New Mexico Court Strikes Anti-Consumer Forced Arbitration Clause
Lawyers for corporations LOVE to lecture consumers (and pretty much anybody) about how forced arbitration is just SUCH a terrific system. “It’s fairer, and faster, and just way better than the lousy court system scheme from the Founding Fathers,” they explain. But there’s one exception: tons of corporations only want to use forced arbitration for cases that consumers want, and they want to be able to go to court for the cases that the corporation wants to bring.
But a Court of Appeals in New Mexico refused to swallow such a detail. In Dalton v. Santander Consumer USA, Inc., the court noted that a car finance corporation’s arbitration clauses “carves out exceptions” for some cases that are supposed to go to court, rather than arbitration. And then (and who could see this coming, except anyone familiar with the reality of forced arbitration in consumer cases), it turns out those carve outs sharply favor the corporation:
Consumer’s car was wrongfully repossessed twice
The practical effect of the carve-out provisions is to mandate arbitration of plaintiff’s most important and most likely claims while exempting from arbitration defendant’s most important judicial and non-judicial remedies.
The case involves a problem that’s all too common with some car finance companies – the consumer made the required payments, but because the finance corporation was shifting around accounts between itself and a related corporation, the payments weren’t properly credited and the consumer’s car was wrongfully repossessed. This actually happened twice in this case!
So which is it, one might ask the corporation? Is forced arbitration better than courts or not? When Santander’s answer was “forced arbitration is better than court for the consumer’s claims, but not for most of ours,” the court said wrong answer. The Court of Appeals held that the contract “unreasonably benefits one party over another.”
No right to force consumers into arbitration
Once it was on the wrong side of New Mexico’s general contract law, Santander argued that the Federal Arbitration Act preempted (overrode, wiped away) the state law. The Court of Appeals rightly rejected this claim, finding that there is no federal law right for a corporation to force its consumers into arbitration while keeping most of its claims in court. The court did not jump at the theory that federal law requires one-sided contracts.
Courts enforce arbitration clauses every day. But they don’t have to enforce ones that are ridiculously unfair. Corporations may get away with hypocrisy in their public relations efforts (particularly when they’ve got a ton of money to try to sell it), but they couldn’t get away with it in this court.
This great decision is a product of some terrific appellate advocacy. We were involved in this case, with Goldberg-Robb fellow Adrian Alvarez taking the lead on this case, along with input from Staff Attorney Leslie Bailey. Our terrific co-counsel were Rob Treinen of the Treinen Law Office in Albuquerque, N.M., and David Humphreys of Humphreys Wallace Humphreys in Tulsa.
With Santander’s unfair arbitration clause out of the way, I’m very hopeful that Rob and David will go forward and win for our client, Mr. Dalton.
- See more at Public Justice.