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advocating for a new rule stating that “a claim of unconscionability can be supported by proving unfairness in the contract that is either procedural, substantive or a combination of both”
Summary of this case from Rockwell Mining, LLC v. Pocahontas Land LLCOpinion
No. 19-0171
04-01-2021
HORIZON VENTURES OF WEST VIRGINIA, INC., a West Virginia Corporation, Plaintiff Below, Petitioner v. AMERICAN BITUMINOUS POWER PARTNERS, L.P., Defendant Below, Respondent
Mark A. Kepple, Bailey & Wyant, PLLC, Wheeling, West Virginia, Attorney for the Petitioner. John F. McCuskey, Roberta F. Green, Shuman, McCuskey, & Slicer PLLC, Charleston, West Virginia, Attorneys for the Respondent.
Mark A. Kepple, Bailey & Wyant, PLLC, Wheeling, West Virginia, Attorney for the Petitioner.
John F. McCuskey, Roberta F. Green, Shuman, McCuskey, & Slicer PLLC, Charleston, West Virginia, Attorneys for the Respondent.
Jenkins, Chief Justice: On June 25, 1987, Petitioner Horizon Ventures of West Virginia ("Horizon") and Respondent American Bituminous Power Partners ("AMBIT") entered into a Contract and Agreement ("consulting agreement") whereby Horizon was to "provide expertise and consulting services" to AMBIT in exchange for the annual sum of $50,000.00 "as long as [the AMBIT Grant Town Power Plant] continues to produce power." The parties operated under this agreement from 1987 until 2018 when AMBIT refused to continue to pay Horizon. Upon this refusal to pay, Horizon instituted a breach of contract action against AMBIT. After a limited amount of discovery, in its order dated January 30, 2019, the circuit court granted AMBIT's motion for summary judgment finding that the consulting agreement was substantively unconscionable and violative of public policy. On appeal, Horizon asserts that the circuit court erred by finding the consulting agreement to be unconscionable. AMBIT contends to the contrary that the circuit court correctly resolved the matter by finding the consulting agreement substantively unconscionable and granting it summary judgment.
Upon careful consideration of the briefs and arguments of counsel, the record accompanying the appeal, the pertinent facts, and the relevant law, we find that the circuit court erred in finding the consulting agreement unconscionable without finding both procedural and substantive unconscionability. Accordingly, we reverse the summary judgment order and remand the case for further proceedings consistent with this opinion.
I.
FACTUAL AND PROCEDURAL HISTORY
The parties entered into a consulting agreement on June 25, 1987. The relevant portions of the consulting agreement are as follows. AMBIT was "engaged in a venture of establishing one or more electric power plants in the State of West Virginia[.]" The parties "negotiated an agreement wherein [Horizon] will provide expertise and consulting services within its field to [AMBIT] in its projects in West Virginia[.]" In particular, it was agreed that Horizon
Aside from this consulting agreement, in the 1980s Horizon and AMBIT entered into a separate landlord-tenant lease agreement wherein AMBIT operates the Grant Town Power Plant on a parcel of property owned by Horizon. See Am. Bituminous Power Partners, L.P. v. Horizon Ventures of W. Va., Inc. , No. 14-0446, 2015 WL 2261649, at *1-2 (W. Va. May 13, 2015) (memorandum decision). The lease agreement has been amended and restated on numerous occasions. Id. at *2. The terms of this agreement have no relevance to the matter presently before us.
[w]ill perform from time to time upon the reasonable request of [AMBIT], such public and governmental relations and liaison functions as are necessary or incident to aiding and assisting [AMBIT] in locating, permitting, licensing, developing, maintaining[,] and operating power plants in the State of West Virginia and will further aid in such other ventures as locating coal "gob" and all like coal resources when the same may be needed by [AMBIT].
In exchange for these services, AMBIT agreed to pay an initial sum of $50,000.00 once AMBIT had completed the construction of its initial power plant, the Grant Town Power Plant in Grant Town, West Virginia. AMBIT agreed to pay the same $50,000.00 sum each succeeding year "as long as said power plant continue[d] to produce power." The consulting agreement "set[ ] forth the entire understanding and agreement between the parties. It may not be amended, terminated[,] or otherwise changed except by a writing signed by both parties." Lastly, the consulting agreement was "binding on the parties [ ], their successors[,] and assigns." The president of AMBIT, Richard J. Halloran ("Mr. Halloran"), signed the consulting agreement on behalf of AMBIT, and Horizon's then-president, Andrew Noshagya, Jr. ("Mr. Noshagya"), signed it on behalf of Horizon.
The appendix record before us includes an unexecuted amendment to the consulting agreement. For the purposes of this appeal, the amendment is not relevant.
The consulting agreement was also signed by Peter A. McGrath, president of Hydro Management Corp. However, this has no relevance to the current appeal.
For approximately the next thirty years, the parties operated pursuant to the consulting agreement. However, by 2017, AMBIT asserts that the parties’ relationship had deteriorated and Horizon had filed various lawsuits against AMBIT. On December 26, 2017, Horizon sent AMBIT its annual invoice for the $50,000.00, pursuant to the consulting agreement, requesting that the money be paid no later than January 15, 2018. By letter dated January 27, 2018, AMBIT's executive director responded to Horizon noting that their relationship had become "considerably strained over the past several years due primarily to the ongoing litigation." Additionally, AMBIT stated that it
There is a significant amount of discussion throughout the pleadings, filings, and depositions below that address the litigation history between the parties. Essentially, AMBIT asserts that over the years Horizon has instituted litigation against it on several occasions. AMBIT avers that during these times of litigation, Horizon has disparaged AMBIT and broken any trust between the two entities.
The invoice provides that the payment was due no later than January 15, 2017; however, this appears to be a typographical error.
ha[s] been engaged before the [Public Service Commission] in a battle for [its] very existence, and part of that process has mandated that [it] review every invoice with an eye to value for services rendered. With that in mind, we have taken a frank and full look at the relationship between us and at the Consulting Agreement. Given the realities of both, we believe the Consulting Agreement has no value to [AMBIT] and that it is time to disband the Agreement and simplify our relationship to just landlord-tenant.
On May 14, 2018, as a result of AMBIT's failure to pay the annual $50,000.00, Horizon filed a complaint for breach of contract in the Circuit Court of Marion County. Essentially, the complaint recounted the terms of the consulting agreement. Furthermore, the complaint alleged the following: (1) AMBIT has paid the amount due under the agreement to Horizon each and every year since the parties entered the agreement in 1987; (2) Horizon "has and remains able and ready to perform under the contract[;]" and (3) AMBIT has failed to pay Horizon for the current year in breach of the consulting agreement.
