Phillip Alig v. Quicken Loans Inc.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-1059
PHILLIP ALIG; SARA J. ALIG; ROXANNE SHEA; DANIEL V. SHEA,
Individually and on behalf of a class of persons,
Plaintiffs - Appellees,
v.
QUICKEN LOANS INC.; AMROCK INC., f/k/a Title Source, Inc., d/b/a Title
Source Inc. of West Virginia, Incorporated,
Defendants - Appellants,
and
DEWEY V. GUIDA; APPRAISALS UNLIMITED, INC.; RICHARD HYETT,
Defendants.
Appeal from the United States District Court for the Northern District of West Virginia, at
Wheeling. John Preston Bailey, District Judge. (5:12-cv-00114-JPB-JPM, 5:12-cv-00115-
JPB)
Argued: October 27, 2020 Decided: March 10, 2021
Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.
Affirmed in part and vacated and remanded in part by published opinion. Judge Wynn
wrote the majority opinion, in which Judge Floyd joined. Judge Niemeyer wrote a
dissenting opinion.
ARGUED: Theodore J. Boutrous, Jr., GIBSON, DUNN & CRUTCHER, LLP, Los
Angeles, California, for Appellants. Deepak Gupta, GUPTA WESSLER PLLC,
Washington, D.C., for Appellees. ON BRIEF: Helgi C. Walker, GIBSON, DUNN &
CRUTCHER LLP, Washington, D.C.; William M. Jay, Thomas M. Hefferon, Brooks R.
Brown, Keith Levenberg, Washington, D.C., Edwina B. Clarke, GOODWIN PROCTER
LLP, Boston, Massachusetts, for Appellants. John W. Barrett, Jonathan R. Marshall,
Charleston, West Virginia, Patricia M. Kipnis, BAILEY & GLASSER LLP, Cherry Hill,
New Jersey; Gregory A. Beck, GUPTA WESSLER PLLC, Washington, D.C.; Jason E.
Causey, James G. Bordas, Jr., BORDAS & BORDAS, PLLC, Wheeling, West Virginia,
for Appellees.
2
WYNN, Circuit Judge:
Plaintiffs are a class of “[a]ll West Virginia citizens who refinanced” a total of 2,769
mortgages with Defendant Quicken Loans Inc. from 2004 to 2009, “for whom Quicken
[Loans] obtained appraisals” from Defendant Amrock Inc., an appraisal management
company formerly known as Title Source, Inc. (“TSI”). 1 J.A. 627. 2
Plaintiffs allege that pressure tactics used by Quicken Loans and TSI to influence
home appraisers to raise appraisal values to obtain higher loan values on their homes
constituted a breach of contract and unconscionable inducement under the West Virginia
Consumer Credit and Protection Act. The district court agreed and granted summary
judgment to Plaintiffs.
We agree with the district court that class certification is appropriate and that
Plaintiffs are entitled to summary judgment on their statutory claim. However, we conclude
that the district court erred in its analysis of the breach-of-contract claim. Accordingly, we
affirm in part and vacate and remand in part.
I.
Viewing the evidence in the light most favorable to Defendants, the record shows
the following. 3
1
For ease of reference, we continue to refer to this entity as TSI throughout this
opinion.
2
Citations to “J.A. __” and “S.J.A. __” refer, respectively, to the Joint Appendix
and Sealed Joint Appendix filed by the parties in this appeal.
3
We consider only the evidence presented at the summary judgment stage. See
Rohrbough v. Wyeth Laboratories, Inc., 916 F.2d 970, 973 n.8 (4th Cir. 1990) (declining
to consider “several documents that were not before the district court when it considered
3
In refinancing mortgages for thousands of West Virginia homes during the class
period, Quicken Loans asked potential borrowers to complete an application; sign a
uniform deposit agreement authorizing Quicken Loans to “advance out-of-pocket expenses
on [the borrower’s] behalf” for an appraisal, a credit report, or both; and provide a deposit
averaging $350. J.A. 381. Quicken Loans also collected information from potential
borrowers, including an estimated value of their homes.
Quicken Loans relayed the borrower’s estimates of value to TSI, which passed those
estimates on to contracted appraisers via appraisal engagement letters. If an appraisal came
back lower than the estimated value, appraisers received phone calls from TSI drawing
their attention to the estimated value and asking them to take another look. There is no
evidence to suggest that borrowers were aware of these practices.
Plaintiffs’ and Defendants’ experts agreed that, during the class period, providing
the borrower’s estimate of value to the appraiser was common in the industry. Additionally,
although the 2008–2009 Uniform Standards of Professional Appraisal Practice (“Uniform
Appraisal Standards”) indicated that appraisers could not ethically accept an appraisal
assignment with a specific value listed as a condition, the chairman of the organization that
issues the Uniform Appraisal Standards testified that an appraiser did not violate those
standards merely by accepting an assignment that included an owner’s estimate of value.
[the] motion for summary judgment”); see also Kaiser Aluminum & Chem. Corp. v.
Westinghouse Elec. Corp., 981 F.2d 136, 140 (4th Cir. 1992) (“It is well established that
affidavits and exhibits not before the court in making its decision are not to be considered
on appeal.”); cf. Bogart v. Chapell, 396 F.3d 548, 558 (4th Cir. 2005) (“Generally, we will
not examine evidence . . . that was inexcusably proffered to the district court only after the
court had entered its final judgment.”).
4
The record includes significant testimony from appraisers that borrowers’ estimates of
value did not influence them. Finally, the record includes testimony that the estimated value
served the legitimate purposes of helping appraisers determine whether to accept an
assignment and, upon acceptance, assess an appropriate fee.
Nevertheless, authorities warned lenders before and during the class period that
providing estimated values to appraisers was improper. For instance, a 1996 letter from the
U.S. Department of Housing and Urban Development to mortgagees instructed that
appraisers were required to certify “that the appraisal [was] not based on a requested
minimum valuation, [or] a specific valuation or range of values.” S.J.A. 857. A 1999 letter
from the Office of the Comptroller of the Currency to the Appraisal Standards Board
voiced some concern with the practice of providing the owner’s estimate of value and
warned “employees of financial institutions” against “pressuring appraisers to raise their
value conclusions to target values.” S.J.A. 861. And in 2005, the Office of the Comptroller
of the Currency noted that “the information provided by the regulated institution should
not unduly influence the appraiser or in any way suggest the property’s value.” Off. of the
Comptroller of the Currency et al., Frequently Asked Questions on the Appraisal
Regulations and the Interagency Statement on Independent Appraisal and Evaluation
Functions, Fed. Deposit Ins. Corp. (Mar. 22, 2005),
https://www.fdic.gov/news/news/financial/2005/fil2005a.html (emphasis added) (saved as
ECF opinion attachment). While the 2005 guidance was not binding on Defendants, it is
relevant to understanding regulators’ thoughts on the issue at the time.
5
Furthermore, during the class period, Defendants stopped providing appraisers with
estimated home values in other states—such as neighboring Ohio—where lenders faced
mounting legal pressure against the practice. And they ceased the practice altogether in
2009, “right around the time that the [Home] Valuation Code of Conduct was agreed to
and defined for the marketplace.” J.A. 235. That Code of Conduct prohibits lenders or
appraisal management companies from providing an estimated value to an appraiser in a
refinancing transaction. 4 By 2011, Quicken Loans itself recognized that “influenc[ing] the
appraiser to set [the] home at any certain value . . . . is illegal and unethical.” J.A. 107.
The record thus indicates that the acceptability of this practice shifted dramatically
during the class period. What started out as a common (though questionable) practice
became one that, in short order, was explicitly forbidden—and viewed as unethical by
Quicken Loans itself.
Yet the record reveals no such qualms on the part of Defendants during the class
period. In one internal email from 2007, which had the subject line “Asking for the max
increase available,” an Operations Director for Quicken Loans wrote that TSI was “getting
a lot of calls from appraisers stating that they can’t reach our requested value and asking
4
“No employee, director, officer, or agent of the lender, or any other third party
acting as . . . appraisal management . . . on behalf of the lender, shall influence or attempt
to influence the development, reporting, result, or review of an appraisal through coercion,
extortion, collusion, compensation, inducement, intimidation, bribery, or in any other
manner including but not limited to . . . providing to an appraiser an anticipated, estimated,
encouraged, or desired value for a subject property or a proposed or target amount to be
loaned to the borrower, except that a copy of the sales contract for purchase transactions
may be provided[.]” Home Valuation Code of Conduct, Freddie Mac 1 (Dec. 23, 2008),
http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf (saved
as ECF opinion attachment).
6
what should they do.” District Ct. Docket No. 206-2 at 39 (emphasis added). He instructed
employees to include in value-appeal requests “something along the lines of ‘any additional
value would be appreciated.’” Id. A second email from a different Quicken Loans
employee a few weeks later suggests that Quicken Loans’ usual process at the time
involved ordering value appeals and second appraisals, as well as “arguing over value
appeal orders and debating values with bankers and appraisers.” 5 S.J.A. 711. The email
continued:
[Fannie Mae] is being dragged into a law suit [sic] in the state of New York
over lender pressure on appraisals. I don’t think the media or any other
mortgage company . . . would like the fact we have a team who is responsible
to push back on appraisers questioning their appraised values. . . . Ohio is
very specific in regards to asking for appeals and they say it is illegal. Other[]
states I am sure will jump on board.
Id. (emphasis added). One recipient of the latter email testified in 2009 that the purpose of
providing the estimated value was to “give[] an appraiser an ability to see what they are
going to potentially look at the property at [sic]” and to “give[] them a heads up as to what
the client thinks the home is worth.” S.J.A. 709.
Dewey Guida, an appraiser routinely contracted by Quicken Loans and TSI, testified
during a deposition that prior to 2009, TSI always included the borrower’s estimate of
value, but he could not recall whether other companies did so. He agreed that these
estimated values were a “tip-off.” S.J.A. 674. He testified that he largely ignored the
5
The practice of “ordering, obtaining, using, or paying for a second or subsequent
appraisal . . . in connection with a mortgage financing transaction” was later forbidden by
the Home Valuation Code of Conduct, with certain limited exceptions. Home Valuation
Code of Conduct, supra note 4, at 2.
7
estimated value “unless the value didn’t come in. Then we received some phone calls about
it[.]” S.J.A. 669. If the appraisal “wasn’t at the estimated value,” he clarified, “I would get
a call on it” from TSI “with the value.” Id. These calls were “[v]ery vague,” but in essence,
Defendants were saying: “We had an estimated value of this amount of money. You
appraised at this amount. . . . [C]ould you relook at it? . . . [I]s there a reason why?” Id.
Class representatives Phillip and Sara Alig refinanced their mortgage through
Quicken Loans in 2007. The Aligs estimated their home to be worth $129,000, and Quicken
Loans passed this information along to TSI, who, in turn, passed it on to Guida. Guida
appraised the home to be worth $122,500. He then received a request from Defendants to
revisit the appraisal and raise it to $125,500 based on a modification to the data points for
the closest comparison house. Guida testified that such requests from his clients for
“straight value increase[s]” were not common, but he acknowledged that he complied and
raised the appraised value to $125,500, though he could not recall doing so. S.J.A. 671.
The Aligs obtained a loan from Quicken Loans for about $113,000. Plaintiffs’ two experts
estimated that the actual 2007 value of the Aligs’ home was $99,500 or $105,000,
respectively.
Plaintiffs brought actions against Quicken Loans, TSI, and three other defendants
in West Virginia state court in 2011 which were removed to federal court in 2012. 6 After
6
In addition to Quicken Loans and TSI, Plaintiffs’ complaint named as defendants
two appraisers, Guida and Richard Hyett, as well as Appraisals Unlimited, Inc., where
Guida served as president. Moreover, the complaint proposed a defendant class,
represented by Guida, Hyett, and Appraisals Unlimited, of appraisers “who receive
8
a winnowing of the claims and defendants, three claims remain: (1) a civil conspiracy claim
against both Quicken Loans and TSI; (2) a claim of unconscionable inducement to contract
under the West Virginia Consumer Credit and Protection Act against Quicken Loans; and
(3) a breach-of-contract claim against Quicken Loans. 7
The district court conditionally certified Plaintiffs’ class and granted in part and
denied in part each of the parties’ motions for summary judgment. The court then held an
evidentiary hearing on damages, after which it imposed a statutory penalty of $3,500 as to
unconscionability for each of the 2,769 violations, for a total of $9,691,500. The court also
awarded Plaintiffs the appraisal fees they had paid as damages for breach of contract, for a
total of $968,702.95. The court did not award separate damages for conspiracy.
II.
appraisal assignments from Quicken [Loans] that improperly include the targeted appraisal
figure Quicken [Loans] needs to issue the loans.” J.A. 61.
7
The complaint brought ten claims: (1) civil conspiracy, against all defendants; (2)
unfair or deceptive acts or practices in violation of W. Va. Code § 46A-6-104, against all
defendants; (3) excessive fees in violation of W. Va. Code § 31-17-8(c), (g), and (m)(1),
against Quicken Loans; (4) unconscionable inducement to contract, against Quicken
Loans; (5) accepting assignments listing target value numbers on appraisal request forms
and accepting fees contingent upon the reporting of a predetermined appraisal value, in
violation of W. Va. Code § 30-38-12(3) and -17, against Guida, Hyett, Appraisals
Unlimited, and the proposed appraiser class; (6) charging illegal fees in violation of W. Va.
