IN THE COURT OF APPEALS OF IOWA
No. 16-0088 Filed December 21, 2016
KENT WELSH, Plaintiff-Appellee,
vs.
LITHIA VAUDM, INC. d/b/a LITHIA VOLKSWAGEN OF DES MOINES and ANTHONY M. GLADNEY, Defendants-Appellants. ________________________________________________________________
Appeal from the Iowa District Court for Polk County, Eliza J. Ovrom,
Judge.
A car dealership appeals the district court’s ruling denying its motion to
compel arbitration. AFFIRMED.
Jeffrey D. Ewoldt of Hopkins & Huebner, P.C., Des Moines, for appellants.
Michael S. Jones of Patterson Law Firm, L.L.P., Des Moines, for appellee.
Heard by Vogel, P.J., and Tabor and Mullins, JJ. 2
TABOR, Judge.
This case involves an oral contract between customer Kent Welsh and
Lithia Volkswagen of Des Moines to repair for $4336 the car owned by Kent and
his wife, Julie.1 On appeal, Lithia asserts the district court erred in denying its
motion to compel arbitration, which was based on an arbitration clause printed on
the invoice Julie signed when she picked up the repaired car. Because we
decline to address arguments Lithia did not present to the district court and
because we conclude, as did the district court, that no additional consideration
was given by Lithia to modify the parties’ oral contract as required under Iowa
law, we affirm.
I. Background Facts and Prior Proceedings
The facts are undisputed. On January 14, 2015, Welsh took his 2008
Volkswagen Toureg to Lithia for evaluation of possible mechanical problems,
complaining the vehicle’s “oil pressure” light was activated. Lithia’s business
includes servicing and repairing vehicles. After Lithia evaluated the car, its
employee called Welsh and recommended repairs costing $4336. Welsh
agreed, and based on the parties’ oral contract, Lithia proceeded to repair the
Volkswagen. The parties did not discuss arbitration in the phone conversation.
Lithia replaced the oil pump, test drove the car, and discovered the “check
engine” light was activated. Lithia again evaluated the car, concluding the timing
chains likely required replacement, and contacted Volkswagen of America, which
confirmed Lithia’s evaluation. Lithia then replaced the timing chains and
1 In this opinion we refer to Kent Welsh as “Welsh,” to Julie Welsh as “Julie,” and to both parties as “the Welshes.” 3
adjustors and listed this repair on the subsequently generated invoice as no
charge.2
When Julie picked up the car two months later, on March 16, 2015, she
understood Welsh and Lithia had agreed in their telephone conversation to a
repair cost of $4336. The dealership gave Julie a three-page document to sign
entitled “INVOICE.” She signed, paid, and took the vehicle. Immediately above
Julie’s signature the invoice provided for the arbitration of disputes “pursuant to
the Federal Arbitration Act [(FAA)], 9 U.S.C. § 1 et seq.”
A few days later, the Welshes returned the car to Lithia, noting the “check
engine” light was activated. After evaluation, Lithia proposed a costly repair the
Welshes declined to authorize.
On July 15, 2015, the Welshes sued Lithia for damages arising from the
dealership’s alleged failure to repair the car; Julie was dismissed as a party in
August. Citing the arbitration clause printed in its invoice, Lithia moved to compel
arbitration, stating: “On or about March 16, 2015, [the parties] entered into a
contractual Agreement (hereinafter ‘Agreement’) for certain repairs to the
vehicle.”
Welsh resisted Lithia’s motion, asserting the arbitration clause was not
part of the parties’ agreement and stating Lithia was attempting to add a
condition to the parties’ oral contract after performance of that contract had been
completed.
2 During litigation, Lithia asserted the “total cost” for repairing the timing chains and adjustors was more than $5000. 4
Lithia’s reply, including an affidavit from Lithia’s general manager,
asserted: (1) the applicable federal arbitration statute3 preempts the Iowa
arbitration statute’s conflicting restrictions and exemptions;4 (2) “when a party has
the opportunity to read a contract before signing it, but fails to do so, he cannot
be heard to complain because the terms were different than supposed”; and
(3) Julie was acting as Welsh’s agent as to mutual assent and meeting of the
minds, and a valid contract was created by her signature.
Noting Lithia’s affidavit acknowledged the vehicle was brought in on
January 14, 2015, and returned on March 16, 2015, Welsh argued this sworn
statement confirmed the document signed by Julie “was simply an invoice
provided upon return of the vehicle rather than at the time the vehicle was
delivered or the repairs authorized.”
