                               PUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT


                              No. 14-2126


PHILIP MCFARLAND,

                 Plaintiff – Appellant,

           v.

WELLS FARGO BANK, N.A.; U.S. BANK NATIONAL ASSOCIATION,

                 Defendants – Appellees,

           and

CHASE TITLE INC.,

                 Defendant.

-------------------------

AARP; CENTER FOR RESPONSIBLE LENDING; NATIONAL ASSOCIATION
OF CONSUMER ADVOCATES; NATIONAL CONSUMER LAW CENTER,

                 Amici Supporting Appellant,

THE COMMUNITY BANKERS OF WEST VIRGINIA, INCORPORATED; THE
WEST VIRGINIA BANKERS ASSOCIATION,

                 Amici Supporting Appellees.



Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston.  Joseph R. Goodwin,
District Judge. (2:12-cv-07997)


Argued:   October 28, 2015                  Decided:   January 15, 2016
Before SHEDD, DIAZ, and HARRIS, Circuit Judges.


Affirmed in part, vacated in part, and remanded by published
opinion.   Judge Harris wrote the opinion, in which Judge Shedd
and Judge Diaz joined.


ARGUED:    Jennifer S. Wagner, MOUNTAIN STATE JUSTICE, INC.,
Clarksburg, West Virginia, for Appellant.     John Curtis Lynch,
TROUTMAN SANDERS LLP, Virginia Beach, Virginia, for Appellees.
ON BRIEF:     Bren J. Pomponio, MOUNTAIN STATE JUSTICE, INC.,
Charleston, West Virginia, for Appellant.   Jason Manning, Megan
Burns, TROUTMAN SANDERS LLP, Virginia Beach, Virginia, for
Appellees.     Jason E. Causey, BORDAS & BORDAS, PLLC, St.
Clairsville, Ohio; Jonathan Marshall, Patricia M. Kipnis, BAILEY
& GLASSER, LLP, Charleston, West Virginia, for Amici The
National Consumer Law Center, AARP, The National Association of
Consumer Advocates, and The Center for Responsible Lending.
Floyd E. Boone, Jr., Stuart A. McMillan, Sandra M. Murphy, James
E. Scott, BOWLES RICE LLP, Charleston, West Virginia, for Amici
Community Bankers of West Virginia, Inc. and The West Virginia
Bankers Association, Inc.




                                2
PAMELA HARRIS, Circuit Judge:

        In    2006,       at     the     height      of     the      housing    market,          Philip

McFarland was             informed       by    a    mortgage         broker    that      his     home’s

value had nearly doubled in two years.                                Acting on that advice,

McFarland refinanced his home so that he could pay down other

debt.         But it soon became apparent that McFarland could not

manage the increased interest payments on his new loan, and when

housing prices fell, McFarland was faced with an unaffordable

mortgage and a looming foreclosure.

        McFarland          sued,       alleging          that     his   mortgage          agreement,

providing him with a loan far in excess of his home’s actual

value, was an “unconscionable contract” under the West Virginia

Consumer Credit and Protection Act, W. Va. Code § 46A–1–101, et

seq. (the “Act” or the “WVCCPA”).                            The district court rejected

that claim, holding that a loan exceeding the worth of a home,

without more, is not evidence of “substantive unconscionability”

under        West       Virginia       law.         And     because      the    district          court

understood          a    WVCCPA        claim       always       to    require       a    showing       of

substantive         unconscionability,               it    stopped      its     analysis         there,

without considering the fairness of the process by which the

agreement was reached.

        We    agree       with     the    district        court       that    the       amount    of   a

mortgage            loan,        by       itself,           cannot           show        substantive

unconscionability under West Virginia law, and that McFarland

                                                     3
has not otherwise made that showing.                  But we disagree as to the

proper   interpretation      of     the     WVCCPA,    and    find   that   the    Act

allows for claims of “unconscionable inducement” even when the

substantive     terms   of     a    contract    are     not   themselves    unfair.

Accordingly, we remand so that the district court may consider

in the first instance whether McFarland’s mortgage agreement was

induced by unconscionable conduct.



                                           I.

                                           A.

      In 2004, McFarland purchased his Hedgesville, West Virginia

home for roughly $110,000.               Just two years later, in June 2006,

he availed himself of then-favorable debt markets to engage in

the refinancing that is the subject of this appeal.                     Interested

in consolidating his approximately $40,000 in combined student

and   vehicle   debt    with       his    mortgage,     McFarland    entered      into

discussions with Greentree Mortgage Corporation (“Greentree”), a

third-party     mortgage       lender.          Greentree      arranged     for    an

appraisal of McFarland’s property, and McFarland was informed

that the market value of his home had jumped to $202,000 since

its acquisition two years earlier.

      McFarland then entered into two secured loan agreements.