Code § 46A-2-128(d), against Quicken Loans; (7) breach of contract, against Quicken
Loans; (8) negligence and negligence per se, against all defendants; (9) fraudulent or
intentional misrepresentation, against all defendants by the named plaintiffs only; and (10)
making illegal loans in excess of the fair market value of the property in violation of W.
Va. Code § 31-17-8(m)(8), against all defendants by the named plaintiffs only. Only counts
1, 4, and 7 are at issue in this appeal.
9
On appeal, Defendants first challenge the district court’s decision to certify the class
under Rule 23. Defendants argue that individual issues predominate over common ones,
precluding class treatment. We disagree and affirm the district court’s decision to certify
the class.
A.
This Court reviews a class-certification decision for abuse of discretion. 8 See Sharp
Farms v. Speaks, 917 F.3d 276, 290 (4th Cir. 2019) (certification); Brown v. Nucor Corp.,
8
We reject Defendants’ contention that we should instead apply an unspecified level
of “heightened scrutiny” because much of the language of the district court’s opinions
closely tracked that of Plaintiffs’ briefs. Opening Br. at 16. In arguing for “heightened
scrutiny,” Defendants rely on this Court’s decision in Chicopee Manufacturing Corp. v.
Kendall Co., 288 F.2d 719 (4th Cir. 1961).
That reliance is misplaced. Chicopee belongs to a line of Fourth Circuit cases that
the Supreme Court limited long ago. See Anderson v. City of Bessemer City, 717 F.2d 149(4th Cir. 1983), rev’d, 470 U.S. 564 (1985). In Anderson, we cited Chicopee and similar
cases to support “[o]ur close scrutiny of the record” where the district court had directed
the plaintiff’s counsel to submit proposed findings of fact and conclusions of law and then
partially incorporated them into the court’s final order. Id. at 156; see id. at 152. The
Supreme Court reversed, noting that the district court “d[id] not appear to have uncritically
accepted findings prepared without judicial guidance by the prevailing party.” 470 U.S. at
572. Instead, “the findings it ultimately issued . . . var[ied] considerably in organization
and content from those submitted by petitioner’s counsel.” Id. at 572–73. Thus, the
Supreme Court concluded that “[t]here [wa]s no reason to subject those findings to a more
stringent appellate review than is called for by the applicable rules.” Id. at 573.
Following Anderson, we have taken a more lenient approach to district court
opinions that closely mirror a party’s submissions. See, e.g., Aiken Cnty. v. BSP Div. of
Envirotech Corp., 866 F.2d 661, 676–77 (4th Cir. 1989) (holding that a district court’s
near-verbatim adoption of an ex parte proposed order was not improper where the opposing
party had the opportunity to air its views fully and the court appeared to have exercised
independent judgment).
The circumstances of this case pass muster under Anderson and Aiken County. The
district court engaged extensively with the issues over several years. There is substantial
evidence that the court exercised independent judgment. While the court’s opinion adopted
significant language from Plaintiffs’ briefs, it also included substantial sections the court
10
785 F.3d 895, 901 (4th Cir. 2015) (decertification); see also Krakauer v. Dish Network,
L.L.C., 925 F.3d 643, 654 (4th Cir.) (“Our review of class certification issues is
deferential[.]”), cert. denied, 140 S. Ct. 676 (2019). “A district court abuses its discretion
when it materially misapplies the requirements of [Federal] Rule [of Civil Procedure] 23,”
EQT Prod. Co. v. Adair, 764 F.3d 347, 357 (4th Cir. 2014), or “makes an error of law or
clearly errs in its factual findings,” Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311,
317 (4th Cir. 2006).
B.
A plaintiff seeking class certification under Rule 23 has the burden of demonstrating
that the class satisfies the requirements for class-wide adjudication. See Comcast Corp. v.
Behrend, 569 U.S. 27, 33 (2013). The plaintiff must establish several “threshold
requirements applicable to all class actions, commonly referred to as ‘numerosity,’
‘commonality,’ ‘typicality,’ and ‘adequacy.’” Krakauer, 925 F.3d at 654 (citing Fed. R.
Civ. P. 23(a)). Rule 23 also contains an implicit requirement of ascertainability. Id. at 654–
55. To obtain certification under Rule 23(b)(3), the plaintiff must additionally show that
“[1] questions of law and fact common to class members predominate over any questions
affecting only individual class members, and [2] that a class action is superior to other
available methods for fairly and efficiently adjudicating the controversy.” Id. at 655
wrote itself—as well as language adopted from Defendants’ briefs. And, relevant to the
class-certification question, the record shows that the court conducted its own Rule 23
analysis. The opinion “var[ies] considerably in organization and content from” Plaintiffs’
briefs, and “[t]here is no reason to subject” the court’s class-certification decision “to a
more stringent appellate review than is called for by the applicable rules.” Anderson, 470
U.S. at 572–73.
11
(alterations in original) (emphases added) (citing Fed. R. Civ. P. 23(b)(3)). Here,
Defendants challenge the class certification only on the issue of predominance.
The district court concluded that the central question underlying the statutory
unconscionable-inducement claim was whether Defendants’ practice of providing the
borrowers’ estimates of value to appraisers was unconscionable conduct under the West
Virginia Consumer Credit and Protection Act. Because that analysis focused on
Defendants’ behavior, the district court concluded that it concerned questions of law and
fact common to all class members. Additionally, the court determined that the statutory
damages could be determined class-wide at a set amount.
As for breach of contract, the parties stipulated that the named plaintiffs’ interest-
rate disclosures and deposit agreements were “representative of the standard deposit
agreements used by Quicken Loans” throughout the class period. J.A. 185. Thus, the court
concluded that questions of fact concerning the breach-of-contract claim could be resolved
class-wide. And while individual evidence was required to determine the amount each class
member paid for their appraisal—the cost the district court used to calculate the breach-of-
contract damages award—Defendants have not suggested that evidence is difficult to
obtain.
Nevertheless, on appeal, Defendants contend that individualized issues
predominate. They argue that questions of standing, their statute-of-limitations defense, the
unconscionable-inducement analysis, various breach-of-contract issues, and the
12
calculation of damages all require individual determinations that should defeat class
certification. We are not persuaded.
1.
First, Defendants argue that a significant number of the class members are uninjured
and therefore lack standing. The question of class members’ standing “can be seen as
implicating either the jurisdiction of the court under Article III or the procedural issues
embedded within Rule 23’s requirements for class certification.” Krakauer, 925 F.3d at
652. While we review class-certification questions for abuse of discretion, our review of
our Article III jurisdiction is de novo. See Curtis v. Propel Prop. Tax Funding, LLC, 915
F.3d 234, 240 (4th Cir. 2019).
Defendants argue that there are class members who have not suffered any injury.
Accordingly, in Defendants’ view, the district court lacked Article III power to award
damages to those class members. And moreover, they argue, the district court should not
have certified a class containing uninjured members. But whether framed through Article
III or Rule 23, Defendants’ arguments lack merit.
Plaintiffs paid an average of $350 for independent appraisals that, as we conclude
below, they never received. Instead, they received appraisals that were tainted when
Defendants exposed the appraisers to the borrowers’ estimates of value and pressured them
to reach those values. Of course, “financial harm is a classic and paradigmatic form of
injury in fact,” Air Evac EMS, Inc., v. Cheatham, 910 F.3d 751, 760 (4th Cir. 2018)
(quoting Cottrell v. Alcon Laboratories, 874 F.3d 154, 163 (3rd Cir. 2017)), and “[f]or
standing purposes, a loss of even a small amount of money is ordinarily an ‘injury,’”
13
Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 983 (2017) (citing McGowan v.
Maryland, 366 U.S. 420, 430–431 (1961), in which the Court concluded that “appellants
fined $5 plus costs had standing”).
Defendants argue that Plaintiffs were not injured because they benefitted from
obtaining the loans. Even if that is true, “[o]nce injury is shown, no attempt is made to ask
whether the injury is outweighed by benefits the plaintiff has enjoyed from the relationship
with the defendant. Standing is recognized to complain that some particular aspect of the
relationship is unlawful and has caused injury.” 13A Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 3531.4 (3d ed. 2008 & Supp. 2020) (emphasis
added); see, e.g., Allco Fin. Ltd. v. Klee, 861 F.3d 82, 95 n.10 (2d Cir. 2017) (“[T]he fact
that an injury may be outweighed by other benefits, while often sufficient to defeat a claim
for damages, does not negate standing.” (quoting Ross v. Bank of Am., N.A. (USA), 524
F.3d 217, 222 (2d Cir. 2008))). 9 In sum, “there is simply not a large number of uninjured
persons included within the plaintiffs’ class.” Krakauer, 925 F.3d at 658.
9
This is not a case where facts related to the same transaction demonstrate there
was never an injury in the first place. See Texas v. United States, 809 F.3d 134, 155–56 &
n.59 (5th Cir. 2015) (collecting cases and distinguishing Henderson v. Stalder, 287 F.3d
374, 379 (5th Cir. 2002), in which the Fifth Circuit had declined to find taxpayer standing
where it did not appear that the taxpayers actually had to pay for the program at issue, and
noting that in Henderson, “the extra fees paid by drivers who purchased the [challenged
license] plates could have covered the associated expenses”; since “[t]he costs and benefits
arose out of the same transaction, . . . the plaintiffs had not demonstrated injury”), aff’d by
an equally divided Court, 136 S. Ct. 2271, 2272 (2016). Here, there is no doubt that
Plaintiffs actually paid for the appraisal, and thus were injured. We decline to apply the
“same transaction” test more broadly than our sister circuit did in Texas and contrary to the
general rule that benefits conferred upon a plaintiff by a defendant cannot defeat standing.
14
2.
Next, the statute-of-limitations question is straightforward and susceptible to class-
wide determination. 10 When Plaintiffs commenced this suit in 2011, the statute of
limitations for the unconscionable-inducement claim was “one year after the due date of
the last scheduled payment of the agreement.” W. Va. Code § 46A-5-101(1) (2011). 11 Here,
the district court pointed to several ways in which Defendants could perform the
“ministerial exercise” of determining which loans fell outside the applicable limitations
period. 12 J.A. 433. Section 46A-5-101(1)’s objective test for determining the limitations
period distinguishes this case from those where the statute of limitations depended on, for
example, determining when the cause of action accrued—a question that requires analyzing
“the contents of the plaintiff’s mind.” Thorn, 445 F.3d at 320.
Notwithstanding this straightforward analysis, Defendants seek to attack the district
court’s alternative conclusion that even if Defendants could demonstrate that some of
10
This defense relates only to the statutory and conspiracy claims, which have the
same statute of limitations for purposes of this case. See Dunn v. Rockwell, 689 S.E.2d 255,
269 (W. Va. 2009) (“[T]he statute of limitation for a civil conspiracy claim is determined
by the nature of the underlying conduct on which the claim of conspiracy is based[.]”).
Defendants have not suggested that Plaintiffs’ contract claims—which are subject to a ten-
year limitations period—are time-barred. See W. Va. Code § 55-2-6.
11
After a 2015 amendment, the statute now provides a limitations period of “four
years after the violations occurred.” 2015 W. Va. Acts ch. 63 (codified at W. Va. Code
§ 46A-5-101(1)). Plaintiffs do not argue that the new limitations period applies
retroactively. Cf. Cruz v. Maypa, 773 F.3d 138, 144 (4th Cir. 2014) (describing the analysis
required for determining whether a statute lengthening the limitations period applies
retroactively).
12
At the initial class-certification phase, Defendants provided no evidence of any
loans falling outside the limitations period. Defendants later located evidence of only three
such loans.
15
Plaintiffs’ claims were untimely, equitable tolling would apply. Defendants argue that
equitable tolling requires individual determinations that counsel against class certification.
That may be correct. E.g., EQT Prod. Co., 764 F.3d at 370. But the district court’s class-
certification order is not dependent on this alternative ground.
3.
Defendants also argue that Plaintiffs’ unconscionable-inducement claims must be
analyzed individually. They contend that Plaintiffs needed to prove that they were “actually
induced to enter into a loan by the challenged practice,” which would require peering into
each class member’s state of mind at the time of the loan signing. Opening Br. at 38. This
argument implicates the merits of the unconscionable-inducement claim, which we discuss
in detail below.
For present purposes, suffice it to say that we conclude Plaintiffs need only show
misconduct on the part of Defendants, and concealment thereof, relating to a key aspect of
the loan-formation process which necessarily contributed to the class members’ decisions
to enter the loan agreements. This is a determination that can be made across the class,
since (1) for every member of the class, Defendants engaged in the same allegedly
unconscionable practice—sharing borrowers’ estimates of value with appraisers while
failing to disclose that practice to Plaintiffs, and (2) unconscionable behavior affecting the
16
appraised value of a property inherently impacts the borrower’s decision to obtain a loan
based on that number.
