ruling that they faced in fighting the motion for protective order the first time.
Third, the Court should consider the Servants of the Paraclete v. Does grounds. The Court
should be more inclined to grant motions for reconsideration if the movant presents (i) new
controlling authority -- especially if the new authority overrules prior law or sets forth an entirely
new analytical framework; (ii) new evidence -- especially if the movant has a good reason why
the evidence was not presented the first time around; or (iii) a clear indication -- one that manifests
itself without the need for in-depth analysis or review of the facts -- that the Court erred.
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These three factors should influence the degree to which the Court restricts its review of a
prior ruling, but they do not necessarily mean that the Court should always apply a deferential
standard of review. The Court should pause before applying a standard of review to its own
interlocutory orders that is more deferential than the standard that the Court of Appeals will apply
to it, unless the Court concludes that the alleged error in the prior ruling was harmless, or the party
moving for reconsideration waived their right to appeal the alleged error by not raising the
appropriate argument. Even in circumstances where the Court concludes that it is insulated from
reversal on appeal, there are principled reasons for applying a de novo standard. After all, if the
Court was wrong in its earlier decision, then, generally speaking, it is unjust to maintain that result
-- although the Court should weigh this injustice against any injustice that would result from
upending the parties’ reliance on the earlier ruling, which is the balancing test that the three factors
above represent.
What the Court means by “restricting its review” is less about applying a deferential
standard of review -- although that may be appropriate in some circumstances -- and more about
reducing (i) the depth of the Court’s analysis the second time around -- thus conserving judicial
resources; and (ii) the impositions that relitigation of the prior ruling will impose on the party
opposing the motion for reconsideration. The Court should consider the time and expense that the
party opposing reconsideration spent in winning the earlier ruling, and should try to prevent that
party from having to bear the same impositions again. Basically, even if the Court ultimately
analyzes a motion to reconsider under the same standard that it analyzed the motion that produces
the earlier ruling, it should analyze the motion in a different way -- one focused on reducing the
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litigation burdens of the party opposing reconsideration. For example, when a party moves the
Court for a preliminary injunction, standard practice is that the Court holds an evidentiary hearing
as a matter of course, regardless whether it looks as if the party has a good chance of prevailing.
If the party loses and the Court denies the injunction, however, and the party moves for
reconsideration, the party should not be entitled to the presumption of an evidentiary hearing
merely because he or she received that presumption the first time the Court considered the motion.
In light of these statements, it is perhaps better to characterize the increased burden that a
movant for reconsideration faces as one of production, and not of persuasion. The Court analyzes
motions to reconsider by picking up where it left off in the prior ruling -- not by starting anew.
Parties opposing reconsideration can do the same, and they may stand on whatever evidence and
argument they used to win the earlier ruling. Movants for reconsideration, on the other hand, carry
the full burden of production: they must persuade the Court, using only the evidence and argument
they put before it, that it should change its prior ruling; they must do all of the legwork, and not
rely on the Court to do any supplemental fact-finding or legal research; and they must convincingly
refute both the counterarguments and evidence that the opposing party used to win the prior ruling
and any new arguments and evidence that the opposing party produces while opposing the motion
to reconsider. Unlike the motion that produced the prior ruling, a motion to reconsider is not -and is not supposed to be -- a fair fight procedurally. The deck is stacked against a movant for
reconsideration, and if such a movant hopes to prevail, he or she must have not only a winning
legal position, but the work ethic and tenacity to single-handedly lead the Court to his or her way
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of thinking. See N.M. v. Valley Meat Co., LLC, No. CIV 14-1100, JB/KBM, 2015 WL 9703255,
*12-16 (D.N.M. Dec. 14, 2015)(Browning, J.).