AMBIT responded to the complaint on June 13, 2018, with a motion to dismiss or, in the alternative, for summary judgment ("motion to dismiss") pursuant to Rules 12(b)(6) and 56 of the West Virginia Rules of Civil Procedure. AMBIT articulated several arguments to support the motion to dismiss, including but not limited to that the contract at issue was not enforceable because it was unconscionable, violated public policy, and was impossible to perform given that its purpose had been frustrated and the circumstances between the parties had changed. In reply, Horizon filed a memorandum in opposition and an affidavit of its current president, Stanley Sears ("Mr. Sears"), stating that he is familiar with the consulting agreement; that Horizon "stands ready[,] able[,] and willing to perform in good faith;" and that "the goals of the parties to the [c]ontract are similar and that ... it is in the best interest of both parties to keep the Grant Town Power Plant operated by [AMBIT] open, viable, and profitable."
A hearing on the motion to dismiss was held on August 7, 2018. By order dated August 14, 2018, the circuit court denied the motion to dismiss and deferred ruling on the motion for summary judgment until discovery in the matter had been conducted. Subsequently, on September 13, 2018, Mr. Sears, as president of Horizon, was deposed, and on November 30, 2018, Horizon's Rule 30(b)(7) deposition of Mr. Halloran, president of AMBIT, was conducted.
AMBIT filed a renewed motion for summary judgment in November 2018, based on several grounds. First, similar to the previous motion to dismiss, AMBIT asserted that the consulting agreement was "unenforceable as written because it is unconscionable, violative of public policy[,] and impossible to perform, given the frustration of its purpose and the changed circumstances between the parties." Relevant to this appeal, AMBIT averred that the circuit court should "refuse to enforce the Agreement based solely on the substantive unfairness of the agreement between the parties." (Footnote omitted). Horizon filed a response in opposition asserting only that the motion for summary judgment should not be granted at this stage because discovery had just begun and additional discovery was necessary. AMBIT filed a reply. On December 6, 2018, the circuit court held a hearing on the renewed motion for summary judgment. The circuit court granted the motion for summary judgment by order entered on January 30, 2019. In its order, the circuit court observed that the renewed motion for summary judgment was based on numerous grounds. The circuit court further noted that while "there may or may not be issues of fact were the case to survive summary judgment, the [c]ourt's decision turns wholly on a determination of law and thus, is ripe for summary judgment." Specifically, the circuit court based its decision "on its finding that the contract between the parties is unconscionable." It found AMBIT's remaining positions to be "too weighted in factual determinations for the [c]ourt to consider for purposes of summary judgment. The [c]ourt's decision [wa]s made only on one narrow issue of law."
The renewed motion for summary judgment was filed before a scheduling order was even entered in this matter, as the scheduling order was not entered until December 4, 2018.
With regard to unconscionability, the circuit court explained that pursuant to the law of West Virginia, the court must "analyze unconscionability of a contract term in terms of two component parts: procedural unconscionability and substantive unconscionability." The circuit court went on to find that
[n]either party assert[ed] that the relative positions of the parties or the adequacy of the bargaining positions by either party in 1987 was unconscionable. There is no allegation that sufficient experience, education, training, ability, or knowledge was lacking by either party at the initiation of the contract. Therefore, the focus of the Court's analysis is one of substantive unconscionability – specifically, a concern of the lack of meaningful alternatives and the existence of unfair terms in the contract.
The circuit court reasoned that the contract was substantively unconscionable because, "[a]s written, the contract will run in perpetuity with no end in sight absent one of two very specific occurrences." Those occurrences are: (1) the power plant at issue in the consulting agreement ceases to operate or (2) the contract may be terminated by the will of the parties through mutual consent of the parties and in writing. The court further remarked that there was "no evidence, suggestion, or allegation proffered by either party that there is any plan for or situation which would require the power station to cease operations." In addition, the court found the termination provision to be
so one-sided and favorable to [Horizon] that the lack of a unilateral escape clause, including notice and/or consequential provisions stemming from unilateral withdrawal, and a requirement of payment into what amounts to eternity but for cessation of business, regardless [of] the bargaining position of the parties, is so outrageous and oppressive that public policy mandates that the contract be disbanded rather than enforced.
Finally, the court with scant discussion, stated that despite the consulting agreement being unenforceable, AMBIT had waived its unconscionability argument until June 2018 when AMBIT first raised the issue of unconscionability in its alternative motions in response to Horizon's complaint. Accordingly, the court granted judgment to Horizon as to the fees due and owing for the 2018 year. This appeal followed.
AMBIT has not asserted a cross-assignment of error regarding this ruling.
We note that Horizon was originally represented by Gregory H. Schillace, who filed the briefing on Horizon's behalf in this matter. However, on September 21, 2020, this Court granted Mr. Schillace's motion to withdraw as counsel. On November 10, 2020, Mark A. Kepple filed his notice of substitution of counsel on Horizon's behalf. Mr. Kepple appeared at oral argument in this matter.
II.
STANDARD OF REVIEW
Horizon requests that we reverse the circuit court's grant of summary judgment to AMBIT. We have held that "[a] circuit court's entry of summary judgment is reviewed de novo. " Syl. pt. 1, Painter v. Peavy , 192 W. Va. 189, 451 S.E.2d 755 (1994). In undertaking a de novo review, we apply the same standard for granting summary judgment that is applied by the circuit court. Syl. pt. 3, Aetna Cas. & Sur. Co. v. Federal Ins. Co. of New York , 148 W. Va. 160, 133 S.E.2d 770 (1963). Pursuant to that standard,
"[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York , 148 W. Va. 160, 133 S.E.2d 770 (1963).
Syl. pt. 1, Andrick v. Town of Buckhannon , 187 W. Va. 706, 421 S.E.2d 247 (1992).
Furthermore, this Court has held that
[s]ummary judgment is appropriate if, from the totality of the evidence presented, the record could not lead a rational trier of fact to find for the nonmoving party, such as where the nonmoving party has failed to make a sufficient showing on an essential element of the case that it has the burden to prove.
Syl. pt. 2, Williams v. Precision Coil, Inc. , 194 W. Va. 52, 459 S.E.2d 329 (1995). Finally, a court is to apply a burden-shifting analysis to determine if summary judgment is warranted:
If the moving party makes a properly supported motion for summary judgment and can show by affirmative evidence that there is no genuine issue of a material fact, the burden of production shifts to the nonmoving party who must either (1) rehabilitate the evidence attacked by the moving party, (2) produce additional evidence showing the existence of a genuine issue for trial, or (3) submit an affidavit explaining why further discovery is necessary as provided in Rule 56(f) of the West Virginia Rules of Civil Procedure.
Syl. pt. 3, id. With these standards of review in mind, we will consider the parties’ arguments.
III.
DISCUSSION
Horizon raises a single assignment of error in this appeal: the circuit court erred in its determination that the June 25, 1987 consulting agreement was unconscionable. Horizon argues that the circuit court erred because without a finding of both procedural and substantive unconscionability, a contract cannot be determined to be unconscionable. On the other hand, AMBIT contends that the circuit court properly reached the right conclusion that the consulting agreement was unconscionable pursuant to West Virginia law and policy; Horizon did not raise the issue of procedural unconscionability below and is now precluded from doing so; and, despite the circuit court's failure to make an express finding on this point, this Court can find that the consulting agreement is also procedurally unconscionable. We agree with Horizon and find that the circuit court's summary judgment ruling was in error.
