Lawyers Surety Corp. v. Flowers

ANDRBE LAYTON Roaf, Judge.

Lawyers Surety Corporation (“Lawyers Surety”) appeals from a circuit court order reversing a determination by the Director of the Arkansas State Police Used Motor Vehicle Administration (UMVA). The UMVA had found Lawyers Surety not liable to appellee George Flowers for his claim against a bond it had written in connection with the issuance of a used-car-dealer license to Denver Haus; Flowers prevailed in the appeal of the UMVA decision to circuit court. On appeal, Lawyers Surety argues 1) that the trial court exceeded the scope of review of administrative agency cases; 2) that the trial court erred in finding that there was sufficient evidence to revoke or suspend Haus’s used-car-dealer license; and 3) that the UMVA erred in finding that it could not raise the issue of whether a partnership existed between Flowers and Haus. Appellee George Flowers cross-appeals and argues that because Lawyers Surety wrongfully refused to pay him insurance benefits, the trial court erred in denying him attorney fees and penalties pursuant to Ark. Code Ann. § 23-79-208 (1999). We reverse the circuit court’s ruling on direct appeal, and, consequently, the cross-appeal is moot and need not be addressed.

The following facts that gave rise to Flowers’s claim against Lawyers Surety are based primarily upon allegations made by Flowers against Haus, and are not disputed by either party. In 1987, George Flowers and Denver Haus agreed to start a partnership business called Star Body Shop and Auto Sales, to purchase, repair, and resell cars. However, Flowers and Haus did not put their agreement in writing. Each man agreed to contribute an initial payment of $5,000 to the partnership. Haus was unable to contribute his share, so Flowers took a promissory note in exchange for his contributing additional money to the partnership.

On December 8, 1987, Haus applied to Lawyers Surety for a Used Motor Vehicle Dealer’s Bond, which is required by Ark. Code Ann. § 23-112-607(b)(2) (2001), in order to obtain a used-car-dealer license. Star Body Shop was listed as the bond principal. On December 12, 1987, Haus applied for a used-car-dealer license. This application listed Haus and Flowers as partners in Star Body Shop. However, Flowers’s name was crossed out on the application. Haus and Flowers then leased a building and opened a partnership account in which both were authorized signators. During the initial weeks of operation, Flowers contributed additional capital to the partnership. By February 1988, Flowers suspected Haus of making unauthorized withdrawals from the partnership account and of stealing car titles. Haus had also failed to make any payments toward Flowers’s initial loan.

As a result of the disagreement, Haus established a new dealership just down the street from Star Body Shop and Auto Sales. Haus failed to transfer the license to the new dealership. Flowers attempted to operate the original dealership; however, Lawyers Surety refused to transfer the bond for Star Body Shop as it claimed that it lacked notice of a partnership. Flowers was later added to the bond as a co-principal.

During that same year, 1988, Flowers sued Haus for breach of contract and conversion of partnership funds, and was granted a default judgment for over $21,000. After Lawyers Surety refused to pay the judgment, Flowers sued it in Faulkner County Circuit Court in 1991, but apparently did not obtain a judgment in this action. Flowers next attempted to pursue his claim through the Arkansas Motor Vehicle Commission, and eventually filed a claim with the UMVA in 1998, where he was granted a hearing on his claim on August 4, 1998.

The UMVA hearing officer found in favor of Lawyers Surety, and Flowers appealed the decision to circuit court. The circuit court reversed the decision of the UMVA and found in pertinent part that Haus had willfully committed fraud against Flowers, that such a violation of the law constituted ground for suspension or revocation of Haus’s Star Body Shop license, and that the surety bond issued by Lawyers Surety was meant to comply with provisions of Ark. Code Ann. § 23-112-302(c)(3) (2001), by indemnifying “for any loss sustained by any person by reason of the acts of the licensees bonded when such acts constituted grounds for the suspension or revocation of the license.” The trial court ordered Lawyers Surety to pay Flowers $25,000, the amount of the bond, as his total loss, including interest and costs, exceeded the amount of the bond. However, the trial court denied Flowers’s request for attorney’s fees. From that decision comes this appeal and cross-appeal.

