M.J. ANDERSON CORP. v. BLUEGRASS STEEL BUILDINGS, INC.; KV FLOORING, INC,; RANDLE-DAVIS CONSTRUCTION COMPANY; TILESETTERS INC.; WADE HATCHELL HEATING & COOLING, INC.; C&S MASONRY; CHARDAMILL GROUP, INC.; and CALPAGE PARTNERS
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RENDERED: January 21, 2000; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-002743-MR
M.J. ANDERSON CORP.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 98-CI-00022
v.
BLUEGRASS STEEL BUILDINGS, INC.;
KV FLOORING, INC,; RANDLE-DAVIS CONSTRUCTION
COMPANY; TILESETTERS INC.; WADE HATCHELL
HEATING & COOLING, INC.; C&S MASONRY;
CHARDAMILL GROUP, INC.; and CALPAGE PARTNERS
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
COMBS, EMBERTON, and GUIDUGLI, Judges.
COMBS, JUDGE:
M.J. Anderson Construction Corp. ("Anderson
Construction") brings this appeal from an order of the Franklin
Circuit Court denying, in part, an application to compel
arbitration.
We affirm.
This action arises from the construction of the State
Journal Building in Frankfort.
Pursuant to a written agreement
between the Appellant and Appellee Calpage Partners, Anderson
Construction was to act as general contractor for the project.
The parties agreed that a specified model document prepared by
the American Institute of Architects (the "AIA document") would
govern the interpretation and operation of the terms of the
construction contract.
That document contains an arbitration
clause, which is the subject matter of this appeal.
Appearing
under the subtitle "Controversies and Claims Subject to
Arbitration," the arbitration clause provides in part as follows:
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 Subparagraph 4.3.5.
(Emphasis added).
As general contractor, Anderson Construction entered
into subcontracts with various entities, including the remaining
Appellees.
Disputes arose among the parties and, in January
1998, Appellees Bluegrass Steel Buildings, Inc. ("Bluegrass"),
and KV Flooring, Inc. ("KV"), initiated this action against
Anderson Construction, Calpage, and the remaining subcontractors
claiming an interest in the project.
In turn, Calpage and the
remaining subcontractors asserted numerous claims and crossclaims
against Anderson Construction, all of which arose out of the
project.
Shortly after the action against it was commenced,
Anderson Construction filed a motion to stay the litigation and
to compel arbitration.
Anderson Construction argued that Calpage
was directly bound by the arbitration clause and that the clause
had been effectively incorporated by reference into the
agreements submitted to the various subcontractors, thus binding
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those parties to resolve their disputes by arbitration as well.
The trial court's Master Commissioner recommended that the motion
to compel arbitration be granted with respect to Calpage but that
it be denied with respect to the various subcontractors.
That
adoption of that recommendation by the Franklin Circuit Court has
precipitated this appeal.
The sole issue before us is whether the various
subcontractors are bound by the arbitration clause contained in
the AIA document governing the primary contract.1
It has been
said that arbitration is a "favorite of the law."
Valley Const.
Co. v. Perry Host Management Co. Inc., Ky. App., 796 S.W.2d 365,
366 (1990).
Indeed, Section 250 of the Kentucky Constitution
recognizes arbitration as a valid and viable means of deciding
differences.
Pursuant to this constitutional imprimatur, the
General Assembly has enacted our Uniform Arbitration Act,
codified at Ky. Rev. Stat. (KRS) Chapter 417.
KRS 417.050
provides, in part, as follows:
A written agreement to submit any existing controversy
to arbitration or a provision in a written contract to
submit to arbitration any controversy thereafter
arising between the partes is valid, enforceable and
irrevocable, save upon such grounds as exist at law for
the revocation of any contract . . . .
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
1
The Franklin Circuit Court determined that the agreement
between Anderson and Calpage Partners to submit their disputes to
arbitration is valid and enforceable; that determination is not
involved in this appeal.
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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.
In this case, despite Anderson Construction's arguments
to the contrary, the trial court determined that the individual
subcontractors were not bound by an agreement to arbitrate and
accordingly refused to stay the litigation.
This determination
was based upon its interpretation of the subcontracts submitted
to the Appellees.
In short, the trial court was not persuaded
that the arbitration clause contained in the AIA document had
been sufficiently incorporated into the standard subcontracts so
as to bind the various Appellees.
After our review and careful
reflection, we agree.
It is true that terms and conditions (including
arbitration provisions) incorporated into a contract by reference
to another document are valid and enforceable.
Home Lumber Co.
v. Appalachian Regional Hosp., Inc., Ky. App., 722 S.W.2d 912
(1987).
Kentucky law does not require that the language of a
contract incorporating an arbitration provision be stated in bold
type or unusual form.
Id.
Neither is it mandated that a
contract use any specific language — such as the term,
"incorporated by reference."
Id.
However, it is also true that
there is no duty to arbitrate unless one has agreed to do so in
clear, unambiguous language.
