ALLY CAT, LLC (D/B/A KIDZLIFE PEDIATRICS) ET AL. V. HON. A.C. MCKAY CHAUVIN REVERSING AND REMANDING
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2008-SC-000377-NIR
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ALLY CAT, LLC (D/B/A KIDZLIFE PEDIATRICS), ET AL
V.
APPELLANTS
ON APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE A .C. MCKAY CHAUVIN, JUDGE
NO . 07-CI-009678
HON A .C . MCKAY CHAUVIN (JUDGE, JEFFERSON
CIRCUIT COURT, DIVISION 8), ET AL
APPELLEES
OPINION OF THE COURT BY JUSTICE VENTERS
Reversing and Remanding
Appellants, Ally Cat, LLC, a/ k/ a KidzLife Pediatrics, and Dr. Stephanie
Russell, appeal as a matter of right from an April 2008 order of the Court of
Appeals denying them intermediate relief against an opinion and order by
Appellee, Judge A.C . McKay Chauvin of the Jefferson Circuit Court . Appellee's
order mandated that Appellants enter into an arbitration proceeding with the
Real Parties in Interest, N .C . Legacy, LLC ("NC Legacy"), Legacy Homes, Mark
Isaacs, and Council of Co-Owners of Norton Commons Legacy Seniors
Residences ("the Council") . For the reasons set forth herein, we now reverse
the Court of Appeals.
On December S, 2006, Ally Cat, LLC, purchased a condominium unit
("the Unit") from NC Legacy for use as a medical clinic . NC Legacy is owned by
Isaacs . Dr. Russell, as the sole member of Ally Cat, LLC, signed all of the
paperwork, including the deed . Neither the deed nor the sales contract
preceding it contained a clause requiring arbitration of any disputes relating to
the Unit. As a condition of purchasing the Unit, Appellants became members
of the Council . The Council is an association comprised of all of the
condominium owners in the Unit's building. Isaacs is the president of the
Council.
The following day, December 6, 2006, Dr. Russell received a document
entitled "Home Owners Limited Warranty" ("HOLW") . By her signature, she
acknowledged receipt of the document on December 6. Her signature indicates
no representative capacity as an agent for her company, Ally Cat, LLC, the
purchaser of the Unit. The HOLW is signed by no other party and names
"Legacy Dev Corp" as the "builder" and hence, the warrantor. None of the
parties with whom Dr. Russell contracted are identified in the HOLW . The
HOLW, on its face, provides a limited warranty for the Unit but also mandates
that any disputes between parties be arbitrated . The arbitration clause states :
If parties are unable to mutually resolve any controversy or claim
through the conciliation procedure, then any controversy or claim
arising out of or relating to this Agreement, the Limited Warranty
described in this Agreement, or any breach of this Agreement or
the Limited Warranty shall be settled by binding arbitration
submitted to a professional arbitration service under its rules
relating to the construction industry and the Kentucky Arbitration
Act. The arbitrator's decision shall be final and legally binding and
judgment on the award rendered by the arbitrator(s) maybe
entered in any court having jurisdiction thereof. Each party shall
be responsible for its share of the arbitration fees in accordance
with the applicable rules of the arbitration service selected. In the
event a party fails to proceed with arbitration, unsuccessfully
challenges the arbitrator's award or fails to comply with the
arbitrator's award, the other party is entitled to recover its costs,
including a reasonable attorney fee, for having to
arbitration or defend or enforce the award.
compel
In March 2007, Dr. Russell opened a pediatrics office in the Unit . In
April 2007, Dr. Russell noticed that the roof of the Unit leaked causing water to
run down the walls and pool on the floor in certain areas. Dr. Russell notified
NC Legacy of the leaks . Further leaking occurred in July and August
2007 . NC Legacy and the Council failed to solve the problem to Dr. Russell's
satisfaction .
Dr. Russell then hired several experts to inspect the Unit. One expert
noted several building defects which caused the leaks. The other expert found
that due to the leaking, mold was growing in certain areas of the Unit. The
Metro Louisville Health Department evaluated the Unit as well and advised Dr .
Russell to take remedial steps to keep mold growth to a minimum.