Horizon further asserted in this same assignment of error that the circuit court erred by granting summary judgment five months prior to the close of discovery "providing an insufficient record for the circuit court as well as this Court to make any determination as to the existence of substantive unconscionability based upon the totality of the interactions between the [parties]." Given our disposition, we need not examine this issue.
This Court's law regarding the doctrine of unconscionability is well-established. In Brown v. Genesis Healthcare Corp. , 229 W. Va. 382, 729 S.E.2d 217 (2012) (" Brown II "), we adopted several syllabus points regarding the doctrine of unconscionability and how to analyze both procedural and substantive unconscionability. In Syllabus point 4 of Brown II , we defined the doctrine of unconscionability and held that
"[t]he doctrine of unconscionability means that, because of an overall and gross imbalance, one-sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce the contract as written. The concept of unconscionability must be applied in a flexible manner, taking into consideration all of the facts and circumstances of a particular case." Syllabus Point 12, Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011).
229 W. Va. 382, 729 S.E.2d 217. We went even further by holding in Syllabus point 9 of Brown II that
"[a] contract term is unenforceable if it is both procedurally and substantively unconscionable.
However, both need not be present to the same degree. Courts should apply a ‘sliding scale’ in making this determination: the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the clause is unenforceable, and vice versa." Syllabus Point 20, Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011).
229 W. Va. 382, 729 S.E.2d 217.
Based upon the above syllabus points in Brown II , this Court consistently has made clear that "[u]nder West Virginia law, we analyze unconscionability in terms of two component parts: procedural unconscionability and substantive unconscionability. To be unenforceable, a contract term must—at least in some small measure—be both procedurally and substantively unconscionable. " Dan Ryan Builders, Inc. v. Nelson , 230 W. Va. 281, 289, 737 S.E.2d 550, 558 (2012) (emphasis added) (internal citations and quotations omitted). Accord Rent-A-Ctr., Inc. v. Ellis , 241 W. Va. 660, 674, 827 S.E.2d 605, 619 (2019) ("To prevail on her unconscionability argument involving the delegation clause at issue here, Respondent must show both procedural and substantive unconscionability, at least in some measure. Because we conclude that no procedural unconscionability exists with respect to the delegation clause, we need not evaluate whether substantive unconscionability exists." (footnotes omitted)); Hampden Coal, LLC v. Varney , 240 W. Va. 284, 295, 810 S.E.2d 286, 297 (2018) ("Mr. Varney must establish both substantive and procedural unconscionability before the Agreement can be deemed unenforceable.... Inasmuch as we have determined that the Agreement is not substantively unconscionable, we need not address the issue of procedural unconscionability."); State ex rel. Richmond Am. Homes of W. Va., Inc. v. Sanders , 228 W. Va. 125, 136, 717 S.E.2d 909, 920 (2011) ("A contract term is unenforceable if it is both procedurally and substantively unconscionable." (quotations omitted)). Consequently, we apply a sliding scale when analyzing procedural and substantive unconscionability; but, to render a contract unenforceable this Court requires a finding that the contract is, at least in some degree, both procedurally and substantively unconscionable.
AMBIT even conceded in its response brief on appeal that
West Virginia law does in the abstract require both substantive and procedural unconscionability, but they operate on a sliding scale. The more of one found within the contract, the less needed of the other to find unconscionability. Judge Wilson found overwhelming substantive unconscionability that, combined with the public policy violations, obviated the need for procedural unconscionability and mandated dismissal.
Brief of Respondent at 14 (footnote omitted).
Turning to the present matter, although the circuit court ultimately found the consulting agreement to be unconscionable, and therefore unenforceable, in analyzing the issue of unconscionability the circuit court did not find that the consulting agreement was both procedurally and substantively unconscionable. The circuit court's sole discussion of procedural unconscionability in this matter was as follows: "[n]either party asserts that the relative positions of the parties or the adequacy of the bargaining positions by either party in 1987 was unconscionable. There is no allegation that sufficient experience, education, training, ability, or knowledge was lacking by either party at the initiation of the contract." Accordingly, the circuit court did not make any finding that the consulting agreement at issue was procedurally unconscionable. Therefore, the circuit court erred in finding the consulting agreement unconscionable without finding even a sliver of procedural unconscionability.
The circuit court went on to state that "the focus of the [c]ourt's analysis is one of substantive unconscionability – specifically a concern of the lack of meaningful alternatives and the existence of unfair terms in the contract."
Despite the circuit court irrefutably failing to make a finding that there was any degree of procedural unconscionability, AMBIT argues on appeal that we should not examine the issue because Horizon failed to preserve the issue below. While we acknowledge that Horizon did not raise the issue of procedural unconscionability in its response to AMBIT's motion for summary judgment, we find that a responsive argument from Horizon was unnecessary to preserve the issue for appeal. Simply put, AMBIT's argument that this issue was waived misunderstands the parties’ respective burdens at the summary judgment stage.
As this Court consistently has held,
"[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York , 148 W. Va. 160, 133 S.E.2d 770 (1963).
Syl. pt. 1, Andrick , 187 W. Va. 706, 421 S.E.2d 247. We further have held that a court is to apply a burden-shifting analysis when making its determination of whether summary judgment is warranted:
If the moving party makes a properly supported motion for summary judgment and can show by affirmative evidence that there is no genuine issue of a material fact, the burden of production shifts to the nonmoving party who must either (1) rehabilitate the evidence attacked by the moving party, (2) produce additional evidence showing the existence of a genuine issue for trial, or (3) submit an affidavit explaining why further discovery is necessary as provided in Rule 56(f) of the West Virginia Rules of Civil Procedure.
Syl. pt. 3, Williams , 194 W. Va. 52, 459 S.E.2d 329 (emphasis added). Additionally, as this Court has found "[t]he burden of proving that a contract term is unconscionable rests with the party attacking the contract." Brown ex rel. Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 680, 724 S.E.2d 250, 284 (2011), overruled on other grounds by Health Care Ctr., Inc. v. Brown , 565 U.S. 530, 132 S. Ct. 1201, 182 L. Ed. 2d 42 (2012) (" Brown I ").