On December 17, 2015, the court resolved Lithia’s motion on the parties’
affidavits and briefs, considering “this matter akin to a summary judgment
motion.” In determining “whether the invoice creates an enforceable contract
between the parties,” the court stated: “The language of the invoice invokes the
[FAA], not the Iowa statute. Under the [FAA], state law governs whether there is
a valid contract to arbitrate.” Citing Gen. Conference of Evangelical Methodist
3 Lithia quoted 9 U.S.C. § 2, adding emphasis as follows: A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 4 Lithia specified the inapplicable Iowa exemptions are “denying arbitration of future controversies sounding in tort and contracts of adhesion.” Based on the manager’s statements, Lithia also claimed the federal requirement of an “interstate nexus” was met because the parties’ contract evidenced “a transaction involving interstate commerce.” Welsh responded the affidavit failed to prove an “interstate nexus” based on the Iowa parties’ agreement to repair a car in Iowa. 5
Church v. Faith Evangelical Methodist Church, 809 N.W.2d 117, 121 (Iowa Ct.
App. 2011), the court recognized: “Arbitration is a matter of contract, and parties
cannot be compelled to arbitrate absent an agreement to do so.” Relying on
Iowa contract law requiring additional consideration to modify a contract
effectively, as explained in Margeson v. Artis, 776 N.W.2d 652, 657 (Iowa 2009),
the district court found “there was no consideration for a subsequent
modification” of the “contract to repair the vehicle for the agreed price.”
Concluding “the arbitration clause in the invoice is not part of the parties’
contract” and the “contract was formed prior to March 16, 2015,” the court denied
Lithia’s motion to arbitrate. See Margeson, 776 N.W.2d at 657 (“Our law clearly
requires some new consideration to support the modification of a contract.”).
Lithia filed a motion under Iowa Rule of Civil Procedure 1.904, raising for
the first time arguments based on the Iowa Uniform Commercial Code (UCC)
and the parol evidence rule. But before the district court could rule, Lithia
appealed, depriving the court of jurisdiction. Thereafter, our supreme court
denied Lithia’s motion for a limited remand to allow the district court to rule on its
post-trial motion.
On appeal,5 Lithia first claims because the contract was for a sale of
goods, the UCC governs the transaction and the court’s findings were erroneous
under the UCC. See id. at 657 n.5 (stating the UCC “entirely eliminates the 5 Lithia also presents an argument premised on parol evidence. During oral arguments, Lithia’s counsel claimed the parol-evidence issue was central, guiding, and controlling. But we decline to address that issue. Iowa Rule of Appellate Procedure 6.903(2)(g)(1) requires appellants to state how issues were preserved for appellate review, “with references to the places in the record where the issue was raised and decided.” Because Lithia’s briefing does not refer us to any place in the record where this issue was decided, it has waived the issue, and we do not address it. See Runyon v. Kubota Tractor Corp., 653 N.W.2d 582, 584 (Iowa 2002). 6
requirement to show independent consideration in sale-of-goods cases in order
to permit ‘necessary and desirable modifications of sale contracts’”). Welsh
responds, first, Lithia failed to preserve error on UCC claims and second, if error
was preserved, the UCC does not govern the oral contract to repair the car, a
mixed contract for services and goods, where the contract’s “predominate
purpose” was services. Alternatively, Lithia argues new consideration, in fact,
existed for the written repair invoice.
II. Scope and Standards of Review
We review the district court’s ruling on Lithia’s motion to compel arbitration
for the correction of errors at law. Sutcliffe v. Mercy Clinics, Inc., No. 13-1974,
2014 WL 4631406, at *2 (Iowa Ct. App. Sept. 17, 2014) (resolving whether
arbitration provision is enforceable under the FAA); Faith Evangelical, 809
N.W.2d at 120.
