NORTH FORK COLLIERIES, LLC V. BARRY KEVIN HALL, ET AL.
Annotate this Case
Download PDF
RENDERED : SEPTEMBER 23, 2010
TOr .BE PUBLISHED
.., .
rn
.""t
A-ft
oft
101-ourf of ~firufi
2010-SC-000269-1
NORTH FORK COLLIERIES, LLC
V.
DAT
APPELLANT
ON APPEAL FROM COURT OF APPEALS
2009-CA-002038-MR
PIKE CIRCUIT COURT NO . 09-CI-01064
BARRY KEVIN HALL; LEETHA HALL;
TRAVELER COAL, LLC ; AND
COMMUNITY TRUST BANK
APPELLEES
OPINION OF THE COURT BY JUSTICE ABRAMSON
REVERSING AND REMANDING
North Fork Collieries LLC, a Delaware corporation with its principal place
of business in Hazard, Kentucky, moves pursuant to CR 65.09 for relief from
an Order of the Pike Circuit Court denying North Fork's motion to stay
litigation brought against it and to compel arbitration . By Order entered April
12, 2010, the Court of Appeals denied relief on the ground that the trial court's
ruling did not amount to an abuse of discretion and that North Fork had failed
to show that an erroneous ruling would subject it to irreparable injury. For the
reasons stated herein, we reverse and remand .
RELEVANT FACTS
The underlying controversy concerns a February 2008 transaction
between North Fork and the plaintiffs below, Barry Hall and Traveler Coal, LLC,
a Kentucky corporation headquartered in Pikeville . Organized h-1 2001.,
Traveler is a coal-mining business and Barry Hall was its initial sole owner and
manager. In November 2006, Traveler and Hall obtained a,' ;6.3 million
business loan from Community Trust Bank, Inc., of Pikeville . The loan was
secured by various mortgages and other liens as well as by the personal
guarantees of Hall and his wife, Leetha. In 2007, representatives of Prospect
Capital Corporation, described by the parties as a New York-based private
equity firm, approached Hall with an offer to buy his business and employ him
as its manager . Following negotiations, the parties agreed that Hall would sell
his business and its assets to Prospect's affiliate, North Fork, in exchange for
North Fork's assumption of certain business debts, including the outstanding
debt to Community Trust Bank, and North Fork's agreement to employ Hall as
its manager.
The parties' agreements were memorialized in two writings: an
"Employment Agreement" and an "Asset Purchase Agreement.." To obtain
Community Trust Bank's approval of the transfer of its collateral, North Fork,
Hall, and Traveler also entered into an agreement with the Bank, the
"Assumption Agreement," whereby Hall and Traveler agreed that they would
continue to be bound under the original loan as guarantor and primary obligor,
respectively, and North Fork agreed that the loan was to be amended so as to
add it as an additional primary obligor. Under the Assumption Agreement,
North Fork and Traveler both promised the Bank, "absolutely, fully,
irrevocably, personally, [and] unconditionally," to "jointly and severally assume
[or remain] and be bound, as . . . joint and several primary obligor along with
[the other] ." Notably, all three agreements were executed on February 11,
2008.
In August 2009, North Fork notified Community Trust Bank of its intent
to default on the loan, and later that month, as soon as the default became
official, Hall, his wife, and Traveler (collectively "Hall") brought suit in Pike
Circuit Court against North. Fork and the Bank alleging breaches by North Fork
of the Assumption Agreement and the Employment Agreement and seeking
damages and declaratory relief. Citing choice of forum and arbitration
provisions in both the Employment Agreement and Asset Purchase Agreement,
North Fork thereupon moved to have the Complaint dismissed or stayed
pending arbitration . The trial court denied those motions by Order entered
October 13, 2009 .
Pursuant to CR 65 .07, North Fork then sought interlocutory review by
the Court of Appeals . While the matter was pending before that Court, Hall
filed notice of his intent to dismiss without prejudice his employment-related
claims. The Employment Agreement was in that way taken out of play, and
thus, according to Hall, the central issue remaining before the trial court is
"who-as between North Fork and the Respondents [Hall]-is responsible for
paying the CTB debt," an issue Hall has carefully couched in terms of the
Assumption Agreement, which does not have an arbitration clause, rather than
the Asset Purchase Agreement, which does . The Court of Appeals ruled that
the trial court did not abuse its discretion by allowing Hall to go forward in
circuit court on the purported Assumption Agreement claim because that
agreement "arguably superseded the documents which did contain arbitration
clauses." North Fork Collieries, LLC v. Hall, 2009-CA-002038-I (April 1.2, 2010) .
