Appellants waived contract arbitration

Listen to this article

Appellants waived their right to arbitrate their dispute with a customer where they did not assert it until after they responded to appellee’s complaint and the circuit court had already granted appellees a default judgment.

Background

Appellee Harris bought a truck from appellant City-to-City Auto Sales. White, appellant’s sales manager, “falsely told the appellee that he would get a ‘diagnostic done on the engine and transmission.’”

After procuring the truck, he told the appellee that the diagnostic check indicated an issue with the vehicle’s air conditioning system but that otherwise it had no known mechanical problems. Based on this representation, the appellee signed a sales contract agreeing to buy the truck for approximately $43,000.

The truck’s engine Broke down about a month after purchase. The contract included an arbitration provision.

In April 2021, appellee sued City-to-City and White “alleging fraud in a transaction for the purchase of a vehicle.” The complaint did not reference the sales contract “and the contract was not attached to the pleading.”

Appellants did not file a responsive pleading. Appellee moved for a default judgment. “At a hearing on that motion on July 23, 2021, the appellants, by counsel, appeared with a proposed answer to the complaint.

“Counsel argued against the motion for default judgment and asked for leave to file a late answer on two grounds: (1) service on City-to-City Auto Sales was defective, and (2) neither appellant ever received notice of the motion for default judgment.

“The circuit court rejected the motion for leave to file a late answer on the grounds that no good cause was shown for filing a late response and any defect in service of the complaint on City-to-City Auto Sales was cured by personal service on White.

“The court granted the appellee’s motion for default judgment and entered an order setting the case for trial solely on the issue of damages.

“Within twenty-one days, on August 13, 2021, the appellants filed a motion to set aside the default judgment, accompanied by a motion to compel arbitration.

“At that time, the appellants presented the sales contract to the court and argued that the arbitration provision within it was governed by the Virginia Uniform Arbitration Act. The appellee objected to those motions in writing.”

The circuit court denied appellants’ motion to continue the jury trial so the court could hold a hearing on their motion to aside the default judgment and compel arbitration. “[T]he court denied the motion to continue because it ‘came too late and would cause und[ue] delay in the proceedings.’

“At that time, the court also denied the appellants’ pending motions to set aside the default judgment and send the case to arbitration. …

“The jury returned a verdict for the appellee, awarding him $33,000 in compensatory damages and $50,000 in punitive damages. The appellants made motions for a mistrial and to set aside the verdict. The court denied both motions. It also granted the appellee’s motion for attorney fees and awarded him $6,450.”

Waiver

“The appellants contend that the circuit court erred in refusing to set aside the default judgment and refer the matter to arbitration. …

“[T]he sales contract provided that any dispute would be resolved through arbitration at the request of either party. City-to-City Auto Sales agreed to the arbitration provision in 2020 and, consequently, knew of its contractual right to compel arbitration before the appellee filed his complaint in April 2021.

“The appellants, by counsel, appeared with a proposed answer to the complaint on July 23, 2021, but did not mention the arbitration provision much less request arbitration at that juncture. Instead, the appellants waited until August 13, 2021, after the circuit court had granted the appellee’s motion for default judgment, to assert its contractual right to arbitration.

“This record establishes an implied waiver by clear and convincing evidence. The appellants had notice of their right to arbitration. Nonetheless, they waited three months after service of process to assert that right.

“Before doing so, the appellants appeared with a proposed answer to the complaint and opposed default judgment. Instead of requesting arbitration as allowed under the sales contract, the appellants acquiesced to and participated in court proceedings, demonstrating the intent not to pursue arbitration.”

Compensatory damages

“The appellants argue that the circuit court erred by approving the jury’s respective awards of damages. They suggest that the amounts of compensatory and punitive damages were not supported by the evidence. …

“A party seeking compensatory damages must prove ‘with reasonable certainty’ both ‘the amount of damages and the cause from which they resulted.’ …

“The evidence of damages incurred by the appellee included direct losses stemming from the purchase of the truck, as well as towing and repair costs. The appellee paid $6,000 toward the cost of the faulty truck. He testified that he also paid $3,651.66 for towing and repairs and $6,300 to rent another truck.” Appellant paid $15,951 for the truck.

“Viewing the record in the light most favorable to the appellee, it contains a sufficient basis supporting the jury’s assessment of $33,000 in compensatory damages.

Punitive damages

[T]he appellee established that the appellants fraudulently sold him a truck. When the appellee bought the truck, White represented that ‘a diagnostic [workup] had been done’ and the vehicle was in good working order except for the air conditioner.

“Contrary to this representation, the truck ‘never operated properly.’ When the appellee reported the problems to White, he directed the appellee to the warranty company. By that time, the warranty had expired because the appellee had driven the truck more than 1,000 miles.

“These facts support the inference that the appellants either had not completed diagnostic testing on the truck or knew that the truck had extensive mechanical problems at the time of the sale. Under either scenario, White willfully lied to the appellee to complete the sale.

“The jury found the evidence merited punishing the appellants. The record … supports the jury’s conclusion that the appellants’ misconduct was malicious or wanton[,]” and warranted a $50,000 punitive damages award.

Affirmed.

City-to-City Auto Sales, et al. v. Harris, Record No. 0728-22-2, Aug. 29, 2023. CAV (published opinion) (Decker) From the Circuit Court of Henrico County. (Herman) Christopher T. Holinger for appellants. Henry W. McLaughlin for appellee. VLW 023-7-335, 14 pp.