Vanhook Enterprises, Inc. v. Kay & Kay Contracting, LLC

• Court: Kentucky Supreme Court
• Decided: April 11, 2018
• Docket: 2016-SC-0666
• Status: Published

Opinion

RE,NDERED: MARCH 22, 2018 TO BE PUBLISHED

cSuprmut filnurl ·nf IftfFlf}ftlaj] ~ [L 2016-SC-000666-DG IQ)~11 ~'f}12/Jg ~IM ~IM"t1 ,De VANHOOK ENTERPRISES, INC. APPELLANT

ON REVIEW FROM COURT OF APPEALS v. CASE NO.- 2015-CA-001977-MR PULASKI CIRCUIT COURT NO. 1~-CI-.00922

KAY & KAY CONTRACTING, LLC APPELLEE

OPINION OF THE COURT BY JUSTICE CUNNINGHAM

REVERSING AND REINSTATIN.G

The United States Small Business Administra,tion ("SBA") regulates the

Historically Underutilized Business Zone ("HUBZone") Program. 15 U.S.C. §

657a. Through the HUBZone program, the SBA provides contracting

assistance to small businesses seeking federal government contracts. To

qualify as a HUBZone-eligible contractor, one must be a small business within

an economically distressed area. Id.

In 2010, the U.S. Army Corps of Engineers sought bids from HUBZone-

eligible contractors to replace the Cumberland Bridge Street Bridge over the

Poor Fork of the Cumberland River in Cumberland, Kentucky. The HUBZone

contract price was $1,029,394.20 .. Kay & Kay Contracting, LLC ("Kay & Kay"), a large construction firm in London, was ~nterested in the construction job, but

was not a HUBZone-:eligible business.

Accordingly, Kay & Kay negotiated with Vanhook Enterprises, Inc.

("Vanhook"), a HµBZone-eligible contractor in Somerset, and entered into a

series of agreements with Vanhook whereby Vanhook would apply for the

HUBZone: contract. Vanhook would receive th~ HUBZone contract pripe from

the federal government, which it would then split with Kay & Kay as a

subcontractor working on the HUBZone project. On July 7, 2010, this

. relationship culminated in the so-called Team Agreement between the parties,

whereby Vanhook.agreed to serve as the prime contractor for the HUBZone . ' contract. \

On January 13, 2011, Vanhook and Kay & Kay entered into the so-called

Subcontract Agreement, .which outlined services that Kay & Kay was to perform

as a ~ubcontractor under the HUBZone project. The Subcontract Agreement

stated that Vanhool,c would pay Kay & Kay $37,500 for ."Mobilization" and . a $410,000 lump sum for "All Materials, Labor, Equipment[,] and applicable

truces for the construction of the Bridge Str~et Bridge."

Later in 2011, during construction, the parties entered into a subsequent

. written agreement whereby Vanhook rented equipment and an equipment

operator from Kay & Kay for an additional $12,300. This agreement was

expressly excluded from the Subcontract Agreement. See Subcontract

}\greement, Exhibit A ("The lump-:sum item shall include all costs associated

2 with the construction of the bridge that are -not othenvise identified as being

paid separately." (emphasis added)).

After completion of the bridge, Vanhook remitted an undisputed

$459,790.04 to Kay & Kay under.the Subcontract Agreement and subsequent

written a~reement: $37,500 for "Mobilization," the $410,000 lump sum, and

$12,300 for the additional equipment rental and operator contract. On

December 8, 2011, Kay & Kay Vice President Ron Pfaff executed a writing titled

"Affidavit and Waiver of Lien, Acknowledgement of Full and Final Payment."

Therein, Pfaff swore that Kay & Kay had been fully compensated for materials

provided and ser\rices performed under the Subcontract Agreement by "full and

final payment due including any applicable retainage." However, despite its

letter, Kay & Kay continued to ·seek additional payment from Vanhook.