III. Applicable Law
“The party seeking to compel FAA arbitration must show the existence of
a written agreement which contains an arbitration clause and involves interstate
commerce.” Sutcliffe, 2014 WL 4631406, at *2; see also Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395, 401 (1967) (stating the FAA, if
applicable, governs “transactions in ‘commerce’”). “[W]hile doubts concerning
the scope of an arbitration clause should be resolved in favor of arbitration, the
presumption does not apply to disputes concerning whether an agreement to
arbitrate has been made.” Bazemore v. Jefferson Capital Sys., L.L.C., 827 F.3d
1325, 1329 (11th Cir. 2016) (noting threshold question of whether an arbitration
agreement exists between the parties is “simply a matter of contract” (citation 7
omitted)). Moreover, the FAA does not require parties to arbitrate where the
parties have not agreed to arbitrate. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland
Stanford Junior Univ., 489 U.S. 468, 478 (1989) (stating FAA “was designed ‘to
make arbitration agreements as enforceable as other contracts, but not more so’”
(citation omitted)). Under the FAA, ordinary principles of state contract law as to
the formation of contracts determine whether there is a valid agreement to
arbitrate. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
Accordingly, the district court correctly turned to Iowa contract law to resolve the
threshold question of whether there was a valid agreement to arbitrate between
Lithia and Welsh.
IV. Error Preservation
Lithia did not ask the district court to address whether the UCC applied to
the parties’ mixed contract for both goods and services before the court entered
its ruling. “It is a fundamental doctrine of appellate review that issues must
ordinarily be both raised and decided by the district court before we will decide
them on appeal.” Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002).
Lithia nevertheless asserts its rule 1.904 motion “elaborated” on its
position by citing the UCC and additional authorities, claiming it is of “no
consequence” those authorities were cited in its post-trial motion because the
“overarching issues presented to the district court were contract formation and
arbitrability.” Lithia contends applicability of the UCC is not a different issue, but
an authority that “only became relevant after the lower court completed its
analysis and (erroneously) declined to enforce the arbitration provision.” In
support, Lithia relies on a footnote in Bartlett Grain Co. v. Sheeder, which noted 8
“both parties presented their positions in a fairly conclusory fashion” without
citation to the UCC. 829 N.W.2d 18, 24 n.4 (2013). Bartlett rejected the failure-
to-preserve-error challenge and resolved issues concerning the sale-of-grain
contract under the UCC. See id.
The Bartlett footnote does not control the instant circumstances. Article 2
of the UCC applies only to “transactions in goods.” See Iowa Code § 554.2102
(2015). The Bartlett dispute concerned “the sale of grain, which is a good.” 829
N.W.2d at 23. Thus, the issue in Bartlett was how to apply Article 2 to an
indisputable contract for the sale of goods, a contract clearly governed by the
UCC; thus, the applicability of the UCC was not an issue.
In contrast, the dispute here requires a threshold determination of a much-
litigated issue, whether Article 2 applies to this mixed contract for both the sale of
goods (the replacement parts) and the provision of services (diagnosing the
problem, correctly installing the replacement parts, and evaluating whether the
repair fixed the problem). See Sonja A. Soehnel, Annotation, Applicability of
UCC Article 2 to Mixed Contracts for Sale of Goods and Services, 5 A.L.R. 4th
Art. 501 (2016). Specifically,
UCC Article 2 governs the sale of goods and excludes the rendition of services, but does not address transactions involving a mixture of goods and services. Therefore, judge-made rules have been developed to determine whether such transactions are subject to Article 2. The most widely accepted of these is the “predominant purpose’ test, under which a mixed transaction is subject in its entirety to Article 2 if it is predominantly for the sale of goods, but falls outside Article 2 if it is predominantly for services.
Gary D. Spivey, Annotation, Applicability of UCC Article 2 to Mixed Contracts for
Sale of Goods and Services, 8 A.L.R.7th Art. 4 (2016); see also Bonebrake v. 9
Cox, 499 F.2d 951, 960 (8th Cir. 1974) (applying Iowa law and “predominant
purpose” test to decide whether contract’s “purpose, reasonably stated, is the
rendition of service, with goods incidentally involved . . . or is a transaction of
sale, with labor incidentally involved”).
It is not a sensible exercise of our appellate review to determine, in the
first instance, whether the UCC applies to this mixed contract for car repairs
without the benefit of the district court’s decision. This is especially so where
Iowa courts have not resolved the mixed-contract-UCC-applicability issue in the
context of car repairs.6 See Meier, 641 N.W.2d at 537. Thus, we do not address
Lithia’s claims based on the UCC.
V. Contract to Arbitrate Disputes—Bartlett
Lithia contends this case is controlled by Bartlett’s “identical facts” and
resolution.7 See 829 N.W.2d at 21-23. In Bartlett, a farmer orally agreed to sell
corn to a grain company at a set price at an “anticipated delivery date.” Id. at 21.
