Paul and Michelle Riley v. AAA Automotive, LLC, d/b/a 3A Automotive , 2017 Ind. App. LEXIS 6 ( 2017 )

FILED
Jan 12 2017, 8:21 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE
Gordon A. Etzler William J. Obermeyer
Gordon A. Etzler & Associates, LLP Obermeyer Law
Valparaiso, Indiana Valparaiso, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Paul and Michelle Riley, January 12, 2017
Appellants-Defendants, Court of Appeals Case No.
45A04-1602-PL-454
v. Appeal from the Lake Superior
Court
AAA Automotive, LLC, The Honorable John R. Pera,
d/b/a 3A Automotive, Judge
Appellee-Plaintiff. Trial Court Cause No.
45D10-1405-PL-55
Bailey, Judge.
Case Summary
[1] Paul and Michelle Riley (“the Rileys”) appeal a judgment entered upon an
arbitrator’s award in favor of AAA Automotive, LLC d/b/a 3A Automotive
(“3A Automotive”). The Rileys present the sole, restated issue of whether the
trial court erred in refusing to vacate the award, which consisted almost entirely
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of attorney’s fees, apparently itemized in an ex parte document submitted to the
arbitrator but not provided to the Rileys in accordance with Alternative Dispute
Resolution Rule 3.4(B)1 or provided to the trial court. We reverse.
Facts and Procedural History
[2] In the absence of an evidentiary hearing, we take the facts to be those
undisputed by the parties. Some factual record was established in the
deposition testimony of Willie Crosby Wright, Jr. (“Wright”), a shareholder
together with Larry Brown of 3A Automotive, operating a car dealership in
Highland, Indiana.
[3] According to Wright’s deposition testimony, 3A Automotive purchased a 2006
Dodge Durango from an auto auction in Indianapolis. 3A Automotive agreed
to sell the Durango to the Rileys for $15,095.00 (including sales tax), subject to
the procurement of financing. The Rileys tendered a $500.00 down payment
and took possession of the Durango on December 12, 2013. However,
financing was not readily forthcoming, and 3A Automotive soon contacted the
Rileys to request that they make a larger down payment or trade in another
1
Alternative Dispute Resolution Rule 3.4(B) provides that documents to be considered by the arbitrator are
to be exchanged among all attorneys 15 days prior to a hearing.
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vehicle.2 The Rileys did not provide an additional down payment or trade-in
and retained the Durango after 3A Automotive demanded its return.
[4] On May 16, 2014, 3A Automotive filed a complaint for breach of contract and
conversion. The complaint sought judgment in the sum of $14,000.00, or,
alternatively, the return of the Durango with compensation for diminished
value, interest at the rate of 19.95%, “damages in time and money properly
expended in pursuit of said converted property,” attorney’s fees, and punitive
damages. (App. at 13.) The final prayer for relief included a request for treble
damages. The complaint did not include a demand for arbitration. Separately,
3A Automotive filed its “Motion for Declaratory and Injunctive Relief and
Replevin,” alleging that the Durango had a retail value of $14,000.00 and 3A
Automotive was entitled to its possession. (App. at 16.) On June 17, 2014, 3A
Automotive filed a motion for a temporary restraining order. On that same
date, 3A Automotive filed an affidavit “for Preliminary Injunction and Order
for Replevin.” (App. at 38.)
[5] The trial court set a hearing to address the motion for a temporary restraining
order. At the conclusion of that hearing on June 24, 2014, the trial court
entered an order that 3A Automotive deposit the $500.00 down payment with
2
The Rileys alleged that 3A Automotive used their personal information during approximately twenty
attempts to obtain financing. The Rileys further asserted that they did not authorize the large number of
credit inquiries or credit applications. It is unclear whether 3A Automotive disputed the number of financing
attempts or the purported lack of authorization for some attempts. However, 3A Automotive claims that it
was eventually successful in securing financing for the Durango.
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the Court Clerk and that the Rileys return the Durango by 5:00 p.m. on July 9,
2014. Additionally, the Rileys were to answer the complaint by July 25, 2014.
The Durango was returned on July 10, 2014 and 3A Automotive deposited the
$500.00 as ordered.
