612 B.R. 349
Bankr. N.D.W. Va.2020Background
- In 2007 the Davids purchased property from Haywood under a land-installment contract; after default Haywood declared that contract void and in 2008 sold the property to the Davids (and two others) under a $149,000 purchase financed by Haywood (promissory note at 9.75%, deed of trust, and an unrecorded deed in lieu of foreclosure executed at closing).
- The 2008 contract called for monthly payments and a large balloon due July 1, 2013; late fees of $50 per occurrence were included. Payments and collection communications occurred intermittently from ~2011–2017; foreclosure was noticed for June 2017; Debtors filed Chapter 13 in April 2018.
- Plaintiffs (the Davids and Christina’s father Glus) sued Haywood in this adversary proceeding raising seven counts: (I) equitable reformation/unconscionability, (II) illegal transaction (cognovit/deed in lieu), (III) usury, and (IV–VII) various WVCCPA claims for misrepresentation, unauthorized charges, threats/unconscionable collection, and post-representation communications.
- Cross-motions for summary judgment were filed: Haywood sought judgment on all counts; Plaintiffs sought judgment on Counts II, IV, V, VI, VII. The court resolved the motions on the written record.
- Court disposition on summary judgment: Grants Haywood summary judgment on Counts II (illegal transaction) and III (usury); denies Haywood summary judgment as to Counts I, IV, V, VI, VII; denies Plaintiffs’ summary judgment as to II, IV, V, VI, VII. Count V trial scope narrowed to whether WV Code § 46A-3-112 applies (late-fee cap).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Count I — Equitable reformation / unconscionability | Contract was adhesive; plaintiffs unsophisticated; terms (balloon, $50 late fee, cognovit/deed-in-lieu) were hidden and designed to cause forfeiture | Contract terms were known/negotiated (Glus had experience), plaintiffs lived on property, received title, and defendant extended balloon; no procedural or substantive unconscionability as a matter of law | Denied Haywood SJ on Count I — factual disputes preclude summary judgment; trial required on unconscionability |
| Count II — Illegal transaction (existence of deed in lieu/cognovit) | Merely requiring execution of an unenforceable cognovit/deed-in-lieu is an illegal transaction actionable in damages | Deed in lieu was never enforced; mere existence is not a standalone private cause of action under WV law | Granted Haywood SJ on Count II — Plaintiffs failed to identify a cognizable private cause of action based solely on the document’s existence |
| Count III — Usury (9.75% interest) | Characterize transaction (invoke time-price doctrine) to challenge rate or create fact issues | West Virginia Lending and Credit Rate Board order permits up to 18%; 9.75% lawful; time-price doctrine inapplicable because transaction was a note secured by deed of trust and not a land-installment contract | Granted Haywood SJ on Count III — 9.75% lawful under §47A-1-1(g) board order; no evidentiary basis to invoke time-price doctrine to defeat summary judgment |
| Counts IV–VII — WVCCPA claims (misrepresentation of amounts/due dates; unauthorized late fees; threats re: deed-in-lieu; contacting after counsel retained) | Misstatements about amount/due date, repeated $50 late fees (21+), threats to use invalid deed-in-lieu, and direct contacts after counsel notice violated WVCCPA provisions | Some communications were to counsel; late fees applied under 2008 note timing (10-day grace) and may be lawful; deed-in-lieu not enforced; factual disputes about account credits and about whether counsel’s delay authorized direct contact | Denied summary judgment for both sides on Counts IV, V, VI, VII — material factual disputes exist; Count V narrowed so trial will decide whether §46A-3-112 caps late fee and whether that creates a §46A-2-127 violation |
Key Cases Cited
- A.B. Farquhar Co. v. Dehaven, 75 S.E. 65 (W. Va. 1912) (advance confession-of-judgment instruments void outside authorized process)
- Carper v. Kanawha Banking & Tr. Co., 207 S.E.2d 897 (W. Va. 1974) (time-price doctrine analysis and burden of proof for usury claims)
- Stonebraker v. Zinn, 286 S.E.2d 911 (W. Va. 1982) (distinguishing land-installment contracts from note+deed-of-trust sales for time-price/usury analysis)
- Dennison v. Jack, 304 S.E.2d 300 (W. Va. 1983) (distinguishing confession-of-judgment issues from nonjudicial deed-of-trust foreclosure procedures)
- Nationstar Mortg., LLC v. West, 785 S.E.2d 634 (W. Va. 2016) (statutory foreclosure procedures affect enforceability and unconscionability analysis)
- D. H. Overmyer Co. Inc. v. Frick Co., 405 U.S. 174 (1972) (Supreme Court discussion of cognovit clauses and due process)