4.
Turning to the contract claim, Defendants first allege that Plaintiffs failed to perform
their end of the contract. They base this assertion on the dubious ground that the record
supports that some homeowners (not specifically any member of the class) sometimes seek
to persuade appraisers to increase their appraisal values. Even if that evidence could be
enough to suggest that the class members attempted to influence the appraisers, we
conclude that Plaintiffs fully performed by paying the agreed-upon deposit.
Defendants also argue that the contractual element of damages should have been
litigated on an individual basis. They contend that there are no damages, and thus there can
be no breach of contract, if the appraiser would have reached the same result with or
without the borrower’s estimate of value. For example, even assuming that the borrower’s
estimate of value influenced the appraiser, one might expect the resulting appraisal to be
the same with or without exposure to that value if the borrower’s estimate of value was
accurate. But even if such evidence is necessary—a question we address below—it can be
evaluated through the ministerial exercise of comparing actual home values to estimates of
value.
5.
Finally, Defendants contend that the district court could not order statutory penalties
class-wide, arguing that the court was required to consider the level of harm suffered by
each class member individually. But the Supreme Court of Appeals of West Virginia has
17
clarified that “an award of civil penalties pursuant to” section 46A-5-101(1) is “conditioned
only on a violation of a statute” and is permissible even for “those who have suffered no
quantifiable harm” as long as they have been “subject to undesirable treatment described
in [section 46A-2-121 or related provisions] of the [West Virginia Consumer Credit and
Protection] Act.” 13 Vanderbilt Mortg. & Fin., Inc. v. Cole, 740 S.E.2d 562, 566, 568–69
(W. Va. 2013). Moreover, the amount of damages “is within the sole province of the trial
judge.” Id. at 569. The district court acted within its discretion when it determined that the
statutory damages could be assessed uniformly across the class.
Accordingly, we affirm the district court’s decision to certify Plaintiffs’ class. 14
III.
Having determined that Plaintiffs may pursue their claims as a class, we turn to the
question of whether Defendants breached their contracts with each of the class members.
We review de novo the district court’s interpretation of state law, grant of summary
judgment, and contract interpretation. See Schwartz v. J.J.F. Mgmt. Servs., Inc., 922 F.3d
558, 563 (4th Cir. 2019); Seabulk Offshore, Ltd. v. Am. Home Assurance Co., 377 F.3d
13We recognize that, in federal court, “a statutory violation alone does not create a
concrete informational injury sufficient to support standing” for Article III purposes.
Dreher v. Experian Info. Sols., Inc., 856 F.3d 337, 345 (4th Cir. 2017) (emphasis in
original). There is no need to wade into that complicated area of the law here, however,
because the class members suffered financial injuries sufficient to confer standing.
14
Defendants have pointed to four loans for which the class member did not sign
the stipulated document and therefore may not have paid a deposit. Of course, as federal
courts, our Article III power limits us to providing relief for only those claimants who have
been harmed, including in class actions. See Lewis v. Casey, 518 U.S. 343, 349 (1996). On
remand, therefore, we instruct the district court to determine whether the class members
who signed those four loans must be denied damages as to the unconscionable-inducement
claim, the breach-of-contract claim, or both.
18
408, 418 (4th Cir. 2004). “Summary judgment is appropriate when there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Bostic v. Schaefer, 760 F.3d 352, 370 (4th Cir. 2014) (internal quotation marks omitted).
For the reasons that follow, we conclude that the district court prematurely awarded
summary judgment to Plaintiffs on their breach-of-contract claim. Accordingly, we vacate
and remand for further proceedings.
A.
“Because this case involves solely state-law matters, ‘our role is to apply the
governing state law, or, if necessary, predict how the state’s highest court would rule on an
unsettled issue.’” Askew v. HRFC, LLC, 810 F.3d 263, 266 (4th Cir. 2016) (quoting Horace
Mann Ins. Co. v. Gen. Star Nat’l Ins. Co., 514 F.3d 327, 329 (4th Cir. 2008)). Under West
Virginia law, “[a] claim for breach of contract requires proof of the formation of a contract,
a breach of the terms of that contract, and resulting damages.” Sneberger v. Morrison, 776
S.E.2d 156, 171 (W. Va. 2015). We therefore begin our inquiry by considering whether the
parties formed a contract at all.
Formation of a contract under West Virginia law requires “an offer and an acceptance
supported by consideration.” Dan Ryan Builders, Inc. v. Nelson, 737 S.E.2d 550, 556 (W.
Va. 2012). The parties stipulated that the disclosures and agreements for the named
plaintiffs’ loans “are representative of the standard deposit agreements used by Quicken
Loans” during the class period. J.A. 185. The named plaintiffs include both the Aligs, who
serve as the class representatives, and another couple, Roxanne and Daniel Shea.
19
Two sections of the representative forms are relevant here. The first section, labeled
“DISCLOSURE” on the Sheas’ form and unlabeled on the Aligs’ form, provides:
Lender will begin processing your application (which may include ordering
an appraisal . . . ) immediately upon the submission of your application and
deposit. . . . Lender’s objective is to have your application fully processed . . .
[before the] anticipated closing date. However, please note that some parts of
this process aren’t under Lender’s control. For instance, Lender can’t be
responsible for delays in loan approval or closing due to . . . the untimely
receipt of an acceptable appraisal . . . .
J.A. 381–82. The second section, labeled “DEPOSIT AGREEMENT” on both the Sheas’
and Aligs’ forms, states:
With your deposit . . . , you authorize Lender to begin processing your loan
application and advance out-of-pocket expenses on your behalf to obtain an
appraisal and/or credit report. . . . If your application is approved, at the
closing, Lender will credit the amount of your deposit on your closing
statement toward the cost of your appraisal and credit report. Any additional
money will be credited to other closing costs. If your application is denied or
withdrawn for any reason, Lender will refund your deposit less the cost of an
appraisal and/or credit report.
J.A. 381. 15
The district court concluded that Quicken Loans was obligated to provide each class
member with “an ‘acceptable’ appraisal, which, at a minimum, would require [it] to deal
[reasonably and] honestly with its borrowers.” J.A. 409. The court appears to have based
this conclusion on the forms’ reference to “the untimely receipt of an acceptable appraisal,”
15
The above-quoted “Deposit Agreement” language comes from the Sheas’ form.
The language used on the Aligs’ form is substantially and substantively the same, though
not identical. See J.A. 382. The most significant difference is that the Aligs’ form lacks the
phrase “to obtain an appraisal and/or credit report.” However, like the Sheas’ form, the
Aligs’ form still specifies that the deposit is to be credited toward the cost of the appraisal
and credit report.
20
from which the court deduced a contractual duty on the part of Quicken Loans to provide
an “acceptable” appraisal. J.A. 381–82.
In our view, however, the natural reading of the key language—that Quicken Loans
“can’t be responsible for delays in loan approval or closing due to . . . the untimely receipt
of an acceptable appraisal”—is to limit Quicken Loans’ liability for delays, not to make
promises as to the quality of the appraisal. J.A. 381–82. We therefore conclude that the text
of the “Disclosure” section of the form signed by the Sheas and the untitled, yet identical
section of the form signed by the Aligs does not create a contractual obligation for Quicken
Loans to provide an “acceptable” appraisal.
But that is not the end of the matter because we hold that, instead, the forms create a
contract in the Deposit Agreement section. The section is labeled “agreement” and includes
an offer, acceptance, and consideration: Plaintiffs pay a deposit in exchange for Quicken
Loans beginning the loan application process, which could include an appraisal or credit
report. Plaintiffs’ deposit is to be applied toward that cost regardless of whether the loan
ultimately goes forward. Thus, Plaintiffs agreed to pay Quicken Loans for an appraisal or
credit report. And because of how Plaintiffs’ class is defined, all class members have
necessarily paid for an appraisal.
We therefore agree with the district court that the parties formed a contract, albeit a
different one from that found by the district court. But we conclude that whether that
contract was breached—and whether there were resulting damages—are questions that the
district court must review in the first instance. See Fusaro v. Cogan, 930 F.3d 241, 263
(4th Cir. 2019) (“We adhere . . . to the principle that the district court should have the first
21
opportunity to perform the applicable analysis.”). In particular, the district court will need
to address Defendants’ contention that there were no damages suffered by those class
members whose appraisals would have been the same whether or not the appraisers were
aware of the borrowers’ estimates of value—which one might expect, for example, if a
borrower’s estimate of value was accurate.
B.
Plaintiffs urge us to uphold the district court’s conclusion that “it was a necessary
corollary of obtaining an appraisal that the [D]efendant[s] would obtain a fair, valid and
reasonable appraisal of the property.” J.A. 409. They contend that we may do so, even
subtracting the word “acceptable” from the contract, by reference to the covenant of good
faith and fair dealing. We agree that the covenant applies to the parties’ contract. While the
covenant may therefore come into play on remand, we conclude that it cannot by itself
sustain the district court’s decision at this stage.
1.
In West Virginia, there is an implied “covenant of good faith and fair dealing in
every contract for purposes of evaluating a party’s performance of that contract.” Evans v.
United Bank, Inc., 775 S.E.2d 500, 509 (W. Va. 2015) (internal quotation marks omitted).
The covenant requires “honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.” Barn-Chestnut, Inc. v. CFM Dev. Corp., 457 S.E.2d
502, 508 (W. Va. 1995) (quoting Ashland Oil, Inc. v. Donahue, 223 S.E.2d 433, 440 (W.
Va. 1976)) (discussing the covenant in the context of agreements governed by the Uniform
Commercial Code).
22
Despite the Supreme Court of Appeals of West Virginia’s broad statement in Evans
that the covenant applies to every contract, Defendants imply that it is inapplicable here,
noting in passing that “West Virginia courts have yet to apply the duty of good faith and
fair dealing to a lender/borrower relationship in West Virginia.” Opening Br. at 34 n.11
(citing Quicken Loans, Inc. v. Brown, 737 S.E.2d 640, 652 n.26 (W. Va. 2012)). Even
assuming Defendants have preserved this issue, 16 we find their argument unpersuasive.
The case on which Defendants rely, Quicken Loans v. Brown, provides little
guidance on the matter. In fact, in Brown, the Supreme Court of Appeals of West Virginia
noted only that the “[p]laintiff also filed a claim for breach of the covenant of good faith
and fair dealing, which the trial court found ‘has not been applied to a lender/borrower
relationship in West Virginia’ and therefore was not addressed by the court.” Brown, 737
S.E.2d at 652 n.26. The Court provided no further analysis.
Nevertheless, in more recent lender/borrower cases, the state Supreme Court has
affirmed dismissal on the grounds that the plaintiffs’ “failure to allege a breach of contract
was fatal to their claim for a breach of the implied covenant of good faith and fair dealing.”
Evans, 775 S.E.2d at 509; see also Brozik v. Parmer, No. 16-0238, 2017 WL 65475, at *17
(W. Va. Jan. 6, 2017) (same). If the implied covenant was simply inapplicable to
lender/borrower relationships, there would have been no need for the Court to engage in
such analysis.
16
“A party waives an argument by failing to . . . develop its argument—even if its
brief takes a passing shot at the issue.” Grayson O Co. v. Agadir Int’l LLC, 856 F.3d 307,
316 (4th Cir. 2017) (internal quotation marks and alterations omitted) (citing Brown, 785
F.3d at 923).
23
To be sure, Evans and Brozik do not explicitly hold that the implied covenant of
good faith and fair dealing does apply to lender/borrower contracts. But given the
presumption under West Virginia law that an implied covenant of good faith and fair
dealing applies to every contract, we will not exclude lender/borrower cases from the ambit
of that covenant in the absence of some affirmative direction from West Virginia courts to
do so—particularly in light of the implication in Evans and Brozik that the covenant could
apply in such cases when properly pleaded.
2.
Defendants are on stronger footing with their second argument. They contend that,
even if the implied covenant can apply to lender/borrower contracts, West Virginia courts
do not recognize a “freestanding claim of breach of the implied covenant of good faith and
fair dealing where there is no breach of contract” and thus that Plaintiffs’ claim under the
covenant fails for lack of any breach of contract. Opening Br. at 34.
Defendants are correct that West Virginia law does not allow an independent claim
for breach of the implied covenant unrelated to any alleged breach of contract. Evans, 775
S.E.2d at 509. Thus, the Supreme Court of Appeals of West Virginia has repeatedly held
that plaintiffs cannot pursue a claim for breach of the implied covenant where they failed
to allege breach of contract. See id.; Brozik, 2017 WL 65475, at *17 (same); see also Gaddy
Eng’g Co. v. Bowles Rice McDavid Graff & Love, LLP, 746 S.E.2d 568, 578 (W. Va. 2013)
(affirming summary judgment on good faith and fair dealing claim where trial court had
“proper[ly] grant[ed] . . . summary judgment to the contract-based claims”).
24
But here, Plaintiffs do not pursue a stand-alone claim of breach of the implied
covenant of good faith and fair dealing. Rather, their complaint clearly alleges a claim of
breach of contract and cites the implied covenant as relevant to that claim. That is proper
under West Virginia law.
