Hankins v. McElroy

Donald L. Corbin, Justice. Appellant, George Hankins, appeals a judgment of the Pulaski Circuit Court, declaring that appellee, Lawyers Surety Corporation, is not liable on a bond it issued in favor of its principal, Larry McElroy d/b/a Mac’s Auto Sales. We find error in the trial court’s judgment and reverse. Appellant and McElroy are used car dealers licensed in accordance with the Arkansas Motor Vehicle Commission Act, Ark. Code Ann. §§ 23-112-101 et. seq. (Repl. 1992). Appellant engaged in several business transactions with McElroy which are the subject of this case. Appellee Lawyers Surety Corporation (Lawyers) is the surety which issued a penal bond, naming McElroy as principal, in compliance with the motor vehicle dealer licensing statutes. See Ark. Code Ann. § 23-112-603 (Repl. 1992). Appellant filed suit against McElroy alleging various allegations of fraud, conversion, and breach of contract relating to certain notes receivable as well as to the sales of a Camaro and a GMC truck. Appellant’s complaint also included appellee Lawyers as a defendant and sought declaratory relief for payment under the bond Lawyers issued with McElroy as principal. Relying on Ark. Code Ann. § 23-112-302 (Repl. 1992), appellant claimed he was entitled to payment under the bond because McElroy’s actions were sufficient to warrant the suspension or revocation of McElroy’s car dealer’s license. Lawyers’ answer admitted liability under the bond for the $2,115.00 in damages arising from the sales of the Camaro and the GMC truck. Appellant obtained a default judgment against McElroy for a total amount of $25,869.00, which includes $23,754.00 on the claims relating to the notes receivable, $ 1,000.00 on the claim for the Camaro, and $ 1,115.00 on the claim for the GMC truck. The default judgment also included court costs of $101.00 and an attorney’s fee of $350.00. The judgment, costs, and fees were to bear 6 % interest. The trial court disposed of appellant’s request for declaratory relief in an order entered separate from the default judgment. That order declared that the bond could not be used to satisfy appellant’s judgment. This appeal followed. Appellant makes five arguments for reversal of the judgment. We do not reach the merits of the arguments. We must reverse and dismiss because appellant has not exhausted his administrative remedies. Arkansas Motor Vehicle Comm’n v. Cantrell Marine, Inc., 305 Ark. 449, 808 S.W.2d 765 (1991). After July 1,1989, all regulatory authority of dealers of used motor vehicles was transferred from the Arkansas Motor Vehicle Commission to the Revenue Division of the Department of Finance and Administration (DF&A). Ark. Code Ann. § 23-112-601 (Repl. 1992). The Reporter’s Notes to section 23-112-601 indicate that all bonds posted by presently licensed used motor vehicle dealers were transferred from the Motor Vehicle Commission to the Revenue Division of DF &A, to be regulated in accordance with section 23-112-603. Thus, it is the licensing and bonding requirements of section 23-112-603 that are applicable to this case. Section 23-112-603 provides that an applicant for license as a motor vehicle dealer in used vehicles must file a corporate surety bond in the penal sum of $25,000.00, payable to the State of Arkansas as an indemnity for any loss sustained by any person by reason of the acts of the bonded person when such acts constitute grounds for the suspension or revocation of his license. Section 23-112-603 further provides that: [t]he proceeds of the bond shall be paid upon receipt by the Director of the Department of Finance and Administration of a final judgment from an Arkansas court of competent jurisdiction against the principal and in favor of an aggrieved party. Appellant has obtained a default judgment in his favor against McElroy. Thus, the quoted portion of section 23-112-603 provides him with an administrative remedy for seeking payment under the bond — presentment of the default judgment to the Director of DF&A. The record does not reveal that appellant availed himself of this administrative remedy. Instead of presenting his judgment to the Director of DF & A, appellant sought declaratory relief in the circuit court. It is well established that litigants must exhaust their administrative remedies prior to seeking a declaratory judgment because declaratory judgment actions are intended to supplement rather than replace ordinary causes of action. Rehab Hosp. Serv. Corp. v. Delta-Hills Health Sys. Agency, Inc., 285 Ark. 397, 687 S.W.2d 840 (1985). Moreover, a basic rule of administrative procedure requires that an agency be given the opportunity to address a question before resorting to the courts. See Truck Transp. Inc. v. Miller Transporters, Inc., 285 Ark. 172, 685 S.W.2d 798 (1985). There is no doubt that seeking payment under the bond of a licensed dealer of used motor vehicles falls within the jurisdiction of DF&A. Section 23-112-603. Therefore, appellant should have availed himself of this administrative remedy and given DF&A an opportunity to address the issue presented to the circuit court for declaratory judgment. Clearly, this is the procedure the legislature intended to be followed when it delegated regulatory jurisdiction of used motor vehicle dealers to DF&A in Ark. Code Ann. §§ 23-112-601 to -604 (Repl. 1992). We are mindful of the exceptions to the exhaustion of remedies doctrine as restated in Cantrell Marine, 305 Ark. 449, 808 S.W.2d 765. There, this court noted that the exhaustion doctrine does not apply when it would be futile to pursue an administrative remedy or where there was no genuine opportunity to do so. As was the case in Cantrell Marine, we cannot say that either exception applies because the record does not indicate that appellant ever even attempted to pursue any administrative action. Here, there is no indication in the record that appellant ever presented the default judgment to DF&A and sought payment under the bond. Had DF&A denied appellant’s request for payment under the bond, appellant could then have sought review of DF&A’s actions by seeking judicial review in Pulaski County where state agencies are subject to suit pursuant to Ark. Code Ann. § 16-60-103 See Sikes v. General Publishing Co., 264 Ark. 1, 568 S.W.2d 33 (1978). Therefore, we cannot say there was no opportunity for appellant to seek his administrative remedy or that it would have been futile to do so. Accordingly, we hold appellant failed to exhaust his administrative remedies. We reverse and dismiss the judgment without prejudice to allow appellant to seek his administrative remedy before DF&A. Cantrell Marine, 305 Ark. 449, 808 S.W.2d 765. Reversed and dismissed. Holt, C.J., Newbern and Brown, JJ., dissent.