[6] On July 24, 2014, the Rileys filed their answer and counterclaim. The Rileys
admitted that they had signed a document in acceptance of an offer by 3A
Automotive, but alleged that the procurement of financing was part of the
consideration to be provided by the seller. Accordingly, the Rileys denied the
existence of a “legal contract pursuant to a Retail Installment Contract and
Security Agreement” as alleged by 3A Automotive in paragraph 20 of its
complaint. (App. at 12.) In addition to raising an affirmative defense that
financing for the Durango was not properly secured, the Rileys raised an
affirmative defense that 3A Automotive lacked marketable title:
3A did not have the right, authority or power to sell the 2006
Dodge Durango in question. 3A did not possess marketable title
to the Durango as it had a lien on it held by Next Gear Capital.
Also, 3A’s Exhibits in its Complaint further bolster [the] Rileys’
defense that it did not possession [sic] marketable title as the
information on the exhibited Title clearly reads “Non-
Transferable.” Therefore 3A knew or should have known that
the transaction as structured by 3A would be in violation of I.C.
9-32-4-1(a)(1), (2) at time of the sale, thus breaching the contract
immediately and causing it to be null and void. . . . After
inspection of the Durango it was discovered that at one point it
had suffered damage making it necessary to rebuild the Durango
in order for it to be operational. 3A knew or should have known
this. By not disclosing this to the Rileys as required per the law
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3A has committed an unfair sales practice which makes the
contract to purchase the Durango null and void.
(Tr. at 48.)
[7] The Rileys filed a counterclaim alleging fraud in the transfer of a re-built vehicle
without disclosure. Additionally, the Rileys contended that the repetitive credit
inquiries damages their credit-worthiness. The Rileys sought treble damages
and attorney’s fees. They attached as Exhibit D an appraisal indicating that the
Durango had a trade-in value of $3,800 and a retail value of $7,500 to $8,500
(reduced by “nearly half if title is deemed salvage value.” (App. at 56.) Exhibit
H, a Carfax vehicle history report, indicates that the Durango had been
declared a “total loss” on April 7, 2010 by an insurance company after
“collision damage [was] reported.” (App. at 65.)3
[8] On July 28, 2014, the trial court entered an order scheduling a case
management conference. Among other things, the conference was to explore
“the utilization of one or more methods of Alternative Dispute Resolution.”
(App. at 69.) On September 29, 2014, the trial court entered an order providing
in pertinent part: “This case is referred to mediation pursuant to ADR 2.2.
Parties stipulate to Douglas McMillan as Mediator.” (App. at 78.) Apparently,
efforts at mediation failed and, on March 17, 2015, the trial court entered an
3
The report also included the following language: “Not all total loss vehicles result in a DMV-reported
branded title. This may occur when an insurance company’s definition of a total loss is different than the
state DMV’s definition for a branded title or when the owner of the vehicle is a self-insured company, like a
fleet or rental company.” (App. at 67.)
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order as follows: “The Court further ORDERS the parties to complete
arbitration with Douglas C. McMillan by June 19, 2015. The Arbitration
Award shall be filed with the Court.” (Tr. at 80.)
[9] An arbitration hearing was conducted on June 4, 2015. An award 4 was
rendered in favor of 3A Automotive, consisting of the following:
Interest on Seller’s Inventory Contract with NextGear $ 1,526.22
Court and Filing Costs 200.00
Attorney Fees and Costs (as by Affidavit) 11,810.00
Compensatory and Punitive Damages 1,000.00
(App. at 173.) The award, consisting largely of attorney’s fees, was approved
on July 2, 2015, by a senior judge of the Lake Superior Court, Civil Division.
[10] On August 4, 2015, the Rileys filed a motion to correct error asking that the
trial court vacate the judgment entered upon the arbitration award. The Rileys
argued that the arbitrator had “applied a Federal standard to a State case and
committed reversible error.” (App. at 177.) According to the Rileys, they had
4
The award language indicates that the arbitrator derived his authority from an agreement to binding
arbitration under Section 9 of the Federal Arbitration Act (9 USC § 9) and by court order and by “mutual
agreement” of the parties. (App. at 165.) The arbitration briefs and trial court orders indicate only that the
matter was sent to a mediator as an alternative dispute resolution method and was later submitted to the
named mediator in arbitration. The Rileys indicated in their motion to correct error that they did not object
to this procedure. Their specific alternative dispute resolution agreement, if any, is not included in the record
before us.