ANALYSIS
The Court will deny Patterson’s Reconsideration Motion. The Court concludes that the
Court’s decision in the MOO to sever the unilateral carve-out provision from the parties’
Arbitration Agreement did not constitute manifest legal error. Patterson has not, therefore,
provided the Court with sufficient basis warranting it to reconsider its MOO under rule 54(b) of
the Federal Rules of Civil Procedure. The Court will deny Patterson’s Reconsideration Motion.
I.
THE PARTIES ASK THE COURT TO RECONSIDER ONLY ITS
DETERMINATION THAT THE UNILATERAL RELIEF PROVISION MAY BE
SEVERED FROM THE ARBITRATION AGREEMENT.
Patterson asserts that the Court correctly determined that the injunctive relief provision was
a unilateral carve-out provision benefitting exclusively the stronger party, Nine Energy, and
therefore substantively unconscionable and unenforceable under New Mexico law.
See Reconsideration Motion at 1. Nor does Patterson contest the Court’s determination that the
sixty-day provision is not unconscionable and, if it is, that the sixty-day provision is severable.
See MOO at 2, 330 F. Supp. 3d, at 1287. Patterson asks the Court to reconsider its MOO only to
the extent that the MOO determines that the injunctive relief provision is severable.
See Reconsideration Motion at 2.
Accordingly, the Court reaffirms its holdings as to the
jurisdictional questions, the determination of the unilateral relief provision’s unconscionability,
the determination that the sixty-day provision is not unconscionable, and the determination that
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the sixty-day provision is severable. See MOO at 2, 330 F. Supp. 3d, at 1287. The Court will
reconsider only its conclusion that the unilateral relief provision is severable.
II.
THE COURT JUSTIFIABLY AND NON-EXCLUSIVELY RELIED ON PADILLA
IN DETERMINING THE SEVERABILITY OF THE UNILATERAL RELIEF
PROVISION.
Patterson contends that the Court should have followed Cordova and Rivera in determining
the unilateral relief provision’s severability from the Arbitration Agreement and contends that,
based on Cordova, the Court’s reliance on Padilla constitutes manifest legal error.
See Reconsideration Motion at 1-2. Patterson argues that, because Padilla dealt with a postarbitration appeal provision, the Court should not have relied on Padilla in making the severability
determination. See Reconsideration Motion at 4. Nine Energy responds that the Supreme Court
of New Mexico has never overruled Padilla and that the Supreme Court of New Mexico in Cordova
cited favorably to Padilla for its recognition that severance is one possible remedial action a court
may take to rectify unconscionability in arbitration agreements. See Response at 1-2.
Contrary to Patterson’s implication, the Court did not rely on Padilla, “rather than Rivera
or Cordova,” to determine that the unilateral relief provision is severable from the Arbitration
Agreement. Reconsideration Motion at 4. In the section of the Court’s MOO analyzing the
unilateral relief provision’s severability, the Court cited to -- in order of their citation in the MOO
-- Cordova, Dalton v. Santander Consumer USA, Inc., Padilla, Rivera, and State ex rel. State Hwy.
Transp. Dep’t v. Garley. See MOO at 41-42 & 42 nn.10 & 11, 330 F. Supp. 3d, at 1312 & nn. 10
& 11. Although the Court objects to Patterson’s characterization of the Court’s analysis as relying
on Padilla in lieu of considering Cordova and Rivera as inaccurate, the Court also notes that
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Padilla, as Nine Energy correctly asserts, has never been overruled and remains Supreme Court of
New Mexico precedent. See Response at 1-2. Patterson asserts that the Supreme Court of New
Mexico in Cordova distinguishes Padilla “to hold it improper to sever the unilateral carve out from
the agreement.” Reconsideration Motion at 2. In factually distinguishing Padilla, however, the
Supreme Court of New Mexico in Cordova did not overrule it. Rather, the Supreme Court of New
Mexico reiterated the guidance it provided courts in Padilla:
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.
