eNotes: Liability – October 2023 – Virginia

SIGNIFICANT CASE SUMMARIES

Virginia Case Summary

City-to-City Auto Sales, LLC v. Harris
Virginia Court of Appeal
No. 0728-22-2

Decided: August 29, 2023

The right to arbitration can be implicitly waived if not raised timely.

Background

In August 2020, Defendant Harris, went to Plaintiff City-to-City Auto Sales to discuss purchasing a truck. He informed City-to-City that he needed a reliable diesel commercial truck. The manager recommended a particular vehicle and falsely told Harris that City-to-City would perform a diagnostic check on the engine and transmission. Based on this representation, Harris signed a sales contract agreeing to buy the truck for $43,000. The signed contract included an arbitration provision, which specified that, at either party’s request, any dispute would be settled by binding arbitration. Harris began experiencing problems with the truck almost immediately after taking possession, and the engine failed within a month. In April of 2021, Harris filed a complaint against City-to-City, alleging fraud. He made no mention of the parties’ contract and the contract was not attached to the Complaint.

City-to-City had not filed responsive pleadings by June 2021. Consequently, Harris filed a Motion for default judgement, which the Court granted in July. City-to-City subsequently filed a Motion to set aside default judgement, accompanied by a Motion to compel arbitration, arguing that the arbitration agreement in the sales contract was governed by the Virginia Uniform Arbitration Act. The Court denied the Motion and the case proceeded to trial. The jury awarded Harris $33,000 in compensatory damages and $50,000 in punitive damages. City-to-City appealed, challenging the Court’s decision not to enforce the arbitration provision of the sales contract. Alternatively, City-to-City argued that the Court should have at least ordered arbitration on the question of damages.

Holding

While Virginia public policy favors arbitration, a party to a contract may waive the right to arbitrate. A “waiver” is a voluntary abandonment of a right. It requires that a party know of the right and then voluntarily relinquish the right. Here, the Court found that City-to-City knew of the right to arbitrate prior to the initial Complaint, but failed to assert the arbitration clause until after the Court found them in default. This constituted an implicit waiver of the arbitration clause. Once City-to-City waived its right to arbitration, they waived it in the entire case, including the question of damages. The Court of Appeals found that the Trial Court acted properly in denying the Motion to compel arbitration.

Questions about this case can be directed to Nicolette DeFrank at (571) 470-0395 or ndefrank@tthlaw.com.