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Arnold v. United Companies Lending Corp.
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 1998 Term
No. 25053
ORVILLE ARNOLD and MAXINE ARNOLD
Plaintiffs,

v.
UNITED COMPANIES LENDING CORPORATION,
a corporation, and MICHAEL T. SEARLS,
an individual,
Defendants.

____________________________________________
Certified Questions from the
Circuit Court of Lincoln County
Honorable J. M. Hoke, Judge
Civil Action No. 97-C-74

CERTIFIED QUESTIONS ANSWERED ____________________________________________
Submitted: September 16, 1998
Filed: December 11, 1998

Daniel F. Hedges, Esq.  W. Michael Moore, Esq. Mountain State Justice, Inc.                       Rita Massie Biser, Esq. Charleston, West Virginia                          Kay, Casto, Chaney, Love & Wise Attorney for Plaintiffs                                Charleston, West Virginia Charleston, West Virginia                         Attorneys for Defendant United
                                                                 Companies Lending Corporation
JUSTICE McCUSKEY delivered the Opinion of the Court and was joined by CHIEF JUSTICE DAVIS and JUSTICES WORKMAN, STARCHER, and MAYNARD.
JUSTICE McGRAW did not participate in the decision of this case.
SYLLABUS BY THE COURT
1.
"The appellate standard of review of questions of law answered and certified by a circuit court is de novo." Syl. pt. 1, Gallapoo v. Wal-Mart Stores, Inc., 197 W.Va. 172, 475 S.E.2d 172 (1996).

2.
"'"In a certified case, this Court will not consider certified questions not necessary to a decision of the case." Syllabus Point 6, West Virginia Water Serv. Co. v. Cunningham, 143 W.Va. 1, 98 S.E.2d 891 (1957).' Syllabus Point 7, Shell v. Metropolitan Life Ins. Co., 181 W.Va. 16, 380 S.E.2d 183 (1989)." Syl. Pt. 5, Anderson v. Moulder, 183

W.Va. 77, 394 S.E.2d 61 (1990).

3.
"'The legislature in enacting the West Virginia Consumer Credit and Protection Act, W.Va. Code, 46A-1-101, et seq., in 1974, sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act. To further this purpose the legislature, by the express language of W.Va. Code, 46A-5-101 (1), created a cause of action for consumers and imposed civil liability on creditors who include unconscionable terms that violate W.Va. Code, 46A-2-121 in consumer agreements.' Syl. pt. 2, U.S. Life Credit Corp. v. Wilson, 171 W.Va. 538, 301 S.E.2d 169 (1982)." Syl. pt. 1, Orlandlo v. Finance One of' West Virginia, Inc., 179 W.Va. 447, 369 S.E.2d 882 (1988).

4.
"A determination of unconscionability must focus on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the plaintiff, and 'the existence of unfair terms in the contract.'" Syl. pt. 4, Art's Flower Shop, Inc. v. Chesapeake and Potomac Tel. Co., 186 W. Va. 613, 413 S.E.2d 670 (1991).

5.
Where an arbitration agreement entered into as part of a consumer loan transaction contains a substantial waiver of the borrower's rights, including access to the courts, while preserving the lender's right to a judicial forum, the agreement is unconscionable and, therefore, void and unenforceable as a matter of law.

6.
"If the language of an enactment is clear and within the constitutional authority of the law-making body which passed it, courts must read the relevant law according to its unvarnished meaning, without any judicial embroidery." Syl. pt. 3, in part, West Virginia Health Care Cost Review Auth. v. Boone Mem. Hosp., 196 W. Va. 326, 472 S.E.2d 411 (1996).

7.
"A broker must act with the utmost good faith towards his principal and is under a legal obligation to disclose to his principal all facts within his knowledge which are or may be material to the transaction in which he is employed or which might influence action of his principal in relation to such transaction." Syl. Pt. 2, Moore v. Turner, 137 W. Va. 299, 71 S.E.2d 342 (1952).

8.
"'One of the essential elements of an agency relationship is the existence of some degree of control by the principal over the conduct and activities of the agent.' Syl. Pt. 3, Teter v. Old Colony Co., 190 W. Va. 711, 441 S.E.2d 728 (1994)." Syl. pt. 2, Thomson v. McGinnis, 195 W. Va. 465,465 S.E.2d 922 (1995).


McCuskey, Justice:
        This Court is presented with three certified questions from the Circuit Court of Lincoln County. In the action before the circuit court, the plaintiffs, Orville Arnold and Maxine Arnold, seek declaratory and other relief against the defendants, United Companies Lending Corporation (hereinafter "United Lending") and Michael Searls. The Arnolds contend that an arbitration agreement, which they signed as part of a loan transaction, is void and unenforceable on several grounds. The relevant issues concern the validity of an arbitration agreement in the context of a consumer loan and the duties of loan brokers to prospective borrowers. Specifically, the certified questions state:
1.
Whether a circuit court, upon being presented with a consumer credit contract requiring compulsory arbitration, should bifurcate the proceedings or otherwise make an initial determination as to the validity of the compulsory arbitration clause prior to proceeding with the remainder of the underlying substantive issues in the case.