Cordova, 2009-NMSC-021, ¶ 39, 208 P.3d at 266 (quoting Padilla, 2003-NMSC-011 ¶ 15, 68 P.3d
at 908). Patterson suggests that Padilla’s analysis is inapposite here, because Padilla considered a
post-arbitration appeal provision, whereas the provision at issue in the MOO involved the
arbitration scheme itself. See Reconsideration Motion at 6. Although the Supreme Court of New
Mexico recognized in Cordova that Padilla dealt with a post-arbitration appeal provision, the
Supreme Court of New Mexico did not conclude that, unlike all other provisions, only postarbitration appeal provisions are severable. See Cordova, 2009-NMSC-021 ¶ 40, 208 P.3d at 911
(“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.”). Instead, the Supreme
Court of New Mexico sought 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.”
Reconsideration Motion at 6 (quoting Cordova, 2009-NMSC-021, ¶ 40, 208 P.3d at 911).
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III.
THE COURT REAFFIRMS ITS DETERMINATION IN THE MOO THAT THE
UNILATERAL RELIEF PROVISION IS SEVERABLE BECAUSE IT IS NOT
CENTRAL TO THE ARBITRATION SCHEME.
Patterson acknowledges the centrality test from Cordova multiple times throughout his
Motion. See Reconsideration Motion at 2-3, 5-7. The Court concludes, however, that Patterson
misunderstands or misconstrues the centrality test to suggest that any provision exempting any
claim from arbitration is central to the arbitration scheme. Patterson asserts that “the exemptions
of certain claims from arbitration are so central to the agreement that they are incapable of
separation from the agreement to arbitrate, irrespective of any savings clause included in the
agreement.” Reconsideration Motion at 3 (quoting Figueroa v. THI of N.M. at Casa Arena Blanca,
LLC, 2013-NMCA-077, ¶ 39, 306 P.3d at 494). Patterson mischaracterizes Figueroa v. THI of
New Mexico at Casa Arena Blanca, LLC to suggest that any provision exempting a claim from
arbitration is central to the arbitration scheme. See Reconsideration Motion at 3. Figueroa v. THI
of New Mexico at Casa Arena Blanca, LLC says no such thing. The Court of Appeals of New
Mexico in Figueroa v. THI of New Mexico at Casa Arena Blanca, LLC states:
While we agree that arbitration obligations do not have to be completely equal,
and that parties may freely enter into reasonable agreements to exempt certain
claims from arbitration, we refuse to enforce an agreement where the drafter
unreasonably reserved the vast majority of his claims for the courts, while
subjecting the weaker party to arbitration on essentially all of the claims that party
is likely to bring. See Rivera, 2011-NMSC-033, ¶ 53, . . . P.3d 803. Defendant
cannot avoid the equitable doctrine of unconscionability by drafting an agreement
that reserves its most likely claims for a judicial forum, and provides some
exemptions from arbitration to the resident so that there is some appearance of
bilaterality, when that exemption is completely meaningless in practicality
because the resident would rarely, if ever, raise that type of claim against the
nursing home.
2013-NMCA-077, ¶ 30, 306 P.3d at 491 (emphasis added). Patterson also suggests that all
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unilateral carve-outs are central to the agreements in which they are contained, asserting that, in
Cordova, the Supreme Court of New Mexico “explicitly determined that unilateral carve-outs -unlike the invalid post arbitration appeal provision in Padilla -- could not be severed from the
agreement particularly ‘in light of the categorization in the agreements of specific kinds of access
to the courts [the defendant] had insisted on for itself.’” Reconsideration Motion at 5 (quoting
Cordova, 2009-NMSC-021, ¶¶ 39-40, 208 P.3d at 911). Cordova did not issue such a broad
pronouncement. Rather than prohibiting the severance of any unilateral carve-out provision from
an arbitration agreement, the Supreme Court of New Mexico determined that the particular
unilateral carve-out at issue in Cordova was not severable in light of the categorization of specific
kinds of access to the courts that World Finance, the defendant, had insisted on for itself. The
Supreme Court of New Mexico devoted considerable text to outlining the several kinds of access
World Finance reserved for itself in the provision at issue. See Cordova, 2009-NMSC-021, ¶ 27,
208 P.3d at 908-09. The Supreme Court of New Mexico noted in Cordova that:
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 action
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.