Appellants filed a declaratory judgment action and a claim for damages
against the Real Parties in Interest on October 2, 2007, in the Jefferson Circuit
Court. Appellants' petition sought relief for fraud, concealment,
misrepresentation, tortious misconduct, negligence, breach of contract, and
professional negligence. The petition made no reference to the HOLW. The
Real Parties in Interest filed a motion to compel arbitration based on the
HOLW. On January 25, 2008, Appellee entered an opinion and order which
mandated that the parties arbitrate their dispute .
Appellants appealed to the Court of Appeals for intermediate relief from
Appellee's order. The Court of Appeals denied relief finding that the mold
contamination in the Unit was insufficient to constitute a "great injustice and
irreparable injury ." Additionally, the Court of Appeals found that
"[i]nterminable delay and economic disadvantage do not constitute `irreparable
injury' within the context of the extraordinary relief this court will grant under
Const. sec 110 ." See Shelby County Bd . of Education v. Wright, 390 S.W .2d
654, 656 (Ky. 1965) .
Appellants now appeal to this Court . Appellants argue that the Court of
Appeals should have granted intermediate relief to them because : 1) the trial
court had no subject matter jurisdiction to order the parties to arbitration
because the HOLW's arbitration provision fails to satisfy the requirements of
KRS 417 .200; 2) the trial court had no subject matter jurisdiction to order the
parties to arbitration because the HOLW's arbitration provision fails to satisfy
the requirements of KRS 417 .050; and 3) intermediate relief was warranted
even if the trial court had subject matter jurisdiction. We reverse.
I. The HOLW's Arbitration Provision Fails to Satisfy the Provisions of KRS
417.200
An order compelling arbitration under a valid arbitration agreement is,
ordinarily, not appealable . KRS 417 .060; American General Home Equity v.
Kestel , 253 S.W.3d 543 (Ky. 2008) ; Fayette County Farm Bureau Federation v.
Martin, 758 S . W .2d 713 (Ky . App . 1988) . Appellants argue, however, that the
trial court, as a matter of law, lacked the subject matter jurisdiction to compel
arbitration because the HOLW's arbitration clause does not satisfy the
requirements of KRS 417 .200 . Lack of jurisdiction affords a basis for review by
way of a Writ of Prohibition. See Hoskins v . Maricle, 150 S .W.3d 1, 10 (Ky.
2004) (a writ of prohibition may be granted "upon a showing that . . . the lower
court is proceeding or is about to proceed outside of its jurisdiction and there is
no remedy through an application to an intermediate court.") Appellants assert
that the arbitration clause fails to satisfy KRS 417 .200 because the clause does
not state that the arbitration is to occur in Kentucky . Thus, Appellants argue
that they should receive a writ of prohibition against Appellee . KRS 417.200 is
part of the Kentucky Arbitration Act which was adopted from the Uniform
Arbitration Act. KRS 417 .200, the jurisdiction statute, states :
The term "court" means any court of competent jurisdiction of this
state. The making of an agreement described in KRS 417 .050
providing for arbitration in this state confers jurisdiction on the
court to enforce the agreement under this chapter and to enter
judgment on an award thereafter .
KRS 417 .200 has been interpreted to require that an arbitration clause
include language stating that the arbitration is to be held in Kentucky before a
Kentucky court can enforce an arbitrator's award . In Tru Green Corp. v.
Sampson, 802 S .W .2d 951, 952 (Ky . App. 1991), our Court of Appeals
concluded that the plain meaning of KRS 417 .200 is that the agreement for
arbitration, "wherever made, must provide for the arbitration itself to be in the
Commonwealth in order to confer subject matter jurisdiction on a Kentucky
court." The Court of Appeals reiterated that rule in Artrip v . Samons
Construction, Inc. , 54 S .W .3d 169, 171 (Ky. App. 2001) holding :
The essential rule of this jurisdiction applies in the case before us
because Kentucky courts are only empowered to confirm
arbitration awards when the parties' agreement provides "for the
arbitration itself to be in the Commonwealth ."