However, while Plaintiffs and the district court are correct that Quicken Loans was
obligated to “obtain a fair, valid and reasonable appraisal of the property,” that is only
relevant for determining whether there was a breach. J.A. 409; see Evans, 775 S.E.2d at
509 (courts may consider the implied covenant of good faith and fair dealing when
“evaluating a party’s performance of th[e] contract” (quoting Stand Energy Corp. v.
Columbia Gas Transmission Corp., 373 F. Supp. 2d 631, 644 (S.D.W. Va. 2005))). There
must also have been resulting damages for Plaintiffs’ breach-of-contract claim to succeed.
See Sneberger, 776 S.E.2d at 171. Accordingly, on remand, the district court may only
grant summary judgment to Plaintiffs on the breach-of-contract claim if it concludes that
(1) Quicken Loans breached its contracts with the class members, an analysis which may
take into consideration how the covenant of good faith and fair dealing impacts the
evaluation of Quicken Loans’ performance under the contracts; and (2) the class members
suffered damages as a result.
In sum, we conclude that a contract was formed between each class member and
Quicken Loans. On remand, the district court should consider whether Plaintiffs have
demonstrated an absence of genuine issues of material fact as to the other elements of a
breach-of-contract claim. In conducting this analysis, the district court may consider the
25
implied covenant of good faith and fair dealing to the extent that it is relevant for evaluating
Quicken Loans’ performance of the contracts. 17 Evans, 775 S.E.2d at 509.
IV.
We reach a different conclusion when it comes to Plaintiffs’ claim under the West
Virginia Consumer Credit and Protection Act (the “Act”). Although the claim is similar to
the contract claim—in that both are based on Defendants’ alleged misbehavior in the
appraisal process—there is a key difference between the two: while breach of contract
requires a demonstration of damages, the Act does not. Indeed, the Supreme Court of
Appeals of West Virginia has made plain that the Act is to be construed broadly and that it
is intended to fill gaps in consumer protection left by the common law, such as in breach-
of-contract actions.
Prior to finalizing loan agreements with the class members, Defendants sought to
pressure appraisers to inflate their appraisals of the class members’ homes. For all class
members, Defendants provided appraisers with estimated home values, and they at least
sometimes followed up on appraisals that fell short of these targets with phone calls
designed to persuade appraisers to reconsider their valuations. The record makes clear that,
regardless of any legitimate objective Defendants had in providing the borrowers’
estimates of value, they also provided those estimates to an unscrupulous end: inflating
appraisals. The record demonstrates that this pressure tainted the appraisal process, and it
17
Because we vacate the district court’s decision to grant summary judgment on
Plaintiffs’ contract claim, we also vacate the court’s award of damages for that claim.
Accordingly, we do not reach Defendants’ arguments regarding the district court’s order
of damages related to breach of contract.
26
is beyond dispute that the appraisal process was central to the formation of the loan
agreements. Moreover, Defendants did not reveal this practice to Plaintiffs. Given the
centrality of appraisals in loan formation, Defendants’ concealment of the scheme to inflate
appraisals was unconscionable behavior that contributed to Plaintiffs’ decisions to enter
the loan agreements. Thus, we affirm the district court’s holding that Plaintiffs are entitled
to summary judgment on their unconscionable-inducement claim.
A.
As noted, we review the district court’s interpretation of state law and grant of
summary judgment de novo, see Schwartz, 922 F.3d at 563; Seabulk Offshore, 377 F.3d at
418, and summary judgment is only appropriate when there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law, Bostic, 760 F.3d at
370.
Additionally, “[b]ecause federal jurisdiction in this matter rests in diversity, our role
is to apply the governing state law.” Stahle v. CTS Corp., 817 F.3d 96, 99–100 (4th Cir.
2016) (footnote omitted). In deciding questions of state law, we first turn to the state’s
highest court and “giv[e] appropriate effect to all [the] implications” of its decisions. Id. at
100 (quoting Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997, 1002 (4th Cir. 1998)).
But “[i]f we are presented with an issue that [the state]’s highest court has not directly or
indirectly addressed, we must anticipate how it would rule.” Liberty Univ., Inc. v. Citizens
Ins. Co. of Am., 792 F.3d 520, 528 (4th Cir. 2015). “In making that prediction, we may
consider lower court opinions in [the state], the teachings of treatises, and ‘the practices of
other states.’” Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433
27
F.3d 365, 369 (4th Cir. 2005) (quoting Wade v. Danek Med., Inc., 182 F.3d 281, 286 (4th
Cir. 1999)).
B.
The West Virginia Consumer Credit and Protection Act authorizes a court to act
when a loan agreement was “unconscionable at the time it was made” or “induced by
unconscionable conduct.” W. Va. Code § 46A-2-121(a)(1). The Act permits courts to
“refuse to enforce the agreement” as well as to order actual damages and a penalty. Id.
§ 46A-2-121(a)(1); see id. § 46A-5-101(1). The statute “protect[s] consumers . . . by
providing an avenue of relief for consumers who would otherwise have difficulty proving
their case under a more traditional cause of action”—such as a common-law contract claim.
Barr v. NCB Mgmt. Servs., Inc., 711 S.E.2d 577, 583 (W. Va. 2011) (quoting State ex rel.
McGraw v. Scott Runyan Pontiac-Buick, Inc., 461 S.E.2d 516, 523 (1995)). Because the
“[A]ct is clearly remedial in nature,” the Supreme Court of Appeals of West Virginia has
instructed that courts “must construe the statute liberally so as to furnish and accomplish
all the purposes intended.” Id. (quoting McGraw, 461 S.E.2d at 523).
Unconscionable inducement under the Act is broader in scope than both substantive
unconscionability and the “traditional cause of action” of common-law fraudulent
inducement. Id.; see McFarland v. Wells Fargo Bank, N.A., 810 F.3d 273, 284 (4th Cir.
2016); Brown, 737 S.E.2d at 658. The Supreme Court of Appeals of West Virginia hinted
at both conclusions in Quicken Loans v. Brown. In that case, a borrower complained that
Quicken Loans unconscionably induced a loan by, among other things, including an
estimated home value in its appraisal request form. See Brown, 737 S.E.2d at 648 & n.8.
28
The estimated home value was $262,500, and the appraiser—Dewey Guida, who also
performed the appraisal of the Aligs’ home in this case—valued it at $181,700. Id. The
home’s actual value was $46,000. Id. That Guida’s appraisal was massively inflated should
have been apparent to any observer, barring an extreme shift in the market, as the plaintiff
had refinanced the mortgage on the property for between roughly $40,000 and $67,000 in
the years immediately before obtaining the loan at issue. Id. at 647.
Nevertheless, Quicken Loans persuaded the plaintiff in a rushed closing process to
refinance her home and assume a loan of $144,800—with a massive balloon payment to
boot. Id. at 649–50. The trial court found that Quicken Loans engaged in common-law
fraudulent inducement and unconscionable inducement under the Act by, among other
things, negligently conducting the appraisal review. Id. at 652, 657. The Supreme Court of
Appeals of West Virginia affirmed, 18 though it did not specifically reach the issue of the
appraisal because it concluded that the balloon payment and Quicken Loans’ false promises
to the plaintiff were sufficient to support common-law fraudulent inducement. Id. at 652,
656, 658. Moreover, the Supreme Court concluded that that common-law violation alone
was enough to find a statutory violation under the Act for unconscionable inducement. Id.
at 658. Finally, the Supreme Court agreed with the lower court that the contract was
substantively unconscionable, despite Quicken Loans’ contention that the plaintiff received
“benefits” from the loan. Id. at 658; see id. at 659.
18
West Virginia’s state-court system has no intermediate appellate courts.
29
This Court extrapolated from Brown’s reasoning in McFarland v. Wells Fargo
Bank, predicting that the Act “is to be read as diverging from th[e] traditional
understanding” of unconscionability. McFarland, 810 F.3d at 284. We noted that the
Supreme Court of Appeals of West Virginia had “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.” Id. Accordingly, we concluded that the Act “authoriz[es] a claim for
unconscionable inducement that does not require a showing of substantive
unconscionability.” 19 Id.
Further, it is clear from Brown that an unconscionable-inducement claim is not
defeated by a showing that the plaintiff benefitted from the resulting loan. Brown, 737
S.E.2d at 651, 658–59 (holding the defendant liable for statutory unconscionable
inducement despite the fact that “[w]ith the loan proceeds, [the p]laintiff paid off her
previous mortgage and consolidated debt; received $40,768.78, with which she purchased
a new vehicle (for $28,536.90); [and] retired other existing debt”).
Thus, unconscionable inducement is simply “unconscionable conduct that causes a
party to enter into a loan.” McFarland, 810 F.3d. at 285. Courts are to analyze such claims
“based solely on factors predating acceptance of the contract and relating to the bargaining
process,” that is, “the process that led to contract formation.” Id. at 277–78. Procedural
19
By contrast, the other cause of action under the Act—where the agreement was
“unconscionable at the time it was made”—“requires a showing of both substantive
unconscionability, or unfairness in the contract itself, and procedural unconscionability, or
unfairness in the bargaining process.” McFarland, 810 F.23d at 277.
30
unfairness alone is insufficient—while procedural unconscionability can be shown by
demonstrating severe discrepancies in the parties’ bargaining positions, “it appears that
[the unconscionable-inducement analysis] will turn not on status considerations that are
outside the control of the defendant, but instead on affirmative misrepresentations or active
deceit.” Id. at 286 (emphases added). McFarland’s analysis on this point was prescient: a
few months after the decision was filed, the West Virginia legislature amended the statute
to include “affirmative misrepresentations, active deceit[,] or concealment of a material
fact” as examples of “unconscionable conduct.” 2016 W. Va. Acts. ch. 41 (codified at W.
Va. Code § 46A-2-121). In other words, unconscionable inducement requires that the
defendant have taken some unconscionable action within its control to forward the loan
process.
Based on binding precedent from this Court and the state Supreme Court, then, some
key principles guide our analysis. We are to construe the Act liberally. Its purpose is to
protect consumers, especially where the common law cannot provide them with relief.
Unconscionable inducement does not require substantive unconscionability in the loan
itself, and any benefit the plaintiff received from that loan is irrelevant. Instead,
unconscionable inducement relates only to contract formation. However, to prove
unconscionable inducement, a plaintiff must show more than procedural unconscionability:
he or she must demonstrate unconscionable behavior on the part of the defendant, such as
an affirmative misrepresentation or active deceit.
31
C.
This leaves us to “anticipate how [the Supreme Court of Appeals of West Virginia]
would rule” regarding one key question. Liberty Univ., 792 F.3d at 528. By definition, the
word “inducement” implies that the affirmative misrepresentation or active deceit in some
way caused the plaintiff to enter the loan. Black’s Law Dictionary defines “inducement”
generally as “[t]he act or process of enticing or persuading another person to take a certain
course of action,” and, specific to contracts, as “[t]he benefit or advantage that causes a
promisor to enter into a contract.” Inducement, Black’s Law Dictionary (11th ed. 2019).
To resolve this appeal, we must predict the level of causality that the Supreme Court of
Appeals of West Virginia would require.
We predict that plaintiffs alleging unconscionable inducement in the form of active
deceit or concealment may succeed on their claims by proving that the defendants omitted
information that corrupted a key part of the process leading to loan formation. Additionally,
we predict that plaintiffs alleging unconscionable inducement based on affirmative
misrepresentations must demonstrate that they relied on the defendants’ affirmative
misrepresentations in entering the loan. However, both predictions are based on West
Virginia precedent that relates to other causes of action potentially calling for a higher level
of causality than section 46A-2-121 requires. In other words, our predictions come with
the caveat that we think it possible that the Supreme Court of Appeals of West Virginia
would reduce the causality required even further for claims under section 46A-2-121. We
need not press on into this uncharted territory of state law, however, because we may affirm
the district court’s judgment even under these more cautious predictions.
32
Discussing common-law fraudulent concealment in Quicken Loans v. Brown, the
Supreme Court of Appeals of West Virginia held that “it is not necessary that the fraudulent
concealment should be the sole consideration or inducement moving the plaintiff. If the
concealment contributed to the formation of the conclusion in the plaintiff’s mind, that is
enough.” Brown, 737 S.E.2d at 654 (emphasis added) (internal quotation marks and
alterations omitted). And Brown makes clear that an act that constitutes common-law
fraudulent inducement also constitutes unconscionable inducement under the Act. See id.
at 658. Accordingly, for claims based on concealment, it “is enough” for a plaintiff to show
that the defendant’s concealment “contributed to the formation” of the plaintiff’s decision
to enter the loan. 20 Id. at 654.