2009-NMSC-021, ¶ 27, 208 P.3d at 908-09 (emphasis added). In sum, the Supreme Court of New
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Mexico has never stated that any provision exempting any claim from arbitration is central to the
arbitration scheme; rather, as in Cordova, the Supreme Court of New Mexico has carefully
considered which claims the drafting party has attempted to exempt from arbitration, and whether
those are the most likely claims the parties might bring.
Here, the Arbitration Agreement states:
Notwithstanding the provisions of this Agreement, the Company may bring an
action in any court of competent jurisdiction for injunctive relief to enforce the
Employee’s obligations with respect to the confidentiality and protection of trade
secrets and other non-public information belonging to the Company, or with respect
to any non-competition, non-solicitation, or any other restrictive covenant
provisions in any separate agreement between the Company and the Employee.
Arbitration Agreement at 4. The Court did not conclude here that the trade secrets and restrictivecovenant-related claims are the claims that Patterson is most likely to bring, and that Nine Energy
is least likely to litigate. This case is about a failure to pay overtime wages, for instance, and has
“nothing to do with seeking injunctive relief to protect confidential information.” MOO at 42, 330
F. Supp. 3d, at 1311. The Arbitration Agreement defines “dispute” as:
All legal and equitable claims, demands, disputes, controversies, issues, and
disagreements, of whatever nature or kind, whether in contract, tort, under statute
or regulation, or any other law or source of legal obligation, including but not
limited to those relating to, concerning, or arising out of this Agreement; the
interpretation or subject matter of this Agreement or program; the application for
employment and employment of any Employee; wages or other compensation
received by or owed to any Employee, including minimum wage and overtime
pay; employee benefits; any matters concerning the Parties’ relationship; any
matters concerning the Employee’s working conditions, including allegations of
discrimination, harassment, and retaliation; any personal injury or fatality
allegedly incurred in any way relating to the workplace or employment by the
Company; any prior resolution of settlement of a Dispute; and all others arising
out of Employee’s employment or application for employment with Company,
including any past, present, and future employment, and including but not limited
to those relating to the denial, separation, terms, conditions, and benefits of such
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employment, except for those matters described in the section entitled
“Exclusions” in this Agreement.
Arbitration Agreement at 2. The Arbitration Agreement submits all disputes to final and binding
arbitration. See Arbitration Agreement at 3. The Arbitration Agreement also permits Patterson to
file a “complaint or charge regarding a Dispute with any federal, state, or local governmental
agency, including without limitation the Equal Employment Opportunity Commission, the
Department of Labor, and the National Labor Relations Board.” Arbitration Agreement at 4.
Patterson may, in other words, approach an agency to represent his interests in litigation. Unlike
the agreement in Cordova, the Arbitration Agreement here does not leave Patterson with “no rights
under the form agreement to go to any court for any reason whatsoever,” while Nine Energy enjoys
those rights. Cordova, 2009-NMSC-021, ¶ 27, 208 P.3d at 908. Patterson and Nine Energy both
formally agree to submit virtually all possible claims to arbitration, Patterson may litigate other
claims through a federal, state, or local agency, and the only claims Nine Energy reserved to itself
in the unilateral carve-out provision are unrelated to the parties’ employment relationship. By
severing the unilateral carve-out provision, the parties are left with an agreement still mutually
binding them to arbitration, and by which Patterson still enjoys the right to litigate certain claims
in the courts. The unilateral carve-out provision can be severed “without substantially altering the
method of dispute resolution contractually agreed on by the parties.” Rivera, 2011-NMSC-033,
¶ 56, 259 P.3d at 819.
