Nationstar Mortg., LLC v. West

• Decision Date: 07 April 2016
• Docket Number: No. 15–0128.,15–0128.
• Citation: 237 W.Va. 84,785 S.E.2d 634
• Court: West Virginia Supreme Court
• Parties: NATIONSTAR MORTGAGE, LLC, f/k/a Centex Home Equity Company, Defendant Below, Petitioner v. Adam WEST and Bethany West, Plaintiffs Below, Respondents.

237 W.Va. 84

785 S.E.2d 634

NATIONSTAR MORTGAGE, LLC, f/k/a Centex Home Equity Company, Defendant Below, Petitioner

v.Adam WEST and Bethany West, Plaintiffs Below, Respondents.

No. 15–0128.

Supreme Court of Appeals of West Virginia.

Submitted March 2, 2016.

Decided April 7, 2016.

D. Kyle Deak, Esq., Troutman Sanders LLP, Raleigh, NC Mountain State Justice, Inc., Jason E. Manning, Esq., Jonathan M. Kenney, Esq., Troutman Sanders LLP, Virginia Beach, VA, for Petitioner.

Colten Lewis Fleu, Esq., Jennifer S. Wagner, Esq., Clarksburg, WV, for Respondents.

LOUGHRY

, Justice:

The petitioner, Nationstar Mortgage, LLC (“Nationstar”), seeks to reverse the January 13, 2015, order of the Circuit Court of Putnam County, denying its motion to compel arbitration. The underlying case involves allegations of predatory lending practices and abusive and unlawful debt collection in connection with a mortgage loan Nationstar issued to the respondents, Adam and Bethany West (the “Wests”). Ruling on the petitioner's motion to compel arbitration, the circuit court concluded that the arbitration provision is both procedurally and substantively unconscionable. Upon our review of this matter, we find that the circuit court erred in deciding that the arbitration agreement is unenforceable. Accordingly, we reverse and remand this matter for referral to arbitration.

I. Factual and Procedural Background

On July 25, 2003, the Wests entered into a loan agreement with Nationstar for the principal amount of $76,500. As part of the mortgage loan transaction, the Wests both signed a contractual rider entitled “Arbitration Agreement.” Pursuant to the agreement, either party could choose to have a dispute resolved by binding arbitration, administered by the American Arbitration Association (“AAA”) under the commercial arbitration rules then in effect. In all capital letters, located immediately above the signatory lines on the one-page rider was the following disclaimer:

BY SIGNING BELOW, YOU ACKNOWLEDGE THAT YOU HAVE READ THIS ARBITRATION AGREEMENT. YOU UNDERSTAND AND AGREE THAT YOU ARE GIVING UP THE RIGHTS TO SEEK REMEDIES IN COURT INCLUDING THE RIGHT TO A JURY TRIAL; YOUR ABILITY TO COMPEL OTHER PARTIES TO PRODUCE DOCUMENTS OR TO BE EXAMINED IS MORE LIMITED IN ARBITRATION THAN IN A LAWSUIT; AND, YOUR RIGHTS TO APPEAL OR CHANGE AN ARBITRATION AWARD ARE VERY LIMITED.

On May 2, 2013, the Wests filed a complaint in the Circuit Court of Putnam County against the petitioner and Mark Greenlee¹ arising from the origination and servicing of the mortgage loan issued by Nationstar.² Nationstar removed the civil action to the United States District Court for the Southern District of West Virginia based on diversity jurisdiction. Purportedly to destroy diversity, the Wests filed an amended complaint in which they replaced the allegations previously asserted against Mark Greenlee with similar averments against Jeffrey Moore.³ The Wests filed a motion, which was granted by order entered on October 21, 2013, to remand the case to state court.

On August 1, 2014, Nationstar filed a Motion to Compel Arbitration. The Wests filed a second amended complaint on October 13, 2014, asserting two additional counts predicated on the alleged unconscionability of the arbitration rider.⁴ At a hearing on the petitioner's Motion to Compel Arbitration on November 21, 2014, the Wests submitted a self-executed affidavit stating that they could not afford “substantial arbitration costs.”⁵ During the hearing, the Wests informed the circuit court of their willingness to submit to arbitration provided that Nationstar would agree to the use of the AAA consumer rules of arbitration. The petitioner declined to agree to altered rules because the AAA consumer rules provide they are not designed for disputes involving real estate transactions and the subject arbitration rider expressly calls for use of the AAA commercial rules.⁶

By final order entered on January 13, 2015, the circuit court denied Nationstar's motion to compel arbitration. Citing the Wests' lack of sophistication in financial matters and the absence of an “opt out” provision⁷ by which the borrowers could reject the arbitration clause and still obtain the loan funds, the circuit court found that the arbitration agreement was procedurally unconscionable. Secondarily, the circuit court ruled that the agreement was substantively unconscionable, looking to the one-sided nature of the promises exchanged⁸ as well as the “oppressive costs associated with arbitration.” It is from this ruling that Nationstar seeks relief.

