Tenth Circuit Holds FAA Preempts New Mexico Unconscionability Law

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New Mexico law considers arbitration provisions that apply primarily to the claims that one party to the contract is likely to bring to be unconscionable and unenforceable.  This law, the Tenth Circuit holds, is preempted by the Federal Arbitration Act because it is based on the underlying assumption that arbitration is inferior to litigation in court.  Supreme Court precedent is clear that arbitration provisions cannot be invalidated by generally applicable contract defenses, like unconscionability, “that derive their meaning from the fact that an agreement to arbitrate is at issue.”  Thus, an arbitration provision that permits a nursing home to litigate its most likely claims against its residents, but requires arbitration of the residents’ most likely claims against the nursing home, is enforceable.  THI of New Mexico at Hobbs Center, LLC v. Patton, No. 13-2012 (10th Cir. Jan. 28, 2014).

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