Patterson seems to suggest that, the more unconscionable a provision is, the more central
it is to the arbitration scheme. See Reconsideration Reply at 2 (“Clearly, the unilateral carve out
here . . . is more unconscionable than the Agreement in Cordova.”). The Supreme Court of New
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Mexico, however, has not concluded that the degree of unconscionability of the provision at issue
bears on the decision to sever. Instead, the Supreme Court of New Mexico has counseled that the
agreement which remains after severance must be one on which the parties agreed, so as 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.” Cordova, 2009-NMSC-021, ¶ 39, 208
P.3d at 911. The Court’s inquiry must be whether, after severance, the Arbitration Agreement is
a fair and balanced manifestation of the parties’ intent, and here, the Court concludes that the
Arbitration Agreement fairly manifests the parties’ intent, because the provision at issue is not
central to the arbitration scheme. See Cordova, 2009-NMSC-021, ¶ 39, 208 P.3d at 911.
IV.
THE LACK OF A SAVINGS CLAUSE DOES NOT INDICATE THE PARTIES’
MANIFESTED INTENT TO DISCARD THE ENTIRE ARBITRATION
AGREEMENT IF A SINGLE PROVISION IS FOUND UNCONSCIONABLE.
Patterson argues that, because the Arbitration Agreement lacks a savings or severance
clause manifesting the parties’ intent to save the contract if a particular provision is rendered
unenforceable, and, under New Mexico law, the parties’ manifested intention governs the
severability determination, the Court committed manifest legal error in severing the provision
despite the parties’ lack of manifested intention to save the agreement. See Reconsideration
Motion at 7-8 (citing Arrow Gas Co. of Dell City v. Lewis, 1962-NMSC-145, ¶ 24, 377 P.2d at
659; Fancher v. Bd. of Comm’rs of Grant Cty., 1921-NMSC-039, ¶ 63, 210 P. at 248). Some
district courts have stated that when an arbitration agreement does not contain a savings clause,
the entire agreement must be stricken. See, e.g., Nesbitt v. FCNH, Inc., 74 F. Supp. 3d 1366, 1375
(D. Colo. 2014)(Jackson, J.)(“Because there is no savings clause and because the agreement itself
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is unambiguous its provisions cannot be stricken, rendering the entire Arbitration Agreement
unenforceable.”). See also Daugherty v. Encana Oil & Gas (U.S.A.), Inc., No. 10-cv-02272
WJM/KLM, 2011 WL 2791338, at *12 (D. Colo. July 15, 2011)(Martinez, J.)(“Accordingly, when
a contract contains a void arbitration provision, it must either be deemed unenforceable when there
is no savings clause to the contract . . . .”). The Tenth Circuit considered Nesbitt v. FCNH, Inc.,
but did not rely on the absence of a savings clause in affirming the district court’s invalidation of
the agreement. See Nesbitt v. FCNH, Inc., 811 F.3d 371, 380 (10th Cir. 2016)(concluding that the
agreement was internally inconsistent and ambiguous, and, therefore, affirming the district court’s
order denying the motion to stay proceedings and compel arbitration). Although New Mexico
courts have not expressly addressed the import of an agreement’s lack of a savings clause, even
when arbitration agreements contain savings clauses, the Supreme Court of New Mexico does not
interpret the existence of the savings clause to govern the severability determination. See Figueroa
v. THI of N.M. at Casa Arena Blanca, LLC, 2013-NMSC-077, ¶ 39, 306 P.2d at 494 (“Here, like
the arbitration clauses in Cordova and Rivera, the exemptions of certain claims from arbitration
are so central to the agreement that they are incapable of separation from the agreement to arbitrate,
irrespective of any savings clause included in the agreement.”). Although the Supreme Court of
New Mexico has not commented on the severability of unconscionable provisions from an
arbitration agreement when the agreement contains no savings clause, Figueroa v. THI of New
Mexico at Casa Arena Blanca, LLC indicates that the Supreme Court of New Mexico does not
view the existence or non-existence of a savings clause as bearing on the severability
determination. The test from Cordova contains no mention of a savings clause and states only
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that: “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.” 2009-NMSC-021, ¶ 39, 208 P.3d at 911. The court should “avoid a type
of judicial surgery that inevitably would remove provisions that were central to the original
mechanisms for resolving disputes between the parties.” Cordova, 2009-NMSC-021, ¶ 39, 208
P.3d at 911. The Arbitration Agreement here contains no savings clause, nor does it contain a
clause expressly stating the parties’ desire to invalidate the entire agreement if a single arbitration
clause is unconscionable.