Here, AMBIT moved for summary judgment and challenged the validity of the parties’ consulting agreement; thus, AMBIT bore the burden of properly supporting its motion on the issue of the agreement's unconscionability. Accordingly, as its initial step in obtaining summary judgment, AMBIT had to "show by affirmative evidence that there is no genuine issue of a material fact." Syl. pt. 3, in part, Williams , 194 W. Va. 52, 459 S.E.2d 329. AMBIT failed to meet its initial burden as to unconscionability, and consequently summary judgment, because it did not offer the circuit court any argument that the consulting agreement was procedurally unconscionable, and, in fact, stated to the circuit court that it could grant summary judgment based on substantive unconscionability alone, in spite of our clear law to the contrary. Therefore, a responsive argument from Horizon was not necessary to preserve the issue for appeal because AMBIT failed to meet its burden of properly supporting its motion in the first instance. Next, AMBIT argues that even if we find that the circuit court's order was deficient by failing to determine that the consulting agreement was procedurally unconscionable, this Court can uphold the circuit court's decision on its own finding of procedural unconscionability. In Syllabus point 10 of Brown II , we held that
To the extent that AMBIT relied on Blackrock Capital Investment Corporation v. Fish , 239 W. Va. 89, 799 S.E.2d 520 (2017) for its argument, while Blackrock was a case decided by this Court, it applied New York contract law, not West Virginia contract law. Significantly, New York unconscionability law is different from West Virginia unconscionability law in one very important way: New York allows a finding of unconscionability on substantive unconscionability, alone, to render a contract unenforceable, while West Virginia law requires a finding of both procedural and substantive unconscionability to invalidate a contract. See Blackrock , 239 W. Va. at 97 n. 22, 799 S.E.2d at 528 n. 22 ("Unlike West Virginia, several New York cases have found exceptional circumstances ‘where a provision of the contract is so outrageous as to warrant holding it unenforceable on the ground of substantive unconscionability alone.’ Gillman [v. Chase Manhattan Bank, N.A. ], [73 N.Y.2d 1,] 537 N.Y.S.2d 787, 534 N.E.2d [824,] 829 (1988)."). See also Vilella v. AT&T , 35 Misc. 3d 1224(A), 953 N.Y.S.2d 554, Slip Op. 50853 (U), 2012 WL 1676791 (N.Y. Sup. Ct., N.Y. County 2012) ("Procedural and substantive unconscionability operate on a sliding scale ... and under certain circumstances substantive elements alone may be sufficient to render the terms of a contract unenforceable. See Brower v. Gateway 2000, Inc. , 246 A.D.2d 246, 676 N.Y.S.2d 569 (1st Dept. 1998). Such a determination requires extreme cases where the contractual terms are ‘so outrageous and oppressive as to warrant a finding of unconscionability irrespective of the contract formation process.’ Id. at 68, 459 S.E.2d 329.").
See Aardema v. U.S. Dairy Sys., Inc. , 147 Idaho 785, 215 P.3d 505, 513 (2009) ("The moving party bears the burden of establishing the absence of a genuine issue of material fact. Thus, it follows that if the moving party fails to challenge an element of the nonmovant's case, the initial burden placed on the moving party has not been met and therefore does not shift to the nonmovant ... Therefore, the burden never shifts to the nonmovant to oppose the motion if the movant fails to raise the issue in the first place." (internal quotations and citations omitted)).
"[p]rocedural 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." Syllabus Point 17, Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011).
229 W. Va. 382, 729 S.E.2d 217. Considering the factors outlined in Brown II , we are not persuaded that procedural unconscionability exists in the matter sub judice. Horizon and AMBIT are two sophisticated businesses. There is no evidence of uneven bargaining power; any adhesion; or hidden or unduly complex contract terms. While there is some dispute as to which party drafted the consulting agreement, there is evidence that the parties had lawyers in general, and each was a party to other commercial contracts around the same time that the consulting agreement was executed.
AMBIT further argues that "procedural unconscionability could be found in the argument and pleadings below in the context of failure of meeting of the minds." Brief of Respondent at 23 (footnote omitted). In particular, AMBIT contends that the consulting agreement was "so fraught with inequities, improprieties, unfairness, and other inadequacies that the only explanation is that no meeting of the minds could have occurred." Id. (footnote omitted). We find this argument to be convoluted and misplaced.
From what we can discern, AMBIT is simply using the definition of procedural unconscionability and arguing that the lack of a unilateral exit clause is so extreme that no meeting of the minds occurred. In support of this argument, AMBIT relies on testimony from Mr. Halloran, where he stated that "I did not imagine that anybody would ever try and claim that we were stuck with this thing no matter what happened." AMBIT further argues that had it "known Horizon's true nature or if AMBIT had known that Horizon would undercut and malign it at every turn or that Horizon would flatly refuse to exercise the termination clause, it would have never entered this relationship." (Respondent's Brief at 24). However, AMBIT fails to appreciate that, at the heart of procedural unconscionability, a lack of meeting of the minds is evidenced by "inequities, improprieties, or unfairness in the bargaining process and formation of the contract. " Syl. pt. 10, in part, Brown II , 229 W. Va. 382, 729 S.E.2d 217 (emphasis added). By contrast, in its arguments on appeal regarding procedural unconscionability, AMBIT is muddying the waters between general mutual assent in contract formation, mutual obligation in substantive unconscionability, and inequities that lead to a lack of the meeting of the minds in procedural unconscionability. 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. " Syl. Pt. 17, in part, Brown I , 228 W. Va. 646, 724 S.E.2d 250 (emphasis added). Here, there are no allegations that inequities, improprieties, or unfairness existed in the bargaining process or formation of the contract in this particular case, nor can we discern any. Therefore, we find that the consulting agreement was not procedurally unconscionable. Because we find the consulting agreement not to be procedurally unconscionable, we need not examine substantive unconscionability, and the circuit court erred in granting summary judgment based upon unconscionability.
This Court has described mutual assent in contract formation as follows:
West Virginia contract law requires mutual assent to form a valid contract. See Ways v. Imation Enterprises Corp. , 214 W. Va. 305, 313, 589 S.E.2d 36, 44 (2003) [(per curiam)] (" ‘It is elementary that mutuality of assent is an essential element of all contracts.’ " (internal citations omitted)). " ‘In order for this mutuality to exist, it is necessary that there be a proposal or offer on the part of one party and an acceptance on the part of the other. Both the offer and acceptance may be by word, act or conduct that evince the intention of the parties to contract. That their minds have met may be shown by direct evidence of an actual agreement....’ " Id. (quoting Bailey v. Sewell Coal Co. , 190 W. Va. 138, 140-41, 437 S.E.2d 448, 450-51 (1993) (citations omitted)). Indeed, "[t]he contractual concept of ‘meeting of the minds’ or ‘mutual assent’ relates to the parties having the same understanding of the terms of the agreement reached." Messer v. Huntington Anesthesia Group, Inc. , 222 W. Va. 410, 418, 664 S.E.2d 751, 759 (2008) [(per curiam)].
New v. GameStop, Inc. , 232 W. Va. 564, 572-73, 753 S.E.2d 62, 70-71 (2013) (per curiam) (footnote omitted).
As we held in Syllabus point 10 of Dan Ryan Builders ,
[i]n assessing whether a contract provision is substantively unconscionable, a court may consider whether the provision lacks mutuality of obligation. If a provision creates a disparity in the rights of the contracting parties such that it is one-sided and unreasonably favorable to one party, then a court may find the provision is substantively unconscionable.