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agreed to mediation and “subsequently agreed to arbitrate instead.” (Tr. at
178.) They asserted that the scope of the arbitration was limited in that the
contract for sale had been rescinded and, as for attorney’s fees:
McMillan awarded Attorney Fees and Costs (as by affidavit) of
eleven thousand eight hundred and ten dollars ($11,810) to
Plaintiff. However, no showing of Attorney’s fees was ever made
other than in Attorney Obermeyer’s Arbitration Brief stating his
fees were eleven thousand eight hundred and ten dollars
($11,810). … Nowhere in his “Appendix of Supporting
Documents” does it state that Statements of Billing were
submitted. … [Neither] Rileys nor their Attorney have been
presented any documentation to support such claim.
(App. at 179.) (internal citations omitted.) 3A Automotive filed a response,
claiming that arbitration had been conducted under the Federal Arbitration Act
and contending that the state court lacked jurisdiction to hear the motion to
correct error. Attached to the response was an affidavit from William
Obermeyer, the attorney for 3A, attesting that “the Invoices for legal services
presented to Arbitrator Doug McMillan are a true and correct representation of
the cost of legal services for representing AAA Automotive, LLC in this
matter.” (App. at 215.) No itemization was attached.
[11] The trial court conducted a hearing on January 6, 2016. At that hearing, the
attorney for 3A Automotive argued his position that he was not required to
provide the Rileys with the basis of his attorney’s fees as it was “work product”
and the award adequately rested upon “detailed invoices” provided to the
arbitrator over the Rileys’ objection. (Tr. at 31.)
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[12] On January 19, 2016, the trial court entered its “Order Denying Motion to
Correct Error and Entering Final Judgment.” (App. at 219.) On January 27,
2016, pursuant to a “Final Order and Judgment,” the Rileys were ordered to
pay 3A Automotive $14,036.22. This appeal ensued.
Discussion and Decision
[13] Indiana’s Uniform Arbitration Act, Indiana Code Section 34-57-2-1 et seq.,
provides a mechanism for enforcing agreements to arbitrate and for securing
judicial review and enforcement of arbitration awards. Sch. City of East Chicago,
Ind. v. East Chicago Fed’n of Teachers, Local No. 511, A.F.T., 622 N.E.2d 166, 168
(Ind. 1993). Judicial review of an arbitration award is extremely narrow in
scope, and an award should be set aside only when one of the grounds specified
by the Uniform Arbitration Act for vacation of the award is shown. Id. A party
who seeks to vacate an arbitration award under the Act bears the burden of
proving the grounds to set aside the award. Id.
[14] Pursuant to Indiana Code Section 34-57-2-13(a), the trial court shall vacate an
arbitration award where: (1) the award was procured by corruption or fraud;
(2) there was evident partiality by the arbitrator; (3) the arbitrators exceeded
their powers; (4) the arbitrators refused to postpone a hearing upon sufficient
cause; or (5) there was no arbitration agreement and the party did not
participate without objection. The parties to a contract are free to define for
themselves what questions may be arbitrated, remedies the arbitrator may
afford, and the extent to which a decision must conform to the general
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principles of law. Bopp v. Brames, 677 N.E.2d 629, 632 (Ind. Ct. App. 1997).
An arbitrator is limited by the bounds of the agreement from which he or she
draws authority, and an arbitrator is expected to be aware of those limits. Id.
[15] Initially, we address the matter of whether arbitration was ordered pursuant to
an arbitration clause of the sales contract. “[B]efore a court compels
arbitration, it must first resolve any claims concerning the validity of the
contract containing the arbitration clause.” Int’l Creative Mgmt. Inc. v. D & R
Entm’t Co., Inc., 670 N.E.2d 1305, 1311 (Ind. Ct. App. 1996), trans. denied.