Moreover, in White v. Wyeth, the Supreme Court of Appeals of West Virginia
evaluated a different section of the Act that protects consumers when they purchase or lease
goods or services. The court reasoned that “when consumers allege that a purchase was
made because of an express or affirmative misrepresentation, the causal connection
between the deceptive conduct and the loss would necessarily include proof of reliance on
those overt representations.” White v. Wyeth, 705 S.E.2d 828, 837 (W. Va. 2010)
(emphases added). However, “[w]here concealment, suppression or omission is alleged,
20
It is possible that the Supreme Court of Appeals of West Virginia would hold that
the necessary showing of causality is even further reduced under the Act. Notably, Brown
was discussing common-law fraudulent concealment. But because the Act is intended to
fill the gaps left by the common law, Barr, 711 S.E.2d at 583, unconscionable inducement
under the Act ought to be easier for plaintiffs to prove than common-law fraudulent
inducement. We decline to make a prediction as to exactly what standard the state Supreme
Court would apply, however, because we conclude that it is appropriate to affirm summary
judgment for Plaintiffs even under Brown’s more exacting standard.
33
and proving reliance is an impossibility, the causal connection between the deceptive act
and the ascertainable loss is established by presentation of facts showing that the deceptive
conduct was the proximate cause of the loss.” Id. (emphases added).
Importantly, the provision of the Act analyzed in White explicitly requires a showing
of causation for a consumer to sue a merchant or service provider. W. Va. Code § 46A-6-
106(a) (providing a private cause of action to a consumer who “purchases or leases goods
or services and thereby suffers an ascertainable loss . . . as a result of the use or
employment by another person of a method, act or practice prohibited” by the Act
(emphasis added)). Here, by contrast, the relevant provision has no comparable language
explicitly requiring causation for a plaintiff to sue a lender, except insofar as causation is
implied by the concept of inducement. W. Va. Code § 46A-2-121(a)(1) (providing a cause
of action where the court finds a consumer loan “to have been induced by unconscionable
conduct”). Therefore, logic necessitates that, at most, the same standard regarding reliance
articulated in White for section 46A-6-106(a) would apply to section 46A-2-121(a)(1):
proof of subjective reliance is necessary for actions based on affirmative representations,
but not for actions based on concealment. 21
21
Indeed, we think it possible that the state Supreme Court would conclude that
reliance would be unnecessary for either affirmative representations or concealment in
actions under section 46A-2-121(a)(1). Crucially, the court’s reasoning in White was
dependent on the specific language in section 46A-6-106(a). White, 705 S.E.2d at 833(noting that the certified question before it was the proper interpretation of the “as a result
of” language in section 46A-6-106(a)). And the current version of the Act specifically
recognizes that some lawsuits against creditors or debt collectors will be class actions—
but there is no comparable provision in the part of the Act at issue in White. Compare W.
Va. Code Ann. § 46A-5-101(1), with id. § 46A-6-106. As Defendants themselves argue, it
34
As a point of clarification, we recognize that White’s language about deceptive
conduct needing to be the “proximate cause of the loss”—or even the “but for” cause,
White, 705 S.E.2d at 837—appears to impose a more stringent requirement for the showing
of causation than does Brown’s language about the concealment merely needing to
“contribute[] to the formation of the conclusion in the plaintiff’s mind,” Brown, 737 S.E.2d
at 654. Here, between the two, Brown governs. Brown is more recent, and it dealt directly
with inducement to enter a loan, whereas White related to a different statutory provision.
Accordingly, we discuss White not for its causal language, but for its discussion of whether
a plaintiff alleging concealment must prove reliance.
In summary, to assess a claim of unconscionable inducement under the Act, we look
to the defendant’s conduct, not the bargaining strength of the parties or the substantive
terms of the agreement. For claims based on affirmative misrepresentations, plaintiffs must
demonstrate that they subjectively relied on that conduct. For claims based on concealment,
however, a plaintiff need only show that the defendant’s conduct was unconscionable and
that this unconscionable conduct contributed to the formation of the plaintiff’s decision to
enter the loan. In other words, we predict that the state Supreme Court would find that a
plaintiff who proves unconscionable conduct in the form of concealment will recover
becomes much more difficult to resolve as a class action a claim requiring individualized
proof of the class members’ mindsets. See Opening Br. at 38; see also Gariety v. Grant
Thornton, LLP, 368 F.3d 356, 362 (4th Cir. 2004). We do not mean to imply that a class
could never be certified under other provisions of the Act; that question is not before us.
But we think it significant that the legislature explicitly contemplated that actions against
creditors or debt collectors could employ the class-action vehicle, which suggests that no
individualized inquiry is required.
35
unless the conduct was sufficiently attenuated from or irrelevant to the loan’s formation
such that it did not contribute to the formation of the plaintiff’s decision to enter the loan.
D.
Turning to Defendants’ conduct in this case, and viewing the evidence in the light
most favorable to Defendants, we agree with the district court that Defendants sought to
pressure appraisers to match targeted appraisal values and concealed this practice from
Plaintiffs—a process that, in combination, contributed to Plaintiffs’ decisions to enter the
loan agreements. Under the standard outlined above, this conduct rises to the level of
unconscionable inducement under the Act.
The record clearly shows that Defendants sought to increase appraisal values by
providing borrowers’ estimates of home value to its appraisers and pressuring appraisers
to match those values. Defendants’ internal emails refer to receiving “a lot of calls from
appraisers stating that they can’t reach our requested value.” District Ct. Docket No. 206-
2 at 39 (emphasis added). One appraiser, Guida, testified that “if [the appraisal] wasn’t at
the estimated value, [he] would get a call” from TSI asking him to reevaluate the appraisal.
S.J.A. 669. In light of this testimony, the only reasonable inference is that the “requested
value” in the email refers to the borrower’s estimate of value. Internal emails also reveal
that Quicken Loans had a team dedicated to “push[ing] back on appraisers questioning
their appraised values,” and that Quicken Loans’ usual process involved “arguing over
value appeal orders and debating values with bankers and appraisers.” S.J.A. 711.
Moreover, Guida increased the appraised value of the Aligs’ home by $3,000 after
receiving documents from Defendants asking him to revisit the appraisal. Guida’s revised
36
appraisal of the Aligs’ home was between 19.5% and 26% higher than their actual home
value. Of course, home valuation is to some degree an art, not a science; some variability
is to be expected. But Defendants themselves have suggested that “a deviation of 10%
between values is common and accepted in the industry.” J.A. 277 (emphasis added). 22
While the record contains testimony from several appraisers that they were not
influenced by the estimated values, it is unclear how many of the appraisals at issue were
conducted by those appraisers. And regardless of whether the appraisers who conducted
the class members’ appraisals believed themselves to have been influenced, the record
suggests that they were. Guida’s appraisal of the Aligs’ home provides a particularly stark
example. But additionally, testimony from a Quicken Loans executive supports that the
average difference between the estimated value and the appraisal value for all class loans
was within five percent. In other words, the appraisals closely tracked the borrowers’
estimates of value. This uncontroverted fact can be reconciled with the appraisers’
testimony because it is a well-established psychological phenomenon that an initial value
can have an anchoring effect, influencing later estimates without the estimator’s
22
The record is devoid of evidence regarding the actual home values of other class
members. Accordingly, we cannot evaluate whether the appraisals for most class members
were inflated. As noted above, that may preclude Plaintiffs’ contract claim, which requires
a showing of damages. But it does not preclude a statutory unconscionable-inducement
claim, which does not require a showing of substantive unconscionability regarding the
loan terms.
37
realization. 23 Studies have shown this to be true even for experts like real estate agents (for
home prices) and judges (for sentencing decisions). 24
Viewed in the light most favorable to Defendants, the record contains evidence that
Defendants may have provided the estimates of value in part for legitimate reasons: helping
appraisers determine whether to accept an assignment and, if accepted, assess an
appropriate fee for the assignment. There is some dispute about whether appraisers actually
used the estimates in that way. But there is no genuine dispute that Defendants also
provided the estimates as a target—or, in their word, “requested”—value. Nor is there any
genuine dispute that, at least some of the time, their efforts worked.
It is also clear that during the class period, this practice was common, but
discouraged. Though it was not expressly forbidden by West Virginia law at the time,
federal authorities indicated as early as 1996 that providing a target value to appraisers was
improper, warning “employees of financial institutions” against “pressuring appraisers to
raise their value conclusions to target values.” S.J.A. 861. And the record suggests
Defendants were aware that the practice of providing borrowers’ estimates of value was
23
E.g., Jon D. Hanson & Douglas A. Kysar, Taking Behavioralism Seriously: Some
Evidence of Market Manipulation, 112 Harv. L. Rev. 1420, 1440–41 & n.82 (1999)
(describing the anchoring effect).
24
E.g., Mark W. Bennett, Confronting Cognitive “Anchoring Effect” and “Blind
Spot” Biases in Federal Sentencing: A Modest Solution for Reforming A Fundamental
Flaw, 104 J. Crim. L. & Criminology 489, 498 (2014) (discussing a study showing how
“anchoring works at the subconscious level” for real estate agents estimating home values);
see also United States v. Parral-Dominguez, 794 F.3d 440, 448 & n.9 (4th Cir. 2015)
(noting the anchoring effect of the Sentencing Guidelines in the context of criminal
sentencing).
38
inappropriate. They ceased doing so in at least one state that began applying more legal
pressure. Yet in West Virginia, Defendants continued to forge ahead. They only stopped
the practice entirely in 2009, “around the time” the Home Valuation Code of Conduct
forbid it. J.A. 235. It was unethical for Defendants to attempt to pressure or influence
appraisers—yet the record establishes that this was Defendants’ goal. 25
25
At oral argument, Defendants relied heavily on a provision of the West Virginia
Code that instructs that lenders “may rely upon a bona fide written appraisal of the property
made by an independent third-party appraiser” which is “prepared in compliance” with the
Uniform Appraisal Standards. W. Va. Code § 31-17-8(m)(8). Their theory was that, under
the Uniform Appraisal Standards, it was not unethical for an appraiser to complete an
appraisal after receiving an estimated value from the lender—and that this should absolve
Defendants of any wrongdoing.
As an initial matter, Defendants waived this argument by raising it only in passing
in their opening brief. Grayson, 856 F.3d at 316. In any event, it is without merit.
Defendants are correct that, while the 2008–2009 Uniform Appraisal Standards indicated
that appraisers could not ethically accept an appraisal assignment requiring a specific
amount as a condition, the record supports that the mere receipt by an appraiser of the
borrower’s estimate of value did not violate the Uniform Appraisal Standards. However,
the Uniform Appraisal Standards also indicated that appraisers should respond to lenders
who provided the borrower’s estimate of value with a clarifying statement that they could
not accept the assignment if the estimate was provided as a condition. There is no evidence
in the record that the appraisers made any such statements here.
Putting that issue aside, section 31-17-8(m)(8) cannot be used by lenders to justify
unconscionable conduct. Section 31-17-8(m)(8) forbids lenders from “making any primary
or subordinate mortgage loan” that is secured in a principal amount exceeding the fair
market value of the property. In enacting that prohibition, however, the legislature gave
lenders a safe harbor: they could rely on an appraiser’s valuation of the home to avoid
violating this rule. Reading the statute to allow lenders to attempt to influence appraisers
so long as they stick within the limits of the Uniform Appraisal Standards—to wield this
safe harbor shield as a sword—would defeat the purpose of section 31-17-8(m)(8), not to
mention section 46A-2-121(a)(1).
Moreover, the state legislature used significant limiting language in crafting section
31-17-8(m)(8), specifying that the appraisal must be “bona fide” and that the appraiser
must be “an independent third-party.” And under section 31-17-8(m)(2), lenders are
prohibited from “[c]ompensat[ing], . . . coerc[ing,] or intimidat[ing] an appraiser for the
purpose of influencing the independent judgment of the appraiser with respect to the value
39
Indeed, Defendants appear to recognize that their conduct was improper. On appeal,
they focus their energy on arguing that their attempts to influence appraisers were
unsuccessful and, therefore, did not induce Plaintiffs to enter the loans. They note
testimony from several appraisers that seeing borrowers’ estimates of value did not
influence them.
Defendants set the causational bar too high. As discussed, for claims related to
concealment, unconscionable inducement under the Act turns not on Plaintiffs’ subjective
reliance on the concealed conduct but on Defendants’ conduct itself. Plaintiffs need
demonstrate only that Defendants’ conduct was unconscionable and that it “contributed to
the formation” of their decisions to enter the loan agreements. Brown, 737 S.E.2d at 654.
We conclude that Plaintiffs have satisfied this standard. 26
of real estate” on which a mortgage loan is based. The language of section 31-17-8(m) thus
makes clear that the legislature was concerned about the very sort of behavior at issue
here—namely, lenders embarking on campaigns to sway appraisers.
26
Defendants argue that concealment is only actionable where there is a duty to
disclose—and they appear to argue that the absence of a statutory duty is dispositive. As
an initial matter, the absence of a statutory duty does not mean there is no duty. In the tort
context, for example, “[t]he ultimate test of the existence of a duty to use care is found in
the foreseeability that harm may result if it is not exercised.” Glascock v. City Nat’l Bank
of W. Va., 576 S.E.2d 540, 544 (W. Va. 2002) (internal quotation marks omitted). And,
where a lender “possesse[s] information of no interest to ‘society in general,’ but of great
interest to the [borrowers],” and the lender “ha[s] reason to know of the ‘potential
consequences of the wrongdoing,’ that is, withholding the information,” a special
relationship exists and the lender has a duty to disclose the information. Id. at 545; see id.
at 546; cf. McCauley v. Home Loan Inv. Bank, F.S.B., 710 F.3d 551, 559 (4th Cir. 2013)
(“A lender that informs a borrower about how much her property is worth, whether required
to do so or not, is under an obligation not to misrepresent that value.”); Ranson v. Bank of
Am., N.A., No. CIV.A. 3:12-5616, 2013 WL 1077093, at *6 (S.D.W. Va. Mar. 14, 2013)
(“[A] duty to provide accurate loan information is a normal service in a lender-borrower
relationship.”).