230 W. Va. 281, 737 S.E.2d 550 (emphasis added).
Furthermore, assuming without deciding that this evidence is appropriate to construe this consulting agreement, and even if we found that AMBIT's argument was legally sound, it still was unable to meet the summary judgment standard. Specifically, in support of its argument that the consulting agreement is so unfair and one-sided, as to be procedurally unconscionable, AMBIT relies on deposition testimony by Horizon's president, Mr. Sears in which he stated that it was not in Horizon's interest to agree to AMBIT's request to terminate the consulting agreement, i.e. , that AMBIT foresaw the arrangement lasting for "eternity," as the circuit court put it. However, AMBIT's 30(b)(7) witness, Mr. Halloran—who was a signatory to the consulting agreement—testified that when he signed the agreement, he expected the plant to operate for approximately thirty-five years. Taking the inference in Horizon's favor, as we are required to do on summary judgment, it is reasonable to infer from that testimony that AMBIT expected the consulting agreement to end after thirty-five years. Accordingly, there are disputed facts as to whether the consulting agreement is even, in fact, a perpetual contract.
Moreover, we acknowledge that the circuit court found the consulting agreement to be unenforceable not only because it was substantively unconscionable, but also because it violated public policy. In effect, the circuit court's reasoning for the public policy violation is the same as its reasoning for finding substantive unconscionability: the consulting agreement lacked escape terms or a definite contractual term.
Regarding contracts and public policy concerns, this Court has stated "that the freedom to contract is a substantial public policy that should not be lightly dismissed." Wellington Power Corp. v. CNA Sur. Corp. , 217 W. Va. 33, 38, 614 S.E.2d 680, 685 (2005). In Wellington Power Corp. , we further observed that:
In the case of State v. Memorial Gardens Development Corp. , 143 W. Va. 182, 101 S.E.2d 425 (1957), we quoted the following language with which we still strongly agree:
[Y]ou are not to extend arbitrarily those rules which say that a given contract is void as being against public policy, because if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice. Therefore, you have this paramount public policy to consider,—that you are not lightly to interfere with this freedom of contract.
143 W. Va. at 191, 101 S.E.2d at 430, quoting
Baltimore & Ohio Southwestern Railway Co. v. Voigt , 176 U.S. 498, 20 S. Ct. 385, 387, 44 L. Ed. 560 (1900).
217 W. Va. at 38, 614 S.E.2d at 685. Moreover, in Wellington Power Corp. , this Court held that
3. This State's public policy favors freedom of contract which is the precept that a contract shall be enforced except when it violates a principle of even greater importance to the general public.
4. "The judicial power to declare a contract void as contravening sound public policy ‘is a very delicate and undefined power,’ and should be exercised only in cases free from doubt. Richmond v. [Dubuque and Sioux City ] Railroad Co. , 26 Iowa[ ] 191 (1868)." Syllabus Point 1, Barnes v. Koontz , 112 W. Va. 48, 163 S.E. 719 (1932).
Syl. pts. 3 and 4, Wellington Power Corp. , 217 W. Va. 33, 614 S.E.2d 680. However, we have opined that the "[f]reedom to contract, ... is not unfettered. This Court has recognized that no action can be predicated upon a contract of any kind or in any form which is expressly forbidden by law or otherwise void." Wellington Power Corp. , 217 W. Va. at 39, 614 S.E.2d at 686 (internal citations and quotations omitted).
Turning to the present matter, the circuit court failed to acknowledge that voiding contracts as violative of public policy should be done only when free from doubt. Importantly, the circuit court offered no authority to support its finding that the consulting agreement in this case, specifically the lack of a unilateral escape clause, rose to the level of violating public policy. Similarly, on appeal and below, AMBIT failed to identify any authority in West Virginia to support its position that this consulting agreement violates public policy. Indeed, AMBIT relies on Blackrock Capital Investment Corporation v. Fish , 239 W. Va. 89, 799 S.E.2d 520 (2017) ; however, while Blackrock was a case decided by this Court, it applied New York contract law, not West Virginia contract law. See Blackrock Capital Inv. Corp. , 239 W. Va. at 101, 799 S.E.2d at 532 ("New York courts have said that contracts must have ‘at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract,’ and any contract clause modifying or limiting remedies ‘in an unconscionable manner is subject to deletion and in that event the remedies made available ... as if the stricken clause had never existed.’ " (citation omitted)). Moreover, in Blackrock , relying on New York contract law, we found the provisions at issue to be unconscionable; there was no specific discussion as to public policy concerns. Accordingly, neither the circuit court nor AMBIT has provided us with any support that the consulting agreement violated public policy. Consequently, we find that the circuit court erred in granting summary judgment by finding that the consulting agreement violated public policy.
As previously noted herein, assuming without deciding that this evidence is appropriate to construe this consulting agreement, AMBIT failed to meet the summary judgment standard. Even if AMBIT had been able to support its position that this consulting agreement is a perpetual agreement and violative of public policy, it once again relies on the same disputed deposition testimony by Mr. Sears in which he stated that it was not in Horizon's interest to agree to AMBIT's request to terminate the consulting agreement, i.e. , that Horizon foresaw the arrangement lasting for "eternity." Accordingly, there remain disputed facts regarding the precise nature of the consulting agreement that render summary judgment improper. See, e.g. , Syl. pt. 1, in part, Andrick v. Town of Buckhannon , 187 W. Va. 706, 421 S.E.2d 247 (holding that summary judgment should be granted "only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.").
IV.
CONCLUSION
For the reasons set forth above, this Court reverses the January 30, 2019 order of the Circuit Court of Marion County, granting AMBIT's renewed motion for summary judgment, and remands this case for further proceedings consistent with this opinion.
Reversed and remanded.
JUSTICES HUTCHISON and WOOTON concur and reserve the right to file concurring opinions.
Justice Hutchison, concurring:
I agree with the outcome of this case and wholly support the majority opinion's conclusion. The circuit court jumped the gun when it declared unconscionable the $50,000-per-year "consultation" contract between Horizon Ventures and American Bituminous Power Partners ("AMBIT"). The 1987 contract was one of many deals negotiated and signed in the late 1980s as part of the construction of a $100 million power plant that the parties expected would operate for at least four decades. Lawyers, bankers, bond specialists, business folks, all sorts of sophisticated actors swirled through the project when the contract was signed. AMBIT dutifully complied with the consultation contract and, by my calculation, paid Horizon $1.5 million over thirty years before someone at AMBIT decided to claim the contract terms were unfair.
This Court has noted AMBIT's expectation the power plant will operate until at least 2035. Further, AMBIT has repeatedly "represented its financial condition [was] dire." Sierra Club v. Pub. Serv. Comm'n of W. Va. , 241 W. Va. 600, 606, 827 S.E.2d 224, 230 (2019). See also , Am. Bituminous Power Partners, L.P. v. Horizon Ventures of W. Va., Inc. , No. 14-0446, 2015 WL 2261649, at *4 (W. Va. May 13, 2015) (relating that AMBIT was in default on bond payments, and that "[i]n February of 2013, AMBIT informed Horizon that due to financial difficulties, it would not be making rent payments[.]"); In re Tax Assessment Against Am. Bituminous Power Partners, L.P. , 208 W. Va. 250, 252-53, 539 S.E.2d 757, 759-60 (2000) ("[AMBIT] completed construction of its Grant Town power plant in April 1993, at a total cost in excess of $100 million ... [and] incurred operating losses of $54,563 and $1,657,437 in 1993 and 1994[.]"); Sauer, Inc. v. Am. Bituminous Power Partners, L.P. Ltd. P'ship , 192 W. Va. 150, 451 S.E.2d 451 (1994) (contractor filed mechanic's lien because AMBIT failed to pay $2,912,744 for construction services).