Considering the strong state and federal public policies in favor of arbitration, see Metz v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d at 1488-89; United Tech. & Res. Inc. v. Dar
Al Islam, 1993-NMSC-005, ¶ 11, 846 P.2d at 309, the Court is reluctant to invalidate a non-illusory
arbitration agreement when the single unconscionable provision can be cleanly struck, simply
because the parties did not include a savings clause. Removing only the unconscionable clause
does not constitute judicial surgery, because of the clause’s non-centrality. In the MOO, the Court
concludes that the Arbitration Agreement contains adequate consideration. See MOO at 34, 330
F. Supp. 3d, at 1308. The Court concludes that “both parties mutually exchanged sought-after
promises to forfeit their respective rights to a jury trial and, instead, promised to arbitrate a long
list of potential disputes.” MOO at 37, 330 F. Supp. 3d, at 1308. Although there is no savings
clause, the Court can infer, from the parties’ mutual exchange of promises and agreement to be
bound, that the parties would not prefer to invalidate the entire six-page, twenty-paragraph
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Arbitration Agreement, because a single provision, not central to the arbitration scheme, is
unconscionable. See Arbitration Agreement at 1-6.
V. TATUM V. PROBUILD, INC. IS NOT BINDING ON THE COURT, AND, TAKEN
FOR ITS PERSUASIVE VALUE, DOES NOT ALTER THE COURT’S ANALYSIS OR
CONCLUSION.
Patterson cites to Tatum v. ProBuild Co., LLC, and contends that Senior Judge Hansen
concludes in Tatum v. ProBuild Co., LLC that a nearly mutual injunctive relief clause for the
enforcement of restrictive covenants rendered the entire arbitration agreement at issue
unenforceable. See Reconsideration Notice at 1. Patterson provides the Court with a copy of
Judge Hansen’s opinion in Tatum v. ProBuild Co., LLC. Nine Energy then argued that Senior
Judge Hansen did not discuss severability in Tatum v. ProBuild Co., LLC. See Oct. 25 Tr. at 9:711 (Mann). Patterson argued that, in Tatum v. ProBuild Co., LLC, Senior Judge Hansen concluded
that the provision at issue was one-sided, because both parties could not go to court to address the
same occurrence at the same time. See Oct. 25 Tr. at 12:3-7 (Siegel).
Tatum v. ProBuild Co., LLC is a District of New Mexico opinion and is not binding on the
Court. See, e.g., Nat’l Union Fire Ins. v. Allfirst Bank, 282 F. Supp. 2d 339, 351 (D. Md.
