Opinion ID: 2343096
Heading Depth: 1
Heading Rank: 1

Heading: Evidence of Warranty Fraud

Text: For its first point on appeal, Ford argues that the Commission erred in excluding evidence that Crain had committed warranty fraud at its Midway dealership in Memphis. Ford argues that this evidence had a direct bearing on two of the criteria it used in reviewing Crain's application to buy the Fletcher-Tate dealership, specifically character and capacity. The Commission and Crain both counter that the hearing officer's decision to limit the evidence related to the fraud at Midway Ford was an appropriate exercise of discretion. They further argue that the evidence Ford was prohibited from presenting was merely cumulative of evidence that it was allowed to introduce and, thus, was properly excluded, as Ford suffered no detriment by not presenting this evidence. In partially granting Crain's motion in limine, the hearing officer stated: [O]ne of the concerns that I've got is that we are going to turn this entire proceeding into a warranty termination case.... I understand fully that Ford has allegations ... that Mr. Crain or the people that work for Mr. Crain committed warranty fraud in Tennessee. I understand equally as well that Mr. Crain is fighting those claims. .... I am going to allow you to allege ... Mr. Crain or the dealership engaged in warranty fraud and that's part of a pending case in Tennessee. I'm also going to allow Mr. Crain to come in and say, and I dispute those charges[.] .... [W]e are not going to try in toto the warranty fraud case before this forum, we're just not. Now, I'm going to allow certain exhibits to come in as far as what your defenses are. But, it's going to be a very truncated thing.... I think we would be remiss if we didn't tell the Commissioners about the dispute. But, while we're going to have a trial about whether or not you're right or you're right about the dispute, that's not going to be part of it. .... [I]f you've got one exhibit or two exhibits that succinctly state what I've already articulated as far as, we've got a dispute, here's what the dispute is, then I'd be inclined to admit those but ... I'm not going to allow a whole lot of backup information. The evidence that the Commission would not allow Ford to introduce consisted of testimony from the auditors who performed the audits at Midway Ford and determined that Crain had committed warranty fraud, as well as documents supporting this testimony. There was also a letter from Crain Sr. to Ford stating that he had conducted an internal audit at the Midway dealership and had, in fact, discovered instances of warranty fraud. The APA speaks to the introduction of evidence during an administrative hearing. Pursuant to Ark.Code Ann. § 25-15-213(4) (Repl.2002), Irrelevant, immaterial, and unduly repetitious evidence shall be excluded. Any other oral or documentary evidence, not privileged, may be received if it is of a type commonly relied upon by reasonably prudent people in the conduct of their affairs. Under section 25-15-213(5), however, a party shall have the right to conduct such cross examination as may be required for a full and true disclosure of the facts[.] Moreover, it has been recognized that the exclusion of evidence is prejudicial where a substantial right of a party is affected. Potter v. Magee, 61 Ark.App. 112, 964 S.W.2d 412 (1998); Stacy v. Lin, 34 Ark.App. 97, 806 S.W.2d 15 (1991). Under the Rule set forth in section 25-15-213, the hearing officer had the right to determine what evidence was appropriately submitted to the Commission. The hearing officer's rationale that he did not want to confuse the issue before the Commission was sound, with one exception. The hearing officer recognized that Ford alleged fraud, while Crain denied any such fraud, but then refused to allow Ford to introduce into evidence a letter written by Crain Sr. to Ford regarding instances of fraud at the Midway dealership. In that letter, dated June 6, 1997, Crain Sr. stated: We recently found it necessary to terminate the employment of our Parts and Service Director for reasons of impropriety. As a result of some of his actions, we subsequently made an investigation of various documents and related transactions. Accordingly I am outlining the matters we reviewed and requesting that those items, where our investigation discovered evidence that repairs now determined to be out of Ford warranty policy, be billed back to Midway Ford, Inc. In this letter, Crain Sr. admitted to uncovering fraud and requested that Ford charge the dealership for those cases; yet, when he testified at the hearing before the Commission, Crain Sr. testified that he had terminated Midway's service manage for fraud against the dealership. He denied, however, that the service manager ever submitted improper claim forms to Ford, stating specifically on cross-examination that the service manager was terminated because he committed fraud on customer pay claims, not any claims submitted to Ford. Following Crain Sr.'s testimony on this issue, counsel for Ford again sought to introduce the letter, arguing that it was entitled to point out inconsistencies in Crain Sr.'s testimony. The hearing officer again denied the motion, concluding that the letter provided nothing new to the case at hand. This conclusion was in error as the letter directly conflicted with Crain Sr.'s denial of any knowledge of warranty fraud against Ford made before the Commission. Because the exclusion of this letter prejudiced Ford by affecting its right to impeach Crain Sr., the hearing officer abused his discretion in excluding this letter.