The first, which is the subject of this dispute, was a mortgage

agreement with Wells Fargo Bank, N.A. (“Wells Fargo”), with a

                                           4
principal amount of $181,800 and an adjustable interest rate

that started at 7.75 percent and could increase to 13.75 percent

(the “Wells Fargo Loan”).            The second, not directly at issue

here, was with Greentree, for an interest-only home equity line

of credit of $20,000.        As planned, McFarland used the proceeds

of those two loans to consolidate all of his debts.

     McFarland paid the Wells Fargo Loan without incident for

roughly a year.        In late 2007, however, he began to fall behind

on his mortgage payments, and contacted Wells Fargo to ask for

assistance.      After     several    failed   attempts   to    restructure

McFarland’s mortgage, Wells Fargo and McFarland entered into a

loan modification in May 2010.             The revised agreement reduced

McFarland’s interest rate and extended the term of the loan in

exchange for an increase in the principal amount outstanding.

But even under the new arrangement, McFarland remained unable to

make his payments.        In 2012, Wells Fargo initiated foreclosure

on McFarland’s home.

                                      B.

     To   stop   the    pending   foreclosure,   McFarland     brought   this

action against Greentree and Wells Fargo, as well as U.S. Bank

National Association (“U.S. Bank”), the trustee of a securitized




                                       5
loan trust that now includes the Wells Fargo Loan. 1                     Relevant to

this appeal, McFarland alleged in his complaint that the Wells

Fargo Loan was an “unconscionable contract” under the WVCCPA.

See W. Va. Code § 46A-2-121(1)(a).

     McFarland      raised     two    distinct      “unconscionable        contract”

arguments in his complaint and before the district court, either

of   which,    he   contended,       could    support      an    unconscionability

finding    under     the    WVCCPA.          The   first    was     a    traditional

unconscionability      claim    with    its     genesis     in    the    common    law,

focusing on the terms of the Wells Fargo Loan itself and, in

particular, the size of the mortgage it provided.                        Put simply,

McFarland argued that Wells Fargo loaned him too much money.

Citing a 2012 retroactive appraisal finding that his home was

worth only $120,000 in June 2006 — considerably less than the

$202,000      valuation     that     preceded      the    Wells    Fargo     Loan    —

McFarland claimed that Wells Fargo’s excess loan tied him to an

unaffordable     mortgage      that    increased      his    housing      burden    by

several hundred dollars a month and put his home at risk.                         That

general    species     of    unconscionability           claim     (if     not     this

particular variant), alleging the unfairness of the terms of an

     1 After originating McFarland’s mortgage loan, Wells Fargo
sold the mortgage on the secondary market as part of a
securitized loan trust. U.S. Bank is the trustee of that trust,
which is owned by investors.   Wells Fargo continues to service
the loans in the trust.



                                         6
agreement, is well established in West Virginia:                                   In the context

of consumer agreements, it is now codified under the WVCCPA, see

W. Va. Code § 46A-2-121(1)(a) (court may refuse to enforce a

consumer agreement that is “unconscionable at the time it was

made”), and it has long roots in West Virginia’s common law, see

Brown v. Genesis Healthcare Corp., 729 S.E.2d 217, 226–27 (W.

Va. 2012).

       McFarland’s       second          theory          of    unconscionability             was     more

novel.       West Virginia’s traditional unconscionability doctrine,

as     is    customary,        requires          a       showing       of    both          substantive

unconscionability,            or    unfairness            in     the   contract        itself,        and

procedural      unconscionability,               or       unfairness        in     the     bargaining

process.            Genesis        Healthcare,            729     S.E.2d         at      221.         But

McFarland’s         alternative          argument         was     that      even      if    the    Wells

Fargo Loan was not unconscionable when made, the district court

could       invalidate    it       on     the    independent             ground       that      it    was

“unconscionably          induced”         —     in       other    words,      based         solely     on

factors predating acceptance of the contract and relating to the

bargaining      process.            Specifically,              McFarland      argued         that     the

Wells Fargo Loan was “induced by misrepresentations,” focusing

on what he alleged to be the vastly inflated appraisal of his

home    in     2006.       And          according         to     McFarland,        that      kind      of

unconscionable         inducement          is,       under       the   text      of    the      WVCCPA,

grounds       for    relief        by    itself,          without      regard         to    the      loan

                                                     7
agreement’s       substantive      terms.           See     W.    Va.   Code    § 46A-2-

121(1)(a) (court may refuse to enforce a consumer agreement that

is “unconscionable at the time it was made, or . . . induced by

unconscionable conduct”).

      After McFarland filed his complaint, he and the defendants

engaged in several months of extensive discovery.                              McFarland

eventually reached a settlement with Greentree, but his case

against Wells Fargo and U.S. Bank (“the Banks”) proceeded.                             In

the decision that is the subject of this appeal, the district

court      granted      the    Banks’    motion      for     summary      judgment    and

dismissed McFarland’s unconscionable contract claim.                           McFarland

v. Wells Fargo Bank, N.A., 19 F. Supp. 3d 663, 668–73 (S.D.W.

Va. 2014).

