Consultants & Builders, Inc. v. Paducah Federal Credit Union

266 S.W.3d 837, 2008 Ky. App. LEXIS 295, 2008 WL 4270785
CourtCourt of Appeals of Kentucky
DecidedSeptember 19, 2008
Docket2007-CA-001874-MR
StatusPublished

This text of 266 S.W.3d 837 (Consultants & Builders, Inc. v. Paducah Federal Credit Union) is published on Counsel Stack Legal Research, covering Court of Appeals of Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Consultants & Builders, Inc. v. Paducah Federal Credit Union, 266 S.W.3d 837, 2008 Ky. App. LEXIS 295, 2008 WL 4270785 (Ky. Ct. App. 2008).

Opinion

OPINION

VANMETER, Judge.

Consultants & Builders, Inc. (CBI) appeals from orders entered by the McCracken Circuit Court relating to the arbitration provisions of a terminated construction agreement between CBI and ap-pellee Paducah Federal Credit Union (PFCU). More specifically, CBI asserts that the trial court erred by granting the temporary injunctive relief requested by PFCU and restraining CBI from proceeding with arbitration, and by denying CBI’s motion to compel arbitration. For the reasons stated hereafter, we reverse the trial court’s orders, and we remand this matter for the entry of an order dissolving the injunction and compelling arbitration.

The parties entered into a contract for the design and construction of a credit union facility in Paducah, and CBI performed engineering and design activities. A dispute arose over the cost, and PFCU elected not to proceed with the project. Thereafter, PFCU refused to pay the $57,000 which CBI billed for its design services.

After PFCU denied CBI’s request for mediation of the dispute, CBI filed a demand for arbitration with the American Arbitration Association (AAA), pursuant to the terms of the parties’ contract. On July 20, 2007, the AAA found that CBI had met the applicable arbitration filing re *839 quirements, that arbitration matters would proceed absent the parties’ agreement or a court stay of the proceedings, and that by July 27 the parties should advise AAA of their preferences as to hearing locations. PFCU failed to timely state any hearing location preference, and the AAA determined that the arbitration hearing would be conducted in Atlanta. In response, PFCU filed the underlying complaint on June 28, alleging that the contract was void as fraudulently induced or materially breached, and seeking temporary injunc-tive relief. The circuit court ordered a stay of the arbitration proceedings on August 21, and on August 24, 2007, the court denied CBI’s motion to dismiss or compel arbitration. This appeal from both orders followed pursuant to KRS 417.220(l)(a).

As the trial court made no findings of fact but instead evidently based its ruling on the application of contract law to the arbitration clause, our review is de novo. Conseco Fin. Serv. Corp. v. Wilder, 47 S.W.3d 335, 340 (Ky.App.2001). For purposes of our review the relevant portions of Kentucky’s Uniform Arbitration Act, as set out in KRS Chapter 417, are “nearly identical to those of’ the Federal Arbitration Act. Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850, 854 (Ky.2004). Thus, it is unnecessary to determine in this proceeding whether state or federal law is applicable to the arbitration of the parties’ contract, as “[t]he outcome is the same under both” state and federal arbitration law. Id. at 857.

Contractual agreements to resolve disputes by arbitration are addressed by KRS 417.050, which provides in pertinent part:

A written agreement to submit any existing controversy to arbitration or a provision in written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.

Moreover, KRS 417.060(1) provides:

On application of a party showing an agreement described in KRS 417.050, and the opposing party’s refusal to arbitrate, the court shall order the parties to proceed with arbitration. If the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised. The court shall order arbitration if found for the moving party; otherwise, the application shall be denied.

Contractual arbitration agreements are subject to the rules of contract law, including the fundamental rule that “absent fraud in the inducement, a written agreement duly executed by the party to be held, who had an opportunity to read it, will be enforced according to its terms.” Conseco, 47 S.W.3d at 341. Further, the doctrine of unconscionability, which “has developed as a narrow exception to this fundamental rule[,]” is “directed against one-sided, oppressive and unfairly surprising contracts, and not against the consequences per se of uneven bargaining power or even a simple old-fashioned bad bargain.” Id. at 341.

More recently, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, 126 S.Ct. 1204, 1208, 163 L.Ed.2d 1038 (2006), the United States Supreme Court addressed legal or equitable “[cjhallenges to the validity of arbitration agreements!,]” and divided such challenges into two categories:

One type challenges specifically the validity of the agreement to arbitrate.... The other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or *840 on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.

The Court concluded that three propositions apply to the issue of whether a challenge to an arbitration provision should be resolved by a court or by an arbitrator:

First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts.

546 U.S. at 445-46, 126 S.Ct. at 1209. See also Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). So that no misunderstanding would result, the Supreme Court reaffirmed that “regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” 546 U.S. at 449, 126 S.Ct. at 1210.

The holding in Buckeye is consistent with the Kentucky Supreme Court’s earlier holding in Peterbilt

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Related

Prima Paint Corp. v. Flood & Conklin Mfg. Co.
388 U.S. 395 (Supreme Court, 1967)
Southland Corp. v. Keating
465 U.S. 1 (Supreme Court, 1984)
Buckeye Check Cashing, Inc. v. Cardegna
546 U.S. 440 (Supreme Court, 2006)
Louisville Peterbilt, Inc. v. Cox
132 S.W.3d 850 (Kentucky Supreme Court, 2004)
Artrip v. Samons Construction Inc.
54 S.W.3d 169 (Court of Appeals of Kentucky, 2001)
Conseco Finance Servicing Corp. v. Wilder
47 S.W.3d 335 (Court of Appeals of Kentucky, 2001)

Cite This Page — Counsel Stack

Bluebook (online)
266 S.W.3d 837, 2008 Ky. App. LEXIS 295, 2008 WL 4270785, Counsel Stack Legal Research, https://law.counselstack.com/opinion/consultants-builders-inc-v-paducah-federal-credit-union-kyctapp-2008.