In light of all the material facts, including the setting, purpose and effect of the 1987 contract, the circuit court should not have granted summary judgment and ruled the consultation contract unconscionable. I concede that unconscionability is probably measured exclusively when the contract is made, and not by what the parties did in the three decades after the making. But the equitable doctrine of unconscionability "permits courts to protect parties from grossly unfair, unconscionable bargains; it does not permit courts to protect commercial litigants from stupid or inefficient bargains willingly and deliberately entered into." State ex rel. Johnson Controls, Inc. v. Tucker , 229 W. Va. 486, 497, 729 S.E.2d 808, 819 (2012). I have no idea whether any mendacity was afoot in 1987 when AMBIT agreed to pay Horizon an annual chunk of change for "consulting," but the existing record points to this contract fitting the definition of a "stupid or inefficient bargain willingly entered into."
Justice Harshbarger once wrote a detailed history of the doctrine of unconscionability, and he took the position that unconscionability may arise at any time in the life of a contract. He said that unconscionability
is usually evaluated as of the time a contract is written, but not always. While the strict language of the Restatement and Uniform Commercial Code unconscionability provisions are about unconscionability when the contract was made, I use those provisions as a starting point for my analysis and not as a constraint. In this everchanging world one must be sensitive to the need to evolve rules to fit changed circumstances.
McGinnis v. Cayton , 173 W. Va. 102, 114, 312 S.E.2d 765, 777-78 (1984) (Harshbarger, J., concurring).
Hence, I agree with the majority opinion's conclusion. My trouble lies in the arbitrary, unfounded rule that the majority opinion relied upon. As I discuss below, the rule says a litigant must prove some measure of both procedural and substantive unconscionability in order to show a contract or contract term is so unfair and inequitable that it should not be enforced by a court. I write separately because I believe the Court should abandon this rule of law. The majority opinion could have weighed whether either procedural or substantive unfairness existed and reached the same conclusion.
Prior to 2011, this Court applied a broad, comprehensive analysis to a contract to measure for unconscionability. Prior to 2011, the courts of this State were guided by the rule that "[a]n analysis of whether a contract term is unconscionable necessarily involves an inquiry into the circumstances surrounding the execution of the contract and the fairness of the contract as a whole." Syllabus Point 3, Troy Min. Corp. v. Itmann Coal Co. , 176 W. Va. 599, 346 S.E.2d 749 (1986). See also , Art's Flower Shop, Inc. v. Chesapeake & Potomac Tel. Co. of W. Va. , 186 W. Va. 613, 413 S.E.2d 670 (1991).
Then, just shy of a decade ago, the Court issued Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011), and it substantially altered the unconscionability analysis and injected the new point of law at issue in this case. Instead of permitting courts to weigh the totality of a case, the Brown Court suddenly required firm proof of both procedural and substantive forms of unconscionability. Specifically, the Brown Court said in Syllabus Point 20:
A contract term is unenforceable if it is both procedurally and substantively unconscionable. However, both need not be present to the same degree. Courts should apply a "sliding scale" in making this determination: the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the clause is unenforceable, and vice versa.
The majority opinion in the instant case relied upon Syllabus Point 20 of Brown when it concluded that "the circuit court erred in finding the consulting agreement unconscionable without finding even a sliver of procedural unconscionability."
I was curious why the Brown Court decided to embiggen the rules governing unconscionability, and why it adopted the requirement that litigants must show that both forms of unconscionability, in some infinitesimal measure, existed at the same time. I reread Brown , and the Court's opinion is certainly something to behold. It covers 49 pages of West Virginia Reports and Southeastern Reporter (Second) and has 170 detailed footnotes. However, the Court's analysis of the law supporting Syllabus Point 20 is less well-detailed. In fact, it is one sentence long. To describe it as an "analysis" is a stretch; it is more of a conclusion. Justice Ketchum, writing for the Court, said:
We perceive that a contract term is unenforceable if it is both procedurally and substantively unconscionable.
228 W. Va. at 685, 724 S.E.2d at 289. This lone sentence is supported by a citation in a footnote to a lone California case. There is no other reasoning, no other analysis, nothing.
Moreover, even though Justice Ketchum drafted Syllabus Point 20 for the Brown Court in 2011, he recognized by 2013 that the point of law lacked analysis and support, and said he "believe[d] that this Court should revisit Syllabus Point 20[.]" Credit Acceptance Corp. v. Front , 231 W. Va. 518, 534, 745 S.E.2d 556, 572 (2013) (Ketchum, J., concurring). Justice Ketchum supported his belief with citations to several cases where courts had ruled opposite to Syllabus Point 20, and held that a contract or contract term could be invalidated by proof of either procedural or substantive unconscionability. 231 W. Va. at 533 n.1, 745 S.E.2d at 571 n.1.
Justice Davis expressed a similar opinion in footnote 8 of Credit Acceptance Corporation . Justice Davis, writing for the majority, stated that, "[s]eparate from the majority, the author of this opinion independently questions the need for establishing both substantive and procedural unconscionability to find a contractual term is unenforceable." Credit Acceptance Corp. v. Front , 231 W. Va. at 526 n.8, 745 S.E.2d at 564 n.8.
I have researched the procedural/substantive dichotomy, and I can find no true, reasoned basis for the simultaneous requirement of both forms of unconscionability. The Uniform Commercial Code (which fueled the modern use of the unconscionability doctrine) does not distinguish between procedural and substantive unfairness, and it does not require proof of both. The Restatement of the Law of Contracts (Second) also does not distinguish between the two forms and does not require proof of both. And, like Syllabus Point 20 of Brown , the cases from other courts that do require procedural plus substantive unconscionability contain no analysis; this formulaic approach to unconscionability is adopted sans reasoning. To the contrary, the courts that allow invalidation of agreements for either procedural or substantive unconscionability are the ones that offer reasoning. I therefore believe the Court should overrule Syllabus Point 20 of Brown .
