ITT Loses Bid for Arbitration in Case with New Mexico Attorney General

In a big win for New Mexico Attorney General Hector Balderas, the Court of Appeals of New Mexico ruled that education services provider ITT Technical institute (ITT) must produce subpoenaed documents and cannot force the State to arbitrate alleged consumer protection violations.

In State ex rel. Balderas v. ITT Educ. Services, the State of New Mexico through Attorney General Balderas filed suit against ITT alleging violations of New Mexico’s Unfair Practices Act (UPA). The attorney general claimed that ITT misrepresented its financial aid process and accreditations for its nursing program, improperly inducing students to attend the institution. ITT countered that the State was required to arbitrate the dispute because all ITT enrollment agreements contained a binding arbitration clause. While the State was not a party to any such agreement, ITT argued the State’s action was derivative of the students’ claims and therefore subject to similar constraints.

The Court of Appeals denied ITT’s request to compel arbitration, stating the importance of encouraging the attorney general’s ability to pursue consumer protection violations. The Court also required ITT to comply with a lower court order compelling the production of documents relating to arbitration proceedings between ITT and its students. Citing strong public policy considerations in favor of preventing consumer harm and resolving consumer claims, the Court affirmed the “broad statutory authority of the attorney general to investigate violations and enforce the provisions of the UPA.”

The Court’s holding represents an important victory for consumer rights over ironclad arbitration agreements. And while the ruling is unlikely to have any broad effect on arbitration agreements as a whole, it does reaffirm the power of the New Mexico attorney general to bring UPA claims in spite of such arrangements. Though arbitration agreements remain largely unchanged, it seems New Mexico has determined that consumer protection concerns mean these clauses can’t stop the attorney general from doing his job.