RENDERED: JULY 22, 2011; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
BOSKOVICH FARMS, INC.
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE MITCHELL PERRY, JUDGE
ACTION NO. 09-CI-008505
TACO BELL CORP.
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BEFORE: ACREE AND STUMBO, JUDGES; LAMBERT,1 CHIEF SENIOR
STUMBO, JUDGE: Boskovich Farms is appealing from an order of the Jefferson
Circuit Court, which denied its motion to vacate an arbitration award. Boskovich
argues that its claims against Taco Bell do not fall within the scope of the
arbitration agreement. In the alternative, Boskovich argues that even if the
Chief Senior Judge Joseph E. Lambert sitting as Special Judge by assignment of the Chief
Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised
Statutes (KRS) 21.580.
arbitration clause applies, the award should still be set aside because there was no
meaningful hearing on the issues as required by statute. Taco Bell argues that the
claims asserted by Boskovich are within the scope of the arbitration clause and that
the arbitration panel did in fact conduct a hearing. We find in favor of Taco Bell
The parties have for several years been in a mutually beneficial
arrangement, the terms of which are outlined in a Supplier Business Relationship
Agreement (“SBRA”). Boskovich supplied produce, including green onions and
cilantro, to Taco Bell’s restaurants throughout the United States. The SBRA
contained provisions governing the resolution of disputes arising out of or relating
to the agreement. This included that all disputes “arising out of or relating to” the
SBRA will be resolved by mediation and arbitration. It was also specified that any
proceedings would take place in Louisville, Kentucky and in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (“AAA”).
In December of 2006, an E. coli outbreak was tied to a number of
Taco Bell restaurants. After samples of green onions tested presumptively positive
for E. coli, Taco Bell removed green onions from its menus. Both Taco Bell and
Boskovich issued press statements regarding the outbreak. Only Boskovich’s press
release identified it as the supplier of Taco Bell’s green onions. Taco Bell later
permanently eliminated green onions from its menu and ceased purchasing green
onions from Boskovich.
Boskovich filed suit against Taco Bell in the Superior Court of the
State of California in March of 2007. Boskovich claimed that Taco Bell knew
Boskovich’s onions were not the cause of the outbreak, even though it continued to
make statements to the contrary. Boskovich brought suit alleging libel, trade libel,
slander, false light, negligence, intentional interference with prospective economic
advantage, negligent interference with prospective economic advantage, and
intentional interference with contractual relations. In essence, Boskovich claims
that Taco Bell intentionally or negligently made false statements about its onions,
thereby causing the company damage. Taco Bell filed a motion to compel
arbitration, which the court granted.
Boskovich then filed an arbitration claim in Kentucky asserting the
same causes of action. Taco Bell filed a counter-demand for arbitration alleging
that it should be entitled to recoup the attorney fees and costs associated with the
California action because it was unnecessary and contrary to the SBRA’s
arbitration agreement. Both parties moved for summary judgment. A hearing was
held on the motions and both were granted. This dismissed Boskovich’s complaint
and Taco Bell’s claim for attorney fees.
Taco Bell then filed a motion to enforce the arbitration award.
Boskovich then moved to vacate the arbitration award arguing that the tort claims
were not within the scope of the arbitration provisions of the SBRA, that the
arbitration provision is unconscionable, and that it was prejudiced when it was not
afforded a full arbitration hearing as required by statute.
The Jefferson Circuit Court refused to vacate the award. It found, like
the California Superior Court, that the claims asserted by Boskovich are
encompassed by the SBRA. It also found that the provision was not
unconscionable and that the parties sufficiently pled their claims before the
arbitration panel. This appeal followed.
A court can only vacate an award pursuant to the grounds set forth by
statute. KRS 417.160(1) states:
Upon application of a party, the court shall vacate an
(a) The award was procured by corruption, fraud or other
(b) There was evident partiality by an arbitrator
appointed as a neutral or corruption in any of the
arbitrators or misconduct prejudicing the rights of any
(c) The arbitrators exceeded their powers;
(d) The arbitrators refused to postpone the hearing upon
sufficient cause being shown therefor or refused to hear
evidence material to the controversy or otherwise so
conducted the hearing, contrary to the provisions of KRS
417.090, as to prejudice substantially the rights of a
(e) There was no arbitration agreement and the issue was
not adversely determined in proceedings under KRS
417.060 and the party did not participate in the
arbitration hearing without raising the objection; but the
fact that the relief was such that it could not or would not
be granted by a court is not ground for vacating or
refusing to confirm the award.
