State ex rel. Balderas v. ITT Educ. Servs., Inc.
State ex rel. Balderas v. ITT Educ. Servs., Inc.
Opinion
*851 {1} In this consolidated appeal, ITT Educational Services, Inc., d/b/a ITT Technical Institute (ITT) appeals the district court's order denying its motion to compel arbitration, as well as its order compelling compliance with subpoenas served on counsel for ITT students by the Attorney General. On appeal, ITT claims that the Attorney General is bound by provisions in student enrollment agreements requiring that any dispute related to a student's enrollment be arbitrated and further requiring that any information related to the arbitration remain confidential. We conclude that under the specific circumstances of this case, enforcement of the agreement to arbitrate and accompanying confidentiality clause against the Attorney General is contrary to public policy and we affirm.
BACKGROUND
{2} The State of New Mexico, through its Attorney General (State) filed suit against ITT, claiming violations of the New Mexico Unfair Practices Act (UPA) arising out of alleged misrepresentations to students about ITT's nursing program and its financial aid process. ITT filed a motion to compel arbitration, asking the district court to order the State to arbitrate individually for each student, "all claims seeking restitution or other relief on behalf of any ITT students in accordance with the arbitration provision in the students' enrollment agreements with ITT[.]" ITT's enrollment agreement requires that "any dispute arising out of or in any way related" to the agreement, "including without limitation, any statutory, tort, contract or equity claim" be resolved by binding arbitration. ITT argued that, notwithstanding that the State was not a party to the enrollment agreement, it was required to arbitrate because its claims were derivative of student claims or alternatively, were brought in a representative capacity on behalf of students. Following a hearing, the district court denied ITT's motion to compel arbitration. ITT appealed the district court's denial pursuant to the New Mexico Uniform Arbitration Act, allowing for an appeal from an order denying a motion to compel arbitration. NMSA 1978, § 44-7A-29(a)(1) (2001).
{3} During discovery, the State served subpoenas duces tecum on two private attorneys (attorneys) who had each represented ITT students in prior arbitration proceedings against ITT conducted in accordance with the requirements of the enrollment agreements. The subpoenas served on the attorneys required that, for any proceeding against ITT in which they were counsel for an ITT student, they produce the following material:
1. All pleadings, decisions, or verdicts, filed, entered or issued in any arbitration proceeding involving [ITT] and ITT students in New Mexico;
2. All written discovery, including but not limited to, answers to interrogatories, and admissions and accompanying requests for admissions, produced or provided by [ITT] during arbitration between ITT and ITT students;
3. All testamentary evidence gathered or produced during arbitration proceedings between [ITT] and [ITT] students ... including but not limited to, transcripts of depositions, transcripts of hearings or the contact information of any court reporter transcribing any hearings if the transcripts were not delivered or provided to you, affidavits, and written statements;
4. All documents produced or provided by [ITT];
5. All documents produced or provided by your clients[.]
ITT objected to the subpoenas pursuant to Rule 1-045(C) NMRA, asserting that disclosure of the requested materials would violate the confidentiality clauses of the enrollment agreements, requiring that "[a]ll aspects of the arbitration proceeding, and any ruling, decision or award by the arbitrator, will be strictly confidential." ITT instructed the attorneys to refrain from disclosing the materials listed in the subpoenas absent a court order.
{4} The State filed a motion to compel the production of the documents requested by the subpoenas, arguing that, as an investigative agency, it is entitled to discover information *852 relating to the arbitration proceedings that could constitute impeachment or pattern or practice evidence, notwithstanding the confidentiality clause.
{5} ITT raised two objections to the release of the information. First, ITT asserted that allowing discovery of materials arising from the arbitration could lead to a violation of its students' right to privacy. Further, ITT claimed that the informal nature of arbitration rendered parties less guarded than those engaged in litigation, creating a public interest in keeping arbitration proceedings confidential. In considering ITT's concerns at the hearing on the State's motion to compel, the district court acknowledged the importance of student privacy, but noted, "I understand confidentiality agreements. I understand arbitration agreements between parties. ... I don't have a problem with the concept of the confidentiality agreement, but I do have a problem with using it as a shield." When ITT was unable to provide authority supporting the district court's power to enforce a confidentiality clause to deprive an investigative or enforcement agency like the Attorney General of discovery that may be relevant to a claim brought pursuant to its statutory authority, the district court granted the State's motion to compel.
{6} The parties stipulated to the entry of a protective order, protecting information related to ITT's students and staff, trade secrets, and sensitive commercial, proprietary, or financial information. The order established extensive measures to safeguard the integrity and confidentiality of the information disclosed through discovery, requiring that all confidential materials be labeled and protected from disclosure to anyone not intimately involved in the case. ITT obtained the district court's certification for an interlocutory appeal of its order compelling discovery and timely sought relief in this Court. Alternatively, ITT sought review through a writ of error.
