                                                                                     FILED
No. 15-0128 -- Nationstar Mortgage, LLC v. Adam West and Bethany West
                                                                                   April 7, 2016
                                                                                    released at 3:00 p.m.
Workman, Justice, dissenting                                                      RORY L. PERRY II, CLERK
                                                                                SUPREME COURT OF APPEALS
                                                                                     OF WEST VIRGINIA



              In reversing the well-reasoned decision of the circuit court, the majority

destroys consumer rights through its overly harsh analysis of the Wests’

unconscionability contract defense. The real question in this case is whether the Wests

met their burden under Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79

(2000), to demonstrate that they face such “high costs” if compelled to arbitrate their

claims against Nationstar that they are effectively precluded from vindicating their rights

in the arbitral forum. Id. at 90. The record is clear that the Wests have met their burden of

showing the likelihood of incurring such costs, and I would invalidate the arbitration

agreement as “prohibitively expensive.” Id. at 92. I therefore respectfully dissent.



              This case presents just another example of the troubling issues surrounding

arbitration clauses inserted into form contracts in consumer transactions by powerful out-

of-state corporations. 1 As Justice Ginsburg recently commented, the precedent of the


       1
        See Melissa T. Lonegrass, Finding Room for Fairness in Formalism-the Sliding
Scale Approach to Unconscionability, 44 Loy. U. Chi. L.J. 1, 3 (2012) (“Standard forms
are ubiquitous, but hardly innocuous. In fact, form contracts are rife with the potential for
abuse. Their nature and universality permit drafters to impose any number of onerous
terms on unwary consumers, including arbitration agreements, class action waivers,
liquidated damages provisions, warranty disclaimers, exculpatory clauses, and choice-of-
law provisions. Form contracts even empower drafters to shift risks at will, often without
warning, through unilateral change-of-terms clauses--an increasingly common favorite of
credit card issuers, banks, utility companies, and a host of other merchants and service
(continued . . .)
                                             1
United States Supreme Court has “predictably resulted in the deprivation of consumers’

rights to seek redress for losses, and, turning the coin, they have insulated powerful

economic interests from liability for violations of consumer-protection laws.” DIRECTV,

Inc. v. Imburgia, 136 S. Ct. 463, 477 (2015) (Ginsburg, J., dissenting); see e.g., Judith

Resnick, Diffusing Disputes: The Public in the Private of Arbitration, the Private in

Courts, and the Erasure of Rights, 124 Yale L.J. 2804, 2804 (2015) (“Although hundreds

of millions of consumers and employees are obliged to use arbitration as their remedy,

almost none do so -- rendering arbitration not a vindication but an unconstitutional

evisceration of statutory and common law rights.”). Because “consumers lack bargaining

power to change the terms of consumer adhesion contracts ex ante, ‘[t]he providers

[have] won the power to impose a mandatory, no-opt-out system in their own private

“courts” designed to preclude aggregate litigation.’” DIRECTV, 136 S.Ct. at 477

(Ginsburg, J., dissenting) (quoting Resnik, Fairness in Numbers: A Comment on AT&T v.

Concepcion, Wal-Mart v. Dukes, and Turner v. Rogers, 125 Harv. L. Rev. 78, 133

(2011)).



             Although the Supreme Court has stressed that federal policy under the

Federal Arbitration Act, 9 United States Code § 2 (West 2016), favors the enforcement of



providers. Although essential to the American economy, form contracts expose
consumers to a parade of one-sided, risk- and rights-shifting provisions.”) (footnotes
omitted).


                                           2
valid arbitration agreements,2 the Supreme Court has been equally clear that a party can

be forced into arbitration only if he or she has in fact entered into a valid, enforceable

contract waiving his or her right to a judicial forum. AT&T Tech., Inc. v. Commc’n

Workers of Am., 475 U.S. 643, 648 (1986). Whether the parties actually agreed to

arbitrate is determined under ordinary state-law contract principles. Penn v. Ryan’s

Family Steak Houses, Inc., 269 F.3d 753, 758-59 (7th Cir. 2001). An arbitration clause

may be declared unenforceable upon the same grounds at law or equity for the revocation

of any contract. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).

Therefore, a traditional unconscionability contract defense still exists because the FAA’s

saving clause permits it. Id.