      As    to    substantive      unconscionability,            the    district     court

explained        that     McFarland        had       identified         two    allegedly

unconscionable         features   of    the       Wells   Fargo    Loan   in   both    his

complaint and his opposition to the Banks’ motion for summary

judgment: that the loan far exceeded the value of the property,

and     that     the    loan    provided      no     “net    tangible      benefit”    to

McFarland.        But neither, the district court held, provided a

basis for a finding of substantive unconscionability.

      That a refinanced loan exceeds the value of a home, the

court ruled, is not evidence of substantive unconscionability

under West Virginia law.                “It is not ‘overly harsh’ or ‘one-

                                              8
sided’ against the plaintiff that he received more financing

than he was allegedly entitled to receive.”                        McFarland, 19 F.

Supp. 3d at 670 (emphasis in original).                   If anything, the court

reasoned,    an      under-secured    mortgage        disadvantages           the   lender,

not the borrower.          Absent unfairness in specific loan terms like

the rate of interest charged or the timing of payments, the

court concluded, there is nothing substantively unconscionable

about a loan simply because of its size.

       Nor does West Virginia law require that a contract provide

a “net tangible benefit” to either party, the court held.                             Under

West Virginia law, a contract is substantively unconscionable

only if it is “one-sided,” with an “overly harsh effect on the

disadvantaged party.”            Id. at 673 (quoting Genesis Healthcare,

729 S.E.2d at 221).             That is a different standard, the court

reasoned, and whether the Wells Fargo Loan was of net benefit to

McFarland       is     simply     not     relevant         to      the        substantive

unconscionability inquiry.

       Finally,      the   district     court    held     that    in     light       of   its

holding as to substantive unconscionability, there was no need

even to consider McFarland’s allegations regarding the process

that   led   to      contract    formation.           According    to        the    district

court,   West     Virginia      law   does      not    allow     for     a    finding      of

unconscionable        contract    without       some     showing       of     substantive

unconscionability.         As a result, the court dismissed McFarland’s

                                          9
claim — including his allegation of “unconscionable inducement”

under   the    WVCCPA   —   without   further    addressing     the   purported

misrepresentations that led to the Wells Fargo Loan.

     McFarland      timely       appealed       the   dismissal         of    his

unconscionable contract claim.



                                      II.

     We review a district court’s award of summary judgment de

novo, and view the facts and the reasonable inferences that may

be drawn from them in the light most favorable to the nonmoving

party — here, McFarland.          See Woollard v. Gallagher, 712 F.3d

865, 873 (4th Cir. 2013).         Summary judgment is appropriate only

“if the movant shows that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter

of law.”      Fed. R. Civ. P. 56(a).        As a federal court sitting in

diversity, our role is to apply governing West Virginia contract

law, “or, if necessary, predict how the state’s highest court

would rule on an unsettled issue.”            Horace Mann Ins. Co. v. Gen.

Star Nat’l Ins. Co., 514 F.3d 327, 329 (4th Cir. 2008).

                                      A.

     We    begin   with     McFarland’s     contention   that   the     district

court erred as a matter of West Virginia law when it rejected

McFarland’s theories of substantive unconscionability.                   As the

district   court   explained,     McFarland     identified,     first    in   his

                                      10
complaint and again in response to the Banks’ motion for summary

judgment, two and only two aspects of the Wells Fargo Loan that

he claimed made it substantively unconscionable: “(1) that the

loan far exceeded the value of the property and (2) that the

loan did not provide a net tangible benefit.”                         J.A. 266.       Like

the district court, we will limit our analysis to those two

contentions.           McFarland directed the district court to consider

two specific terms of the Wells Fargo Loan, and to the extent

that       he   now    contends      on   appeal   that    other      terms    also   are

substantively unconscionable, those arguments are waived.                              See

Malbon v. Pa. Millers Mut. Ins. Co., 636 F.2d 936, 941 (4th Cir.

1980).

                                             1.

       McFarland’s        primary     argument     is    that   the     district   court

erred when it ruled that a refinanced loan exceeding the value

of a home is not evidence of substantive unconscionability under

West Virginia law.            Because the West Virginia courts have not

decided         this   question, 2    our   task    is    to    apply    the   relevant


       2
       McFarland relies on two decisions of the West Virginia
Supreme Court of Appeals, but in neither of those cases did the
court hold that a loan exceeding the value of a home is evidence
of substantive unconscionability.    In Quicken Loans, Inc. v.
Brown, 737 S.E.2d 640, 656–59 (W. Va. 2012) (“Quicken Loans I”),
the court was presented with evidence that a loan was based on
an inflated appraisal. But the loan also contained significant
fees, a particularly high interest rate, and an undisclosed
balloon payment. See id. So when the court found the loan to


                                             11
principles of state contract law as we believe they would be

applied by the West Virginia Supreme Court of Appeals in this

context.     See Horace Mann, 514 F.3d at 329.