II. Standard of Review

As this Court recently held in syllabus point one of Credit Acceptance Corporation v. Front, 231 W.Va. 518, 745 S.E.2d 556 (2013)

, “[a]n order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine.” We review a trial court's denial of a motion to compel arbitration for an abuse of discretion and to determine whether the trial court's findings are supported by substantial evidence. In cases, such as this, where the challenge to the arbitration clause is based on unconscionability, the issue presented is a question of law controlled by contract principles. As with all questions of law, our review of the trial court's conclusion is plenary. See Brown ex rel. Brown v. Genesis Healthcare Corp. (“Brown I”), 228 W.Va. 646, 680, 724 S.E.2d 250, 284 (2011)

, rev'd on other grounds sub nom.

Marmet Health Care Center, Inc. v. Brown, ––– U.S. ––––, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012) ; Syl. Pt. 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995). We proceed to determine whether the circuit court committed error in refusing to refer the underlying matter to arbitration.⁹

III. Discussion

Maintaining that the arbitration agreement is enforceable, Nationstar argues that the arbitration rider is neither procedurally nor substantively unconscionable. As further evidence of the trial court's error, Nationstar cites to the circuit court's failure to recognize the presumptive validity of the enforceability of the arbitration agreement.¹⁰ Nationstar contends the circuit court wrongly imposed a burden on it to demonstrate the agreement was specifically bargained for and that the Wests had the ability to reject arbitration.

We examine the issue of unconscionability pursuant to the approach set forth in Brown I. “Under West Virginia law, we analyze unconscionability in terms of two components parts: procedural unconscionability and substantive unconscionability.” 228 W.Va. at 681, 724 S.E.2d at 285

. To conclude that a contractual term is unenforceable on grounds of unconscionability requires a finding that the provision in issue “is both procedurally and substantively unconscionable.” Id. at 658, 724 S.E.2d at 262, syl. pt. 20, in part. And, as we observed in Brown I, “[t]he burden of proving that a contract term is unconscionable rests with the party attacking the contract.” Id. at 680, 724 S.E.2d at 284.

A. Procedural Unconscionability

Addressing the elements of what constitutes procedural unconscionability, we stated in syllabus seventeen of Brown I:

Procedural unconscionability is concerned with inequities, improprieties, or unfairness in the bargaining process and formation of the contract. Procedural unconscionability involves a variety of inadequacies that results in the lack of a real and voluntary meeting of the minds of the parties, considering all the circumstances surrounding the transaction. These inadequacies, include, but are not limited to, the age, literacy, or lack of sophistication of a party; hidden or unduly complex contract terms; the adhesive nature of the contract; and the manner and setting in which the contract was formed, including whether each party had a reasonable opportunity to understand the terms of the contract.

228 W.Va. at 657, 724 S.E.2d at 261

.

In ruling on the issue of procedural unconscionability, the trial court focused on the lack of “evidence in the record that the arbitration provision was specifically bargained for or that Plaintiffs [Wests] had the ability to opt-out of resolving potential disputes through arbitration.” Viewing Nationstar as more experienced in financial matters, the trial court concluded that the “Plaintiffs were simply not in a position to fully understand the fact that they were relinquishing the right to utilize the court system in signing the arbitration agreement.”

Upon distillation, the Wests' challenge to the arbitration rider is grounded in the adhesive nature of the contract. While quick to acknowledge that “a contract of adhesion is not, in-and-of-itself, unconscionable,” the Wests assert that an “imbalance in bargaining power, unfair surprise, and absence of meaningful choice” all combined to render this particular mortgage contract unconscionable. Unfairly reducing Nationstar's response to this issue as an agreement that deserves enforcement based solely on its endorsement,¹¹ the Wests contend that “Nationstar has presented no meaningful basis to reverse the circuit court's Order.” We disagree.

In full recognition of the realities of consummating standardized business transactions¹² and the attendant unworkability of individualized bargaining¹³ this Court has stated: “[T]here are adhesion contracts that deserve to be enforced and others that do not [.]” State ex rel. AT & T Mobility v. Wilson, 226 W.Va. 572, 578, 703 S.E.2d 543, 549 (2010)

. In rejecting a procedural unconscionability challenge predicated on the “take-it-or leave-it” basis of an adhesion contract, a federal district court recently remarked:

Courts around the country have recognized that the need for pre-printed form contracts is a stark reality of today's mass-production/consumer culture. Despite even severe disparities in bargaining power, these agreements are most often enforced, at least as long as they comport with the reasonable expectations of the parties. A contrary rule would slow

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