In Pedregon v. Titlemax of N.M., No. A-1-CA-39466, 2023 N.M. App. Unpub. LEXIS 24, at *3-6 (Ct. App. Jan. 23, 2023), the New Mexico Court of Appeal refused to enforce an automobile title lender’s arbitration clause.

We first review the district court’s determination that the arbitration agreement was presumptively unconscionable—on its face—based upon the unfairness of the terms contained therein. Id. ¶ 20. The agreement at issue excludes from arbitration actions to foreclose on the collateral vehicle or to stop TitleMax from taking the vehicle. Apart from a bilateral small claims exception, the agreement requires all other “disputes” to proceed to arbitration.  TitleMax asserts that the bilateral nature of the agreement—allowing foreclosure issues brought by either side to proceed in court—treats both borrower and lender equally. However, the standard for an unconscionable contract is not whether it is bilateral. Rather, as reiterated in Peavy, a contract provision is unconscionable “if its exemptions are unreasonably and unfairly one-sided.” Id. ¶ 18. We agree with the district court’s finding that TitleMax’s most likely claim, indeed, perhaps its only claim, is foreclosure in event of default to repossess a vehicle and claim a deficiency. TitleMax’s district director testified that TitleMax had no likely claims against borrowers besides judicial repossession and deficiency cases. With the exception of both parties’ small claims, the agreement permits only repossession and deficiency cases to be filed in the district court. Nonetheless, TitleMax argues that judicial foreclosure is not its most likely cause of action because of its frequent use of “self-help” remedies. But the possibility that a given issue might be resolved before filing a lawsuit or seeking arbitration does not affect our analysis. The contract permits TitleMax to exercise its right to judicial remedy either in addition to or in place of self-help or other avenues of collateral recovery. This provision—establishing the rights of the signatories to the contract at issue—is most relevant to our analysis. The provision permits the lender to retain the option to pursue their most likely claim in court, while the borrower’s right to access the courts is extinguished for their most likely claims: claims of fraud or unfair practice claims. Rivera v. Am. Gen. Fin. Servs., Inc., 2011-NMSC-033, ¶ 53, 150 N.M. 398, 259 P.3d 803. This constitutes an unreasonably and unfairly one-sided agreement. See Peavy, 2020-NMSC-010, ¶ 18.  TitleMax cites Dalton v. Santander Consumer USA, Inc., 2016-NMSC-035, 385 P.3d 619, for several propositions including that the reservation of self-help remedies should not be considered when evaluating substantive unconscionability because it is outside of the judicial process. We agree and have excluded self-help repossession from our analysis. The unfairness here is not the availability of self-help repossession to TitleMax, it is the reservation by TitleMax of the right to judicial resolution of repossession and deficiency cases while the borrower is required to proceed by arbitration on her central claims. In Dalton, the sole exception to the arbitration agreement between borrower and lender was a carve-out for any case brought by either party below $10,000 to go to small claims court. Id. ¶ 3. There was no exception to arbitration for judicial repossession and deficiency cases. Id. We echo the analysis of our Supreme Court in Peavy—under the heading “Defendants misapply Dalton”—that this case is distinguishable from Dalton because it involves an agreement where the lender has created an exception from arbitration for its most likely claim. 2020-NMSC-010, ¶ 23.  To this point, Plaintiff alleges that her most likely claims are for fraud or other misrepresentation that amount to more than $10,000. This contention is seemingly uncontested by TitleMax on appeal. Wisely so—our Supreme Court previously has noted that a borrower’s most likely claims against a lender are about the “validity of any of [the lender’s] form loan or arbitration documents, issues about the terms of [the lender’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.” Cordova, 2009-NMSC-021, ¶ 27. Under this contract, Plaintiff would have no choice but to send her most likely claims to arbitration. Thus, we find that this agreement on its face affords TitleMax access to the courts for its most likely cases while precluding Plaintiff from access to court for her most likely cases, which is unreasonably and unfairly one-sided.

The Court of Appeal found that an opt-out provision did not save the arbitration clause.