After reviewing authority from other states that adopted the Uniform
Arbitration Act, the Court of Appeals in Artrip held :
Although common sense would seem to dictate that crossing the
boundary from Kentucky into Ohio should not vitiate Kentucky
jurisdiction, we believe that Tru Green requires a recitation in the
original agreement preceding any geographic movement occurring
after the fact, a recitation that is a condition precedent to the
existence of jurisdiction .
Id . at 173 .
It is argued by the Real Parties in Interest, that Artrip and Tru Green are
not applicable in this case because both involved efforts to enforce in a
Kentucky court an arbitration agreement containing no geographic restriction,
and where the arbitration itself had already occurred outside the state . To the
extent that in this instance, the issue arises out of the effort to resist
arbitration, rather than a proceeding to enforce an arbitration award, it is one
of first impression.
Obviously, the phrase in KRS 417 .200, "providing for arbitration in this
state" means something. We are not free to ignore the words of the statute, as
if they have no meaning. Rules of statutory construction to ascertain the
intent of the legislature in its use of that language prohibit us from
disregarding it altogether . Only when an injustice or ridiculous result would
occur, may we ignore the plain meaning of the statute . Revenue Cabinet v.
O'Daniel 153 S.W .3d 815 (Ky. 2005) .
The Real Parties in Interest's argument offers no alternative meaning for
the phrase under review here . They argue that any agreement to arbitrate
satisfies KRS 417 .200 so long as it does not compel arbitration to occur outside
this state . The Real Parties in Interest's interpretation of KRS 41.7 .200 carries
the same meaning with and without the phrase, and thus it is an interpretation
which renders the phrase meaningless .
We hold that the Court of the Appeals in Tru Green and Artri got it
right . Subject matter jurisdiction to enforce an agreement to arbitrate is
conferred upon a Kentucky court only if the agreement provides for arbitration
in this state . Thus, an agreement to arbitrate which fails to include the
required provision for arbitration within this state is unenforceable in Kentucky
courts . Tru Green and Artri held that arbitration awards arising from such
agreements are unenforceable in Kentucky courts when the arbitration
occurred outside the state . We hold now that the parties need not suffer the
expense and delay of the arbitration hearing, only to find that the award is
unenforceable. When the issue arises prior to the arbitration hearing, as it has
in this case, and the agreement upon which arbitration is sought fails to
comply with the literal provisions of KRS 417 .200, the courts of Kentucky are,
pursuant to KRS 417 .200, without jurisdiction to enforce the agreement to
arbitrate .
We have not heretofore, and do not now, address the situation in which a
similarly defective arbitration clause leads to an action to enforce an arbitration
award, where the arbitration hearing did in fact occur within Kentucky. Other
considerations may therein arise which are not before us now .
II. The HOLW Fails to Meet the Requirements of KRS 417.050
The Appellant directs this Court's attention to other issues which raise a
substantial question of law as to whether the HOLW itself even constitutes a
"written contract to submit to arbitration any controversy thereafter arising
between the parties ." KRS 417.050. We note that on its face, the HOLW
identifies the warrantor as "Legacy Dev Corp ." Legacy Dev Corp is not a party
to this action, and was not a party to the transaction which took place between
the Appellant and the Real Parties in Interest. The HOLW is not signed by any
person as a representative of Legacy Dev Corp ., nor is it signed by any of the
Real Parties in Interest or their agents . It therefore does not appear to be an
agreement "between the parties ." We note also that Ally Cat, LLC, did not sign
the HOLW. It was signed by Dr. Russell as "Stephanie M. Russell" with no
indication that she signed as a representative of any corporate entity.
Moreover, the printed form of the HOLW above the line for the "purchaser's
signature" reads : "This acknowledges the receipt of the `Home Owner's Limited
Warranty'." By its own terms, the HOLW limits the effect of Dr. Russell's
signature to a mere acknowledgment of receipt, and not an assent to the terms
thereof. Assent to be bound by the terms of an agreement must be expressed,
and simply acknowledging the receipt of the document does not constitute
assent to be bound. See Courtney Shoe Company v . E.W. Curd and Son , 142
Ky. 219, 134 S.W. 146 (1911) and Henry Clay Fire Ins. v. Denker's Executrix ,
218 Ky. 68, 290 S.W. 1047 (1927). We are unable to construe the HOLW as an
extension of an amendment to the Sales and Purchase Contract because that
document states explicitly that it "constitutes the entire Contract between the
parties and shall not be amended unless in writing and duly signed by both
parties ." The warranty was something extra given to Dr. Russell after the
transaction, not a part of the agreement to which she bound her company.