40
The appraisal process is closely related to loan formation for loans secured by the
collateral of real property. In other words, any conduct impacting the appraisal process
necessarily contributes to loan formation. An appraisal provides both the mortgagor and
mortgagee with a baseline value from which the parties can negotiate the terms of the loan.
The appraisal value helps determine the final loan amount and terms, and an impartial
appraisal gives both parties confidence that the loan is tied to the home’s true contemporary
market value.
Appraisal procedures are particularly important in refinancing agreements. In home
purchases, the loan amount is tied directly to the purchase price, which is tempered by
bargaining between adversarial parties represented by competing real estate agents. Here,
though, both parties had some incentive to estimate a high home value: Plaintiffs may have
wanted to receive more money they could use for other purposes, cf. McFarland, 810 F.3d
Moreover, there is no evidence that a duty to disclose is an element of an action for
unconscionable inducement by concealment under the Act. Defendants are correct that
common-law fraudulent concealment requires the plaintiff to show the existence of a duty
to disclose. Brown, 737 S.E.2d at 654. But, again, the Act is intended to provide consumers
with a cause of action where the common law does not. Barr, 711 S.E.2d at 583. And
research has not revealed a single West Virginia case interpreting the Act that has required
a duty to disclose. Indeed, in Brown, the Supreme Court of Appeals of West Virginia
referred to a duty to disclose only in discussing the plaintiff’s common-law claim for
fraudulent concealment. Brown, 737 S.E.2d at 654. And the trial court in Brown—the only
other West Virginia court to review the case—made no mention of a duty to disclose in
this context at all. Brown v. Quicken Loans, No. 08-C-36, 2010 WL 9597654, at *8 (W.
Va. Cir. Ct. Mar. 2, 2010).
In light of the principle that the Act provides a cause of action where the common
law runs dry, we conclude that, even assuming Plaintiffs must show that Quicken Loans
had a duty to disclose, the duty arises from the Act itself. In other words, the Act provides
an avenue for seeking relief when a lender conceals a fact despite having an ethical
obligation to disclose it, such that the failure to disclose the fact was unconscionable.
41
at 280, and Quicken Loans may have desired to obtain higher loan values to improve its
position when reselling those loans, see Brown, 737 S.E.2d at 652 n.25; cf. McCauley v.
Home Loan Inv. Bank, F.S.B., 710 F.3d 551, 559 n.5 (4th Cir. 2013). But an inflated home
value posed risks to both parties, too. See McFarland, 810 F.3d at 280–81. Amidst these
various dangers and incentives—and stepping into the middle of a transaction between
parties with unequal bargaining power—the impartial appraiser was the only trained
professional available to objectively evaluate the value of the home. Thus, conduct
designed to influence the appraisal process is not causally attenuated from the class
members’ decisions to enter the loans. Put another way, the appraisal process is sufficiently
central to the refinancing agreement that any conduct designed to affect the appraisal
process necessarily contributed to the Plaintiffs’ conclusions to enter the loans. And where,
as here, that conduct was unconscionable, it is actionable under the Act.
The evidence shows that appraisers were made aware of target values and pressured
to reevaluate their appraisals if they fell below those amounts. Appraisers, thus, had in
mind the target value when they assessed or reassessed Plaintiffs’ home values and, at least
sometimes, adjusted their appraisals in response—even if they did so only subconsciously.
And as those appraisals were central components in determining the terms of each loan,
there is no genuine dispute that they—and, more importantly, their guise of impartiality—
contributed to Plaintiffs’ decisions to enter those loans. Moreover, because Defendants’
42
behavior was unethical, it was unconscionable under the Act. Therefore, Plaintiffs have
established their claim for unconscionable inducement. 27
E.
We close our discussion of unconscionable inducement by emphasizing the
circumscribed nature of our holding—a limitation that is necessary when we are wading
somewhat into uncharted waters of state law, albeit with significant guidance from West
Virginia’s highest court. See id. at 284.
Defendants’ challenged actions were of a particularly questionable character and
pertained to an aspect of the loan process that is particularly essential. The loans in question
were secured by the collateral of the borrowers’ homes—by far the most significant
investment, in terms of sheer value, that most Americans will make in their lifetimes, but
also property that is necessary as shelter and, for many, carries great personal significance
as a home. We think it plain that reasonable borrowers would not risk their significant
investments, shelters, and homes without compelling reason. Again, we emphasize that
there is no evidence in the record suggesting that, when the class members estimated their
home values, they knew that those values would be passed on to appraisers or used to
pressure appraisers to increase appraisal values. Indeed, it is reasonable to suppose that the
borrowers each assumed that the appraisal provided an unbiased valuation of their homes
on which they could rely as they planned their financial futures.
Defendants do not challenge on appeal the statutory-damages award for Plaintiffs’
27
unconscionable-inducement claim.
43
Yet Defendants did not respect this process. Instead, they flexed their power as the
party arranging the appraisal in an attempt to influence the impartial third parties upon
whose advice Plaintiffs appropriately relied. Plaintiffs thought they were playing a fair
game of poker, albeit one where the Defendants were dealing the cards. Plaintiffs did not
know that Defendants were also stacking the deck.
Our holding thus should not be interpreted to open the floodgates to a deluge of
litigation challenging any possible means by which a lender could attempt to better position
itself in a negotiation. Parties to agreements can, of course, take some measures to protect
and further their interests without coming close to violating the Act. But where a lender
induces a borrower to enter a loan through deceptive practices that relate to the heart of the
loan-formation process, thereby compromising the integrity and fairness of that process,
West Virginia law provides the borrower with a remedy. We decline to accept Defendants’
invitation to ignore that legislative cure for their misbehavior. After all, “[i]t would be
dispiriting beyond belief if courts defeated [a legislature’s] obvious attempt to vindicate
the public interest with interpretations that ignored the purpose, text, and structure of th[e]
Act at the behest of those whose abusive practices the legislative branch had meant to
curb.” Krakauer, 925 F.3d at 663.
V.
Plaintiffs’ final claim, against both Quicken Loans and TSI, was for conspiracy.
Defendants’ only argument on appeal related to that claim is that “[t]he district court’s
summary-judgment decision on Plaintiffs’ civil-conspiracy claim . . . was derivative of its
ruling on the [unconscionable-inducement] count.” Opening Br. at 31. And since
44
Defendants believe reversal to be appropriate for the statutory claim, they argue the same
for the conspiracy claim. Because we affirm the district court’s decision to grant summary
judgment to Plaintiffs on their statutory claim, this argument fails. And by not making any
other arguments regarding this claim, Defendants have waived any such arguments on
appeal. See Grayson O Co. v. Agadir Int’l LLC, 856 F.3d 307, 316 (4th Cir. 2017).
Accordingly, we also affirm the district court’s grant of summary judgment to Plaintiffs on
the conspiracy claim.
VI.
For the foregoing reasons, we affirm the district court’s decisions to grant class
certification, grant summary judgment to Plaintiffs on their conspiracy and
unconscionable-inducement claims, and award statutory damages. However, we vacate the
district court’s grant of summary judgment to Plaintiffs on their breach-of-contract claim
and the related damages award, and we remand that claim for further proceedings
consistent with this opinion.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED.
45
NIEMEYER, Circuit Judge, dissenting:
Phillip and Sara Alig and Daniel and Roxanne Shea refinanced the mortgages on
their homes in 2007 and 2008, respectively, with loans from Quicken Loans Inc. to
consolidate their debts and reduce their payments. In the standard application form that
they signed to apply for the loans, they provided, among other things, an estimated value
of their homes and the amount that they wished to borrow. To qualify the loans, Quicken
Loans obtained appraisals from independent, professional appraisers, who were provided
with the borrowers’ home-value estimates. This was, at the time, a customary and accepted
industry practice. While the Aligs and the Sheas provided their estimates unconditionally,
indicating that the estimates could be used by Quicken Loans, its agents, and its servicers,
they were not informed in particular that their estimates would be provided to the
appraisers.
At the closings, the Aligs and Sheas received the borrowed money and, as they had
agreed, paid for the costs of the appraisals — $260 in the Aligs’ case and $430 in the
Sheas’. As planned, the two couples then consolidated their debts to their financial benefit.
There is no dispute that they received exactly what they had bargained for and that they
were highly satisfied with the transactions.
After industry standards changed in 2009 so that lenders could no longer provide
appraisers with borrowers’ home-value estimates and years after their loans closed, the
Aligs and Sheas commenced this class action against Quicken Loans. They alleged that
the practice that Quicken Loans followed in 2007 and 2008 of providing appraisers with
borrowers’ home-value estimates without their knowledge was “unconscionable conduct”
46
that “induced” their loan transactions, in violation of the West Virginia Consumer Credit
and Protection Act, W. Va. Code § 46A-2-121(a)(1) (making unenforceable consumer
loans that are “induced by unconscionable conduct”). They also claimed that the practice
constituted a breach of contract. With their action, the Aligs and Sheas sought to represent
a class of other West Virginia residents who had also refinanced their mortgages with
Quicken Loans before 2009 — a class involving nearly 3,000 loans. The district court
certified the class, agreed with the Aligs and Sheas on both claims, and entered summary
judgment against Quicken Loans for over $10 million. And in a startling opinion, the
majority now largely affirms the district court’s conclusion.
To impose liability on Quicken Loans for what was an industry-wide practice to
provide relevant information to appraisers and that harmed the Aligs and Sheas not one
iota is fundamentally unjust; it is, as we have previously observed, “not the borrower but
the bank that typically is disadvantaged by an under-collateralized loan.” McFarland v.
Wells Fargo Bank, N.A., 810 F.3d 273, 280 (4th Cir. 2016). Imposing liability here thus
lacks common sense. Moreover, it stands statutory liability on its head.
West Virginia law creates lender liability for “unconscionable conduct” that
“induces” the borrower to enter into a consumer loan transaction. Yet here, there is no
factual or legal basis to call the challenged practice “unconscionable,” a term that West
Virginia courts have equated with fraudulent conduct. Nor is there any evidence that the
borrowers were “induced by” the practice to enter into the loan transactions. By their own
allegations, the Aligs and Sheas were unaware of the practice, and there is simply no
evidence that if they had been made aware of it, they would not have proceeded with the
47
transactions on the same terms. They were interested in receiving a loan in the amount
they had applied for and at the cost that was fully disclosed to them for the purpose of
consolidating their debts.
In affirming a $10-million liability in these circumstances, the majority opinion
stands totally out of step with the interests of both parties to the transactions. This is an
unjust punishment indeed for a company that followed a practice that was both customary
and legal and only later modified to avoid potentially influencing appraisers. And
regardless of the change in 2009, there is no evidence that the appraisers on these loans
were influenced by the borrowers’ estimates or that any kind of fraud was committed.
I conclude that the practice followed in 2007 and 2008 of providing appraisers with
the borrowers’ estimates of home value without disclosing that practice to the borrowers
was plainly not unconscionable conduct under virtually any understanding of the term and
certainly not under the standard imposed by West Virginia Code § 46A-2-121. There was
nothing unscrupulous or akin to fraud involved in the transactions. The practice that the
Aligs and Sheas challenge was related only to lenders’ dealings with appraisers who were
retained to protect the lenders from undercollateralized loans; the practice was accepted by
the industry at the time; the practice did not affect — nor would it have affected if disclosed
— the Aligs and Sheas’ conduct in pursuing the loans; and the practice caused the Aligs
and Sheas no damage.
I also conclude that the Aligs and Sheas were not induced by the practice to enter
into the loan transactions. They did not know of it, and there is simply no evidence that
had the practice been disclosed to them, they would have proceeded any differently.
48
I would reverse and remand with instructions to enter judgment for Quicken Loans
and its agent, Title Source, Inc.
I
The practices followed by borrowers and lenders in refinancing home mortgages
were and are well understood, and they are governed by numerous regulations designed to
serve both borrowers and lenders. The evidence in this case showed that Quicken Loans
followed the accepted practices both before 2009 and after, and the Aligs and Sheas have
pointed to no deviation from them, much less deceit.
A refinancing transaction typically begins with the prospective borrower filling out
a Uniform Residential Loan Application (Fannie Mae Form 1003), which requires the
lender to provide, among other things, information about their income and debts, their
assets, and the amount and basic terms of the loan being sought. In one portion of the
application, the borrowers are specifically requested to fill in a schedule of real estate
owned, providing the real estate’s “present market value,” as well as the mortgages and
liens on it. The form expressly authorizes use of the application’s information by the
lender, its “agents,” and its “servicers,” providing that the borrower “agrees and
acknowledges that . . . the Lender and its agents, . . . [and] servicers . . . may continuously
rely on the information contained in the application.” Lenders use the application’s
information to identify loan programs for which the borrowers would be eligible, to qualify
the borrowers for loans with a demonstration of adequate income and collateral, to obtain
49
credit information regarding the borrowers, and to retain appraisers to appraise the
borrowers’ homes.