TitleMax asserts that the inclusion of an opt-out provision in an arbitration agreement remedies any unconscionability as a matter of law. They reason that Plaintiff has the opportunity to reject the arbitration agreement within sixty days of signing the loan, giving Plaintiff a choice about whether to accept the otherwise unconscionable arbitration provision.  We decline TitleMax’s invitation to find that an opt-out provision renders an otherwise unconscionable agreement fair and conscionable as a matter of law. A provision to refuse arbitration could provide adequate procedural protection to the signatories of otherwise unconscionable adhesion contracts, but this is a case alleging substantive, not procedural unconscionability. TitleMax provides us many examples of other jurisdictions where an opt-out provision was relied on to support a finding against unconscionability. However, those other cases indicate that opt-out provisions provide procedural protection, and do not speak to the substantive elements of a contract. See Evangelical Lutheran Good Samaritan Soc’y v. Moreno, 277 F.Supp.3d 1191, 1236 (D.N.M 2017) (finding that an opt-out provision contributed to a finding against procedural unconscionability); Larsen v. Citibank FSB, 871 F.3d 1295, 1313 (11th Cir. 2017) (“In light of . . . its opt-out procedure, the 2004 amendment to the arbitration provision was not enacted in a procedurally unconscionable manner.” (emphasis added)); Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1210 (9th Cir. 2016) (“Uber argues that the delegation provisions could not have been procedurally unconscionable because both agreements gave drivers an opportunity to opt out of arbitration altogether.” (emphasis added)). New Mexico courts hold that certain contracts can be so substantively unconscionable that a showing of procedural unconscionability is unnecessary. Cordova, 2009-NMSC-021, ¶ 24.  “Unconscionability is an equitable doctrine, rooted in public policy, which allows courts to render unenforceable an agreement that is unreasonably favorable to one party while precluding a meaningful choice of the other party.” Id. ¶ 21. TitleMax accordingly argues that an opt-out provision provides a meaningful choice for Plaintiff, and that choice should overcome other concerns about the unconscionability of the agreement. We reject this argument.  First, we have previously stated in Clay v. New Mexico Title Loans, Inc., 2012-NMCA-102, ¶ 36, 288 P.3d 888, that a borrower applying for a high-interest loan is unlikely to exercise their right to opt out of arbitration agreement, especially when the opt-out cannot be executed in the document itself. In the present case, the opt-out agreement required mailing a separate written statement to TitleMax’s legal department in Savannah, Georgia—an address that is found on a separate page. The borrower cannot send the written notice electronically, and must do so within sixty days of signing the loan. Regardless of the existence of whatever business reasons might justify these limitations, the opt-out provision is not so easy to invoke as to quell our concerns about the unconscionability of the agreement terms. Moreover, the option to reject the agreement expires after only two payments; the meaningful choice to pursue judicial or arbitral remedy therefore was waived well before Plaintiff contemplated suing at the time of her default, six months after the final loan. As in Clay, we are unconvinced this is a meaningful choice for a borrower prepared to pay $34,084.91 over four years for a loan of $6,404.13. The evidence at hearing in the district court confirms the impracticality of this as a remedy. The district court heard testimony on whether any of TitleMax’s hundreds of New Mexico borrowers elected to opt-out of the arbitration agreement. TitleMax now asserts that the district court improperly found that no borrower had ever exercised the right to reject the arbitration agreement. The district court’s findings and conclusions said, in pertinent part, TitleMax’s district director “testified that no borrower or consumer has ever exercised their right to opt out of arbitration. In any case, an arbitration agreement can still be unfairly one-sided or illusory despite the existence of an opt[-]out provision.” TitleMax asserts this finding is unsupported by substantial evidence because counsel provided the district manager with an example of one New Mexico TitleMax customer who successfully rejected the arbitration agreement. We read the district court’s finding not to be a statement about the actual number of opt-outs by New Mexico clients, but rather that testimony indicated the rarity of opt-outs taken compared to the hundreds of loans issued by TitleMax. Though the district court elected to omit the single counter-example brought to the director’s attention on redirect, the district court’s finding was supported by substantial evidence as it was not an absolute statement. Whether one or no customers have rejected the agreement, the finding still exemplifies how meaningless the opt-out provision is to all or almost all customers.