              Consistent with these principles, this Court still has the authority to find an

arbitration clause invalid due to unconscionability. “[W]e analyze unconscionability in

terms of two component parts: procedural unconscionability and substantive

unconscionability.” Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 681, 724 S.E.2d

250, 285 (2011) (“Brown I”). Substantive unconscionability goes to the specific terms of

the contract and procedural unconscionability concerns the formation of the agreement.

While the presence of both procedural and substantive problems is necessary for an

ultimate finding of unconscionability, such a finding may be appropriate when a contract

       2
         “[D]ue regard must be given to the federal policy favoring arbitration, and
ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.”
Volt Inf. Sciences, Inc. v. Bd. of Tr. of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76
(1989).

                                              3
presents pronounced substantive unfairness and a minimal degree of procedural

unfairness, or vice versa. To be unenforceable, a contract term must -- “at least in some

small measure” -- be both procedurally and substantively unconscionable. Id. at Syl. Pt.

20; Dan Ryan Builders, Inc. v. Nelson, 230 W. Va. 281, 289, 737 S.E.2d 550, 558 (2012).



             The United States Court of Appeals for the Fourth Circuit explained the

particular characteristics of both procedural and substantive unconscionability in Carlson

v. General Motors Corp., 883 F.2d 287 (4th Cir. 1989):

             Substantive unconscionability involves those one-sided terms
             of a contract from which a party seeks relief (for instance, “I
             have the right to cut off one of your child’s fingers for each
             day you are in default”), while procedural unconscionability
             deals with the process of making a contract -- “bargaining
             naughtiness” (for instance, “Just sign here; the small print on
             the back is only our standard form”). Each of these branches
             of unconscionability has common-law cousins; procedural
             unconscionability looks much like fraud or duress in contract
             formation, and substantive unconscionability reminds us of
             contracts or clauses contrary to public policy or illegal.

Id. at 296 n.12 (quoting James J. White & Robert S. Summers, Uniform Commercial

Code § 4-3, at 186 (3d ed. 1988)).



             Our substantive/procedural analysis is more of a sliding scale than a true

dichotomy. The more substantively oppressive the contract term, the less evidence of

procedural unconscionability is required to establish unconscionability. Syl. Pt. 9, Brown

v. Genesis Healthcare Corp., 229 W. Va. 382, 729 S.E.2d 217 (2012) (Brown II). See

Lonegrass, Finding Room for Fairness in Formalism-the Sliding Scale Approach to

                                            4
Unconscionability, 44 Loy. U. Chi. L.J. 1, 12 (“[T]he sliding scale approach does not

require that procedural and substantive unconscionability each be present in any

particular degree; rather, a relatively large quantum of one type of unconscionability can

offset a relatively small quantum of the other. Thus, under the sliding scale approach, the

two prongs are viewed in tandem, permitting the court to make a finding of

unconscionability if the overall weight of the facts and circumstances favors

intervention.”) (footnotes omitted); Cordova v. World Fin. Corp. of N.M., 208 P.3d 901,

908 (N.M. 2009) (“The more substantively oppressive a contract term, the less procedural

unconscionability may be required for a court to conclude the offending term is

unenforceable.”).



              As discussed below, taken together, the oppressive and one-sided

substantive provisions of the arbitration clause at issue in the instant case and the

inequality of bargaining power between the parties render the arbitration clause in the

Wests’ loan agreement unconscionable. Therefore, the circuit court appropriately applied

traditional tools of our State contract law when it held the arbitration clause was

unenforceable.



              A. The Arbitration Clause is Procedurally Unconscionable

              There can be no reasonable disagreement that the contract between the

Wests and Nationstar was a contract of adhesion at the time of formation, but the

majority is correct in determining that our analysis does not end here. “[T]he times in
                                            5
                                                                                             3
which consumer contracts were anything other than adhesive are long past.”