Let me begin with the Uniform Commercial Code ("the UCC"). Scholars agree that trial courts have, for generations, routinely refused to enforce "unfair" contracts and that the principles of unconscionability have long been a part of the common law. See generally , Anne Fleming, The Rise and Fall of Unconscionability As the "Law of the Poor," 102 Geo. L.J. 1383 (2014). The courts may not have used the word "unconscionability," but they often offered pretzel-shaped logic to strike down an unfair bargain. See , e.g. , Crotty v. Effler , 60 W. Va. 258, 54 S.E. 345, 347 (1906) (dismissing plaintiff's suit to enforce contract for the sale of real estate because "[o]nly those contracts which are fair, just, and equitable will be specifically enforced."); Duncan v. Duncan , 104 W. Va. 600, 140 S.E. 689 (1927) ("In order to have specific performance of the contract, the burden rests upon the defendants, not only to prove the contract, but that the same is fair, just, and equitable."). The drafters of the UCC recognized the haphazard approach taken by trial courts toward unfair contracts, and as a remedy the drafters included, within Article 2 of the UCC, a uniform unconscionability provision. Article 2, which pertains to "transactions in goods," was adopted by the West Virginia Legislature in 1963. W. Va. Code § 46-2-102 (1963). Legal historians agree that the nationwide adoption of the UCC boosted the general use of unconscionability by trial courts as a tool to invalidate all types of unfair contracts, not just those contracts for transactions in goods.
The UCC's unconscionability provision (§ 2-302) does not distinguish between "procedural" or "substantive" unconscionability. More importantly, the provision does not require the simultaneous proof of both forms. The provision, as adopted verbatim by the West Virginia Legislature from the UCC, states:
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
W. Va. Code § 46-2-302 (1963) (emphasis added). The official comments to the statute announce that "[t]his section is intended to make it possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable." W. Va. Code § 46-2-302, cmt. 1. Hence, when a party challenges a contract or contract clause regarding a transaction in goods, the only statutory requirement for the party to prevail is that the court find the bargain "to have been unconscionable at the time it was made." "The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract." Id. Conspicuously absent from the UCC provision is any explicit reference to procedural aspects of unconscionability. West Virginia Code § 46-2-302 refers solely to "the contract or any clause of the contract," suggesting that the drafters of the UCC (and, by implication, the Legislature) contemplated that substantive unconscionability alone would be sufficient. Bolstering this conclusion is that the UCC provides an instance for per se unconscionability if there is, standing alone, a substantive term in a contract limiting a person's consequential damages for an injury involving a consumer good. See W.Va. Code § 46-2-719 (3) (1963). It is logically inconsistent to argue that there is an implied requirement in West Virginia Code § 46-2-302 that a party show some procedural unfairness when unconscionability under West Virginia Code § 46-2-719 clearly does not.
One UCC treatise notes that courts often distinguish between and discuss procedural and substantive aspects of unconscionability, but then go on to note that, in the end, unconscionability rulings should be based on the totality of the circumstances and not whether there is formulaic proof of both procedural and substantive forms:
The point is frequently made that unconscionability has both procedural and substantive aspects. In fact, courts seldom base their decisions upon the classification of unconscionability as being procedural or as being substantive
To the contrary, the courts have almost always looked to the totality of all of the circumstances. The mandated hearing [in W. Va. Code 46-3-302(2) ] as to the character of the contract in its commercial setting necessarily requires the court to see the total forest without regard to whether a particular tree is procedural or substantive.
Lary Lawrence, 2A Lawrence's Anderson on the Uniform Commercial Code § 2 -302:148 (3d. Ed. 2020) (emphasis added). The author of this treatise goes on to note that "[m]aking a distinction between procedure and substance tends to be a futile exercise of rhetoric" because the "question of unconscionability depends upon a consideration of the totality of circumstances." Id. , § 2 -302:150.
West Virginia Code § 46-2-719 (3) provides (with emphasis added):
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.
Like the UCC, the Restatement of the Law of Contracts (Second) makes no explicit reference to distinctions between procedural or substantive forms of unfairness. The Restatement simply says that courts may refuse to enforce an "unconscionable contract or term":
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
Restatement of the Law of Contracts (Second) , § 208 (1981). The drafters of the Restatement did not view unconscionability through a prism of individual substantive or procedural elements, but as a holistic matter for courts "made in the light of [a contract's or a term's] setting, purpose, and effect." Id. , cmt. a. "A determination that a contract or term is unconscionable is made by the court in the light of all the material facts." Id. , cmt. f. The drafters of the Restatement defined "unconscionable" using its broad, historic definition:
Traditionally, a bargain was said to be unconscionable in an action at law if it was "such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other[.]" ... The principle is one of the prevention of oppression and unfair surprise ... and not of disturbance of allocation of risks because of superior bargaining power.
Id. , cmt. b. The drafters made clear that "[p]articular terms may be unconscionable whether or not the contract as a whole is unconscionable.... Other terms may be unconscionable in some contexts but not in others. Overall imbalance and weaknesses in the bargaining process are then important." Id. , cmt. e.
This comment to § 203 implies that while the focus of courts should be on the unfairness of the terms of a contract, sometimes courts may consider the process that went into forming the contract. In other words, the drafters of the Restatement contemplated that unconscionability includes procedural and substantive elements. While this is true, the clear intention of the drafters was to empower courts to examine contracts "as a whole" when measuring unconscionability, and not to require courts to break every contract into its constituent procedural and substantive parts, analyze those parts for unfairness, and then add the unfairness together to derive whether unconscionability has occurred.
Following the adoption of the UCC's unconscionability provision by West Virginia and other states, scholars calculated that unconscionability can arise in the making of a contract (procedural unconscionability) or can exist in the actual terms of the contract (substantive unconscionability). Professor Arthur Leff appears to have published the seminal article splitting the analysis of unconscionability into two distinct forms. Professor Leff said, in his 1967 law review article, "I shall often refer to bargaining naughtiness as ‘procedural unconscionability,’ and to evils in the resulting contract as ‘substantive unconscionability.’ " See , e.g. , Arthur Allen Leff, Unconscionability and the Code – The Emperor's New Clause , 115 U. Pa. L. Rev. 485, 487 (1967). It thereafter became routine for scholars to discuss contractual unfairness as having procedural and substantive forms.
The case law followed the scholars: courts likewise began to explain how unfairness can be manifested during the making of a contract (such as high pressure or misleading bargaining tactics on one side and poor education or business savvy on the other) or in the actual contract itself (usually in the form of overly harsh or one-sided results). The Brown Court followed the same path as those scholars and other courts. In a discussion stretching across seven pages, Justice Ketchum defined the doctrine of unconscionability (even citing to a case from 1750), outlined its procedural and substantive forms, and recognized that there is often an "interplay" between the two forms. Brown v. Genesis Healthcare Corp. , 228 W. Va. at 679-685, 724 S.E.2d at 283-289.
The problem, as I noted earlier, is that after recognizing that unconscionability has procedural and substantive aspects, with no reasoning other than saying "we perceive it should be the rule," the Brown Court adopted Syllabus Point 20 and required a party challenging a contract to prove both procedural and substantive forms of unconscionability existed. Implicitly recognizing the harshness of this requirement, the Brown Court then tempered the rule by creating a "sliding scale," and allowing proof of one form in an infinitesimal amount if the other form was overwhelming. Many other state courts have adopted the same rule as the Brown Court (with or without the sliding scale) and stated that the absence of simultaneous proof of both procedural and substantive unfairness is fatal to an unconscionability challenge.
