3d Enterprises Contracting Corp. v. Lexington-Fayette Urban County Government

134 S.W.3d 558, 2004 Ky. LEXIS 109, 2004 WL 1123530
CourtKentucky Supreme Court
DecidedMay 20, 2004
DocketNo. 2002-SC-0285-DG
StatusPublished
Cited by11 cases

This text of 134 S.W.3d 558 (3d Enterprises Contracting Corp. v. Lexington-Fayette Urban County Government) is published on Counsel Stack Legal Research, covering Kentucky Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
3d Enterprises Contracting Corp. v. Lexington-Fayette Urban County Government, 134 S.W.3d 558, 2004 Ky. LEXIS 109, 2004 WL 1123530 (Ky. 2004).

Opinion

STUMBO, Justice.

Appellant, 3D Enterprises Contracting Corporation, presented a bid proposal to make improvements to a public swimming pool located in Lexington. Appellee, the Lexington-Fayette Urban County Government, accepted the bid and awarded Appellant a $1,315,600.00 construction contract. The contract stated that the project should be completed within 240 days from a proposed starting date of October 24, 1995. However, when the parties executed the contract, the plans for construction [560]*560at the pool had not received final approval from the Fayette County Health Department.

Appellant began construction at the swimming pool pursuant to the contract, but soon was forced to stop working due to modifications in the project plans required by the Health Department. Because the work was delayed, the parties negotiated two change orders to the contract in accordance with the terms of the contract. These change orders served to increase the amount of the contract and extended the date of completion.

Upon completion of the construction project, Appellant demanded additional compensation from Appellee because of the delays it experienced. Appellee declined to make further payment. As required by the contract, the parties entered into arbitration on the claim for delay damages.

During the arbitration proceedings, Ap-pellee asserted that Appellant’s claim for damages was precluded by the construction contract’s no-damages-for-delay clause. Appellant argued, inter alia, that the delays and disruptions it encountered during the construction project were due to the active interference and material misrepresentations of Appellee, and consequently, the no-damages-for-delay clause should have been rendered inapplicable under the circumstances. The three-member arbitration panel unanimously ruled in Appellant’s favor and awarded Appellant $272,515.19.

Appellee petitioned the Fayette Circuit Court to vacate the arbitration award. In its November 18, 1999, opinion and order, the circuit court considered two issues. First, whether Appellee waived its defense of sovereign immunity by entering into a contract that provided for arbitration of disputes arising from the contract. Second, whether the arbitration panel committed palpable error in its failure to enforce the no-damages-for-delay clause of the construction contract.

The circuit court first held that sovereign immunity had in fact been waived when Appellee entered into a contract providing for the arbitration of claims. As to the second issue, the court, citing Carrs Fork Corporation v. Kodak Mining Company, Ky., 809 S.W.2d 699 (1991), noted that the relevant ground for vacating an arbitration award in the instant case was whether the arbitrators exceeded the powers granted to them by KRS 417.160(l)(e).

The circuit court held that the arbitration award was palpably erroneous because the arbitrators exceeded their powers by failing to enforce the no-damages-for-delay clause. The court further held that it was contrary to law and principles of equity to award damages for delays that Appellant effectively waived by agreeing to the change orders to the construction contract. Accordingly, the court granted the motion to vacate the award.

On appeal, the Court of Appeals affirmed the circuit court’s decision to vacate the award, but disagreed with the court’s reasoning. The Court of Appeals stated that it did not believe that the arbitrators exceeded their powers in their failure to enforce the no-damages-for-delay clause, but concluded that the circuit court possessed the authority to vacate the arbitration award pursuant to its equitable powers. The Court of Appeals declined to address the issue of sovereign immunity. We granted discretionary review and hereby reverse the decision of the Court of Appeals and reinstate the award granted by the arbitrators.

The principal issue on appeal is whether the circuit court had the power, either pursuant to KRS 417.160(l)(c) or otherwise, to vacate the arbitration award. It is [561]*561our view that the circuit court had no such power in this case.

KRS 417.160(l)(e) provides that an arbitration award shall be vacated by a court when “[t]he arbitrators exceed[] their powers.” As previously mentioned, the Court of Appeals did not believe that the arbitrators exceeded their powers in their failure to enforce the no-damages-for-delay clause. In support of that belief, the Court of Appeals stated:

We agree with [Appellant] that the circuit court’s action exceeded its scope of review under [KRS 417.160(l)(c) ]. In determining whether the arbitrators exceeded their power, a court should look to whether the award was fairly and honestly made within the scope of the issues submitted for resolution or whether the arbitrators acted beyond the material terms of the contract. See, e.g., Tackett v. Campbell Corp., Ky.App., 781 S.W.2d 758 (1989). In reviewing whether an arbitrator exceeded his powers, a court should not review the merits of the award, only whether the issues were submitted and covered by the contract. Laslo [Laszlo] N. Tauber, M.D. & Assoc.'s v. Trammel Crow Real Estate Services, Inc., 738 A.2d 1214 (D.C.1999); Arnold v. Morgan Keegan & Co., Inc., 914 S.W.2d 445 (Tenn.1996).
The contract between the parties provided for arbitration of disputes related to the contract and judgment on arbitration awards stating as follows:
4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof except controversies or claims relating to aesthetic effect and except those waived as provided for in Sub-paragraph 4.3.5.
4.5.7 Judgment on Final Award. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction thereof.
The applicability of the no-damages-for-delay clause and the change orders was squarely presented to the arbitrators. They heard evidence on exceptions to the enforceability of the clause and rendered a decision based on the evidence. We disagree with the circuit court’s view that the arbitrators exceeded them powers by failing to enforce the no-damages-for-delay clause.

3D Enterprises Contracting Corp. v. Lexington-Fayette Urban County Gov’t, Ky. App., No.1999-CA-2945-MR, Slip Op.

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Bluebook (online)
134 S.W.3d 558, 2004 Ky. LEXIS 109, 2004 WL 1123530, Counsel Stack Legal Research, https://law.counselstack.com/opinion/3d-enterprises-contracting-corp-v-lexington-fayette-urban-county-ky-2004.