{7} This Court initially granted ITT's writ of error. A writ of error is the procedural vehicle used to invoke the collateral order doctrine in New Mexico.
See
Carrillo v. Rostro
,
DISCUSSION
Standard of Review
{8} ITT's appeal requires us to consider the enforceability of the arbitration provision and accompanying confidentiality clause in its student enrollment agreement with respect to the State's UPA claims. We review the interpretation of any relevant contract terms de novo.
Shah v. Devasthali
,
Discovery
{9} ITT challenges the district court's order granting the State's motion to compel compliance with its subpoenas. Specifically, ITT argues that the Federal Arbitration Act (FAA) and public policy favoring arbitration require that the arbitration provision, including its confidentiality clause, be enforced to *853 protect the subpoenaed materials from discovery, notwithstanding the State's statutory authority to investigate probable violations of the UPA and enforce its provisions. The State argues that the district court's ruling was proper under our broad discovery rules and that it would be inappropriate to allow ITT to use the confidentiality clause to shield itself from the State's investigation. We emphasize that we are not being asked to consider whether the information that was the subject of the State's motion to compel is admissible, or in what way the State might be able to use the subpoenaed information, if at all. Our review is limited to whether the information requested in the State's subpoenas is discoverable under our Rules of Civil Procedure. We conclude that under the specific circumstances of this case, it is.
A. Privileges and Confidentiality
{10} Before we address the merits of the parties' arguments, we note that the parties have conflated the legally distinct concepts of confidentiality and privilege. "[F]or a privilege to exist in New Mexico, it must be recognized or required by the Constitution, the Rules of Evidence or other rules of this Court."
Republican Party of N.M. v. N.M. Taxation & Revenue Dep't
,
B. ITT's Confidentiality Clause is Unenforceable as Against Public Policy in the Context of the State's UPA Claims
{11} ITT contends that the FAA and policy favoring arbitration mandate that we enforce the terms of the arbitration provision, including the confidentiality clause, to prevent the release of the information sought by the State. The State argues that it would be improper to allow ITT to use its confidentiality clause with students to shield itself from the State's statutorily mandated investigation and enforcement obligations, authorized by the UPA.
{12} The Supreme Court of the United States has recognized that the purpose of the FAA is "to reverse the longstanding judicial hostility to arbitration agreements" and "to place arbitration agreements upon the same footing as other contracts."
E.E.O.C. v. Waffle House, Inc.
,
{13} In New Mexico, the enforceability of a contract balances an individual's freedom to enter into contracts with the public interest in restricting a person's ability to enter into a contract that is contrary to public policy.
See
First Baptist Church of Roswell v. Yates Petroleum Corp.
,
{14} We have recognized public policy violations where the terms of a contract have been contrary to statutory provisions.
See
First Baptist Church of Roswell
,
{15} In this case, the question is whether enforcement of a confidentiality clause in a contract between parties violates public policy expressed by the Legislature in the UPA, where the confidentiality clause would prevent the State's efforts to investigate and enforce the UPA against one of the parties to the contract. "Every statute is a manifestation of some public policy."
First Baptist Church of Roswell
,
{16} The UPA represents New Mexico's public policy in favor of preventing consumer harm and resolving consumer claims.
See
Fiser v. Dell Comput. Corp.
,
Arbitration
{17} ITT also appeals the district court's denial of its motion to compel arbitration, arguing that the State is bound by the enrollment agreement between ITT and its students because any claims the State has are brought in its derivative or representative capacity. We find no error on the part of the district court as ITT's appeal of the order denying its motion to compel arbitration fails for the same reason as its appeal of the district court's discovery order. The State's broad authority to enforce the provisions of the UPA includes the statutory right to bring actions in its name, alleging violations of the UPA, if such "proceedings would be in the public interest[.]" Section 57-12-8(A). To compel the State to arbitrate actions for which the Legislature has granted it specific statutory authority "clearly contravenes a positive rule of law, [and] it cannot be enforced" under such circumstances.
Acacia Mut. Life Ins. Co.
,
{18} In reaching our decision, we stress that our ruling in this case is based on the specific powers granted by the Legislature to the State under the UPA. We neither consider nor decide the propriety of a defendant's use of an arbitration provision to compel arbitration or a confidentiality clause to prevent the disclosure of information sought in a private suit brought under NMSA 1978, Section 57-12-10 (2005) of the UPA.
CONCLUSION
{19} For the reasons set out herein, we affirm the decision of the district court.
{20} IT IS SO ORDERED.
WE CONCUR:
MICHAEL E. VIGIL, Judge
J. MILES HANISEE, Judge
Reference
- Full Case Name
- STATE of New Mexico EX REL. Hector BALDERAS, Attorney General, Plaintiff-Appellee, v. ITT EDUCATIONAL SERVICES, INC., Defendant-Appellant.
- Cited By
- 8 cases
- Status
- Published