Romero v. Titlemax of N.M., Inc.

JESSE ROMERO, Plaintiff, v. TITLEMAX OF NEW MEXICO, INC., Defendant.

No. CV 17-00775 KG/SCY

United States District Court, D. New Mexico

March 15, 2022

MEMORANDUM OPINION AND ORDER

Plaintiff Jesse Romero entered into three successive loan agreements with Defendant TitleMax of New Mexico, Inc. Each loan was secured by Plaintiffs car. Plaintiffs First Amended Complaint (FAC) alleged that all three loans were unconscionable under statutory and common law. After the Tenth Circuit resolved a dispute between the parties about whether Plaintiff could validly opt out of arbitration on the third loan, Plaintiffs claims on the first two loans were arbitrated. The resulting Arbitration Award found in favor of Defendant.

Now before this Court is Plaintiffs Second Amended Complaint (SAC) (Doc. 112), which focuses only on the third loan. The SAC repeats the same statutory and common-law unconscionability claims and adds a conversion claim. Defendant has filed four motions asking for either summary judgment or judgment on the pleadings on all five counts.^[1] In its Preclusion and Judicial Estoppel Motions, Defendant argues that the Tenth Circuit decision and the Arbitration Award prevent further litigation. Defendant's Conversion Motion contends that there are no genuine issues of material fact because Defendant lawfully accepted and retained insurance proceeds distributed after the totaling of Plaintiff s car. Defendant's fourth motion asks the Court for judgment on the pleadings on Plaintiffs punitive damages claim. All four Motions are fully briefed.^[2]

After considering the parties' briefing, the record of the case, including the Arbitrator Award, and the applicable law the Court will grant Defendant's Conversion Motion, and will deny Defendant's Preclusion, Judicial Estoppel, and Punitive Damages Motions.

I. Background

Factual Background

Facts set forth in Defendant's Motions that are not specifically controverted by Plaintiff are deemed undisputed. See D.N.M. LR-CIV 56.1(b). The following facts are undisputed, or where disputed, are presented in the light most favorable to Plaintiff.

Plaintiff obtained three loans from Defendant. He received Loan 1 in the amount of $1005.00 on July 19, 2016. Loan 1 had an annual interest rate of 156.4484 percent. On August 6 2016, Plaintiff obtained Loan 2 for $2074.26, which paid off Loan 1 and gave him additional cash. Loan 2 had an annual interest rate of 144.0365 percent. Almost nine months later, on May 15, 2017, Plaintiff obtained Loan 3 for $1940.44. Loan 3 paid off Loan Two and had an annual interest rate of 144.4116 percent. Romero v. TitleMax of New Mexico, Inc., 762 Fed.Appx. 560, 562 (10th Cir. 2019).^[3] On Loan 3, Plaintiff did not receive any additional cash. Doc. 116-2 at 1-2.

All three loans were secured with Plaintiffs vehicle, a Jaguar, and all had the same material terms, headings, clauses, and title. Romero, 762 Fed.Appx. at 562. The loans differed only in their amounts, identifying loan numbers, interest rates, and dates signed. Each loan agreement had a "Waiver of Jury Trial and Arbitration Provision" (Arbitration Clause). Id.

The Arbitration Clause stated that unless the loanee opted out, all disputes concerning the loan would be resolved through arbitration. Id. To opt out, the Arbitration Clause required a loanee to notify Defendant within 60 days after signing the loan agreement. Id. On Loan 1 and Loan 2, Plaintiff did not opt out of arbitration. Id. On Loan 3, Plaintiff sent compliant written notice to Defendant that he was exercising his opt out right. Id.

In June 2018, Plaintiff defaulted on Loan 3. Doc. 116-2 at 1-2. On April 8, 2019, the Jaguar, which was insured, was totaled in an accident. Doc. 112 ¶ 54. Defendant was a lienholder on the vehicle. Doc. 16-1 at 1. The insurance company paid the insurance proceeds totaling $2073.54 to Defendant as lienholder. Doc. 116-3 at 1. The proceeds did not cover all sums owed on Loan 3 and a balance of $403.23 remained, which Defendant wrote off, completely releasing Plaintiff of any future monetary loan obligations. Doc. 116-2 at 1-2.

Procedural Background

On June 20, 2017, Plaintiff filed a class action complaint against Defendant in the First Judicial District Court of New Mexico. See Doc. 1-3 at 5. The Complaint alleged three claims under the New Mexico Unfair Trade Practices Act, § 57-12-1 et seq. (NMUPA) and two common-law unconscionability claims. Id. Defendant timely removed the case to the United States District Court for the District of New Mexico based on diversity jurisdiction and/or federal question jurisdiction under the Class Action Fairness Act. Doc. 1. On August 4, 2017, Defendant filed a Motion to compel Plaintiff to arbitrate all three of his loans under the Arbitration Clause. (Doc. 9).

