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Nick Hestead v. Cna Supply Dba Western Surety Company

March 5, 2012

NICK HESTEAD, PLAINTIFF-RESPONDENT-CROSS APPELLANT,
v.
CNA SUPPLY DBA WESTERN SURETY COMPANY, DEFENDANT-APPELLANT-CROSS RESPONDENT.



Appeal from the District Court of the Third District Court of the State of Idaho, Canyon County. Hon. Susan E. Wiebe, District Judge.

The opinion of the court was delivered by: W. Jones, Justice

2012 Opinion No. 48

Stephen W. Kenyon, Clerk

The judgment of the district court is reversed. Neither party is awarded attorney's fees. Costs are awarded to appellant.

I. NATURE OF THE CASE

In April and June of 2008, Best of the Best Auto Sales, Inc. ("Best of the Best"), *fn1 an Idaho corporation, purchased seven vehicles from Dealers Auto Auction of Idaho ("Dealers") and Brasher's Idaho Auto Auction ("Brasher") with checks that were returned for insufficient funds. As a result, Dealers and Brasher refused to provide Best of the Best with the titles to the vehicles. Best of the Best then sold the vehicles to Idaho consumers without providing them with titles.

Dealers and Brasher filed claims with CNA Surety d/b/a Western Surety Company (hereinafter referred to collectively as "Western Surety"), which acted as a surety for a "$20,000 Vehicle/Vessel Dealer Bond" ("Dealer Bond"). Best of the Best was the principal. Upon Best of the Best's failure to provide evidence or defenses for Dealers' and Brasher's claims, Western Surety alleges that it lawfully settled those claims in good faith pursuant to I.C. § 41-1839(3), upon the condition that the consumers received their titles, even though they were not based on final judgments.

Thereafter, Nick Hestead ("Hestead") submitted his claim, which was based on a final judgment. Hestead's claim involved fraud and fraudulent representation concerning a separate vehicle that Hestead purchased from Best of the Best that was previously branded a lemon in California. Western Surety responded by asserting that the Dealer Bond was exhausted.

Hestead contends that the plain meaning of I.C. § 49-1610(4) provides that his claim should be given priority because it was submitted thirty days after a final judgment was entered, unlike Dealers' and Brasher's claims. Western Surety asserts that the plain meaning of I.C. § 41- 1839(3) permits sureties to settle Dealer Bond claims in good faith.

II. FACTUAL AND PROCEDURAL BACKGROUND

In order to operate a licensed vehicle dealership in Idaho, a dealer must obtain a $20,000 Dealer Bond pursuant to I.C. § 49-1608(1)(a). Dealer Bond claims are not addressed by the Idaho Transportation Department ("the Department"); instead, it merely lists the claims in the Dealer Operations Database and forwards them to the surety for prompt response. The Department does not express its opinion as to the validity of a Dealer Bond claim.

Claims based on final judgments are infrequent. In fact, Daryl Marler ("Marler"), Dealer Operations Program Supervisor with the Department, admits that over the last five years, he can only recall forwarding three or four claims based on final judgments for claim processing and upwards of sixty to eighty consumer claims that were not based on final judgments.

Western Surety is a surety company that issues Dealer Bonds in order to compensate claimants pursuant to I.C. § 49-1610. Western Surety's claims process often involves settling undisputed claims, regardless whether the claimant has obtained a final judgment. The Department has never expressly told Western Surety that it may not engage in settlements. Instead, the Department only requires that it be informed of all settlements.

Upon receiving a claim forwarded by the Department, Western Surety notifies the principal of the claim and then asks the principal to provide its defenses. If the principal's liability is undisputed or the principal does not provide any adequate defenses, Western Surety determines the amount of just compensation due and tenders a settlement. If the claim is disputed and the claimant does not provide adequate evidence establishing a violation of I.C. § 49-1610, Western Surety notifies the claimant that he or she must obtain a final judgment in order to receive payment. Western Surety engages in this claims process because it contends that claims involving consumers who do not receive title require quick resolution due to the problems associated with vehicle insurance, vehicle registration, and perfection of liens. Furthermore, Western Surety contends that it is against the Department's policy to force claimants who have not received titles to file suit at their own expense in order to prove what everyone already knows, i.e., that the claimant paid for a vehicle without receiving title. Western Surety also contends that it settles undisputed Dealer Bond claims because failure to promptly respond to such claims may subject it to attorney's fees pursuant to I.C. § 41-1839(1).

Best of the Best was incorporated on November 12, 2004. Morgan Ririe ("Ririe") and Ron Zechman ("Zechman") were listed as the incorporators. Ririe obtained a Dealer Bond from Western Surety on November 19, 2004. The Dealer Bond provides that Western Surety and Best of the Best are "jointly and severally held and firmly bound unto the state of Idaho to indemnify persons, firms, or corporations for loss suffered by reason of violation of the conditions hereinafter contained." The Dealer Bond also asserts that "the Principal shall not practice any fraud, make any fraudulent representation or violate any of the provisions of Chapter 16 Title 49 Idaho Code or rules and regulations promulgated by the [Department]." The aggregate liability of Western Surety is limited to the amount of the Dealer Bond, in this case $20,000, regardless of the number of years the bond remains in effect or the number of claims that are made.

Best of the Best purchased seven vehicles from Brasher's and Dealers in April and June of 2008. Both companies withheld the titles to the vehicles after Best of the Best's checks were returned for insufficient funds. Thereafter, Best of the Best sold the vehicles to consumers without providing titles upon their sale contrary to I.C. ยง 49-502(1). The Dealer Bond was cancelled on November 28, 2008, pursuant to Best of the ...


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