       Fortunately, the West Virginia courts have made very clear

the standard for substantive unconscionability under state law:

A contract term is substantively unconscionable only if it is

both   “one-sided”   and   “overly   harsh”   as   to   the   disadvantaged

party.     See, e.g., Dan Ryan Builders, Inc. v. Nelson, 737 S.E.2d

550, 558 (W. Va. 2012); Genesis Healthcare, 729 S.E.2d at 221.

The point is not to disturb the “reasonable allocation of risks

or reasonable advantage because of superior bargaining power.”

Arnold v. United Cos. Lending Corp., 511 S.E.2d 854, 860 (W. Va.

1998) (quoting Unif. Consumer Credit Code 1974 § 5.108 cmt. 3),

overruled on other grounds by Dan Ryan Builders, 737 S.E.2d 550.

Rather, substantive unconscionability screens for cases in which

a   “gross    imbalance,    one-sidedness     or   lop-sidedness     in   a




be unconscionable because its “total cost . . . was exorbitant,”
its holding turned on much more than the principal amount of the
loan. See id. at 659. And in Herrod v. First Republic Mortgage
Corp., 625 S.E.2d 373, 379–81 (W. Va. 2005), although the court
reversed summary judgment where it found evidence that the
“house was worth at least $20,000 less than the amount for which
it was mortgaged,” its analysis concentrated singularly upon
issues of fact relating to procedural unconscionability —
namely, whether the loan was based on a fraudulent appraisal —
and the decision never mentions substantive unconscionability.
See id.



                                     12
contract”       will      justify     a      court’s       refusal       to     enforce       the

agreement as written.           Genesis Healthcare, 729 S.E.2d at 220.

       We agree with the district court that under this standard,

a     mortgage       agreement       would      not       be     deemed        substantively

unconscionable solely because it provides a borrower with more

money than his home is worth.                  Whatever the pitfalls, receiving

too much money from a bank is not what is generally meant by

“overly harsh” treatment, and we have no reason to think that

the    West    Virginia      Supreme        Court    of     Appeals      would    apply       its

standard in such a counterintuitive manner.                              As the district

court noted, it is not the borrower but the bank that typically

is disadvantaged by an under-collateralized loan.                               That is why

borrowers may pay a premium for under- or non-collateralized

loans,    see       Benjamin    E.   Hermalin       &     Andrew   K.     Rose,       Risks    to

Lenders       and    Borrowers       in     International        Capital        Markets,       in

International         Capital      Flows     363,     369      (Martin    Feldstein          ed.,

1999); why it is common practice for banks, as many borrowers

can    attest,       to   ensure     that    their      real    estate        loans    are    for

significantly less than property value, see Michael T. Madison

et al., 1 Law of Real Estate Financing § 5:14 (2015); and why a

generous mortgage loan is usually cause for celebration and not

a lawsuit.




                                              13
        McFarland, with the support of multiple amici, 3 rejects that

common-sense           application        of        West     Virginia’s        substantive

unconscionability law, arguing that it fails to take account of

the     broader     social       and     economic          context.         According      to

McFarland,       the     Wells    Fargo     Loan        is   but     one    example   of    a

widespread practice of overvaluing homes and lending too much

money     that    has     contributed      to       a   national      home     foreclosure

crisis:     When a borrower is bound to a mortgage that exceeds the

value of his home, he is trapped, unable to refinance to obtain

better terms or sell his home to relocate, and foreclosure is

the result.       It is that harm to borrowers and to public policy,

McFarland argues, that renders mortgage loans in excess of home

value substantively unconscionable under West Virginia law.

      We certainly agree that consumers may be harmed, sometimes

grievously,       when    they    take    on    more       mortgage    debt    than   their

homes are worth.           Cf. McCauley v. Home Loan Inv. Bank, F.S.B.,

710 F.3d 551, 559 n.5 (4th Cir. 2013) (finding in the context of

a fraud claim that a borrower could be injured by an under-

collateralized loan).            And we have no reason to doubt that West

Virginia’s courts would acknowledge that disproportionate debt

may   be    dangerous      both     for    homeowners          and    for     the   broader

      3McFarland is joined in this argument by amici curiae The
National Consumer Law Center, AARP, The National Association of
Consumer Advocates, and The Center for Responsible Lending.



                                               14
economy.       See, e.g., IMF, Dealing with Household Debt, in Growth

Resuming, Dangers Remain, World Economic Outlook 89, 96 (Apr.

2012)     (economic      downturns      “are       more    severe             when     they    are

preceded by larger increases in household debt”).                                     Indeed, we

note    that    West    Virginia      already      has    decided             to   regulate     by

statute     precisely        the    lending       practices         of        which    McFarland

complains,      with    a    law    aimed     squarely         at    predatory          mortgage

lending.        See    W.     Va.    Code     § 31-17-8(m)(8)                 (prohibiting      “a

primary or subordinate mortgage loan in a principal amount that

. . . exceeds the fair market value of the property”).