On August 25, 2017, Plaintiff filed an amended complaint (FAC) (Doc. 21). Defendant filed an answer to the FAC on September 29, 2017. Doc. 30.

On May 2, 2018, after a telephonic motion hearing, the Court entered an Order that compelled arbitration on two of the three loans but exempted the third loan. Doc. 56.

On May 22, 2018, Plaintiff appealed the Order compelling arbitration. See Doc. 59. On February 5, 2019, the Tenth Circuit affirmed the ruling. See Romero, 762 Fed.Appx. at 560. The mandate was docketed on February 27, 2019. See Doc. 72.

On October 18, 2019, Arbitrator John A. Darden (Arbitrator) conducted a telephonic arbitration hearing. Doc. 73 at 2. Prior to the hearing, both parties were given the opportunity to request an in-person evidentiary hearing. Id. Neither did so. Id. At the hearing, the Arbitrator considered the briefs and exhibits. Each party had the opportunity to argue his client's position. Id. On November 11, 2019, the Arbitrator, entered an Arbitration Award in favor of Defendant. Id. The parties stipulated to the Court's entry of a Court Order under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and on November 15, 2019, this Court entered a judgment and Order confirming the Arbitration Award. Id. at 5.

On August 12, 2021, Plaintiff filed his Second Amended Complaint ("SAC"). See Doc. 112. The SAC dropped Plaintiffs class action claims.^[4]

Plaintiffs Claims

The SAC includes four unconscionability claims. These claims are substantively the same as the claims in the FAC. Count I and Count II allege violations of NMUPA which prohibits "[u]nfair or deceptive trade practices and unconscionable trade practices in the conduct of any trade or commerce." § 57-12-3. Count I alleges that Debtor engaged in an unconscionable trade practice in "the extension of credit or the collection of debts" in violation of §§ 57-12-2(E)(1). To establish a violation under this subsection "there must be substantial evidence that the borrowers lacked knowledge ability, experience, or capacity in credit consumption; that [defendants took advantage of borrowers' deficits in those areas; and that these practices took advantage of borrowers to a grossly unfair degree to the borrowers' detriment." State ex rel. King v. B&B Inv. Grp., Inc., 329 P.3d 658, 665 (N.M. 2014). Plaintiff asserts that Defendant violated § 57-12-2(E)(1) by convincing Plaintiff to take Loan 3 even though it was to his financial detriment. Doc. 112 ¶ 41.

Count II alleges that Defendant's extended credit in a manner that "results in a gross disparity between the value received by a person and the price paid" in violation of § 57-12-2(E)(2). To demonstrate a violation of § 57-12-2(E)(2), a plaintiff must show (1) "an oral or written statement, visual description or other representation ... that was either false or misleading"; (2) "knowingly made in connection with the sale, lease, rental or loan of goods or services in the extension of credit or ...collection of debts," (3) that occurred in the regular course of business, and (4) "that must have been of the type that may, tends to or does, deceive or mislead any person." Ashlock v. Sunwest Bank of Roswell, 753 P.2d 346, 347 (N.M. 1988) overruled on other grounds by Gonzales v. Surdgidev Corp., 899 P.2d 576 (N.M. 1995). Here, Plaintiff argues that Defendant's loans were oversecured, charging an interest rate ten times more than traditional lending institutions. Id. ¶¶ 43-48.

Defendant's next two counts allege that Defendant engaged in unconscionable practices prohibited by the common law. "Unconscionability is an equitable doctrine, rooted in public policy, which allows courst to render unenforceable an agreement that is unreasonably favorable to one party while precluding a meaningful choice of the other party." Peavy by Peavy v. Skilled Healthcare Grp., Inc., 470 P.3d 218, 221 (N.M. 2020) (quoting Cordova v. World Fin. Corp., 208 P.3d 901, 907 (N.M. 2009). The doctrine of contractual unconscionability can be analyzed from both procedural and substantive perspectives. Fiser v. Dell Computer Corp., 188 P.3d 1215, 1221 (N.M. 2008). The party alleging unconscionability bears the burden of proof. Id.

Count III focuses on procedural unconscionability, which "examines the particular factual circumstances surrounding the formation of the contract, 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." Peavy, 208 P.3d at 907-908 (further citation omitted). Plaintiff argues that Defendant's loans were procedurally unconscionable because (1) "Defendant conducts its business by way of contracts of adhesion," (2) "conducts no underwriting of any kind," and (3) "engages in business practices intentionally designed to trap its customers." Doc. 112 ¶ 50.

Count IV alleges substantive unconscionability which scrutinizes "the legality and fairness of the contract terms...