Thus, according to the Court of Appeals, North Fork will not. be irreparably
injured by having to litigate Hall's claim . We disagree. Because the
Assumption Agreement cannot reasonably be thought to have superseded the
detailed agreements made contemporaneously with it, and because it cannot
settle the issue which Hall has raised in the Complaint, the trial court abused
its discretion by relying on that agreement to deny North Fork's demand for
arbitration .
ANALYSIS
As the parties correctly note, under CR 65 .09 this Court may grant
interlocutory relief from an order of the Court of Appeals if the movant
demonstrates "extraordinary cause," and we have held that "`abuses of
discretion by the courts below can supply such cause ."' Board of Regents of
Western Kentucky University, v. Clark, 276 S .W.3d 819, 822 (Ky . 2009) (quoting
from NCAA v. Lasege, 53 S .W.3d 77, 84 (Ky. 2001)) . In the arbitration context,
we have recognized CR 65.07 and CR 65.09 as appropriate avenues for the
review of trial court orders denying motions to compel arbitration, particularly
when, as here, the KRS 417 .220 right to an interlocutory appeal does not
apply- I Kindred Hospitals v. Lutrell, 190 S .W.3d 916 (Ky. 2006) .
KRS Chapter 417 contains the Kentucky Uniform Arbitration Act . Recently, in Ally
Cat, LLC v. Chauvin, 274 S .W.3d 451 (Ky. 2009), this Court held that a Kentucky
circuit court has no jurisdiction under KRS 417 .200 to enforce an arbitration
Although motions to compel arbitration are in some ways akin to
motions for injunctions under CR 65 .04, they are significantly different as well .
Whereas a typical request for a temporary injunction seeks to preserve the
status quo pending a decision on the merits of some controversy, and thus
raises questions about the movant's likely success on the merits and the risk of
irreparable harm should the injunction be denied, Maupin v . Stansbury, 575
S.W.2d 695 (Ky . App . 1978), a motion to compel arbitration seeks rather the
specific performance of the asserted contractual right, Vaden v. Discover Bank,
U .S.
, 129 S . Ct. 1262 (2009), a right in many instances implicating
either Kentucky's Uniform Arbitration Act, Kentucky Revised Statute (KRS)
Chapter 417 (the "KUAA"), or, as here, the Federal Arbitration Act, 9 U .S.C . § 1
et seq. Both the KUAA and the Federal Arbitration Act require that arbitration
agreements be enforced
ho
less rigorously than other contract provisions.z The
task of the trial court confronted with such a motion, thus, is not to weigh the
equities of the situation, to assess the merits of the underlying controversy, or
2
agreement unless the agreement provides for arbitration in Kentucky. None of the
agreements at issue in this case provide for arbitration in Kentucky and thus the
KRS 417 .220 interlocutory appeal right is not available .
Section 2 of the Federal Arbitration Act provides in part that "A written provision in
. . . a contract evidencing a transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or transaction . . . shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract ." 9 U.S.C. § 2. Hall does not dispute that
the Asset Purchase Agreement evidences a transaction involving interstate
commerce . Cf. Kodak Mining Company v. Carrs Fork Corporation, 669 S.W.2d 917
(Ky. 1984) (noting that coal mining contracts are generally deemed to involve
interstate commerce .) Where it applies, the federal act is enforceable in State, as
well as federal court, Southland Corporation v. Keating, 465 U.S. 1 (1984), and
indeed "[u)nder the FAA, state courts as well as federal courts are obliged to honor
and enforce agreements to arbitrate." Vaden v. Discover Bank, 129 S. Ct . at 1278 .
to determine whether litigation would or would not "irreparably harm" the
movant. Its task generally is simply to decide under ordinary contract law
whether the asserted arbitration agreement actually exists between the parties
and, if so, whether it applies to the claim raised in the complaint. Id. ; First
Options of Chicago v . Kaplan, 514 U .S . 938 (1995) ; Oakwood Mobile Homes, Inc.
v. Sprowls, 82 S .W .3d 193 (Ky . 2002) . If an arbitration agreement is
applicable, the motion to compel arbitration should be granted .