       But here is where we disagree with McFarland:                                    The fact

that    a   practice        is     harmful    does       not        by    itself        make    it

substantively         unconscionable         as    a    matter           of    West      Virginia

contract       law.           Rather,        as        noted        above,            substantive

unconscionability is an equitable doctrine reserved for those

cases in which a contract is “so one-sided that it has an overly

harsh effect on the disadvantaged party.”                            Dan Ryan Builders,

737 S.E.2d at 558.            And an under-collateralized loan, though it

ultimately may cause harm, cannot meet this standard, because it

will benefit the borrower in at least some respects and operate

to the detriment of the lender in others.                            Here, for example,

the Wells Fargo Loan provided McFarland with the money he needed

to pay off approximately $40,000 of student and automobile debt,

as he had hoped.            And while it undoubtedly exposed McFarland to

                                             15
certain risks, it posed risks for the bank, as well:                    When a

bank writes a mortgage for more money than a borrower’s home is

worth, it takes the chance that it will forfeit at least some of

its capital in the event of a default. 4           So a loan in excess of

home value does not accrue entirely to the lender’s benefit, and

thus lacks the kind of “gross imbalance, one-sidedness or lop-

sidedness,”     id.,   and   evident   impropriety     that   West     Virginia

courts   have    identified    in    setting   aside   contract      terms   as

substantively      unconscionable.          See,   e.g.,    id.   at     559–60

(striking   down    unilateral      arbitration    clause   because     it   was

wholly one-sided and unfair); U.S. Life Credit Corp. v. Wilson,

301 S.E.2d 169, 171–72 (W. Va. 1982) (invalidating provision in




     4 McFarland contends that today this risk is more illusory
than real, given that mortgage lenders can sell their loans on
the secondary market and remove them from their balance sheets.
But as the Banks explain, they remain accountable to the
purchasers of their loans, and in some circumstances even may
have to repurchase loans that prove “defective.”     And indeed,
many banks experienced a solvency crisis during the recent
economic downturn because of the number of “bad loans” they had
issued.   See Eamonn K. Moran, Wall Street Meets Main Street:
Understanding the Financial Crisis, 13 N.C. Banking Inst. 5, 55
(2009).   We acknowledge that the growth of loan securitization
in the years leading up to the financial crisis significantly
affected   the  allocation   of  risk  associated   with  under-
collateralized loans.    But that does not mean that banks are
fully insulated from the consequences of bad loans, and it is
enough here that loans in excess of home value continue to carry
risk for all parties involved.




                                       16
consumer loan agreement that waives debtor’s statutory right to

be free from publication of his indebtedness).

       Our belief that the West Virginia Supreme Court of Appeals

would    not     recognize         loan     size,        by    itself,     as     evidence   of

substantive unconscionability is confirmed when we consider the

problems       that     would       arise      in      fashioning     a    remedy     in   such

circumstances.             In the typical case, when what is challenged is

a particular contract term — say, a rate of interest, or a

prepayment penalty — courts may sever the unconscionable term or

reform it to avoid an “unconscionable result.”                              See W. Va. Code

§ 46A-2-121(1)(b).                 But    here,        the    only   way    to     avoid   what

McFarland alleges is the unconscionable feature of having been

loaned too much money would be to cancel the loan agreement

altogether — which would spare McFarland a foreclosure but also

require that he return the loan principal to Wells Fargo, which

is of course the very outcome he seeks to avoid.                                  See Quicken

Loans,     Inc.       v.    Brown,       777    S.E.2d        581,   592    (W.     Va.    2014)

(“Quicken Loans II”) (requiring return of loan principal as part

of remedy for unconscionable loan agreement).                             The West Virginia

Supreme Court of Appeals has been clear that “cancellation of

the debt” — relieving McFarland of the obligation to repay his

Wells Fargo Loan altogether — “is not a permissible remedy” in

circumstances like these.                   See Quicken Loans II, 777 S.E.2d at

591.     And      with      that    off     the     table     and    no    good    alternative

                                                  17
proposed, we think it unlikely that the West Virginia Supreme

Court of Appeals would reach out to create a new variant of

substantive unconscionability for which there appears to be no

sensible remedy.    Cf. Mallet v. Pickens, 522 S.E.2d 436, 441 n.6

(W. Va. 1999) (interpreting West Virginia common law to avoid an

“illogical, counterintuitive outcome”). 5

                                    2.

     McFarland also continues to press his alternative theory of

substantive    unconscionability:    that   his   contract   with   Wells

Fargo is substantively unconscionable under West Virginia law

because the Wells Fargo Loan did not provide him a “net tangible

benefit.”     Like the district court, we think it is clear that

the “net tangible benefit” inquiry to which McFarland alludes is

     5 Like the district court, we acknowledge that some federal
courts in West Virginia appear to have reached a different
conclusion, holding or assuming, without significant analysis,
that   a mortgage’s    size  may  be   evidence  of   substantive
unconscionability.  See, e.g., Petty v. Countrywide Home Loans,
Inc., No. 3:12-cv-6677, 2013 WL 1837932, at *5 (S.D.W. Va. May
1, 2013).   The district court distinguished those cases on the
ground that they arose prior to discovery, and that early
dismissal of the cases would have been inconsistent with the
WVCCPA’s policy of allowing unconscionability claims to proceed
through discovery.    See McFarland, 19 F. Supp. 3d at 672–73
(citing W. Va. Code § 46A-2-121(2) (“[T]he parties shall be
afforded a reasonable opportunity to present evidence . . . to
aid     the   court     in   making    the    [unconscionability]
determination.”)).   And regardless, we agree with the district
court that the cases are unpersuasive on the merits, see id. at
672, decided without sustained examination of the issue and
providing no reason to think that West Virginia would apply its
law in this manner.