Concepcion, 563 U.S. at 346-47. While adhesion can be a factor when arguing

unconscionability, the mere lack of a meaningful choice and negotiation between the

parties will not, standing alone, establish unconscionability.4



                The   majority   goes   on   to   address     the   elements   of   procedural

unconscionability pursuant to Brown I.5 While I agree that the omission of an “opt out”


       3
         “Experts have long acknowledged that consumers do not read form contracts
before signing them, and have recently come to better understand the more fundamental,
and sobering, truths about standard contracts: consumers who actually read consumer
contracts do not understand them, either because they lack the requisite legal training, or
worse, basic literacy skills.” Lonegrass, supra at 3-4 (footnotes omitted).
       4
         Admittedly, the United States Supreme Court in Concepcion “did not
automatically entitle defendants to arbitration, but it did make it easier for defendants to
enforce their contract provisions.” Megan Barnett, There Is Still Hope for the Little Guy:
Unconscionability Is Still A Defense Against Arbitration Clauses Despite AT&T Mobility
v. Concepcion, 33 Whittier L. Rev. 651, 664 (2012).
       5
           In syllabus point seventeen of Brown I, we held:

                      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.
(continued . . .)
                                               6
provision is not in itself sufficient to establish procedural unconscionability, the Brown I

factors, taken as a whole, weigh in favor of procedural unconscionability in this case.



              It is clear that the Wests had no reasonable opportunity to understand the

terms of the contract they were signing. They had no opportunity to review the arbitration

rider prior to the closing; the arbitration rider was contained in a stack of papers prepared

by and provided by Nationstar; and the Wests were unaware they signed an arbitration

agreement. Furthermore, the documents Nationstar provided to the Wests did not contain

information about the American Arbitration Association (AAA) rules and protocols that

governed commercial arbitration or the costs associated with filing a claim.6



              Finally, the bargaining power between Nationstar and the Wests was

unquestionably unequal in that the Wests are relatively unsophisticated consumers

contracting with corporate defendants who drafted the arbitration clause and included it

as boilerplate language in the loan agreement. Simply put, there was no “‘real and




228 W.Va. 646, 724 S.E.2d 250.
       6
         I recognize that “even the most diligent consumer who on his or her own
initiative obtains the rules from the AAA and reads them would have a most difficult
time accurately assessing his or her exposure.” DeVito v. Autos Direct Online, Inc., 37
N.E.3d 194, 202-03 (Ohio 2015). A review of the 2013 amendments to the AAA’s rules
reflects a set of elaborate rules and procedures for commercial arbitration (the
“Commercial Arbitration Rules and Mediation Procedures”), and a separate set of more
streamline rules and procedures for consumer disputes (the “Consumer Arbitration
Rules”).

                                             7
voluntary meeting of the minds’ of the parties at the time that the contract was executed.”

Brown I, 228 W.Va. at 681, 724 S.E.2d at 285.



              Further, the arbitration provision is substantively unconscionable because

of the prohibitive costs the Wests would incur in filing an action for commercial

arbitration. When these costs are coupled with the total lack of mutuality, the sliding

scale is tipped heavily in favor of complete unconscionability. See 1 E. Allan Farnsworth,

Farnsworth on Contracts § 4.28, at 585 (3d ed. 2004) (“A court will weigh all elements

of both substantive and procedural unconscionability and may conclude that the contract

is unconscionable because of the overall imbalance.”).



              B. The Arbitration Clause is Substantively Unconscionable

              The Wests contend they are facing paying more than $5,750 (and possibly

well over $14,700) to arbitrate their claims against Nationstar under the AAA

Commercial Rules and Mediation Procedures. It is difficult to ascertain the precise costs

of the proceedings because one or three arbitrators may be appointed to hear the matter.7

In addition, the AAA may require the parties to deposit in advance of the hearing such

sums as it deems necessary to cover the expense of the arbitration. AAA Comm. R. 56(a).


       7
         See AAA Comm. R. 16(a) (“If the arbitration agreement does not specify the
number of arbitrators, the dispute shall be heard and determined by one arbitrator, unless
the AAA, in its discretion, directs that three arbitrators be appointed. A party may request
three arbitrators in the Demand or Answer, which request the AAA will consider in
exercising its discretion regarding the number of arbitrators appointed to the dispute.”).

                                             8
Following the hearing, the Wests could incur thousands more in shared expenses for the

arbitrator and other costs. 8 The prospect of incurring these onerous costs and fees

effectively precludes the Wests’ opportunity to vindicate their consumer rights.