Although injunctive relief is said to be within the sound discretion of the
trial court, in this context that discretion extends no further than the correct
application of the law, and accordingly we have held that the improper denial of
a motion to compel arbitration warrants relief under CR 65.09 . Kodak Mining
Company v. Carrs Fork Corporation, 669 S .W.2d 917 (Ky. 1984) . The trial
court's factual findings, if any, are reviewed for clear error, but its construction
of the contract, a purely legal determination, is reviewed de novo. American
General Home Equity, Inc. v. Kestel, 253 S.W .3d 543 (Ky. 2008) .
It is true, as Hall and the Court of Appeals note, that under CR 65 .04,
temporary injunctive relief is only appropriate if without it the movant will
suffer irreparable injury or the final judgment will be rendered ineffectual.
Relying on writ cases, in which we have held that the ordinary costs and delays
of litigation . are not the sort of injury- that will justify the extraordinary
remedies of mandamus or prohibition, the Court of Appeals opined that North
Fork would not be irreparably injured by having to litigate Hall's claim.
The writ cases have no application in this context, however, where North
Fork's claim to interlocutory relief is not based on the merely equitable
assertion that the ordinary course of litigation and appeal will prove costly, but
rather on its bargained-for contractual right to proceed in. another forum . That
right, if it exists, would be destroyed by requiring North Fork to proceed in the
Pike Circuit Court and could not be vindicated by an ordinary appeal at the
conclusion of the trial . Bridgestonel Firestone d1bla Firestone Industrial
Products Company v . McQueen, 3 S .W.3d 366 (Ky. App . 1999) . We have
indicated, therefore, that in this context irreparable injury arises from, an
improper denial of a motion to compel arbitration and that the principal
question on review is simply whether the trial court correctly decided the
contract issue. Kodak Mining, supra. Where movants for interlocutory review
under CR 65.09 have failed to address that question, we have declined to
disturb facially reasonable trial court rulings, Kindred Hospitals v. Lutrell,
supra; Oakwood Mobile Homes, Inc. v. Sprowls, supra, but here North Fork has
adequately raised the contract issue. The Court of Appeals erred, therefore, by
treating that issue as though review of it could be postponed until a final
appeal without irreparably injuring North Fork's rights .
Turning to whether the parties' contracts provide for arbitration, this
might, at first glance, appear to be an easy case . North Fork relies on the
arbitration clause in the Asset Purchase Agreement, but Hall purports to be
proceeding under the Assumption Agreement. The Asset Purchase Agreement
and its arbitration clause might thus appear to be irrelevant and North Fork's
reliance thereon misplaced . The trial. Court and the Court of Appeals would
then have been entirely correct in allowing the litigation to go forward . Upon
even slightly closer scrutiny, however, it is apparent that notwithstanding
Hall's artful pleading, the Assumption Agreement cannot and will not carry the
burden Hall is asking it to, and that to settle the issue Hall has raised-who
between Hall and North . Fork is responsible for the outstanding debt to the
Community Trust Bank-it will be necessary to have recourse to the Asset.
Purchase Agreement .
This conclusion is clear from the provisions of the Assumption
Agreement quoted above, upon which Hall purports to base its claim . Under
that agreement North Fork and Traveler each agreed "absolutely, fully,
irrevocably, personally, [and] unconditionally," to be bound as joint and several
primary obligors for the Community Trust Bank loan . Hall asserts that North
Fork's default breached that agreement, but even if it did, North Fork's promise
was to the Bank, not to Traveler, as fellow primary obligor, or to Hall, as
guarantor, and the breach, therefore, would not give either of them a cause of
action. Even were they deemed third-party beneficiaries of North Fork's
promise to the Bank, the benefit they would be entitled to is only that North
Fork could be held jointly and severaWy liable for the loan debt. The
Assumption Agreement, in short, concerns North Fork's and Hall's relationship
with the Community Trust Bank, not with each other. It has nothing to say
about which of then, if either, is responsible to the other for the Bank debt and
thus it cannot resolve the issue Hall seeks to litigate .