States requiring both procedural and substantive unconscionability include California (Armendariz v. Found. Health Psychcare Servs., Inc. , 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 690 (Cal. 2000) ("The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.... Essentially a sliding scale is invoked ... In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.") (Cleaned up)); Florida (Basulto v. Hialeah Auto. , 141 So. 3d 1145, 1159 (Fla. 2014) ("[P]rocedural and substantive unconscionability must be established to avoid enforcement of the terms within an arbitration agreement.")); Maryland (Freedman v. Comcast Corp. , 190 Md.App. 179, 988 A.2d 68, 85 (2010) ("The prevailing view is that both procedural and substantive unconscionability must be present in order for a court to invalidate a contractual term as unconscionable.")); Ohio (Hayes v. Oakridge Home , 122 Ohio St.3d 63, 908 N.E.2d 408, 412 (2009) ("The party asserting unconscionability of a contract bears the burden of proving that the agreement is both procedurally and substantively unconscionable.")); Pennsylvania (Salley v. Option One Mortg. Corp. , 592 Pa. 323, 925 A.2d 115, 119 (2007) ("[A] contract or term is unconscionable, and therefore avoidable, where there was a lack of meaningful choice in the acceptance of the challenged provision and the provision unreasonably favors the party asserting it.")); New Jersey (Delta Funding Corp. v. Harris , 189 N.J. 28, 912 A.2d 104, 111 (2006) ("Courts generally have applied a sliding-scale approach to determine overall unconscionability, considering the relative levels of both procedural and substantive unconscionability.")); and Wisconsin (Coady v. Cross Country Bank , 299 Wis.2d 420, 729 N.W.2d 732, 741 (2007) ("To tip the scales in favor of unconscionability requires a certain quantum of procedural plus a certain quantum of substantive unconscionability.")). See also Blackrock Cap. Inv. Corp. v. Fish , 239 W. Va. 89, 97, 799 S.E.2d 520, 528 (2017) (Examining a contract involving a corporate subsidiary that "was a hapless pawn destined for sacrifice on the altar of corporate law," this Court noted that New York law requires a showing "the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.").
Interestingly, many of the reported cases where courts required both forms of unconscionability involved parties seeking to avoid contracts with mandatory arbitration provisions. Arbitration disputes pit the inherent prejudice of trial courts in favor of juries against federal and state statutes expressing legislative favor for arbitration. The result of the contest is that courts seem to be requiring proof that both forms of unconscionability existed simultaneously as a roundabout means of reaching the legislative preference for arbitration.
In my opinion, the doctrine of unconscionability has been diluted and sullied by its persistent invocation in the field of mandatory arbitration contracts.
I have examined these cases from other state courts, and I am struck that, like the Brown Court, these courts provide no reasoning why solid proof of both forms is required to support a finding that a contract or term is unenforceable. I am not alone in this conclusion. Just as many state courts have gone the opposite direction from Brown and found that either procedural or substantive unconscionability is sufficient. These "either/or" states apply the general definition of unconscionability found in the UCC, the Restatement , and in the common law, and refuse to enforce a contract merely because an "overall and gross imbalance, one-sidedness or lop-sidedness" exists in either the terms or formation of a contract. Syllabus Point 12, Brown , 228 W. Va. at 657, 724 S.E.2d at 261.
States requiring either procedural or substantive unconscionability include Illinois (Razor v. Hyundai Motor Am. , 222 Ill.2d 75, 305 Ill.Dec. 15, 854 N.E.2d 607, 622 (2006) ("Unconscionability can be either ‘procedural’ or ‘substantive’ or a combination of both.")); Missouri (Brewer v. Missouri Title Loans, Inc. , 323 S.W.3d 18, 22 (Mo. 2010) (cert. granted, judgment vacated on other grounds, 563 U.S. 971, 131 S.Ct. 2875, 179 L.Ed.2d 1184 (2011) ) ("Under Missouri law, unconscionability can be procedural, substantive or a combination of both.")); Mississippi (East Ford, Inc. v. Taylor , 826 So. 2d 709, 717 (Miss. 2002) ("Because we find that the arbitration clause in this case is procedurally unconscionable, we find it unnecessary to address Taylor's ... arguments regarding substantive unconscionability.")); New Mexico (Cordova v. World Fin. Corp. of NM , 146 N.M. 256, 208 P.3d 901, 908 (2009) ("While there is a greater likelihood of a contract's being invalidated for unconscionability if there is a combination of both procedural and substantive unconscionability, there is no absolute requirement in our law that both must be present to the same degree or that they both be present at all.")); Utah (Res. Mgmt. Co. v. Weston Ranch & Livestock Co. , 706 P.2d 1028, 1043 (Utah 1985) ("Gross disparity in terms, absent evidence of procedural unconscionability, can support a finding of unconscionability.")); Vermont (Glassford v. BrickKicker , 191 Vt. 1, 35 A.3d 1044, 1049 (2011) ("The superior court was mistaken in assuming that the presence of procedural unconscionability is required to void a contract based on it containing unconscionable terms.")); and Washington (Adler v. Fred Lind Manor , 153 Wash.2d 331, 103 P.3d 773, 782 (2004) ("[S]ubstantive unconscionability alone can support a finding of unconscionability.")). See generally , Melissa T. Lonegrass, Finding Room for Fairness in Formalism-the Sliding Scale Approach to Unconscionability , 44 Loy. U. Chi. L.J. 1 (2012).
Some states, like Texas, belie categorization. One the one hand, one Texas intermediate appellate court ruled that a party must prove both procedural and substantive unconscionability. See In re Turner Bros. Trucking Co., Inc. , 8 S.W.3d 370, 376–77 (Tex. App. 1999) ("Under Texas law, the party asserting unconscionability of the contract bears the burden of proving both procedural and substantive unconscionability."). On the other hand, nine years later, the Texas Supreme Court ruled that provisions of a contract were unenforceable solely on the grounds of substantive unconscionability. In re Poly-Am., L.P. , 262 S.W.3d 337, 348 (Tex. 2008) ("A contract is unenforceable if, given the parties’ general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.... Unconscionability is to be determined in light of a variety of factors, which aim to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly one-sided.") (Cleaned up)).
In summary, trial courts should not be pinned down by appellate court imposition of clever-sounding slide-rule formulas saying that only procedural plus substantive unfairness equals unconscionability. Courts should be allowed to weigh unconscionability questions as a holistic concept and be permitted to consider the overall fairness of the parties’ bargain at the time it was formed.
I would, therefore, abandon and overrule Syllabus Point 20 of Brown and make clear that, under West Virginia law, a claim of unconscionability can be supported by proving unfairness in the contract that is either procedural, substantive or a combination of both.
Wooton, Justice, concurring:
Persuaded by the unassailable logic of Justice Hutchison's concurring opinion, I too would overrule Syllabus Point 20 of Brown v. Genesis Healthcare Corp. , 228 W. Va. 646, 724 S.E.2d 250 (2011), judgment vacated on other grounds sub nom. Marmet Health Care Ctr., Inc. v. Brown , 565 U.S. 530, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012). Therefore, I concur in the result reached by the majority, and join in the concurring opinion of Justice Hutchison.