In the summer of 2013, Kay & Kay sued Vanhook for breach of contract

and quantum_meruit in the alternative, asserting that the parties had entered·

into a separate agreement after the Team Agreement, but before the

Subcontract Agreement-the so-called Prime Agreement ... Under that alleged - - agreement, Kay & Kay claimed that Vanhook was obligated to pay greater than

the lump-sum· price. Kay & Kay claimed it performed 76% of total work under

the 43~bid item project-$785,814.16 of the $1,029,394.20 HUBZone contract

price-and, th1:1s~ performed $~26,024.12 worth of work outside of the

Subcontract Agreement's contract price. Kay & Kay maintained that the i expenses it incurred in excess of the $410,000 lump sum were for services it

performed outside of the scope of the Subcontract Agreement, and thereby

3 \

unjustly enriched Vanhook by rendering those services without adequate

, compensation.

Vanhook responded that no such Prime Agreement existed, and, even if it

did, that the- Subcontract Agreement superseded aH prior agreements and

. negotiations be~een the parties. Therefore, Vanhook moved for judgment on

the pleadings. CR 12.03. The Pulaski Circuit Court found the Subcontract

. 1 A~eement to-be a complete integration of the dealings between Vanhook and

Kay & Kay regarding the ~ridge Street Bridge project. Accordingly, the Pulaski· (

Circuit Court held that the alleged "additional work" was included within a ,/

plain, ordinary reading of Exhibit A of the Subcontract Agreement as "any 9ther

ancillary items required to provide _a complete bridge structure."

On appeal, the Kentucky Court of Appeals affirmed the trial court's

finding that the Subcoritract Agreement was an integration. H9wever, the

Court of Appeals held that it was unclear whether Kay &·Kay's "additional

work" fell within the "any other ancillary items" language of the contract. In )

other words, it was unc_lear whether the Subcontract Agreement was a full

integration or a partial integration. The Court of Appeals declared that whether

the "additional work" Kay & Kay allegedly performed was covered by the

Subcontract Agreement was an issue of fact for the jury. Vanhook appealed to

this Court, .and we granted discretionary review.

Analysis

Interpretation of a written contract is a matter of law to be decided by the

trial court. 3D Enters. Contracting Corp. v. Louisville & Jefferson Cnty. Metro. '.

4 Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005). The Pulaski Circuit Court·

granted Vanhook's motion for judgment on the pleadings, which "should be

granted if it appears beyond doubt that the nonmoving party cannot prove any

set of facts that would entitle [that party] to relief." Schultz v. Gen. Elec.

Healthcare Fin. Svcs., Inc., 360 S.W.3d 171, 176 (Ky. 2012) (internal citation ' omitted). A motion for judgment on the pleadings is treated akin to a motion . r '

"for summary judgment[,] and [is] disposed of in that manner."· Hoke v .

.Cullinan, 914 S.W.2d 335, 338 (Ky. 1995).

_"Appellate review of a summary judgment involves only legal questions

and a ·determination of whether a disputed material issue of fact exists, So we ·

operate under a de novo standard of review with no need to defer to the trial

c~ilrt's decisiOn." Shelton v. Kentucky Easter Seals Soc'y, Inc., 413 S.W.3d 901,

905 (Ky: 20.13) Jinternal citations omitted). "The interpretation of a contract, ·

including determining whether a contract is ambiguous, is a question of law to

be determined de novo on appellate review." Kentucky Shakespeare Festival,

Inc. v. Dunaway; 490 S.W.3d 691, 695 (Ky .. 2016) (internal citation omitted).

Parol Evidence Rule

·Within contract law, the parol evidence rule is a substantive rule that

regulate.s the admissibility of written or oral evidence introduced to vary a

written contract. Under the parol evidence rule, an unambiguous writing )

intended by the parties to be a full .and final manifestation of their agreement

cannot be supplemented, contradicted, or modified by evidence of prior written

5 or oral agreements. Childers & Venters, Inc. v. SC?wards, 460 S.W-:2d 343, 345 -'

(Ky. 1970).

Initially, we must determine whether the writing constituted a final

expression. of the agreement between the parties at the time it was adopted.

First, we ask whether the contested writing was intended to be the final

manifestation of their agreement, a preliminary draft, or merely a step in

negotiations like a letter of intent? And, if a m~ifestation of intent exists, was

it a complete integration of th~ entire deal or only a partial integration?

As a matter of law, a document which on its face appears to be a

complete integration is a complete integration. See, e.g., Kentucky

Shakespeare Festival, 490 S.W.3d at 695 (quoting 3D Enters.' Contracting Corp.,

174 S.W.3d at 448) ("When no ambiguity exists in the contract, we look only as

far as the four corners of the document to determine the parties' intentions.").