This is hardly surprising given the fact that in conjunction with the
Assumption Agreement the parties executed the Asset Purchase and
Employment Agreements, in which their relationship with each other was
spelled out in considerable detail . The Asset Purchase Agreement is twenty-six
pages long; the Employment Agreement is seventeen pages . The Court of
Appeals' suggestion that these lengthy agreements might be deemed
superseded by the contemporaneously executed, four-page Assumption
Agreement is simply illogical. Nothing in the Assumption Agreement remotely
suggests such an intention . The Court of Appeals may have been focusing on
the Assumption Agreement's merger clause, which provides in pertinent part
that "[t]his Agreement and the Loan Documents and any amendments thereto
referred to herein constitute the entire understanding between the parties with
respect to the subject matter hereof and supersede all prior or
contemporaneous agreements in, regard thereto," but as noted already the
"subject matter" of the Assumption Agreement is the relationship between the
parties and the Community Trust Bank . That agreement does not address
Hall's and North Fork's relationship with each other, and was clearly not meant
to merge or supersede the detailed agreements which do expressly address that
relationship .
That Hall's claim in fact, if not in form, relies on the Asset Purchase
Agreement is apparent from reading the Complaint, where the Asset Purchase
Agreement, not the Assumption Agreement, is identified as the source of North
Fork's obligation both to Traveler and to Hall and his wife, to repay the
Community Trust Bank loan as well as its obligation to indemnify those
Plaintiffs for any amounts which they are required to pay in, the event of North
Fork's default . We agree with North Fork, therefore, that notwithstanding
Hall's attempt to plead around the Asset Purchase Agreement, that Agreement
is necessarily the foundation for Hall's claim against North Fork and, therefore,
its arbitration clause is relevant .
That clause, headed "Arbitration and Jurisdiction, " provides in its
entirety as follows:
EACH PARTY HERETO EXPRESSLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT TO TRIAL BY JURY OF ANY DISPUTE
RELATING HERETO, INCLUDING ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING IN
CONNECTION WITH THIS AGREEMENT, ANY
TRANSACTION RELATING HERETO OR THERETO, OR
ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THEREWITH,
WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE . EACH PARTY HERETO CONSENTS
AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN NEW YORK COUNTY, NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN OR AMONG ANY OF THE PARTIES
HERETO PERTAINING TO THIS AGREEMENT, THE
TRANSACTION, AND INVESTIGATION, LITIGATION,
OR PROCEEDING RELATED TO OR ARISING OUT OF
ANY SUCH MATTERS, ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY
TO THIS AGREEMENT PROVIDED THAT THE
PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF SUCH
JURISDICTION AND THAT ANY SUCH DISPUTE MUST
FIRST BE SUBMITTED TO BINDING ARBITRATION .
EACH PARTY HERETO EXPRESSLY AGREES NOT TO
ASSERT ANY CLAIM RELATING HERETO
ELSEWHERE, BUT INSTEAD SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND HEREBY WAIVES ANY OBJECTION
WHICH SUCH PARTY MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE
OR INCONVENIENT FORUM .
(capitalization of text in original) .
Hall argued below and suggests here that even if the Asset Purchase
Agreement is applicable, this arbitration clause is so ambiguous as to be
unenforceable . Generally, of course, in construing contracts courts endeavor
to give effect to the parties' intent as expressed by the ordinary meaning of the
language they employed . Island Creek Coal Company v. Wells, 113 S .W .3d 100
(Ky. 2003) ; Siler v. White Star Coal Company, 190 Ky . 7, 226 S .W . 102 (1920) .
Although not, perhaps, a model of lucid draftsmanship, the quoted provision
nevertheless evidences the parties' intent that disputes "pertaining to this
agreement [the Asset Purchase Agreement]" "must first be submitted to binding
arbitration," and, if litigation ensues, litigated in New York County, New York.
The mere fact that the clause addresses litigation as well as arbitration does
not, as Hall suggests, render the provision ambiguous; the parties could have
waived arbitration in favor of litigation and thus brought the litigation
provisions into play immediately but, even where parties opt for arbitration
initially, litigation frequently follows as the parties seek to enforce or challenge
the arbitration award . Because, as discussed above, Hall's claim that North
Fork is liable to it for the Community Trust Bank loan is founded on the
parties' obligations set forth in the Asset Purchase Agreement, the Agreement's
arbitration clause applies, and the Pike Circuit. Court abused its discretion by
failing to give the arbitration clause effect .
