3A Automotive is a car dealership, and agreed to sell a vehicle to the Rileys. Financing fell through, and 3A Automotive asked the Rileys to provide either a larger down payment or an additional trade-in. The Rileys did neither, but kept the car.
In Riley v. AAA Automotive, 3A Automotive filed a complaint for breach of contract and conversion. The Rileys claimed that 3A Automotive engaged in wrongdoing, and the dispute was eventually arbitrated. The arbitrator entered an award for 3A Automotive, which consisted largely of attorney’s fees.
The Rileys challenged this award, arguing that the award of attorney’s fees was improper, as the only “proof” of the amount of those fees was a statement in 3A Automotive’s arbitration brief. 3A Automotive argued that it actually submitted its legal invoices to the arbitrator, but that it was not required to provide them to the Rileys as the invoices were “work product.” The trial court found for 3A Automotive, and the Rileys appealed.
Despite some confusion as to why the matter was arbitrated, the Court found that the arbitrator’s acceptance of an ex parte document on which he based the attorney fee award was wrong.
[T]he lack of impartial and fair proceedings is evident. … 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.
As “evident partiality by the arbitrator” is a sufficient basis to vacate an arbitration award, this may have been a sufficient basis for a reversal.
But the Court did not reverse on that basis. Rather, the Court reversed because the record contained no evidence of an arbitration agreement. In doing so, the Court included a cautionary footnote:
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. 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.
“Thus, the arbitration proceedings were for naught,” and the case was remanded for further proceedings.
- An arbitration award must be vacated if the record contains no evidence of the arbitration agreement.
- An arbitration award may be vacated if the arbitrator relies on ex parte evidence when reaching the arbitration award.