The HOLW expressly states, in the second sentence thereof, that it is a
limited warranty extended to the owner "while occupying the house as a
residence during the coverage period ." The unit sold to Ally Cat, LLC, was not
a house occupied as residence . Thus, by its very terms, it cannot be
reasonably construed as applicable to the transaction between Ally Cat, LLC
and the Real Parties in Interest for a medical clinic .
For the foregoing reasons we conclude as a matter of law that the HOLW
does not constitute "the making of an agreement described in KRS 417.050", a
predicate for jurisdiction under KRS 417 .200 .
III. The Writ of Prohibition was Improperly Denied
Having determined pursuant to KRS 417 .200, the Jefferson Circuit Court
lacked jurisdiction to order the parties to submit to arbitration as described in
the HOLW, we turn to Appellants' argument that the writ of prohibition should
have been granted by the Court of Appeals.
A writ of prohibition is an extraordinary remedy, available only in two
instances: 1) when a "lower court is proceeding or is about to proceed outside
its jurisdiction and there is no remedy through an application to an
intermediate court; or 2) the lower court is about to act incorrectly, although
within its jurisdiction, and there exists no adequate remedy by appeal or
otherwise, and great injustice or irreparable injury will result." Hoskins, 150
S . W.3d at 10 . We do not address the second ground upon which a writ may be
issued. The Court of Appeals, as the court in which the action originated,
found no great and irreparable injury. We need not disturb that finding.
However, we do hold by the analysis set forth above, that because KRS 417 .200
limits the subject matter jurisdiction of the Circuit Court to arbitration
agreements which satisfy the requirements of KRS 417 .050, and which provide
for arbitration to occur in this state, the Jefferson Circuit Court was proceeding
outside its jurisdiction when it ordered the parties to submit to arbitration, and
that there is no adequate remedy available to Appellant through application to
an intermediate court.
We do not, by this opinion, signify any retreat from our recognition of the
prevalent public policy favoring enforcement of agreements to arbitrate . See
Louisville Peterbilt, Inc . v. Cox, 132 S .W.3d 850, 854 (Ky. 2004) (stating that
Kentucky and national policy favors arbitration agreements) . However, that
policy is extended to contracts for arbitration which satisfy the requirement of
KRS 417 .050 . The document involved here is not such a contract.
IV. Conclusion
a
Appellant raised other arguments to challenge the enforceability of the
HOLW. Because we find it unenforceable for the reasons set forth above, we
decline to address those remaining arguments .
Accordingly, we reverse the order of the Court of Appeals entered April
24, 2008, and remand this matter to that Court with directions to grant the
Writ of Prohibition prohibiting the Appellee from enforcing the order requiring
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the parties to submit to arbitration, and lifting the stay imposed upon the
adjudication of the case.
All sitting. All concur .
COUNSEL FOR APPELLANTS :
Robert A . Donald III
One Riverfront Plaza, Suite 1400
401 West Main Street
Louisville, Kentucky 40202
APPELLEE:
Hon A .C . McKay Chauvin
Judge, Jefferson Circuit Court, Division 8
Stn Floor, Judicial Center
700 W. Jefferson Street
Louisville, Kentucky 40202
COUNSEL FOR:
NC Legacy, LLC Real Parties In Interest
Legacy Homes, Real Parties In Interest
Mark Isaacs, Real Parties In Interest
William A . Miller, Jr.
Hummel, Coan, Miller 8, Sage
Kentucky Home Life Building
239 South 5th St 17th Floor
Louisville, Kentucky 40202-3268
COUNSEL FOR:
Co-Owners of North Commons, Legacy Senior Residences, Real Parties in
Interest
Jason C . Vaughn
Jessica Dawn Smith
Vaughn 8s Associates, PLLC
201 Thierman Lane
Louisville, Kentucky 40202
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