Boskovich argues that the arbitration award should be vacated
pursuant to KRS 417.160(1)(c) and (d). Boskovich first argues that the arbitrators
exceeded their powers when they acted beyond the scope of the SBRA. Boskovich
claims that its tort claims do not fall within the scope of the SBRA arbitration
provision. We disagree.
We will first note that the general rule in Kentucky is that the “law
favors arbitration agreements.” Mortgage Electronic Registration Systems, Inc. v.
Abner, 260 S.W.3d 351, 353 (Ky. App. 2008). “Further, whenever an arbitration
agreement exists . . . ‘any doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration.’” Hill v. Hilliard, 945 S.W.2d 948, 951 (Ky.
App. 1996)(quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)). Here, Boskovich
argues it can prove all of its tort claims without reference to the SBRA; therefore,
its claims do not arise from or relate to the agreement. Taco Bell argues that the
SBRA is the only thing that can show a connection between Taco Bell and
We find that arbitration was proper in this instance. To show any
contractual relationship between these two companies, the SBRA will have to be
discussed and referenced. The green onions allegedly caused the E. coli outbreak.
Boskovich released press statements saying it was the supplier of the green onions.
Taco Bell released statements saying the green onions tested positive for E. coli.
Ultimately, everything revolves around the green onions and the SBRA concerns
the green onions. Further, the SBRA had specific provisions addressing the
breadth of the agreement, duties in the event of a product recall and limitations on
available damages under the agreement. The panel found that these provisions
were clear and unambiguous. The arbitration panel did not exceed its powers by
determining the issues of this case.
Boskovich next argues that by deciding the case on a motion for
summary judgment, the panel failed to conduct a hearing as required by statute.
KRS 417.090 states that the parties are entitled to a hearing in which they can
present evidence and cross-examine witnesses. KRS 417.160(1)(d) states that an
arbitration award can be vacated when the arbitration panel refuses to hear
evidence or conduct a hearing pursuant to KRS 417.090. Boskovich claims that
there was no hearing, that the arbitration panel failed to hear evidence, and did not
allow any cross-examination. We disagree.
First, Boskovich also submitted a motion for summary judgment,
which was granted in its favor. It cannot now claim that an arbitration panel
cannot determine issues via summary judgment. Second, there was a hearing in
this case. The panel held a hearing on the motions for summary judgment where
the parties submitted briefs prior to the hearing. Also, the hearing lasted around
two hours and consisted of oral arguments with questions being asked by members
of the panel. It is also evident from the transcript of the hearing that the arbitration
panel had before it evidence, depositions, and expert testimony provided by
discovery. Further, arbitrable issues can be determined by summary judgment.
See McClellan v. Service Corp. Intern., 2010 WL 476005 (Ky. App. 2010).
According to the AAA rules, which both parties agreed to abide by, dispositive
motions can be filed. Id. Finally, KRS 417.160(1)(d) states that Boskovich’s
rights have to be substantially prejudiced by the lack of a hearing for the award to
be vacated. As stated, there was a hearing with oral arguments and the arbitrators
had other evidence before them. This hearing did not substantially prejudice
Boskovich’s rights. Under these circumstances, both parties sufficiently pled their
claims to the arbitration panel.
Boskovich also argues that a section of the SBRA dealing with
damages is unconscionable. Because we have found that this case was properly
arbitrated, the summary judgment in favor of Taco Bell must stand. “[A]n
arbitrator’s resolution of factual disputes and his application of the law are not
subject to review by the courts.” Conagra Poultry Co. v. Grissom Transp., Inc.,
186 S.W.3d 243 (Ky. App. 2006). This means any issue concerning damages is
Based on the above, we affirm the opinion and order of the trial court.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Matthew F. Coogle
Amber D. Nicely
Charles J. Cronan IV
Clark C. Johnson