Here, the merger clause at Paragraph XXV of the Subcontract Agreement

categorically states that the parties intended the Subcontract Agreement to

"represent[] the entire and integrated agreement between the Contractor and

Subcontractor and supercedes [sic] all prior negotiations, representations, or

agreements, either written or oral ..... " (emphasis added).

· Kay & Kay contends that the Subcontract Agreement was only a partial

· integration as to Mobilization and· Bridge Street Bridge Construction-bid items

1 and 10 of the 43-item bid list from the Army Corps of Engineers-and that

the other work it provided was outside of the scope of those two items.

However, contrary to Kay & Kay's argument, Paragraph III of the Subcontract Agreement states that the Su~contract includes, among other documents: the

Subcontract Agreement; the prime contract between Vanhook and the Army ' .

Corps of Engineers; and any other documents specifically incorporate.d by

reference. Thus, by its own terms, the Subcontract Agreement is a full

integration of Vanhook and Kay & Kay's contract for Kay & Kay's

subc01;1tracting work on the Bridge Street Bridge .. . . Because the merger clause states that the parties intended the

Subcontract Agreement to be a complete integration, to embody the "entire

integrated agreement" between Vanhook and Kay & Kay which supersedes all

· .prior agreements, _any evidence of a prior written or oral agreement is

inadmissible to vary its terms. Therefore, the, trial court properly found'that

any evidence of the alleged Prime Agreement was inadmissible to vary the

Subcontract Agreement's terms .

.Quantum M'eruit

Where there is no valid contract, an action for quantum meruit may

provide the aggrieved party the equitable remedy of restitution. Restitution is

intended to return the value of the benefit conferred to the aggrieved party

when the other party is unjustly enriched at the expense of the aggrieved. l . .

Hughes & Coleman, PLLC v. Chambers, 526 S..W.3d 70, 74-75 (Ky. 2017).

Here, the Subcontract Agreement incorporated the prime contract

between Vanhook and the Army Corps of Engineers by reference in Paragraph

III B. The prime contract included a list of 43 bid items for goods and services

under the HUBZone contract that Vanhook promised to provide or perform.

7 Exhibit A of the Subcontract Agreer,nent specifically addressed t:Wo of those bid

items that Vanhook subcontracted to Kay & Kay: mobiliza~ibn and co:r;istruction ' of the Bridge Street Bridge. Most notably, the bridge construction item

includes a catch-all which states that Kay & Kay is to perform "any other

ancillary items required to provide a complete bridge structure."

Kay & Kay argues it is entitled to restitution. for the costs it incurred

above the Subcontract Agreement's contract price, because Kay & Kay

performed more than just bid items 1 and 10 to provide the complete bridge

structure. However, that argument is contrary to the plain meaning of the

Subcontract Agreement. As Kay & K~.y. has stated, it seeks restitution for the

excess costs it incurred in building the bridge. Those costs fall within the

terms of the contract as "any other ancillary item [of the 43-item list] required"

. to finish the bridge, and "a written instrument will be strictly enforced

according to its terms." Mounts v. Roberts,, 388 S.W.2d 117, 119 (Ky. 1965).

· Thus, the Subcontract Agreeme~t covers the subject matter of the alleged

"additional work" performed by Kay & Kay. Consequently, the Prime

Agreement, if it existed ~t all, was merely a chain in the negotiations that led to

the final manifestation of the deal embodied in the Subcontract Agreement. A

valid written contract exists for construction of the Bridge Street Bridge, and

"there can be no implied coritract or presumed agreement where there is an

express one between the parties in reference to the same subject matter." Fruit

Growers Express Co. v. Citizens Ice & Fuel Co., 112 S.W.2d 54, 56 (Ky. 1937).

Therefore, Kay & Kay is not entitled to relief under a quantum meruit theory.

8 Conclusion

For the forgoing r~asons, we hereby reverse the Court of Appeals and

reinstate the Pulaski Circuit Court's judgment consistent with this opinion.

All sitting. Hughes, Keller, Venters, and Wright, JJ., concur. Minton,

C.J., concurs by separate opinion in which VanMeter, J.,joins.