                                    18
irrelevant to substantive unconscionability under West Virginia

law.

       McFarland       appears   to     have    borrowed    the    “net        tangible

benefit” test he proposes from West Virginia’s anti-predatory

lending statute, which prohibits mortgage brokers from charging

certain fees “unless the new loan has a reasonable, tangible net

benefit to the borrower considering all of the circumstances.”

See W. Va. Code § 31-17-8(d).                  But McFarland has not alleged

that the Wells Fargo Loan violated this provision, nor pointed

to   any   West     Virginia     case    law    borrowing    its       language    and

applying    it    in   the   very     different   context    of    a     §    46A-2-121

“unconscionable contract” claim.               Nor can we see any reason why

the “tangible net benefit” standard would be transposed to the

unconscionability context.              Again, unconscionability under West

Virginia law is concerned with whether a loan agreement is so

“one-sided” and “overly harsh” that it should not be enforced as

written.     Genesis Healthcare, 729 S.E.2d at 221.                          Whether a

contract provides either or both parties with a “tangible net

benefit” is an entirely separate question; contracts are made

all the time that include terms that might not provide either

party with a “net tangible benefit” yet remain fair and even-

handed — or at least fair and even-handed enough not to be

considered       substantively      unconscionable    under       West       Virginia’s

standard.        Cf. Pingley v. Perfection Plus Turbo-Dry, LLC, 746

                                          19
S.E.2d 544, 551–52 (W. Va. 2013) (contract between homeowner and

sewage    removal       company     not    substantively         unconscionable            even

though    it     disclaimed       liability      for    damages      caused      by    mold);

State ex rel. AT & T Mobility, LLC v. Wilson, 703 S.E.2d 543,

550–51     (W.    Va.     2010)    (arbitration         agreement’s        ban   on    class

actions does not render it substantively unconscionable). 6



                                           III.

      We turn now to McFarland’s contention that the district

court     erred    by     dismissing      his    unconscionable        contract            claim

solely     on     the   ground      that    he       could     not   show     substantive

unconscionability.            According         to    McFarland,      neither         of    his

unconscionable contract claims — that the loan agreement itself

was     unconscionable       when     made,      or     that    it    was     induced         by

unconscionable means — could be dismissed under West Virginia

law   without      some    assessment       of    the    fairness     of    the       process

leading up to contract formation.

      We agree, but only in part.                     Like the district court, we

think     West     Virginia        law     clearly       requires      a      showing        of

      6The Banks argue in the alternative that even if the
“tangible net benefit” standard were applicable here, it would
be satisfied, given that the Wells Fargo Loan allowed McFarland
to pay off his student and vehicle debt and thus reduce his
total monthly loan payments. Because we find that West Virginia
law does not call for an inquiry into “tangible net benefit” in
this context, we need not address that contention.



                                            20
substantive unconscionability to make out a traditional claim

that a contract is itself unconscionable.                          But we think it is

equally      plain        that     the     WVCCPA      authorizes         a       stand-alone

unconscionable          inducement       claim     which,    unlike       its       common-law

antecedents, may be based entirely on evidence going to process

and requires no showing of substantive unfairness.

                                              A.

      Having       found    that    McFarland        could     not    show        substantive

unconscionability, the district court granted the Banks summary

judgment      on    McFarland’s          unconscionable        contract           claim.        No

further analysis was required, the district court held, because

under      West    Virginia      law,     a   claimant      must     prove         substantive

unconscionability           in     order      to     prevail         on       a     claim       of

unconscionable contract.

      As    to     McFarland’s      first     unconscionable         contract           claim    —

that the loan agreement itself was unconscionable when made, see

W.   Va.    Code    §    46A-2-121(1)(a)         (courts     may     refuse        to   enforce

agreement that is “unconscionable at the time it was made”) — we

agree.       West       Virginia   law     clearly     requires       evidence          of   both

substantive and procedural unconscionability to make out this

traditional        unconscionability          claim,     now    codified           under     West

Virginia Code § 46A-2-121(1)(a).                   See, e.g., Genesis Healthcare,

729 S.E.2d at 221; Arnold, 511 S.E.2d at 861 n.6.                                   Given its

holding that McFarland could not show the requisite substantive

                                              21
unconscionability — with which we agree — the district court

properly awarded summary judgment to the Banks on McFarland’s

claim that his contract with Wells Fargo was unconscionable at

the time it was made.

