Court: Court of Appeals of Arkansas; February 6, 2002; Arkansas; State Appellate Court
Lawyers Surety Corporation appeals a circuit court order that reversed a decision by the Arkansas State Police Used Motor Vehicle Administration (UMVA), which had determined that Lawyers Surety was not liable to George Flowers for his claim against a bond related to Denver Haus's used-car-dealer license. Flowers successfully appealed the UMVA's ruling in circuit court. Lawyers Surety's appeal raises three main issues: 1) the trial court allegedly exceeded its review scope of administrative agency decisions; 2) the court erred in finding sufficient evidence to revoke or suspend Haus's dealer license; and 3) the UMVA incorrectly determined it could not consider the existence of a partnership between Flowers and Haus. In a cross-appeal, Flowers contends that he was wrongfully denied insurance benefits by Lawyers Surety and thus should have been awarded attorney fees and penalties under Arkansas law. The circuit court's ruling is reversed on direct appeal, making Flowers's cross-appeal moot.
The facts underlying Flowers's claim indicate that in 1987, he and Haus agreed to form a partnership, Star Body Shop and Auto Sales, but did not formalize their agreement in writing. Flowers contributed an initial $5,000, while Haus did not fulfill his obligation, leading Flowers to take a promissory note from Haus. Haus applied to Lawyers Surety for a dealer’s bond and a used-car-dealer license, listing both as partners, although Flowers's name was later crossed out. After suspecting Haus of misconduct, including unauthorized withdrawals and theft, Flowers attempted to run the dealership alone but faced issues with bond transfer. Following a lawsuit against Haus for breach of contract and conversion, which resulted in a default judgment in Flowers's favor, Lawyers Surety refused to pay. Flowers sought redress through various legal avenues before finally bringing his claim to the UMVA in 1998.
The UMVA hearing officer ruled in favor of Lawyers Surety, but Flowers appealed to the circuit court, which reversed the UMVA's decision. The circuit court found that Haus had committed willful fraud against Flowers, justifying the suspension or revocation of Haus’s Star Body Shop license. It determined that Lawyers Surety's bond was intended to indemnify losses incurred due to such violations, ordering the surety to pay Flowers $25,000, which exceeded the bond amount when considering interest and costs. However, the court denied Flowers’s request for attorney’s fees. This led to an appeal and cross-appeal. In reviewing the circuit court's decision related to an administrative agency, the appellate court focuses on the agency's decision rather than the circuit court's ruling, acknowledging that administrative agencies possess specialized knowledge and flexibility. The appellate review is limited to ensuring the agency's decisions are supported by substantial evidence and are not arbitrary or capricious. Lawyers Surety contends that the trial court erred by reversing the agency's decision, arguing it had substantial evidence backing it, which the appellate court finds merit in.
The hearing officer determined that Ark. Code Ann. 23-112-308 (1987) imposes specific duties on used-car dealers to safeguard the public and manufacturers from fraudulent activities but does not establish obligations to general creditors or business partners of the dealers. The statute allows the commission to deny, revoke, or suspend a dealer's license for various reasons, including unfitness, fraud, willful non-compliance, and multiple violations related to vehicle sales and warranties. Notably, it outlines extensive conditions under which a license may be affected, including misrepresentation in applications, failure to maintain qualifications, and improper handling of titles and odometers. Additionally, corporate surety bonds required under Ark. Code Ann. 23-112-302(c)(4) are designed to protect aggrieved parties and cover losses from actions leading to license suspension or revocation. However, the hearing officer concluded that such bonds primarily serve to protect manufacturers and the public rather than extending protection to creditors or business partners, a finding that aligns with the circuit court’s reversal of the agency decision based on this interpretation of statutory provisions.
Section 23-112-308(a) emphasizes the protection of retail buyers from fraud and non-performance by licensed car dealers, particularly following the inclusion of used-motor-vehicle dealers in the regulatory framework established by Act 1032 of 1985. This Act recognized the necessity for licensing and regulation of used motor vehicle dealers to prevent public harm in motor vehicle transactions. Amendments to the statutes, including those made in 1993, further established that the sale of used vehicles significantly impacts public interest by fostering trust in dealers. These amendments mandated that used motor vehicle dealers be licensed and prohibited certain practices to safeguard consumers.
Specifically, Ark. Code Ann. 23-112-607 outlines the licensing requirements for used motor vehicle dealers, including a $25,000 corporate surety bond to indemnify retail buyers for losses caused by violations of the law. The review of statutory language and subsequent amendments supports the conclusion that the legislative intent was to protect retail buyers rather than general creditors or business partners.
The circuit court's order is reversed on this basis. Additionally, Lawyers Surety's argument regarding the existence of a partnership between Flowers and Haus is contingent on the first two issues being affirmed and thus not addressed. Flowers' cross-appeal concerning the denial of attorney's fees under Ark. Code Ann. 23-79-208 is rendered moot by the reversal of the trial court's decision. The final ruling is reversed and dismissed, with concurrence from multiple justices and a dissent from Justice Griffen.