2.
Whether this compulsory arbitration clause in the context of a form document signed by a consumer in a consumer credit context which contains substantial waiver of substantive rights while preserving to the creditor a judicial forum is so one -sided as to be void as a matter of law.

3.
Whether a loan broker owes a fiduciary duty to prospective borrowers (a) to provide a written agreement describing the services and agreements between them, (b) to give them an opportunity to consider and cancel the agreement, (c) to inform them of the cost of the broker's services, (d) to disclose the loan options and risks available to them, and (e) to act as an agent of the borrower and not of the lender.


The circuit court answered each of these questions in the affirmative.
I.
Factual and Procedural Background

        On September 17, 1996, Michael SearIs came to the residence of Orville and Maxine Arnold, an elderly couple living in Lincoln County, West Virginia. Searls offered to arrange a loan for the Amolds, acting as a loan broker. At the conclusion of this encounter, the Arnolds paid Searls $50.00 to begin processing their loan.See footnote 1 1
        Thereafter, SearIs procured a loan for the Arnolds from United Lending, and on October 18, 1996, the loan closing occurred. Out of the loan proceeds, a mortgage broker fee of $940.00 was paid to Searls and/or Accent Financial Services, with which Searls is affiliated.
        At the loan closing, United Lending had the benefit of legal counsel, while the Arnolds apparently did not. During the course of the transaction, the Arnolds were presented with more than twenty-five documents to sign. Among these documents were a promissory note, reflecting a principal sum of $19,300.00 and a yearly interest rate of 12.990%; a Deed of Trust, giving United Lending a security interest in the Arnolds' real estate; and a two-page form labeled "Acknowledgment and Agreement to Mediate or Arbitrate." It is this arbitration agreement that is at the center of the parties' dispute.
        The arbitration agreement stated, in ordinary type, that "all . . . legal controversies [that are not resolved by mediation] . . . relating to the extension of credit (the 'Loan') by Lender to Borrower . . . including . . . the validity and construction of this arbitration provision shall be resolved solely and exclusively by arbitration. "In addition, the agreement conspicuously stated in all capital letters:
        THE ARBITRATION WILL TAKE THE PLACE OF ANY COURT PROCEEDING INCLUDING A TRIAL BEFORE A JUDGE AND JURY DAMAGES SHALL BE LIMITED TO ACTUAL AND DIRECT DAMAGES AND SHALL IN NO EVENT INCLUDE CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR TREBLE DAMAGES AS TO WHICH BORROWER AND LENDER EXPRESSLY WAIVE ANY RIGHT TO CLAIM TO THE FULLEST EXTENT PERMITTED BY LAW.
Returning to regular type, the agreement continued: "The award rendered by the arbitration shall be final, nonappealable and judgment may be entered upon it . . . in any court having jurisdiction," and the "arbitration proceedings are confidential." However, application of the agreement was expressly limited by the following language:
        [T]his Agreement to . . . arbitrate shall not apply with respect to either (i) the Lender's right . . . to submit and to pursue in a court of law any actions related to the collection of the debt; (ii) foreclosure proceedings . . ., proceedings pursuant to which Lender seeks a deficiency judgment, or any comparable procedures allowed under applicable law pursuant to which a lien holder may acquire title to the Property which is security for this loan and any related personal property . . . upon a default by the Borrower under the mortgage loan documents; or (iii) an application by or on behalf of the Borrower for relief under the federal bankruptcy laws of [sic] any other similar laws of general application for the relief of debtors . . . .See footnote 2 2
        Sometime between January and May of 1997, the ArnoIds paid off their loan from United Lending. Although this Court is cognizant of the seeming inconsistency between the Arnolds' repayment of that loan and their maintenance of a lawsuit against United Lending, this matter is before us upon only a limited record for the resolution of certified questions. Thus, we must presume, despite the fact that the loan has been repaid, that some controversy remains before the circuit court.
        On July 10, 1997, the Arnolds filed suit against United Lending and Searls, seeking, inter alia, a declaratory judgment adjudging the arbitration agreement to be void and unenforceable. On August 11, 1997, United Lending moved to dismiss the entire action, with prejudice, on the basis of the compulsory arbitration agreement. On September 19, 1997, United Lending filed a notice of withdrawal of its motion to dismiss. On or about September 22, 1997, the Arnolds moved for partial summary judgment against United Lending, seeking a declaratory judgment that the "arbitration clause" is void and unenforceable. As result of United Lending's motion to dismiss and the Arnolds' motion for partial summary judgment, the circuit court certified the above questions to this Court. See W. Va. Code

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