       McFarland’s contrary argument rests on cases in which the

West    Virginia     Supreme   Court      of    Appeals    has       instructed       state

courts    against    dismissing     unconscionable         contract          claims   when

there    are    outstanding    issues      of    fact    relating       to    procedural

unconscionability.           See,     e.g.,      Herrod,       625    S.E.2d     at    379

(existence      of   questions      of    fact        regarding      grossly     unequal

bargaining      power     precludes      resolution       by    summary       judgment).

That     policy      is    driven        by     a      practical       concern         that

unconscionability claims are context-specific, so that evidence

of procedural unconscionability may in some cases also inform

the substantive unconscionability analysis.                       See Quicken Loans

I, 737 S.E.2d at 657; Arnold, 511 S.E.2d at 860–61.                             Whatever

its merits, that guidance is a matter of state civil procedure,

not substantive law, and does not bind a federal court sitting

in diversity.        Federal courts apply federal rules of procedure.

See Rowland v. Patterson, 852 F.2d 108, 110 (4th Cir. 1988).

And     under   Federal     Rule    of        Civil    Procedure       56,     the    only

requirement for summary judgment is that the movant be entitled

to judgment as a matter of law.                     Because McFarland could not

succeed on his claim that his contract with Wells Fargo was

                                          22
unconscionable when entered even accepting as true all of his

allegations regarding the bargaining process, the district court

properly awarded summary judgment to the Banks.

                                                  B.

      We reach a different conclusion with respect to McFarland’s

claim of unconscionable inducement.                           Though the question is not

fully    settled         under        West    Virginia       law,       we   believe      the      West

Virginia Supreme Court of Appeals would rule that the WVCCPA

authorizes         a    stand-alone          claim     for    unconscionable          inducement,

predicated on the process leading up to contract formation and

independent of any showing of substantive unconscionability.

      The terms of the WVCCPA are plain enough:                                   Section 46A-2-

121 authorizes a court to refuse enforcement of an agreement on

one     of    two         distinct           findings:        that       the      agreement         was

“unconscionable            at    the     time    it     was    made,         or   [that       it   was]

induced      by        unconscionable          conduct.”           W.    Va.      Code    §    46A-2-

121(1)(a) (emphasis added).                     What makes the question interesting

is    the    interplay           between        West     Virginia’s            unconscionability

common       law        and     the     codification          of        an     unconscionability

provision         in     the    WVCCPA.          At    common        law,      some   showing        of

substantive             unconscionability              is     a      prerequisite             to     an

unconscionability claim.                     And it is settled as a matter of West

Virginia law that the same requirement applies to claims under

the first part of § 46A-2-121(1)(a), alleging that a contract

                                                  23
was   “unconscionable          at     the       time       it     was   made.”        See   Credit

Acceptance Corp. v. Front, 745 S.E.2d 556, 559, 564 (W. Va.

2013).    So the question is whether the second part of § 46A-2-

121(1)(a),        covering          contracts           “induced         by      unconscionable

conduct,”    is    to     be       read    as    diverging          from      this   traditional

understanding       and        authorizing             a     claim      for      unconscionable

inducement     that      does       not     require          a     showing     of    substantive

unconscionability.             See id. at 571 (Ketchum, J., concurring)

(noting     that        legislature             has        suggested       that      substantive

unconscionability is not required and urging court to clarify

the matter).

      For several reasons, we think the West Virginia Supreme

Court of Appeals would answer this question in the affirmative.

First, it has come very close to doing so already.                                   In its 2012

decision in Quicken Loans I, the court sustained findings of

“unconscionability in the inducement” based entirely on conduct

predating acceptance of the contract and allegations going to

the   fairness     of        the    process,          without       regard     to    substantive

unconscionability: a “false promise” of refinancing, the sudden

introduction       of    a    balloon       payment          at    closing,      a   negligently

conducted    appraisal         review,          and    other       similar      factors.       737

S.E.2d    at       657–58.                Because          the      court’s         analysis   of

unconscionable inducement was only one portion of its overall

unconscionability analysis — which also reflected that the loan

                                                 24
agreement included several substantively unconscionable terms,

id. at 658 — we will err on the side of caution and treat it as

something less than a clear holding on the question.                      But at a

minimum,     it   is    a   strong   indication   that   the      West    Virginia

Supreme Court of Appeals understands the WVCCPA to allow for

unconscionable         inducement    claims   separate      and     apart       from

substantive unconscionability.

      Second, the West Virginia Supreme Court of Appeals takes a

plain meaning approach to statutory construction:                    “Where the

language of a statutory provision is plain, its terms should be

applied as written.”         DeVane v. Kennedy, 519 S.E.2d 622, 632 (W.

Va. 1999).        And the language of the WVCCPA fits the bill.                  It

expressly authorizes courts to refuse to enforce an agreement

that they find “to have been unconscionable at the time it was

made, or to have been induced by unconscionable conduct.”                        W.