In an appeal from a circuit court’s decision regarding a ruling made by an administrative agency, the appellate court’s review is directed not toward the circuit court, but toward the decision of the agency. That is so because administrative agencies are better equipped by specialization, insight through experience, and more flexible procedures than courts, to determine and analyze legal issues affecting their agencies. McQuay v. Arkansas State Bd. of Architects, 337 Ark. 339, 989 S.W.2d 499 (1999); Social Work Licensing Bd. v. Moncebaiz, 332 Ark. 67, 962 S.W.2d 797 (1998); Files v. Arkansas State Highway & Transp. Dep’t, 325 Ark. 291, 925 S.W.2d 404 (1996). Our review of administrative decisions is limited in scope. Due deference is afforded to decisions of the administrative agency. Culpepper v. Board. of Chiropractic Exam., 343 Ark. 467, 36 S.W.3d 335 (2001). Such decisions will be upheld if they are supported by substantial evidence and are not arbitrary, capricious, or characterized by an abuse of discretion. Id. With these standards in mind, we address the arguments raised by Lawyers Surety on direct appeal.

Lawyers Surety argues that the trial court erred in reversing the decision of the administrative agency when it found in favor of Flowers and ordered payment of $25,000 to Flowers. It argues that the trial court exceeded the scope of its review of the UMVA because the administrative agency’s decision was supported by substantial evidence and was not made arbitrarily or capriciously, and also argues that the agency’s decision should be upheld because it was supported by substantial evidence. These arguments have merit.

The hearing officer found that Ark. Code Ann. § 23-112-308 (1987) places certain duties on used-car dealers as a means of protecting the public and manufacturers from fraudulent acts of car dealers, but does not create obligations to general creditors or used-car dealers’ business partners. When Flowers’s claim arose in 1987, Ark. Code Ann. § 23-112-308 (1987), entitled “Denial, Revocation, and Suspension,” stated in pertinent part:

(a) the commission may deny any application for a license or revoke or suspend a license after it has been granted, for any of the following reasons:

(1) On satisfactory proof of the unfitness of the applicant or licensee in any application for license under the provisions of this chapter;

(2) For fraud practiced or any material misstatement made by an applicant in any application for license under the provisions of this chapter;

(3) For any willful failure to comply with any provision of this chapter or with any rule or regulation promulgated by the commission under authority vested in it by this chapter;

(4) Change of condition after license is granted or failure to maintain the qualifications for license;

(5) Continued or flagrant violation of any of the provisions of this chapter or of any of the rules or regulations of the commission;

(6) For any willful violation of any law relating to the sale, distribution, or financing of motor vehicles;

(7) Willfully defrauding any retail buyer to the buyer’s damage;

(8) Willful failure to perform any written agreement with any retail buyer;

(9) Being a manufacturer who fails to specify the delivery and preparation obligations of its motor vehicle dealers, as is required for the protection of the buying public, prior to delivery of new motor vehicles to retail buyers;

(10) On satisfactory proof that any manufacturer, distributor, distributor branch, or division, or factory branch or division has unfairly and without due regard to the equities of the parties or to the detriment of the public welfare failed to properly fulfill any warranty agreement or to adequately and fairly compensate any of its motor vehicle dealers for labor, parts, or incidental expenses incurred by the dealer with regard to factory warranty agreements performed by the dealer;

(11) For the commission of any act prohibited by §§ 23-112-301 — 307, 23-112-402 — 403, or the failure to perform any of the requirements of those sections;

(12) Using or permitting the use of special license plates assigned to him for any other purpose than those permitted by law;

(13) Disconnecting, turning back, or resetting the odometer of any motor vehicle in violation of state and federal law;

(14) Accepting an open assignment of title or bill of sale for a motor vehicle which is not completed by identifying the licensee as the purchaser or assignee of the motor vehicle;

(15) Failure to notify the commission of a change in ownership, location, or franchise, or any other matters the commission may require by regulation. The notification shall be in written form and submitted to the commission at least fifteen (15) days prior to the effective date of the change;

(16) Failure to endorse and deliver an assignment and warranty of tide to the buyer pursuant to § 27-14-902.

Arkansas Code Annotated section 23-112-302(c)(4) (1987) provided that the corporate surety bond be executed in the “name of the State of Arkansas for the benefit of any aggrieved party. ” Ark. Code Ann. § 23-112-302(c)(4) (1987). (Emphasis added.) Likewise, Ark. Code Ann. § 23-112-302(c)(3) (1987) provided that the bond covers “any loss sustained by any person” due to acts of the licensee that would subject the licensee to suspension or revocation of his license. (Emphasis added.) The circuit court based its reversal of the agency decision primarily upon this statutory provision.