6 Other courts have concluded a mixed contract to repair a vehicle is a contract predominately for services and thus outside the purview of Article 2 of the UCC. See Janke v. Brooks, No. 11-CV-00837-REB-BNB, 2012 WL 1229891, at *3 (D. Colo. Apr. 11, 2012) (“The primary purpose of a repair transaction is not to sell or purchase parts, but to change or improve the item and return it to the owner. In such cases, the provision of goods is incidental, and the UCC does not apply.”); Heart of Texas Dodge, Inc. v. Star Coach, LLC, 567 S.E.2d 61, 63 (Ga. Ct. App. 2002) (ruling custom conversion of new vehicle is “closely analogous to repair cases” so “the UCC does not apply” (citing Am. Warehouse & Moving Serv. of Atlanta, Inc. v. Floyd’s Diesel Servs., Inc., 296 S.E.2d 64, 66 (Ga. Ct. App. 1982) (“[T]he transaction was a contract for appellee’s services to repair appellant’s original engine and . . . the supplying of new component parts was merely an ‘incidental part’ of appellee’s overall services in this regard.”))); Mitchell v. Speedy Car-X, Inc., 712 N.E.2d 768, 769-70 (Ohio Ct. App. 1998) (finding claim for failure to repair car is based on the defendant providing a service— performing some repair on plaintiff’s car and any goods sold were incidental to the repair service, thus, UCC did not apply). 7 Both parties asked our supreme court to retain this case to resolve an issue “of broad public importance”—whether a business may compel arbitration based on language in a document the business prepared and delivered after performance was complete. The supreme court declined and transferred the case to this court. 10
Shortly thereafter and before the parties performed the oral contract, the buyer
sent the seller a two-page document entitled “Purchase Confirmation.” The seller
signed and returned the confirmation, which was also signed by the buyer. Id.
The written confirmation stated:
THE LAW RECOGNIZES TELEPHONE TRANSACTIONS TO BE LEGALLY BINDING. CONTRACTS ARE SENT TO CONFIRM PHONE CONVERSATIONS, ENSURING THAT BOTH PARTIES UNDERSTAND THE TERMS, AND AS A MATTER OF RECORD. PLEASE REVIEW THIS CONFIRMATION AND NOTIFY [THE BUYER] IF THERE ARE ANY TERMS YOU DO NOT UNDERSTAND OR THAT MAY BE IN ERROR.
Id.8 While the parties’ oral agreement did not contain an agreement to arbitrate
disputes, the signed confirmation contained an arbitration clause. Id.
The district court in Bartlett concluded there was no enforceable
agreement between the parties to arbitrate; the supreme court reversed, finding
the elements of offer, acceptance, and consideration “present” in the written
confirmation under Iowa common law. Id. at 23-24. Referencing the above
language, the court found there is “no doubt on this record” the confirmation was
“intended as a final expression of at least the terms contained therein.” Id. at 25.
Also, the seller “did not object to any of those clauses and provisos, but instead
signed and returned” the confirmation. Id. Finally, both parties “signed the
confirmation. The writing signed by both parties itself establishes the existence
of a contract.” Id. at 26.
8 Page two of the Bartlett confirmation included similar information, telling the seller the buyer sent the document “to confirm” its contract to purchase grain “according to the terms set forth on both sides of this document. Failure to advise [the buyer] immediately of any discrepancies, objections to or disagreement with this confirmation of the terms constitutes acceptance of those terms.” 829 N.W.2d at 21. 11
Lithia asserts, like the confirmation in Bartlett, the invoice signed by Julie
was the written confirmation of the parties’ final agreement. Our review shows
the instant case is easily distinguished from Bartlett. Before either party in
Bartlett performed their obligations under the oral contract, the seller signed a
document entitled “confirmation” that specifically asked him to immediately tell
the buyer if he disagreed with any terms of the written contract, and the buyer
also signed the contract. See id. at 24-26. The March 2015 document Lithia
asks us to find is a binding written contract was not executed before either party
performed; instead, Welsh had delivered the car for an evaluation, Lithia had
evaluated the car and proposed repairs costing $4336, Welsh agreed to pay that
amount, Lithia repaired the car, and only when Julie arrived to pay for the
completed repairs and retrieve the car did she sign a document entitled “invoice,”
not “confirmation.” Finally, Lithia did not sign the invoice. Because Bartlett is
factually dissimilar, we turn to an analysis under Iowa common law of the
transaction before us.