4 Am.Jur.2d Alternative Dispute
Resolution § 70 (1995).
The clause upon which Anderson Construction relies as
incorporating the arbitration provision of the AIA document is
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contained in the indemnification clause of the subcontracts,
which provides as follows:
INDEMNIFICATION. SUBCONTRACTOR agrees to be bound by
all of the terms and conditions of the Agreement
between [Anderson] and the Owner [Calpage] and assumes
toward [Anderson], all of the obligations and
responsibilities for the work that [Anderson] assumed
toward the Owner. SUBCONTRACTOR shall indemnify and
defend and save harmless Owner and [Anderson], and
their employees and authorized representatives from and
against any and all suits, actions, legal or
administrative proceedings, claims, debts, demand,
damages, incidental and consequential damages,
liabilities, interest, attorney's fees, costs and
expenses of whatsoever kind or nature, whether arising
before or after completion of the Work, which are in
any manner directly or indirectly caused, occasioned or
contributed to in whole or in part, through any act,
omission, fault or negligence whether active or passive
of SUBCONTRACTOR, or anyone acting under its direction,
control, or on its behalf in connection with or
incident to the work, even though the same may have
resulted from the joint, concurring, or contributory
negligence, whether active or passive, of [Anderson],
Owner or any other person or person, unless the same be
caused by the sole negligence or willful misconduct of
the party indemnified or held harmless. Without
limiting the generality of the foregoing, the same
shall include injury or death to any person or persons
and damage to any property, regardless of where
located, including property of Owner and [Anderson].
This court has been asked to determine whether the
incorporation of an arbitration provision has been properly
effectuated in Home Lumber, supra.
In that case, we relied upon
the analysis found in Bartelt Aviation v. Dry Lake Coal Co., Ky.
App., 682 S.W.2d 796 (1985), and similar case law addressed in
Stipanowich, Arbitration, 74 K.L.J. 319 (1985-86).
Citing
Stipanowich, we held that:
Where the reference to the arbitration clause and other
terms and conditions is in clear type, and in plain and
direct language commits the other party to their
acceptance, the arbitration clause becomes an integral
part of the agreement. On the other hand, where no
mention of the clause, or of terms and conditions
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generally, is included in the language that precedes
the signature, the clause will be held unenforceable.
The usual test is whether a reasonable person would
have been aware of the clause under the circumstances .
. . .
722 S.W.2d at 915.
In the indemnification provision at issue in the
present case, the subcontractors agreed to be bound to the same
indemnification protection that Anderson Construction gave to
Calpage Partners under their construction agreement.
There is no
mention of dispute resolution or arbitration in that
indemnification clause.
However, the issue of dispute resolution
is specifically addressed in a separate clause of the
subcontracts.
That clause, entitled "DISPUTES," provides in
pertinent part:
If either party to this subcontract is forced to submit
a dispute hereafter to a court of law, or is forced to
seek the assistance of a court of law to enforce his
rights hereunder, then the prevailing party in such
litigation shall be entitled to recover the costs of
such litigation, including a reasonable attorney's fee,
from the other party. It is hereby agreed that this
subcontract was negotiated in Jefferson County,
Kentucky and that proper venue is in Jefferson County,
Kentucky and SUBCONTRACTOR agrees to waive all rights
to a trial by jury.
In our view, the clear language of the subcontracts
explicitly contemplates and provides that the parties are to
resolve disputes arising out of the subcontract in a court of law
and not through arbitration proceedings.
The language contains
an express waiver of the right to a jury trial and even provides
for venue.
Reviewing it in its totality, we find that the
subcontract does not commit the individual subcontractors in the
requisite plain and direct language to an acceptance of the
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arbitration clause contained in the AIA document.
As a result,
we cannot conclude that the trial court erred by denying the
application to compel arbitration.
We therefore affirm the order of the Franklin Circuit
Court.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES BLUEGRASS
STEEL BUILDINGS, INC. AND KV
FLOORING, INC.:
Bradford L. Cowgill
William Craig Robertson III
Lexington, KY
David B. Blandford
H. Edwin Bornstein
Louisville, KY
BRIEF FOR APPELLEE RANDLEDAVIS CONSTRUCTION COMPANY:
William M. Johnson
Frankfort, KY
BRIEF FOR APPELLEE
TILESETTERS, INC.:
Stewart C. Burch
Frankfort, KY
BRIEF FOR APPELLEE WADE
HATCHELL HEATING & COOLING,
INC.:
Ray Edelman
Lawrenceburg, KY
BRIEF FOR APPELLEE CHARDAMILL
GROUP, INC.:
R. Terry Bennett
Troy A. McPeak
Radcliff, KY
BRIEF FOR APPELLEE CALPAGE
PARTNERS:
Charles E. Jones
Frankfort, KY
Thomas R. Lucchesi
Cleveland, OH
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