Finally, Hall asserts that because the Complaint involves parties-Hall
individually and his wife, as co-guarantors of Traveler's debt to the Community
Trust Bank, and the Bank itself-who were not Forties to the Asset Purchase
Agreement, the trial court could reasonably conclude that the matter should. be
litigated rather than arbitrated. . Indeed, the United States Supreme Court has
held that because the Federal Arbitration Act does not provide for scenarios in
which some parties are and others are not subject to an arbitration agreement,
parties to arbitration agreements may, without running afoul of the FAA, opt
for State procedural rules that give the court discretion to stay arbitration
pending related litigation . Volt Information Sciences, Inc. v. Board o Trustees of
Leland Stanford Junior Univ., 489 U.S . 468 (1989) . The parties here, however,
have not opted for such an alternative rule, and under the FAA related
litigation is to be stayed, if necessary, to allow for arbitration, not the other way
around . Rodriguez v. American Technologies, Inc., 39 Cal. Rptr .3d 437 (Cal .
App. 2006) . The issue is a non-starter here, moreover, because again it is more
a matter of artful pleading than substance. Hall named the Bank as a
defendant, but as the Bank has correctly noted in filings with this Court, it is
not a necessary party to the dispute between Hall and North Fork . Under the
Assumption Agreement, the Bank may seek to recoup the outstanding balance
on its loan from either or both of the joint primary obligors or from the
guarantors, and need not address the question of priority among them or their
rights vis-d-vis each other. The Bank's claim, therefore, has no bearing on the
arbitrability of Hall's claim against North Fork.
Likewise, whatever claim Hall and his wife, as guarantors of Traveler's
debt, may have against North Fork, it does not derive from the Assumption
Agreement, which gives them no rights against North Fork just as it gave no
rights to Traveler . If their claims arise from their status as third-party
beneficiaries of the Asset Purchase Agreement, and that appears to be what the
Complaint in fact asserts, then even though they were not signatories to that
Agreement they would be estopped from disavowing that Agreement's
arbitration provision . See Thomson-CSF, S.A. v. American Arbitration
Association, 64 F.3d 773 (2nd Cir. 1995) (discussing theories for binding
nonsignatories to arbitration agreements, including the estoppel theory,
whereby a third-party who knowingly accepts a direct benefit under the
contract may be held to the contract's arbitration clause) . Here, Hall and his
wife are claiming the direct benefit of the Asset Purchase Agreement's loan
assumption and indemnity provisions so they are estopped from disavowing
the Agreement's arbitration provision .
CONCLUSION
In sum, while CR 65 .09 reserves interlocutory relief from injunctive
rulings for instances of extraordinary cause, our cases recognize that a trial
court's improper denial of a motion to compel arbitration can supply that
cause . Such is the case here . Although Hall, his wife and Traveler have taken
pains to allege that North Fork breached the Assumption Agreement, not the
Asset Purchase Agreement, the rights they, assert all derive from the latter
Agreement, not the former, and thus their claim plainly implicates the Asset
Purchase Agreement's arbitration clause . By exalting the form of the
Complaint over its substance, the trial court deviated from the Federal
Arbitration Act's mandate that arbitration agreements be enforced and.,
consequently, abused its discretion . The Court of Appeals erred by ruling
otherwise. Accordingly, we reverse the April 12, 2010 Order of the Court of
Appeals and remand to the Pike Circuit Court for entry of an order granting
North Fork's motion to stay litigation so that the claims asserted by Barry and
Leetha Hall and Traveler Coal, LLC, against North Fork may be submitted to
arbitration .
Minton, C .J . ; Cunningham, Noble, and Venters, JJ ., concur. Schroder,
J., dissents without opinion . Scott, J ., not sitting.
COUNSEL FOR APPELLANT:
Anne Adams Chesnut
Bruce Edward Cryder
Greenebaum., Doll &, McDonald, PLLC
300 W. Vine Street, Suite 1100
Lexington, KY 40507-1655
COUNSEL FOR APPELLEES,
BARRY KEVIN HALL; LEETHA HALL;
AND TRAVELER COAL, LLC :
Chauncey S . R. Curtz
Mindy Barfield
Dinsmore &, Shohl, LLP
Lexington Financial Center
250 West Main Street
Suite 1400
Lexington, KY 40507
Marrs A . May
209 2nd Street, Suite 101
P.O . Box 1465
Pikeville, KY 41502-1465
COUNSEL FOR APPELLEE,
COMMUNITY TRUST BANK :
Catherine Marie Stevens
Patricia Kirkwood Burgess
Frost Brown 8s Todd, LLC
250 W. Main Street, Suite 2800
Lexington, KY 40507
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.