Example of Court Annexed Arbitration Opinion: Fourteen
CONSUMER RENTAL CAR DISPUTE
This is an action by a consumer rental car business ("Company")
against its customer ("Renter") for money damages when Renter returned a
rented car with substantial damages. I heard testimony from Company's
risk manager and fleet manager, and reviewed a declaration submitted by Company.
I heard the testimony of Renter's valuation expert, from Renter, and
from an adjuster at Renter's auto insurer.
This was a bailment for hire, evidenced by the written contract.
When it has been shown that personal property has been delivered
in good condition to a bailee, and the goods, when returned to the bailor,
have been damaged, the bailor has a choice of remedies for injury to the
property and may maintain either an action of assumpsit for breach of the
contract, or an action based in tort, Roberts v. Mitchell Bros. Truck Lines,
289 Or 119, 125, 611 P2d 297 (1980). No action was brought in tort.
Case law is that when the parties have an express contract, they may not
bring an action in the common counts. Thus, this action has to be
on the contract.
Under the contract (and at common law), Renter owed the duty
to return the car in the same condition as when she received it, normal
wear and tear excepted.
However, unless the risk of loss is shifted by contract,
it remains with the bailor, and if the bailor fails to show that the bailee
was negligent, then the risk falls upon the bailor. Here, I find that
the bailee was not negligent.
However, the contract here shifts the risk of loss.
Paragraph A of the contact states:
A. NATURE OF THIS AGREEMENT
* * * Except for ordinary wear and tear,
You must return the vehicle in the same condition you received it, to the
Company location on the return date and time noted . . . and pay all fees
and charges due under this Agreement.
* * *
When Renter rented the car, there was the option to
purchase Loss Damage Waiver or Partial Loss Damage Waiver (described at
paragraph D) and Renter specifically elected not to do so under on the basis
that the liabilities which Company would have waived were covered by Renter's
own automobile insurance. If Renter had purchased LDW Renter would
have had no liability for damage to the car that was not Renter's fault.
Paragraph D states at the end:
Please Note: If you decline the optional Loss Damage
Waiver (LDW) of the optional Partial Loss Damage Waiver (PLDW), You will be
responsible for any loss or damage regardless of fault. * * *
I note that I have no idea whether Renter was correct
in this assumption that Renter would be covered by the auto insurer but it
is clear that Renter is being defended in this action by the auto insurer
- a representative from the insurer testify on Renter's behalf.
The contract had the following provision:
C. WHAT ABOUT DAMAGE OR LOSS?
YOU ARE ABSOLUTELY LIABLE FOR ANY LOSS OR DAMAGE TO THE VEHICLE TO THE
FULL EXTENT PROVIDED BY THE LAW OF THE STATE IN WHICH THE VEHICLE IS RENTED,
EVEN IF SOMEONE ELSE CAUSED IT OR THE CAUSE IS UNKNOWN, WHETHER DUE TO THEFT,
FIRE, HAIL, FLOOD, COLLISION, VANDALISM, OR ANY OTHER CAUSE, OR OTHER ACTS
OF NATURE OR GOD REGARDLESS OF FAULT, SUBJECT TO LIMITATIONS IMPOSED BY THE
LAW OF THE JURISDICTION WHERE THE VEHICLE IS RENTED. YOUR
LIABILITY WILL NOT EXCEED THE FAIR MARKET VALUE OF THE VEHICLE, ACTUAL TOWING
AND STORAGE CHARGES, LOSS OF USE, REGARDLESS OF FLEET UTILIZATION, ATTORNEYS'
FEES, A REASONABLE ADMINISTRATIVE FEE AND PRO-RATE LICENCE PLATE FEES.
AS ALLOWED BY LAW, YOU ACKNOWLEDGE THAT IN SOME CASES, COMPANY MAY DECIDE
NOT TO REPAIR A VEHICLE THAT WAS DAMAGED WHILE ON RENT TO YOU. IN SUCH A CASE,
YOU AGREE THAT COMPANY IS ENTITLED TO THE VALUE OF THE VEHICLE BEFORE THE
DAMAGE OCCURRED (BASED UPON THE N.A.D.A. OR KELLEY BLUE BOOK VALUES, AT COMPANY'S
ELECTION), LESS THE VALUE AFTER THE DAMAGE OCCURRED (BASED UPON REASONABLE
Any person injured by another's breach of contract,
including a contractual bailor, has a duty to take reasonable steps to mitigate
its damages. Any lawyer with any contract litigation experience knows
that as soon as there is any alternative method of mitigating damages, the
injured person's mitigation efforts will be second guessed in the following
litigation. I mentioned at the hearing that I had tried a case like
this about thirty years ago and I recall that the situation was an action
for a deficiency after a repossession. The dealer had sold the car
on its used car lot and the defendant complained that the dealer would have
gotten more had the car been sold at auction. Today is just the opposite.
The other aspect of mitigation was Company's attempts
to recover from the tortfeasor and his insurer. With the benefit of
hindsight, it is clear that the attempts to recover from the tortfeasor and
his insurer are reasonable steps to mitigate, because it worked. The
question, as I phrased it in the hearing, is: Does Company have to go to war
with the tortfeasor - or more charitably - to sue him and effectively sue
his insurer, as an element of mitigation? My answer is: No.
Renter's attorney contends that the settlement between
tortfeasor and his insurer and Company would be a defense to an action by
Renter against tortfeasor, but my answer is: I have long and recent experience
with issue preclusion and I don't think so. To the contrary, Renter
and Company have different, and adverse, interests, they are not in privity,
and Renter did not approve the settlement between Company and tortfeasor.
There would be no issue preclusion.