VI. Modification of the Parties’ Oral Contract
Lithia next argues the district court’s ruling failed to recognize the basic
principle that written agreements such as the invoice are presumed to be
supported by consideration. See Meincke v. Nw. Bank & Tr. Co., 756 N.W.2d
223, 227 (Iowa 2008). In its post-trial motion and on appeal, Lithia asserts:
“Lithia’s work in replacing the oil pump and the timing chains and adjustors, and 12
[the Welshes’] act of paying money and waiting for those repairs to be
completed,” constituted “independent consideration.”9 We are not persuaded.
General principles of contract law determine the validity of an arbitration
agreement. Faith Evangelical, 809 N.W.2d at 121. For a contract to be valid in
Iowa, it must contain three elements—offer, acceptance, and consideration.
Margeson, 776 N.W.2d at 655. The consideration element supports the fact
“contract law exists to enforce mutual bargains, not gratuitous promises.” Id.
Generally, “when the parties modify a contract, a new contract arises.” Iowa
Arboretum, Inc. v. Iowa 4-H Found., 886 N.W.2d 695, 706 (Iowa 2016). But
where “the parties to a contract modify the terms, there must be some new and
valid consideration.” Id. The party asserting a lack of consideration, here Welsh,
must establish the defense. See Margeson, 776 N.W.2d at 656.
We look for the element of consideration in the language of the contract
and by “what the parties contemplated at the time the instrument was executed.”
Id. (citation omitted); see also Meincke, 756 N.W.2d at 227. A promise to
perform a preexisting duty generally does not constitute additional consideration.
Margeson, 776 N.W.2d at 656; Recker v. Gustafson, 279 N.W.2d 744, 758 (Iowa
1979). Specifically,
a promise made by one party to a contract normally cannot be enforced by the other party to the contract unless the party to whom the promise was made provided some promise or performance in exchange for the promise sought to be enforced. In other words, if the promisor did not seek anything in exchange for the promise made, . . . the promise made by the promisor is unenforceable due to the absence of consideration.
9 In response to a question during oral arguments, Lithia’s counsel agreed the parties’ agreement was to fix the car and Lithia is not parsing the agreement into replacing one part versus replacing another, i.e., oil pump versus timing chains. 13
Margeson, 776 N.W.2d at 655-56.
Applying these principles, we conclude the district court was correct in its
analysis. The document containing the arbitration language was not signed
when Welsh brought his vehicle to Lithia to be repaired. After the repairs were
completed, Julie did not seek anything in exchange for the promise to arbitrate;
Lithia already had completed its work at the set price, making her promise to
arbitrate unenforceable due to the absence of consideration. See id. In other
words, no additional consideration existed where Lithia, the promisee, had a
preexisting duty under the oral contract to evaluate and repair the car for a set
price, and it did so. See id. at 656 (finding “the modification was nothing more
than a unilateral price hike”). Lithia’s alleged modification was nothing more than
a post-performance,10 unilateral demand by it to submit any future disputes to
arbitration. See id. After Lithia completed the repairs, it asked the Welshes to
give up their right to litigate in court in return for the same performance by
Lithia—repairing the car at the set price. See id.; see also McKee v. Isle of Capri
Casinos, Inc., 864 N.W.2d 518, 527 (Iowa 2015) (stating contract law enforces
mutual bargains not gratuitous promises); Gill v. Vorhes, No. 15-0785, 2016 WL
4051643, at *12 (Iowa Ct. App. July 27, 2016) (finding purported modification
invalid where it “did not impose any additional duties . . . or require [the promisee
(here, Lithia)] to do anything that [it] was not already legally obligated to do”);
Stieneke v. United Bank of Iowa, No. 12-1952, 2013 WL 5498053, at *5 (Iowa Ct.
10 In response to a question during oral arguments, Lithia’s counsel admitted Lithia is “essentially” asking this court to rule substantive terms can be added to an agreement after performance by the parties. Lithia has not cited any cases so holding. 14
App. Oct. 2, 2013) (finding no consideration for modification where promisee did
not offer “anything in addition to or different from that which they had already
promised”).
Thus, Lithia cannot enforce the promise to arbitrate because there is no
evidence Lithia “promised to do something more than [it] had promised to do
under the [oral] agreement.”11 Margeson, 776 N.W.2d at 658. Accordingly, we
affirm the district court’s denial of Lithia’s motion to compel arbitration.
AFFIRMED.
11 Based on our resolution, we need not address Lithia’s claims concerning contract signatories, interstate commerce, and agency.