2003)(Nickerson, J.)(“Of course, no decision of a district court judge is technically binding on
another district court judge, even within the same district.”). Furthermore, in Tatum v. ProBuild
Co., LLC, Senior Judge Hansen concludes that the entire arbitration agreement is procedurally
unconscionable. See 2013 WL 12329840, at *6. Senior Judge Hansen never discusses severability
and declines to enforce the arbitration agreement, because “[b]oth procedural and substantive
unconscionability are present.” 2013 WL 12329840, at *11. Senior Judge Hansen states: “In sum,
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the contract terms here are unfairly favorable to ProBuild, the stronger party who drafted the
agreement, while precluding a meaningful choice by Plaintiff, whose assent was conditioned on
her continued employment with a company for whom she had worked for 16 years.” 2013 WL
12329840, at *11. Here, Patterson and Nine Energy entered into a mutual agreement, which
Patterson signed, and which contains terms that favor Patterson, not only terms that favor Nine
Energy. As the Court concluded in its MOO:
Without the injunctive relief provision, not only does the Arbitration
Agreement “now contain[] a mutual agreement to binding arbitration,” 2003NMSC-011, ¶ 18, 68 P.3d at 909, it contains some unilateral carve-outs that benefit
exclusively the weaker party with less bargaining power. See Arbitration
Agreement at 3 (noting that the Arbitration Agreement “does not apply to claims
for workers’ compensation benefits, unemployment compensation benefits” and
other claims that only an employee would bring).
MOO at 42 n.10, 330 F. Supp. 3d, at 1311 n.10. The Court agrees with Senior Judge Hansen that,
if an arbitration agreement is procedurally and substantively unconscionable, the court should
strike it down. That is not, however, the case here. The Court concludes, therefore, that Tatum v.
ProBuild Co., LLC did not consider the severability question in the context of an agreement that
is not procedurally unconscionable, and that, absent the stricken provision, is not substantively
unconscionable, and, accordingly, Senior Judge Hansen’s decision does not change the Court’s
severability analysis here.
VI.
THE COURT DECLINES TO CERTIFY THE QUESTION TO THE SUPREME
COURT OF NEW MEXICO, WHICH HAS ALREADY DECIDED THE
RELEVANT QUESTION.
Patterson moves the Court to certify to the Supreme Court of New Mexico the question
whether the unilateral carve-out provision is severable from the Arbitration Agreement. Because
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the Court concludes that the Supreme Court of New Mexico has spoken on the issue, the Court
will not certify the question to the Supreme Court of New Mexico. Pursuant to N.M. Stat. Ann.
§ 39-7-4, the Supreme Court of New Mexico may answer questions that the federal district court,
in its sound discretion, certifies to it “if they involve propositions of New Mexico law that may be
determinative of the matter before the certifying court and there are no controlling precedents from
the New Mexico appellate court.” Anderson Living Tr. v. Conocophillips Co., Nos. CIV 12-0039
JB/KBM, CIV 12-0040 JB/LFG, 2013 WL 11549178, at *7 (D.N.M. Sept. 18, 2013)(Browning,
J.)(citing Swink v. Fingado, 1993-NMSC-013, ¶ 1 n.1, 850 P.2d at 979 n.1). First, the issue of
arbitrability does not involve propositions of New Mexico law that may be determinative of the
matter before the Court. Even if the Court got the arbitration issue wrong, the entire case remains
to be decided by someone. The issue is not a case “determinative” issue. Arbitration is a
procedural issue, and not a decision on the merits. All the merits issues remain in the case,
regardless of who decides them. Also, the Court is merely staying the case and not dismissing it.
There may be other issues with which the Court has to deal. The Court may have to enter a
judgment adopting or interpreting the arbitration award. Finally, the Court will have to dismiss
the case at some point. This case is a long way from being over, and the Court cannot soundly say
the arbitration issue before it is determinative. Second, there are controlling precedents from the
New Mexico appellate court. It is true that there is not an on-point, factually identical case from
the Supreme Court of New Mexico. But there are controlling appellate cases. The Court has
worked hard to fairly and faithfully interpret and apply the controlling appellate New Mexico
precedent, following Supreme Court and Tenth Circuit precedent, which gave courts the duty to
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predict how the state’s supreme court will rule on an issue. See Stoner v. N.Y. Life Ins., 311 U.S.