The legal remedy here is for Renter's insurer as subrogee
of Renter to sue tortfeasor, but, really the dollars are too small and I don't
I view paragraph C as an agreement that if Company follows
the steps outlined there, they can't be second guessed. Even if they
can be second guessed in some outlier of a case, I also assume that Company
is a capitalist entity motivated by profit, it makes its best judgment about
what course of action would generate the most profit, it has huge retained
third party liability retained risk, and that it has legitimate interests
not to use structurally damaged vehicles in its fleet. In fact, that
decision makes much more business sense than suing renters for a few thousand
dollars, but that comment does not inform my decision here. Thus, I
find that Company's decision not to repair the vehicle, but rather to sell
it at auction in a damaged condition, as provided for by its contract, does
not violate any implied covenant of good faith. As Company's lawyer
correctly points out, there is no implied covenant of good faith in respect
of rights and remedies that are specifically provided for in the contract.
Next, I view paragraph C as a liquidated damages provision,
however, as is often true in cases that reach litigation, imperfectly drafted
as applied to the facts of this case.
As above quoted, the liquidated damage provision states:
IN SUCH A CASE, YOU AGREE THAT COMPANY IS ENTITLED TO THE VALUE OF THE
VEHICLE BEFORE THE DAMAGE OCCURRED (BASED UPON THE N.A.D.A. OR KELLEY BLUE
BOOK VALUES, AT COMPANY'S ELECTION), LESS THE VALUE AFTER THE DAMAGE OCCURRED
(BASED UPON REASONABLE SALVAGE VALUE).
The problem is that, as testified to by Company's risk
manager, this car was so new that NADA and KBB did not have values.
Therefore, risk manager used information from Company's used car sales lots
and from Auto Trader. That might be fine to inform the risk manager's
estimate of the fair market value of the car, but it does not satisfy the
requirements of paragraph C.
The usual measure of damage to personal property is the
difference between the value before the injury, and the value after.
Cost of repair is an acceptable substitute measure of damage. Economic
waste must be avoided, except in cases involving property with sentimental
Fair market value is the price at which a sale would
be made between a buyer fully informed and not under any compulsion to purchase,
and a seller fully informed and not under any compulsion to sell, with the
property properly exposed to sale and without any concessions made by buyer
or seller. An actual sale of the subject property in a free market
is good evidence of the value of the property at the time and place of the
I'm not sure that either Company's original purchase
is good evidence of value, because that purchase was of autos on a fleet
basis, which likely had some concessions by the seller for volume.
Similarly, the auction sale is not necessarily good evidence of after value
because the auto auction has a limited pool of purchasers, though likely
the pool of buyers at the auto auction are the only buyers for severely damaged
In my opinion, a car that has been in a collision with
$7,000 of repairs including structural repairs, even if 'perfectly' repaired,
would not have the same value in the free market as the same car, previously
undamaged, because even if the car is identically safe, there is a stigma
in the market for repaired cars, and there are sufficient other cars in
the market so buyers are unwilling to purchase a previously damaged car for
the same price as an undamaged one.
Based on testimony of Company's risk manager and Renter's
valuation expert, the fair market retail value of the car prior to the injury
was around $18,000 to $18,445. Based upon the testimony of Renter's
valuation expert, the wholesale value of the car before the sale was around
$16,000, and again based upon the testimony of the expert, regardless of the
exact numbers, the difference between the wholesale and the retail value was
around $2,000. I'm relying on the testimony of the expert because his
was the only apples to apples comparison.
The core of the dispute between the parties is that Company
wants to recover from Renter on the basis of retail before value, less mitigation
on a wholesale basis. That might be OK if the contract provision could
be followed, but in this case it can't. Because I have to apply the
common law, I need to make an apples to apples comparison, not wholesale
Based upon the auction sale of the vehicle I conclude
that the wholesale value of the car after the accident was $9,000. Based
upon Renter's expert's testimony, I conclude that the wholesale value before
was $16,000. The difference is $7,000. Company's efforts to mitigate
obtained another $7,451. Therefore, Company's loss was fully mitigated.
Company may have had other expenses to mitigate but they were not proved,
and perhaps they fall under the umbrella of the $75 administrative fee.
This does not mean that Renter is allowed any recovery.
All it means is that Renter is entitled to an award of dismissal.
Having in mind that this is partially a small battle
in a war by proxy between two large entities, apparently intent upon resolving
some larger issues, and the ultimate recovery was small, I choose not to award
any attorney fees. This litigation is a cost of doing business and
establishing guidelines for recurring aspects of the relationship.
To the extent that I have any authority, I order that
information about fleet numbers not be disclosed to the parties or outside
this specific litigation.
Two findings of fact were requested, and I find: Company's
risk manager testified that there was no release, and, on the evidence presented
to me I cannot make a finding that there was a release. I will say,
it would not surprise me if there was no release. I start with the assumption
that all witnesses tell the truth and all lawyers do not misrepresent the
nature of documents produced through them in discovery, until proved otherwise.
There was no such proof in this case. If Renter's attorney has continuing
concerns, he will have to do discovery from tortfeasor's insurer.
I award costs to Renter as follows:
Appearance fee $150
Arbitrator's fee $500 (presumptively, if there is any fee returned, I will
reduce the costs award)
Prevailing fee $275 (ORS 20.190(2)(a)(A)
Renter's attorney to submit a cost bill to be received
in my office by 5:00 p.m. Wednesday (by mail, messenger, fax or e-mail).
If there is any objection, Company's attorney to respond by 5:00 p.m. Monday.
If I receive nothing from Renter's Attorney then Company's Attorney need
not respond. If there is a dispute I will decide without further argument,
and render an award forthwith.