However, the hearing officer found that the statutorily-mandated bond only protects manufacturers and the general public from fraudulent actions by the dealer, and we agree. Section 23-112-308(a) makes specific references throughout to retail buyers in the context of protecting them from fraud or non-performance by licensed car dealers. In fact, used-motor-vehicle dealers were brought within the ambit of the motor vehicle dealers statutory and licencing scheme by Act 1032 of 1985, in which the emergency clause provided in pertinent part:

It is hereby found and determined by the General Assembly that neither the Arkansas Motor Vehicle Commission nor other board or commission presendy have power to license and regulate dealers, salesmen, wholesalers who deal in used motor vehicles, motor vehicles lessors or auto auctions and that authority to regulate the aforesaid functions of the motor vehicle industry is necessary to prevent and remedy public injury in motor vehicle transactions.

(Emphasis added.) Moreover, it is well settled that we may also consider subsequent amendments to statutes as evidence of legislative intent. Bourne v. Bd. of Trustees, 347 Ark. 19, 59 S.W.3d 432 (2001); Arkansas County v. Desha County, 342 Ark. 135, 27 S.W.3d 379 (2000); Ford v. Keith, 338 Ark. 487, 996 S.W.2d 20 (1999). In this regard, there were several pertinent amendments enacted after Flowers’s claim arose in 1987. In the subchapter entitled “Used Motor Vehicle Buyers Protection,” the following 1993 legislative declaration is found in Ark. Code Ann. § 23-112-601 (Supp. 1999):

(a) The General Assembly hereby declares that the public interest is affected by the sale and distribution of used motor vehicles, and it is recognized that a significant factor of the inducement in making a sale of a used motor vehicle to a member of the general public is the trust and confidence of the purchaser in the retail dealer from whom the purchase is made, with the expectancy that the dealer will remain in business to stand behind and provide service for the motor vehicle purchased.

(b) It is therefore found to be necessary to license used motor vehicle dealers, and to prohibit certain acts and set penalties for violations and perpetration of certain acts ... in order to prevent fraud, improper impositions, and other abuses upon the citizens of this state. ...

(Emphasis added.)

Finally, Ark. Code Ann. § 23-112-607 (Supp. 1999), entitled “Dealer License,” also enacted in 1993, provides in pertinent part:

(a)(1) Persons wishing to obtain a used motor vehicle dealer’s license shall submit a fully executed application on such used motor vehicle dealer application forms as may be prescribed by the Department of Arkansas State Police.

* * *

(b) The department shall require ... (2) a corporate surety bond in the sum of at least twenty-five thousand dollars ($25,000);

* * *

(c)(2) The bond shall be an indemnity for any loss and reasonable attorney’s fees sustained by a retail buyer by reason of the acts of the person bonded when such act constitutes a violation of the law.

(Emphasis added.)

In sum, from our review of the relevant statutory language, including amendments enacted since 1987, we conclude that there is substantial evidence to support the agency’s decision that the statutory scheme, including the used motor vehicle dealer licensing requirements, was intended by the legislature to protect the public in retail transactions with used car dealers, as opposed to general creditors or business partners such as Flowers, and we reverse the circuit court’s order on this point.

Lawyers Surety also contends that the UMVA erred in finding that it was precluded from arguing to the agency the existence of a partnership between Flaus and Flowers because Lawyers Surety was unaware of the existence of the partnership at the time the bond was issued. This is clearly a contingent argument should we affirm on Lawyers Surety’s first two points, and is directed toward the agency decision rather than to the circuit court’s ruling. Consequently, because we are reversing the circuit court’s ruling on Lawyers Surety’s first arguments, we do not address this issue or the propriety of Lawyers Surety challenging both the circuit court and agency decisions in this appeal.

On cross-appeal, Flowers contends that the circuit court erred in denying his motion under Ark. Code Ann. § 23-79-208 (2001), which allows recovery of attorney’s fees when a surety or insurer wrongfully refuses to pay benefits under an insurance policy. However, this issue is moot because of our reversal of the trial court’s decision, and we need not reach it.

Reversed and dismissed.

Stroud, CJ., and Robbins, Hart, Neal, JJ„ agree. GRIFFEN, J., dissents.