Va.   Code   §    46A-2-121(1)(a)     (emphasis   added).      The       word   “or”

unmistakably signals two distinct causes of action when it comes

to consumer loans: one for unconscionability in the loan terms

themselves, and one for unconscionable conduct that causes a

party to enter into a loan.           If the legislature had intended to

require both substantive and process-related unconscionability,

subjecting creditors to liability only where an agreement itself

is unconscionable, then all it had to do was replace the “or”

with an “and.”         Cf. U.S. Life, 301 S.E.2d at 173 (engaging in

                                        25
same plain meaning analysis of § 46A-2-121(1)(a) and rejecting

defendant’s        argument     that         it      allows       claims        only      for

unconscionable       inducement        and        not     also     for       substantively

unconscionable contract terms).

      Finally, the West Virginia courts have advised that the

comments      to   the   Uniform      Consumer          Credit    Code       (“UCCC”)     are

“highly      instructive”     when    it     comes      to     construing      § 46A-2-121

because      its   unconscionability          provisions         are     “identical”      to

those of the statute.           Quicken Loans I, 737 S.E.2d at 656–57.

And the comments to the UCCC not only indicate that a stand-

alone unconscionable inducement claim exists, but also explain

its purpose:

      Subsection (1), as does UCC Section 2-302, provides
      that a court can refuse to enforce or can adjust an
      agreement   or   part   of   an  agreement   that  was
      unconscionable on its face at the time it was made.
      However, many agreements are not in and of themselves
      unconscionable according to their terms, but they
      would never have been entered into by a consumer if
      unconscionable means had not been employed to induce
      the consumer to agree to the contract. It would be a
      frustration of the policy against unconscionable
      contracts for a creditor to be able to utilize
      unconscionable   acts   or  practices   to  obtain  an
      agreement.   Consequently subsection (1) also gives to
      the court the power to refuse to enforce an agreement
      if it finds as a matter of law that it was induced by
      unconscionable conduct.

Unif.   Consumer     Credit     Code       1974    §    5.108     cmt.    1.       That   is

McFarland’s argument in a nutshell: that regardless of whether

his   loan    agreement     with     Wells    Fargo       is    “in    and    of   [itself]


                                            26
unconscionable            according          to        [its]     terms”        —      that       is,

substantively        unconscionable           —    § 46A-2-121(1)(a)               allows    for    a

finding    of    unconscionability                if    “unconscionable            means    [were]

employed to induce [him] to agree to the contract.”                                       Id.      It

appears    that      the    West    Virginia           legislature       adopted       precisely

this approach, and we think that the West Virginia Supreme Court

of Appeals would so hold.

       Reading       § 46A-2-121(1)(a)                 to   allow      for     a     stand-alone

unconscionable inducement claim, we should note, is in no way

inconsistent         with        West        Virginia          precedent       holding          that

procedural unconscionability alone cannot show that a contract

was itself unconscionable when made.                            The kind of procedural

unconscionability           that        is     required          (in     combination            with

substantive unconscionability) to render a contract or contract

term unconscionable in and of itself may turn on such “status”

factors as the “relative positions of the parties, the adequacy

of the bargaining position, [and] the meaningful alternatives

available to the plaintiff.”                       Quicken Loans I, 737 S.E.2d at

657.      We    of   course      leave       to    West       Virginia       law    the     precise

contours of an unconscionable inducement claim, but it appears

that it will turn not on status considerations that are outside

the    control       of    the     defendant,           but     instead       on     affirmative

misrepresentations or active deceit.                            See id. at 653–55, 657

(unconscionable inducement findings include lender’s concealment

                                                  27
of balloon payment and false promise to allow refinancing).                                As

McFarland         concedes,      in     other     words,        the     standard           for

unconscionable inducement is different and higher than that for

procedural unconscionability.

       Accordingly,        we   hold    that     the    district       court       erred    in

dismissing McFarland’s claim of unconscionable inducement on the

ground       that    substantive        unconscionability          is        a    necessary

predicate of a finding of unconscionability under the WVCCPA.

We    take   no     view   as   to    the   underlying        merits    of       McFarland’s

unconscionable        inducement       claim,     and    remand    to    the       district

court to consider McFarland’s evidence that his loan agreement

was    “induced      by    misrepresentations”          and   determine          whether    it

allows him to proceed against the Banks. 7




       7
       In a separate count of his complaint, McFarland sought to
hold the Banks liable for unconscionable contract under agency
and joint venture theories.   The district court dismissed that
count of the complaint on the ground that McFarland had failed
to make the necessary showing of unconscionability.   McFarland,
19 F. Supp. 3d at 674 (“Here, joint venture and agency may not
be used to impose liability for unconscionable contract [], as
that claim is dismissed.”). Accordingly, we vacate that portion
of the district court’s judgment, as well, and remand for
reconsideration of McFarland’s joint venture and agency claims
in light of this opinion.



                                            28
                               IV.

     For the foregoing reasons, we affirm the judgment of the

district court in part and vacate and remand in part.



                                                AFFIRMED IN PART,
                                                 VACATED IN PART,
                                                     AND REMANDED




                               29