Before 2009, lenders commonly provided the borrowers’ home-value estimates to
appraisers who were engaged to provide appraisals in connection with mortgage
refinancings. The testimony in the record shows that this “was a common and acceptable
practice for mortgage lenders.” The information helped appraisers determine whether they
had the right licensure to complete the appraisal, decide whether to accept the assignment,
and determine what fee to charge for the appraisal. And the practice was considered
appropriate under the Uniform Standards of Professional Appraisal Practice (“USPAP”)
issued by the Appraisal Standards Board. Indeed, under guidance published by the Board,
appraisers were expressly allowed to receive borrowers’ estimates. The Board recognized
that the mere receipt of such information was not inconsistent with the appraisers’
obligation to perform their appraisals with “impartiality, objectivity, and independence.”
But an appraiser was not authorized to accept an engagement that was conditioned on
reporting a predetermined opinion of value.
Appraisals were (and continue to be) generally reported on a Uniform Residential
Appraisal Report (Fannie Mae Form 1004). When submitting appraisals on that form, the
appraiser certifies that he or she performed the appraisal “in accordance with the
requirements of the” USPAP.
Quicken Loans followed these customary procedures during the pre-2009 period,
using the Fannie Mae forms. It would upload information about a prospective borrower,
including the borrower’s estimate of home value, into a computer system that would then
50
transmit the information to Title Source, Inc., an affiliated appraisal management company
that obtained appraisals from independent appraisers and provided other loan settlement
services both to Quicken Loans and other mortgage lenders. Title Source used the
information it received from Quicken Loans to generate an appraisal request form, which
included the “Applicant’s Estimated Value.” The form was sent through an automated
system to professional appraisers and appraisal companies in the area where the property
was located. The appraisers in this case then reported their appraisals on Fannie Mae Form
1004.
In 2009, with the issuance of the Home Valuation Code of Conduct, a new rule went
into effect that, among other things, prohibited both lenders and appraisal management
companies from providing any estimated home values to appraisers in connection with
refinance transactions, including the borrowers’ own estimates. With the issuance of this
new rule, Quicken Loans and Title Source stopped including borrowers’ estimated home
values on appraisal request forms. But the refinancings by the Aligs and the Sheas were
completed under the former practice, before the new rule went into effect.
Phillip and Sara Alig purchased their home in Wheeling, West Virginia, in 2003 for
$105,000, financing their purchase with a mortgage. In December 2007, they sought to
refinance their mortgage and consolidate their debts with a loan from Quicken Loans. On
the Uniform Residential Loan Application form, they indicated that the “present market
value” of their home was $129,000, and this estimate was thereafter included on the
appraisal request form that Title Source sent to a local appraiser who was retained to
determine what the fair market value of the Aligs’ home was. The appraiser at first
51
determined that value to be $122,500. Title Source asked the appraiser, however, to
“revisit [the] appraisal for [a] possible value increase to $125,500” based on an “adjusted
sales price of comps.” The appraiser agreed that, in view of “the comps” (which included
nearby home sales of $124,000 and $132,000), it was appropriate to increase the appraisal
to $125,500. The appraiser submitted his report on the uniform form (Fannie Mae Form
1004), certifying that he had conducted the appraisal in accordance with the USPAP
standards and that his compensation was not conditioned on his reporting “a predetermined
specific value.” In addition, he testified that receiving homeowners’ estimated values did
not influence his appraisals in any way. Quicken Loans thereafter agreed to lend the Aligs
$112,950 at a fixed interest rate of 6.25%, and at closing, which took place in December
2007, the Aligs used the proceeds to pay off a car loan and credit card debt, saving them
$480 per month for almost a year thereafter. Included in the closing costs that the Aligs
paid with the refinancing was $260 for the cost of the appraisal.
Similarly, Daniel and Roxanne Shea purchased their home in Wheeling, West
Virginia, in 2006 for $149,350, financing their purchase with two mortgage loans from
Quicken Loans. In June 2008, they sought to refinance their mortgages with a loan from
Quicken Loans to consolidate their debts. On the Uniform Residential Loan Application
form, they indicated that the “present market value” of their home was $170,000, and this
information was included on the appraisal request form that Title Source sent to a local
appraiser. That appraiser appraised the Sheas’ property at $158,000, using Fannie Mae
Form 1004. He testified later that the “Applicant’s Estimated Value” was nothing more
than what the borrowers assumed their house was worth and so was “irrelevant” to his task
52
of determining market value using “comparables.” He also stated that if a potential client
had attempted to condition his payment on his assessing a house to be worth a certain
minimum value, he would have refused to do the job. Quicken Loans agreed to lend the
Sheas $155,548 at a fixed interest rate of 6.625%, which consolidated their previous
mortgage loans. One of the consolidated loans had a balloon-interest provision and the
other had an interest rate of 12.4%. As part of the closing costs, the Sheas paid $430 for
the cost of the appraisal.
There is no evidence that either the Aligs or the Sheas were dissatisfied with their
refinancing transactions with Quicken Loans. Indeed, they rated their experience at the
highest level (“excellent” or 5 out of 5), and both couples improved their cash-flow
circumstances. Nonetheless, after the 2009 rule change by which lenders were no longer
permitted to provide the borrowers’ home-value estimates to appraisers, the Aligs and
Sheas decided to sue Quicken Loans and Title Source for the practice followed in their pre-
2009 refinancing transactions. In their complaint, they alleged that Quicken Loans had
“sought to influence appraisers” by providing them with “suggested or estimated values on
appraisal request forms.” They also stated that Quicken Loans had not informed them of
this practice and claimed that, by so “compromising the integrity of the appraisal process,”
the practice had “rendered [their] appraisals unreliable and worthless.” The Aligs and
Sheas did not allege, however, that they would not have refinanced their home mortgages
with Quicken Loans on the same terms had they known that their home-value estimates
had been sent to the appraisers. But, using the statutory language, they alleged in their
complaint that their loans were “induced by unconscionable conduct,” in violation of West
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Virginia Code § 46A-2-121(a)(1), which is part of the West Virginia Consumer Credit and
Protection Act. They also alleged that by “providing value estimates to appraisers” without
disclosing the practice to them, Quicken Loans breached its contractual obligation to obtain
“a fair and unbiased appraisal.” Finally, they alleged that Quicken Loans and Title Source
engaged in an unlawful civil conspiracy that rendered Title Source equally liable for the
unconscionable inducement and breach of contract claims alleged.
Following discovery, the plaintiffs filed a motion to certify their action as a class
action on behalf of “[a]ll West Virginia citizens who refinanced mortgage loans with
Quicken, and for whom Quicken obtained appraisals through an appraisal request form that
included an estimate of value of the subject property.” There were 2,769 such loans.
Shortly thereafter, the parties filed cross-motions for summary judgment, and the
district court, by memorandum opinion and order dated June 2, 2016, both certified the
proposed class and granted summary judgment to the plaintiffs on the three claims.
The court found as a matter of law “that the act of sending an estimated . . . value to
an appraiser in connection with a real estate mortgage loan refinancing” without
disclosing the practice to borrowers was “unconscionable conduct” within the meaning of
§ 46A-2-121. It reasoned that the “estimated values were used by Quicken as a means of
communicating targets to its appraisers.” The court also concluded as a matter of law that
the unconscionable conduct induced the plaintiffs’ loan agreements. Noting that “[a]
violation exists when ‘the agreement or transaction . . . [has been] induced by
unconscionable conduct,’” the court explained its view that the focus of the statute “is
plainly on the lender or creditor’s conduct,” rather than “the consumer’s state of mind.”
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On the contract claim, the district court explained that the plaintiffs and Quicken
Loans had executed a contract at the beginning of the loan process, entitled “Interest Rate
Disclosure and Deposit Agreement,” which provided that immediately upon receiving the
borrowers’ loan application and deposit, Quicken Loans would begin processing the
application by, among other things, obtaining an appraisal. That agreement also noted that
while Quicken Loans aimed to have the borrowers’ application approved by the anticipated
closing date, it could not be responsible for delays in loan approval due to, among other
things, “the untimely receipt of an acceptable appraisal.” The court concluded that this
agreement was intended to “facilitate the loan application process by having the lender,
Quicken, obtain an ‘acceptable’ appraisal, which, at a minimum, would require Quicken to
deal honestly with its borrowers and in keeping with the prevailing standards of
reasonableness.” But because “providing a target figure to an appraiser is a practice that is
universally condemned and serves no legitimate purpose,” the court concluded that
Quicken Loans had breached its obligation to obtain an “acceptable” appraisal and had
violated its “duty to deal honestly” by “withholding knowledge of the true nature of the
appraisal.”
On the civil conspiracy claim, the court held that Quicken Loans and Title Source
“consistently acted in concert to accomplish their unlawful purposes,” such that they were
jointly liable for the “scheme.”
In a later order, the court awarded (1) statutory damages of $3,500 per loan for the
unconscionable inducement claim, for a total of $9,691,500, and (2) approximately
$969,000 for the breach of contract claim, which represented the aggregate amount of fees
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paid for appraisals that “were rendered worthless by Quicken’s breach.” The total
judgment thus exceeded $10.6 million.
From the final judgment dated December 14, 2018, Quicken Loans and Title Source
(hereafter collectively “Quicken Loans”) filed this appeal.
II
On the statutory claim, the district court held that Quicken Loans’ practice of
obtaining appraisals through appraisal request forms that included the borrowers’ estimate
of their properties’ value without specifically disclosing that practice to the borrowers
constituted “unconscionable inducement under W. Va. Code § 46A-2-121.” Quicken
Loans contends, however, that the court’s ruling was doubly flawed because (1) the
plaintiffs “offered no evidence of inducement” and (2) Quicken Loans “did nothing
unconscionable.”
Quicken Loans’ argument thus directs our focus to the meaning of two terms —
“induce” and “unconscionable” — as they are used in imposing liability when a consumer
loan transaction is “induced by unconscionable conduct.” W. Va. Code § 46A-2-121(a)(1)
(emphasis added). I start with the term “induce.”
A
The relevant portion of the West Virginia Consumer Credit and Protection Act
provides that “[w]ith respect to a transaction which is or gives rise to a . . . consumer loan,
if the court as a matter of law finds . . . [t]he agreement or transaction . . . to have been
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induced by unconscionable conduct . . . , the court may refuse to enforce the agreement.”
W. Va. Code § 46A-2-121(a)(1) (emphasis added).
Beginning with the text, it is clear that to have an agreement “induced by”
unconscionable conduct requires that the conduct of one party have contributed to the
agreement’s formation in the sense that it was material, or would have been material, to
the other party’s decision to enter into the agreement. Thus, if one party engaged in
“unconscionable conduct” at some point in the process of the agreement’s formation, but
the other party would have agreed to the same transaction regardless, it cannot fairly be
said that the unconscionable conduct induced the agreement. This much is clear from the
text alone because “induce” and “inducement” have well recognized legal meanings, as
even the majority acknowledges. See ante at 32. For instance, Black’s Law Dictionary’s
primary definition of inducement is “[t]he act or process of enticing or persuading another
person to take a certain course of action.” Black’s Law Dictionary 894 (10th ed. 2014)
(emphasis added); cf. Mountain State College v. Holsinger, 742 S.E.2d 94, 100 (W. Va.
2013) (relying on the definition of “consumer credit sale” in Black’s Law Dictionary when
interpreting the Consumer Credit and Protection Act). In addition to this general definition,
Black’s Law Dictionary also recognizes several specialized meanings of “inducement.” A
contract’s “inducement,” for example, is the “benefit or advantage that causes a promisor
to enter into a contract.” Black’s Law Dictionary, supra, at 894 (emphasis added). And
even more telling, Black’s Law Dictionary defines “[f]raud in the inducement” as “[f]raud
occurring when a misrepresentation leads another to enter into a transaction with a false
impression of the risks, duties, or obligations involved.” Id. at 776 (emphasis added).
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West Virginia courts have long given the word “induce” this same meaning when
applying the State’s tort law. See, e.g., Traders Bank v. Dils, 704 S.E.2d 691, 696 (W. Va.
2010) (“The critical element of a fraudulent inducement claim is an oral promise that is
used as an improper enticement to the consummation of another agreement. The fact that
the agreement is reduced to writing . . . does not negate the occurrence of a precedent oral
promise that was the motivating factor for the making of such agreement” (emphasis
added)). Although the fraudulent representation or concealment need not be “the sole
consideration or inducement moving the plaintiff,” it must at least have “contributed to the
formation of the conclusion in [the plaintiff’s] mind” for an inducement to have occurred.
Horton v. Tyree, 139 S.E. 737, 739 (W. Va. 1927) (second emphasis added).
The West Virginia Supreme Court of Appeals’ decision in Quicken Loans, Inc. v.