              In the landmark case of Green Tree, the United States Supreme Court

directly addressed the question of whether arbitration fees potentially incurred by

consumers could invalidate an arbitration clause. In Green Tree, a mobile home buyer

brought a class-action suit against the lender for alleged Truth in Lending Act (“TILA”)

and Equal Credit Opportunity Act (“ECOA”) violations in the loan agreement, which

required that all disputes arising from or related to the contract were to be resolved by

binding arbitration. 531 U.S. at 83. The Supreme Court reversed the Eleventh Circuit’s

holding that the arbitration agreement’s silence as to the filing fees, arbitrators’ costs, and

other arbitration expenses had rendered the arbitration provision unenforceable because it

exposed the buyer to potentially steep arbitration costs. Id. at 84. Acknowledging that the

Green Tree parties had provided no detail of the expected arbitration fees and costs, the

Supreme Court observed that while “the existence of large arbitration costs could

preclude a litigant” of limited resources from effectively pursuing his or her claims in an

arbitral forum, “[t]he ‘risk’ that [the buyer] will be saddled with prohibitive costs is too

       8
        See AAA Comm. R. 54 (“The expenses of witnesses for either side shall be paid
by the party producing such witnesses. All other expenses of the arbitration, including
required travel and other expenses of the arbitrator, AAA representatives, and any
witness and the cost of any proof produced at the direct request of the arbitrator, shall be
borne equally by the parties, unless they agree otherwise or unless the arbitrator in the
award assesses such expenses or any part thereof against any specified party or parties.”).

                                              9
speculative to justify the invalidation of an arbitration agreement.” Id. at 92. Essentially,

Green Tree placed upon the party asserting the prohibitive expense the burden of

showing the likelihood of incurring such costs. See Bradford v. Rockwell Semiconductor

Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001) (“[A]ppropriate inquiry is one that evaluates

whether the arbitral forum in a particular case is an adequate and accessible substitute to

litigation, i.e., a case-by-case analysis that focuses, among other things, upon the

claimant’s ability to pay the arbitration fees and costs, the expected cost differential

between arbitration and litigation in court, and whether that cost differential is so

substantial as to deter the bringing of claims”); Burden v. Check into Cash, LLC, 267

F.3d 483, 492 (6th Cir. 2001) (finding Green Tree requires party resisting arbitration to

show likelihood of prohibitive expenses).



              Consistent with Green Tree, the court in Tillman v. Commercial Credit

Loans, Inc., 655 S.E.2d 362 (N.C. 2008), found an arbitration clause substantively

unconscionable because the collective effect of its provisions would have precluded the

plaintiffs from “‘vindicating [their] . . . rights in the arbitral forum.’” Id. at 371 (quoting

Green Tree, 531 U.S. at 90). In Tillman, the court was persuaded by the prohibitively

high costs the borrowers would face to bring their claims in the commercial arbitration

setting.

              In terms of ability to pay, the evidence of plaintiffs’ limited
              financial means is uncontested. Plaintiffs live paycheck to
              paycheck and usually have very little money left in their bank
              accounts after paying their monthly bills. The arbitration
              clause specifies that AAA will administer any arbitration
                                            10
                between the parties to the loan agreement, and evidence in the
                record indicates that the average daily rate of AAA arbitrator
                compensation in North Carolina is $1,225.00. According to
                the arbitration clause, when an arbitration lasts more than
                eight hours, the loser will be charged with costs. Moreover,
                the clause provides for a de novo appeal before a panel of
                three arbitrators, and again, the loser pays the costs. For
                example, at the average rate, a two-day appeal would cost the
                losing party $7,350.00 in arbitrator fees. Plaintiffs simply do
                not have the resources to risk facing these kinds of fees.

Id. at 371; but see Torrence v. Nationwide Budget Fin., 753 S.E.2d 802, 812 (N.C. App.

2014) (recognizing Tillman’s substantive unconscionability analysis is undermined by

“[b]oth Concepcion and Italian Colors9 [which] hold that a class action waiver does not

render an arbitration agreement unconscionable.”).



                In the instant case, the Wests do not have the financial resources to risk

losing sky-high commercial arbitration fees in their fight to save their home. The majority

belittles the Wests’ legitimate concerns as “wholly speculative.” However, it would be

more judicious for this Court to reject Nationstar’s argument—that simply because the

arbitrator might order it to pay the costs of arbitration, the clause can be rescued—as

wholly speculative.



                The circuit court correctly determined that the threat of oppressive costs

rendered the arbitration clause unconscionable and, therefore, unenforceable.

Consequently, I would affirm the circuit court’s ruling.

       9
           American Express Co. v. Italian Colors Rest., 133 S.Ct. 2304 (2013).

                                              11