at 467; Adams-Arapahoe Joint Sch. Dist. No. 28-J v. Cont’l Ins., 891 F.2d at 774. As directed, the
Court (i) “follow[ed] the most recent decisions of the state’s highest court”; and (ii) sought
“guidance from decisions rendered by lower courts in the relevant state . . . and the general weight
and trend of authority in the relevant area of law.” Wade v. EMCASCO Ins., 483 F.3d at 665-66
(citations and internal quotation marks omitted). See Rimbert v. Eli Lilly & Co., 577 F. Supp. 2d
1174, 1214 (D.N.M. 2008)(Browning, J.)(declining to certify a legal question and noting that the
“Court’s task is to consider [New Mexico Courts of Appeals] carefully and determine whether
there is a good indication of how the Supreme Court of New Mexico would rule if the question
was presented to it”). In Cordova, Rivera, and Padilla, the Supreme Court of New Mexico has
established that severability is an available remedy for unconscionable arbitration provisions and
that a provision may be severed so long as it is not central to the arbitration scheme itself, such
that severing it would result in an agreement not reflective of the parties’ manifested intentions.
While certifying questions to the state supreme court can “save time, energy, and
resources,” Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974), Patterson is not doing the Court
any favors by asking it to certify the question after the Court has already done a lot of work in
ascertaining the applicable law. If Patterson wanted to save the Court time and effort, he should
have sought certification before receiving an adverse decision from the Court. See XTO Energy
Inc. v. ATD, LLC, 189 F. Supp. 3d 1174, 1207 (D.N.M. 2016)(Browning, J.)(declining to certify
a question to the Supreme Court of New Mexico when the party sought certification only after
receiving an adverse decision); Martinez v. Martinez, No. CIV 09-0281 JB/LFG, 2013 WL
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3270448, *47 (D.N.M. June 3, 2013)(Browning, J.)(declining to certify a question when the Court
could interpret New Mexico precedent); Arnold v. Farmers, Ins. of Ariz., 827 F. Supp. 2d 1289,
1297 (D.N.M. 2011)(Browning, J.)(refusing to certify a question after the Court had already ruled
on it).
The Tenth Circuit disfavors late requests for certification. See Massengale v. Okla. Bd. of
Exam’rs in Optometry, 30 F.3d at 1331 (stating that the Tenth Circuit generally “will not certify
questions to the state supreme court when the requesting party seeks certification only after having
received an adverse decision from the district court.”); Armijo v. Ex Cam, Inc., 843 F.2d at 407
(noting that “[c]ertification is not to be routinely invoked whenever a federal court is presented
with an unsettled question of state law” and that “the plaintiff did not request certification until
after the district court made a decision unfavorable to her”); Boyd Rosene & Assoc., Inc. v. Kan.
Mun. Gas Agency, 178 F.3d at 1364 (“Late requests for certification are rarely granted . . . and are
generally disapproved, particularly when the district court has already ruled.”); Harvey E. Yates
Co. v. Powell, 98 F.3d at 1229 n.6 (denying request for certification in removed case where the
moving party had not moved for certification in the district court and had received an adverse
ruling). The Court will not, therefore, certify the question submitted to the Supreme Court of New
Mexico.
IT IS ORDERED that: (i) the Court reaffirms its determination in the MOO, based on the Court’s
correct, but not exclusive, reliance in Padilla, that the injunctive relief provision in the Arbitration
Agreement is severable; and (ii) the Court declines to certify the severability question to the
Supreme Court of New Mexico. Accordingly, the Plaintiff’s Reconsideration Motion, filed
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September 15, 2018 (Doc. 25) is denied.
________________________________
UNITED STATES DISTRICT JUDGE
Counsel:
Jack L. Siegel
Siegel Law Group, P.L.L.C.
Dallas, Texas
-- and -J. Derek Braziel
Travis Andrew Gasper
Lee & Braziel, L.L.P.
Dallas, Texas
Attorneys for the Plaintiff
Christopher S. Mann
Jones Walker, L.L.P.
New Orleans, Louisiana
-- and -Jennifer L. Anderson
Jones Walker, L.L.P.
Baton Rouge, Louisiana
Attorneys for the Defendant
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