Brown, 737 S.E.2d 640 (W. Va. 2012), serves as a telling example of how that court
understands the meaning of “induce” — specifically, the centrality of the effect of the
alleged misconduct on the individual plaintiff’s decisionmaking process. In Brown, the
court held that the plaintiff had proved that the lender “fraudulently induced [her] to enter
into [a] loan” to refinance her home mortgage by “failing to disclose [an] enormous balloon
payment.” Id. at 652. It explained that “[i]t [was] undisputed that the reason [the plaintiff]
sought to refinance was to consolidate her debt and to reduce her monthly payments — in
short, to save money.” Id. at 654. Thus, “[c]oncealing such an enormous balloon payment
from [the plaintiff] was designed to mislead her and to induce her into entering into the
loan and, in fact, that is precisely what occurred.” Id. (emphasis added). Similarly, the
court concluded that a fraudulent misrepresentation by the lender “that it would refinance
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the loan in three to four months was clearly material because, absent that promise, [the
plaintiff] would not have otherwise entered into the loan.” Id. at 655 (emphasis added).
On the flip side, however, the court held that the plaintiff had failed to prove that the
lender’s misrepresentation of a $2,100 fee as being paid to secure a lower interest rate had
induced her to enter into the refinancing, agreeing there was insufficient evidence “that if
the loan discount had been accurately described on the closing documents, [the plaintiff]
would not have consummated the loan.” Id. at 656.
There is no indication that the West Virginia Supreme Court of Appeals would
understand “induced by” in § 46A-2-121 to have any meaning other than this settled one.
See Napier v. Bd. of Educ. of Cnty. of Mingo, 591 S.E.2d 106, 110 (W. Va. 2003) (“When
presented with a matter of statutory interpretation, this Court typically first looks to the
precise language employed by the Legislature in order to determine the meaning of the
controverted statute. . . . If the text, given its plain meaning, answers the interpretive
question, the language must prevail and further inquiry is foreclosed” (cleaned up)). To
the contrary, in Brown itself, the court signaled the similarity between a statutory
unconscionable inducement claim under § 46A-2-121 and a common law fraudulent
inducement claim, reasoning that because the plaintiff had established the latter, she had
also established the former. Brown, 737 S.E.2d at 658.
Moreover, in Brown, the court also explained that when interpreting § 46A-2-121,
it “found the drafters’ comments to the [Uniform] Consumer Credit Code [“UCCC”] to be
highly instructive,” as “the unconscionability provisions of [the UCCC] are identical to
West Virginia Code § 46A-2-121(a) and (b).” 737 S.E.2d at 656–57. Significantly, an
59
early version of the UCCC only provided for nonenforcement of an agreement respecting
a consumer credit sale, consumer lease, or consumer loan if the agreement was
“unconscionable at the time it was made.” Unif. Consumer Credit Code 1968 § 5.108(1).
In the 1974 version, however, the provision was expanded to include unconscionable
inducement. See Unif. Consumer Credit Code 1974 § 5.108(1). And in explaining this
amendment, the UCCC’s accompanying comments stated:
Subsection[] (1) . . . [is] derived in significant part from UCC Section 2-302.
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 (emphasis added). These comments —
which, again, the West Virginia Supreme Court of Appeals has specifically recognized as
being “highly instructive” in interpreting § 46A-2-121, see Brown, 737 S.E.2d at 657 —
only further confirm that a contract is induced by unconscionable conduct when such
conduct is used to help secure the consumer’s agreement to the contract. Indeed, relying
on the UCCC comments quoted above, we recognized as much in McFarland, where we
stated that § 46A-2-121 supports “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.” 810 F.3d at 285 (emphasis added).
60
Tellingly, the Aligs and Sheas have not even attempted to argue that they presented
sufficient evidence to prove that the allegedly unconscionable conduct at issue here
induced them to refinance their mortgages with Quicken Loans. Rather, they stake their
position on the proposition that all that is required to establish a lender’s liability under
§ 46A-2-121 is simply that unconscionable conduct was part of the process leading to the
agreement’s creation, regardless of whether it had any effect on “the formation of the
conclusion in the plaintiff’s mind.” Brown, 737 S.E.2d at 654. Their posited interpretation,
however, is at odds with not only the statute’s text and case law construing “induce,” but
also the provision’s purpose of ensuring that consumers are protected when a lender has
used “unconscionable acts or practices to obtain an agreement” from them, even if the
terms of that agreement are not themselves unconscionable. Unif. Consumer Credit Code
1974 § 5.108 cmt. 1.
Here, the plaintiffs have simply failed to establish that their loan agreements were
“induced by” Quicken Loans’ failure to disclose that the home-value estimates that they
themselves had provided had been included on the appraisal request forms. In other words,
they failed to prove that Quicken Loans’ lack of disclosure was a “motivating factor for
[their] making of” the loan agreement, Traders Bank, 704 S.E.2d at 696; or that it
“contributed to” their decision to enter into the loan, Brown, 737 S.E.2d at 654; or that it
“cause[d] [them] to enter into [the] loan,” McFarland, 810 F.3d at 285. This failure should
have entitled Quicken Loans to judgment as a matter of law on the statutory claim.
To avoid the plaintiffs’ obvious failure, the majority opinion manufactures an
approach alien to West Virginia law. It reasons that even though “‘inducement’ implies
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that the affirmative misrepresentation or active deceit in some way caused the plaintiff to
enter the loan,” ante at 32 (emphasis added), it can nonetheless find this element satisfied
by “predict[ing] that the state Supreme Court would find that a plaintiff who proves
unconscionable conduct in the form of concealment will recover unless the conduct was
sufficiently attenuated from or irrelevant to the loan’s formation that it did not contribute
to the formation of the plaintiff’s decision to enter the loan,” id. at 35–36 (emphasis added).
Such a prediction is unprecedented and has no rational foundation. It fundamentally fails
to take into account that to establish that the lender’s concealment of something induced
the plaintiff’s agreement requires proof that the disclosure of that information would have
changed their decision. See Brown, 737 S.E.2d at 655–56; cf. White v. Wyeth, 705 S.E.2d
828, 837 (W. Va. 2010).
Because the record contains no evidence that it would have made any difference to
the Aligs or the Sheas to have learned that their estimates had been provided to the
appraisers — the plaintiffs having indeed foresworn the need to make such a showing — I
would vacate the district court’s summary judgment on the statutory claim and remand
with instructions to grant summary judgment to the defendants.
B
To prove a claim under § 46A-2-121, the Aligs and Sheas would not only have to
prove inducement but also establish that the inclusion of their home-value estimates on the
appraisal request forms without disclosure to them amounted to “unconscionable conduct”
as a matter of law. W. Va. Code § 46A-2-121(a)(1). In asserting that they established that
62
element, they argue that providing appraisers with their estimates of home value “bias[ed]
the result” of the appraisals, but that Quicken Loans had presented the appraisals to them
as if they were “independent estimates.” They characterize these posited facts as the
“‘equivalent to’ an affirmative misrepresentation.” Surprisingly, the majority opinion
simply accepts the plaintiffs’ argument.
The plaintiffs’ elaboration of facts purporting to demonstrate unconscionable
conduct, however, is sheer speculation. The record shows nothing malignant about the
specific practice at issue here — a practice that was common in the lending industry and
entirely consistent with the ethical standards for appraisers under the USPAP. Certainly,
the record supports no claim that this conduct amounted to fraud. Yet, in interpreting
§ 46A-2-121(a)(1), the West Virginia Supreme Court of Appeals has expressly “equated”
“conduct that is ‘unconscionable’ . . . with fraudulent conduct.” One Valley Bank of Oak
Hill, Inc. v. Bolen, 425 S.E.2d 829, 833 (W. Va. 1992); see also Mountain State College,
742 S.E.2d at 102 n.9 (same, quoting One Valley Bank of Oak Hill, 425 S.E.2d at 833).
The unvarnished facts of record show that the Aligs estimated the value of their
home at $129,000 and that the appraiser, despite having knowledge of their estimate, gave
an appraisal of $125,500, certifying that the appraisal represented his impartial, objective,
and independent judgment based on comparable sales. Likewise, the Sheas estimated the
value of their home at $170,000, and the appraiser, despite having knowledge of their
estimate, gave an appraisal of $158,000, again certifying that the appraisal represented his
impartial, objective, and independent judgment based on comparable sales. He testified
affirmatively that his appraisal was not influenced by the Sheas’ estimate and that if he
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believed that he had been retained to satisfy their estimate, he would not have undertaken
the engagement.
Testimony was also presented that the practice of providing the borrowers’
estimates to appraisers served the legitimate purposes of helping price the appraisal project
and assigning it to an appraiser with the right qualifications. And virtually every appraiser
who testified said that the inclusion of the borrowers’ home-value estimate on the order
form engaging their services did not affect their appraisals. The Uniform Standards of
Professional Appraisal Practice allowed the appraisers to receive a borrower’s estimate so
long as it was recognized that such estimate was only informational and “not a condition
for [the] placement of [the] assignment.”
It defies common sense to suppose that, had the Aligs and Sheas been told that the
home-value estimates in their loan applications would be provided to the appraisers, they
would have been outraged by the practice. Indeed, their loan applications suggest
otherwise, as they agreed that Quicken Loans and its agents or servicers could rely on the
information. It is quite telling that the Aligs and Sheas only challenged the practice several
years later, after the adoption of the Home Valuation Code of Conduct, when regulators
changed the rules in recognition of the practice’s potential for pernicious systemic effects.
But it certainly does not follow that Quicken Loans’ adherence to the prior practice can —
standing alone — be said to amount to conduct so “unconscionable” that it would permit a
court to “refuse to enforce” the consumer’s refinance loan under § 46A-2-121(a)(1). Its
conduct was neither unscrupulous nor fraudulent, and disclosure of it would not have
changed a thing.
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The district court at least should have recognized that it was engaging in
unsupported findings of fact that were rebutted by the evidence presented by Quicken
Loans, thus precluding summary judgment. But based on the record before the court, it is
apparent that, as a matter of law, the Aligs and Sheas have not shown that the practice that
Quicken Loans followed in 2007 and 2008 in processing their refinancing loans was
“unconscionable.”
III
Finally, I would also vacate the district court’s summary judgment in favor of the
plaintiffs on their contract claim and remand with instructions to grant summary judgment
to Quicken Loans.
The Aligs and the Sheas’ breach of contract claim is based on the one-page Interest
Rate Disclosure and Deposit Agreement that Quicken Loans entered into with prospective
borrowers who were applying for loans. As relevant here, that document provided:
Lender will begin processing your application (which may include ordering
an appraisal, credit report, title commitment and other necessary items)
immediately upon the submission of your application and deposit. . . .
With your deposit . . . , you authorize Lender to begin processing your loan
application and advance out-of-pocket expenses on your behalf. . . .
If your application is approved: At the closing, Lender will credit the amount
of your deposit on your closing statement toward the cost of your appraisal
and credit report. Any additional money will be credited to other closing
costs. If your application is denied or withdrawn for any reason: Lender will
refund your deposit less the cost of your appraisal and/or credit report.
The agreement thus contemplated that, in the course of processing the prospective
borrowers’ mortgage loan applications, Quicken Loans would obtain an appraisal of the
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subject property and that the borrower would pay for that appraisal. And in this case,
Quicken Loans did, as agreed, obtain appraisals in connection with the Aligs and Sheas’
refinancing transactions, and the Aligs and Sheas did, at closing, pay for those appraisals.
The Aligs and Sheas contend — as the district court ruled — that they did not get
the benefit of this bargain. They maintain that, by operation of the implied covenant of
good faith and fair dealing, Quicken Loans was obligated to obtain a fair, valid, and
reasonable appraisal and that, because they were not told that their home-value estimates
had been included on the appraisal order forms, they were “deprived of the reasonable, fair,
and unbiased appraisals that they paid for.” The majority agrees as to Quicken Loans’
contractual obligation to the borrowers to obtain a fair, valid, and reasonable appraisal,
although it remands the claim for further proceedings on whether that contract was
breached and whether damages resulted.
Even accepting that the Interest Rate Disclosure and Deposit Agreement should be
read as requiring Quicken Loans to obtain fair and unbiased appraisals, the mere provision
of the borrower’s estimated value to the appraiser could not categorically render each
appraisal unfair and biased, so as to give rise to a breach of contract claim. Indeed, the
evidence in this case showed that when completing their appraisal reports, each appraiser
certified that he “performed [the] appraisal in accordance with the requirements of the
Uniform Standards of Professional Appraisal Practice,” and this certification was
consistent with the USPAP even when the appraiser received the “owner’s estimate of
value.” It is an erroneous exercise of judicial hindsight to now conclude from the simple
fact that Quicken Loans, like others in the industry, included borrowers’ estimates on
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appraisal request forms that the resulting certified appraisals were categorically and
necessarily biased and unfair in breach of contract.
* * *
The judgment entered against Quicken Loans in this case is manifestly inconsistent
with West Virginia law. As important, it is palpably unjust. A thoughtful change in
industry practice must not be taken as an invitation to file such opportunistic, and plainly
wanting, litigation.
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