MINTON, C.J., CONCURRING: The majorit)'.' provides a well-written

con~ract-law analysis of the issues presented in this case, with which I fully

concur. But I write separately to emphasize that this case can be decided on a

principle that this state has rec~gnized for almost 100 years, "that any conduct

or contract of an illegal, vicious, or immoral nature cannot be the basis of a

legal or equitable proceeding .... "1

As the majority recognizes, the contract between Vanhook and Kay & Kay

is subject to the rules and regulations of the HUBZone Program. Two I

regulations, 13 C.F.R. § 126~700 and 13 C.F.R. § 125.6, are of particular

relevance in this case.2

i Robenson v. Yann, 5 S.W.2d 271, 274 (Ky. 1928); see also McMullen v. Hoffman, 174 U.S. 639, 662 (1899) ("It is no part of a court of justice to aid either in carrying out an illegal contract, or in dividing the proceeds arising from an illegal contract between the ·parties to that illega!_contract. "). 2 We note that, as the majority points out, the written agreements between the parties arose between 2010 and 2011, so we located the particular versions of these regulations applicable to this case. When we refer to these regulations, we are referring to the version of 13 C.F.R. § 126. 700 promulgated on June 17, 2005, and taking effect on August 30, 2005, and of 13 C.F.R. § 125.6 promulgated on October 1, 2008, and taking effect on October 31, 2008.13 C.F.R. § 126.700, 70 FR 51243-01, 2005 WL 2071548 (August 30, 2005); 13 C.F.R. § 125.6, 73 FR 56940-01, 2008 WL. 4410591 (October 31, 2008). For the language of relevance regarding 13 C.F.R. § 125.6, see 69 FR 29411-01, 2004 WL 1143809 (June 23, 2004).

9 /

The applicable version of 13 C.F.R. § 126.700, promulgated under the

authority given by Congress to the Small Business Administration under 15 l

U.S.C. § 657a, is entitled "What are the performance of work requirements for.

HUBZone contracts?" 13 C.F.R. § 126.700(a) states, "A prime contractor .

rec:;eiving an award as a qualified HUBZone SBC must meet the performance of

work requirements set forth in§ ·12s·.6 of this chapter." 13 C.F.R. § 125.6, in ' turn; is entitled, "Prime contractor performance requirements (limitations on

subcontracting)." A list of threshold cost percentages that a subcontractor can

receive and not violate HUBZone law appears in 13 C.F.R. 125.6(c).· And 1"3

C.F.R. 126.700(b) provides a list of those threshold cost percentages.

We do rtot know exactly how the facts of this case square with these

federal rules and regulations. But both parties concede that if the parties drew .. the contract to provide Kay & Kay with the money it assert~ in its quantum

meruit claim today, it would violate federal law, i.e. the HUBZone statutes and

regulations, which provide certain· contract amounts that a non-HUBZone-

·qualifying subcontractor can contract for without violation. Even if the parties

did not concede this point, their actions speak for themselves.

Kay & Kay and Vanhook framed their relationship in this case so as ~ot

to violate federal law-their Team Agree±nent was drawn up to avoid such an \

issue. Nqw, Kay & Kay assert_s that Vanhook owes it more money, the giving of

which would fly in the face of their constructed relationship because it would

allow Kay & Kay to do the very thing federal law prevents-awarding a non-

HUBZone-qualifying entity more of the contract price than federal law allows.

10 .,

Kay & Kay attempts to justify its position by asserting its claim under a _

_quantum~meruit theory instead of a breach-of-contract theory, positing that

rec~iving money under a quantum-mer'uit theory would not violate federal law

. because receipt of this money arose from equity rather than contract ~aw. The

fact that Kay & Kay did not pursue a breach-of-contract claim essentially . . I

amounts to an admission that it cannot pursue a breach-of-contract claim in '\ this case because such claim would acknowledge that an illegal contract exists,

meaning a contract that awards Kay & Kay more money than w~at federal law

allows.

Equity cannot be a vehicle to make illegal conduct legal. Kay & Kay

cannot pursue a quantum-meruit claim to recover damages, the receipt of

which would violate the law. ·

Because Kay & Kay is attempting to recover damages, the receipt of

which would violate federal law, I would reverse the Court of Appeals and

reinstate the trial court's decision.

VanMeter, J., joins.

COUNSEL FOR APPELLANT:

Larry F. Sword SWORD & BROYLES

COUNSEL FORAPPELLEE:

Darren J. Dueyk

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