SER Ocwen Loan Servicing v. Hon. Carrie Webster, Judge
752 S.E.2d 372
W. Va.2013Background
- In 2006 the Currys obtained an adjustable-rate mortgage and signed a deed of trust plus an arbitration rider incorporated into the loan documents.
- Ocwen later serviced the loan and assessed various fees; the Currys sued in 2011 under the West Virginia Consumer Credit and Protection Act (WVCCPA), seeking class treatment and damages/fees.
- Ocwen moved to compel individual arbitration and either dismiss or stay the case; the circuit court denied the motion, ruling the arbitration clause unenforceable under the Dodd‑Frank Act and as unconscionable.
- Ocwen petitioned this Court for a writ of prohibition to prevent enforcement of the circuit court order and to compel arbitration.
- The Supreme Court of Appeals held that the Dodd‑Frank arbitration ban does not apply retroactively to void an arbitration agreement formed in 2006, and that the arbitration rider was not procedurally or substantively unconscionable.
Issues
| Issue | Plaintiff's Argument (Currys) | Defendant's Argument (Ocwen) | Held |
|---|---|---|---|
| Whether Dodd‑Frank §1414/15 U.S.C. §1639c(e) invalidates pre‑enactment arbitration clauses | Dodd‑Frank prohibits arbitration clauses in residential mortgage contracts and therefore voids the 2006 rider | Dodd‑Frank should not be applied retroactively to contracts formed before enactment; arbitration is a contractual right | Court: Dodd‑Frank does not apply retroactively; applying it would impair contractual rights and upset settled expectations; circuit court erred |
| Procedural unconscionability of the arbitration rider | The Currys were unsophisticated, lacked counsel, and faced a form contract of adhesion | The rider explicitly states it is voluntary and borrowers could decline without losing the loan; no record support of lack of sophistication | Court: No evidence of procedural unconscionability; conspicuous voluntary/decline language and no proof Currys were incapable of assent |
| Substantive unconscionability — class‑action waiver | Waiver prevents vindication of small claims and deters enforcement; class relief necessary | West Virginia precedent and Supreme Court authority hold class‑action waivers do not automatically render arbitration clauses unconscionable | Court: Class‑action waiver not unconscionable; Italian Colors and prior state decisions support enforceability |
| Substantive unconscionability — attorney’s fees, mutuality, discovery limits | Fee‑limitation and lack of mutuality plus limited discovery together prevent effective vindication of statutory rights | Fee clause applies equally, WVCCPA awards fees discretionary, exclusions (foreclosure etc.) preserve lender’s statutory remedies, discovery limits are inherent in arbitration | Court: Fee provision not unconscionable (mutual, discretionary statutory fee), exclusions for lender remedies and stay/compel language do not destroy mutuality, and speculative/typical discovery limits do not make clause unconscionable |
Key Cases Cited
- Brown v. Genesis Healthcare Corp., 228 W. Va. 646, 724 S.E.2d 250 (W. Va. 2011) (treat arbitration agreements as contracts; standards for enforcing under FAA)
- Brown v. Genesis Healthcare Corp., 229 W. Va. 382, 729 S.E.2d 217 (W. Va. 2012) (sliding‑scale test for procedural and substantive unconscionability)
- Dan Ryan Builders, Inc. v. Nelson, 230 W. Va. 281, 737 S.E.2d 550 (W. Va. 2012) (mutuality of obligation is central to substantive unconscionability analysis)
- State ex rel. Richmond Am. Homes of W. Va., Inc. v. Sanders, 228 W. Va. 125, 717 S.E.2d 909 (W. Va. 2011) (class‑action waiver alone does not render arbitration clause unconscionable)
- Landgraf v. USI Film Prods., 511 U.S. 244 (U.S. 1994) (framework for determining whether a statute applies retroactively)
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (U.S. 1991) (arbitration may be compelled for statutory claims; arbitration trades procedures for informality and expedition)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that categorically invalidate arbitration agreements, including class waiver rules)