Here, the trial court ordered that each party restore the consideration in its
control (the vehicle and the down-payment) but made no findings as to contract
rescission or validity. Indeed, the order for arbitration makes no reference to an
arbitration clause. It does not appear that arbitration was ordered based upon
the failed sales contract; rather, it appears to have arisen in alternative dispute
resolution.5
[16] Apparently, by claimed “agreement” of the parties, after the replevin order was
entered, the arbitrator was tasked with determining the proper amount of
damages, if any, to 3A Automotive from the Rileys’ seven month retention of
the Durango. He was also apparently asked to determine the proper amount of
5
However, the Chronological Case Summary does not reflect that the parties filed an Agreement to Arbitrate
pursuant to Indiana Rule for Alternative Dispute Resolution 3.1. That rule provides that the parties may file
with the court an agreement to arbitrate wherein they stipulate whether arbitration is to be binding or non-
binding, whether the agreement extends to all or a portion of the case, and the procedural rules to be
followed. The rule further provides: “Upon approval, the agreement to arbitrate shall be noted on the
Chronological Case Summary of the Case and placed in the Record of Judgments and Orders for the court.”
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damages, if any, to the Rileys from 3A’s alleged fraudulent misrepresentations
and repetitive credit inquiries. The arbitrator determined that the damages to
3A Automotive – apart from attorney’s fees – were relatively minimal. As for
the would-be purchasers who retained a vehicle that had been “totaled,” the
arbitrator awarded them no damages. The award upon which the trial court
entered judgment primarily consisted of attorney’s fees. However, the award of
attorney’s fees was made without a predicate finding by the trial court that the
contract – including its provision for attorney’s fees – was valid and
enforceable.
[17] On appeal, the Rileys concede that they did not oppose arbitration after
mediation could not be timely scheduled or was unsuccessful. However,
neither party provided this Court with an agreement defining the scope of
arbitration. The Chronological Case Summary does not reflect the filing of an
agreement to arbitrate. Even assuming a proper arbitration order, without an
agreement, we cannot definitively discern whether the arbitrator exceeded his
authority as to substantive provisions. However, the lack of impartial and fair
proceedings is evident. The arbitrator accepted an ex parte document upon
which he apparently rested the award. The Rileys’ lack of notice and
opportunity to respond is readily apparent from the argument and admissions
made by the attorney for 3A Automotive at the motion to correct error hearing:
I did not give those [attorney fee’s invoices] to the Defendant
because I feel like they’re Work Product and protected by
Attorney/Client Privilege because they actually have my
strategies inside of them. No objection was made that those
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details weren’t there. But the affidavit, which is attached – I can
– yeah, I don’t have a copy of the affidavit. But in arbitration, an
affidavit where I swore that all my attorney fees were correct and
accurate was presented to the arbitrator and to the Defendant.
And I also presented the arbitrator with my detailed invoices
with a claim that they were Attorney/Client Privilege and I
wasn’t going to turn [them] over to the Defendant. And there
were objections during the arbitration made that I didn’t turn
those over to anyone. And the arbitrator looked at my invoices
and the hours that I spent on it. My rate is very reasonable. It’s
too reasonable in some cases.
(Tr. at 31.) Attorney Obermeyer went on to claim that his fee was “fair” but
also concede that the fees “still got out of hand.” (Tr. at 31-32.) Subsequent
commentary indicated that he claimed entitlement to fees to obtain a copy of
the Carfax report, something relevant to his own client’s defense of the
counterclaim for fraud.
[18] There is no evidence of an arbitration agreement in the record and, hence, no
evidence that there was a meeting of the minds concerning the scope and terms
of the arbitration. Thus, the arbitration proceedings were for naught, and the
judgment on the arbitration award must be vacated.6
6
As a cautionary note, alternative dispute resolution has reached full bloom since it was first recognized by
our Indiana Supreme Court. Nevertheless, absent a contract, our courts are to remain open – pursuant to
Article 1, Section 12 of the Indiana Constitution – and participation in alternative dispute resolution is still
voluntary. While we encourage voluntary settlement and resolution, we do so only after full disclosure of the
nature of the alternative dispute method selected and its consequences to the litigants. It is incumbent upon
the mediator or arbitrator to document the agreement to mediate or arbitrate in the Chronological Case
Summary. See A.D.R. 1.8. And, moreover, where an individual has been selected first as a mediator, we
question the propriety of that individual continuing to participate as an arbitrator, when he or she has first
participated with the same litigants in a failed mediation.
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Conclusion
[19] The trial court erred in entering judgment upon the purported arbitration
award.
[20] Reversed.
Najam, J., and May, J., concur.
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