Kent Welsh v. Lithia Vaudm, Inc. D/B/A Lithia Volkswagen of Des Moines and Anthony M. Gladney

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.