Paul and Michelle Riley v. AAA Automotive, LLC, d/b/a 3A Automotive

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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