ENTERPRISES CONTRACTING CORPORATION V. LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT
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RENDERED : MAY 20, 2004
TO BE PUBLISHED
,*uyrrmr Courf of ~i~
2002-SC-0285-DG
3D ENTERPRISES CONTRACTING
CORPORATION
V.
D Qcr
APPELLANT
ON REVIEW FROM COURT OF APPEALS
1999-CA-2945
FAYETTE CIRCUIT COURT NO. 98-CI-3056
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT
APPELLEE
OPINION OF THE COURT BY JUSTICE STUMBO
REVERSING AND REMANDING
Appellant, 3D Enterprises Contracting Corporation, presented a bid proposal to
make improvements to a public swimming pool located in Lexington . Appellee, the
Lexington-Fayette Urban County Government, accepted the bid and awarded Appellant
a $1,315,600 .00 construction contract . The contract stated that the project should be
completed within 240 days from a proposed starting date of October 24, 1995.
However, when the parties executed the contract, the plans for construction at the pool
had not received final approval from the Fayette County Health Department.
Appellant began construction at the swimming pool pursuant to the contract, but
soon was forced to stop working due to modifications in the project plans required by
the Health Department . Because the work was delayed, the parties negotiated two
change orders to the contract in accordance with the terms of the contract . These
change orders served to increase the amount of the contract and extended the date of
completion .
Upon completion of the construction project, Appellant demanded additional
compensation from Appellee because of the delays it experienced . Appellee declined
to make further payment. As required by the contract, the parties entered into
arbitration on the claim for delay damages .
During the arbitration proceedings, Appellee asserted that Appellant's claim for
damages was precluded by the construction contract's no-damages-for-delay clause .
Appellant argued, inter alia, that the delays and disruptions it encountered
during the construction project were due to the active interference and material
misrepresentations of Appellee, and consequently, the no-damages-for-delay clause
should have been rendered inapplicable under the circumstances . The three-member
arbitration panel unanimously ruled in Appellant's favor and awarded Appellant
$272,515.19.
Appellee petitioned the Fayette Circuit Court to vacate the arbitration award . In
its November 18, 1999, opinion and order, the circuit court considered two issues . First,
whether Appellee waived its defense of sovereign immunity by entering into a contract
that provided for arbitration of disputes arising from the contract . Second, whether the
arbitration panel committed palpable error in its failure to enforce the no-damages-fordelay clause of the construction contract .
The circuit court first held that sovereign immunity had in fact been waived when
Appellee entered into a contract providing for the arbitration of claims . As to the second
issue, the court, citing Carrs Fork Corporation v . Kodak Mining Company, Ky ., 809
S .W.2d 699 (1991), noted that the relevant ground for vacating an arbitration award in
the instant case was whether the arbitrators exceeded the powers granted to them by
KRS 417 .160(1)(c) .
The circuit court held that the arbitration award was palpably erroneous because
the arbitrators exceeded their powers by failing to enforce the no-damages-for-delay
clause. The court further held that it was contrary to law and principles of equity to
award damages for delays that Appellant effectively waived by agreeing to the change
orders to the construction contract . Accordingly, the court granted the motion to vacate
the award .
On appeal, the Court of Appeals affirmed the circuit court's decision to vacate the
award, but disagreed with the court's reasoning . The Court of Appeals stated that it did
not believe that the arbitrators exceeded their powers in their failure to enforce the no
damages-for-delay clause, but concluded that the circuit court possessed the authority
to vacate the arbitration award pursuant to its equitable powers. The Court of Appeals
declined to address the issue of sovereign immunity . We granted discretionary review
and hereby reverse the decision of the Court of Appeals and reinstate the award
granted by the arbitrators .
The principal issue on appeal is whether the circuit court had the power, either
pursuant to KRS 417 .160(1)(c) or otherwise, to vacate the arbitration award. It is our
view that the circuit court had no such power in this case .
KRS 417 .160(1)(c) provides that an arbitration award shall be vacated by a court
when "[t]he arbitrators exceed[ ] their powers ." As previously mentioned, the Court of
Appeals did not believe that the arbitrators exceeded their powers in their failure to
enforce the no-damages-for-delay clause . In support of that belief, the Court of Appeals
stated
We agree with [Appellant] that the circuit court's action exceeded its
scope of review under [KRS 417.160(1)(c)] . In determining whether the
arbitrators exceeded their power, a court should look to whether the award
was fairly and honestly made within the scope of the issues submitted for
resolution or whether the arbitrators acted beyond the material terms of
the contract . See, e .Q .. Tackett v. Campbell Corp. , Ky. App., 781 S .W.2d
758 (1989) . In reviewing whether an arbitrator exceeded his powers, a
court should not review the merits of the award, only whether the issues
were submitted and covered by the contract . Laslo N . Tauber, M.D. &
Assoc.'s v . Trammel Crow Real Estate Services, Inc. , 738 A.2d 1214 (D.C.
1999) ; Arnold v . Morgan Keegan & Co., Inc. , 914 S.W.2d 445 (Tenn.
1996) .
The contract between the parties provided for arbitration of disputes
related to the contract and judgment on arbitration awards stating as
follows :
4 .5 .1 Controversies and Claims Subject to Arbitration . 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.
4 .5 .7 Judgment on Final Award . The award rendered by
the arbitrator or arbitrators shall be final, and judgment may
be entered upon it in accordance with the applicable law in
any court having jurisdiction thereof.
The applicability of the no-damages-for-delay clause and the change
orders was squarely presented to the arbitrators . They heard evidence on
exceptions to the enforceability of the clause and rendered a decision
based on the evidence . We disagree with the circuit court's view that the
arbitrators exceeded their powers by failing to enforce the no-damagesfor-delay clause .
3D Enterprises Contracting Corp. v . Lexington-Fayette Urban County Gov't, Ky. App .,
No . 1999-CA-2945-MR, Slip Op. at 7-8 (Dec. 7, 2001). We agree with the Court of
Appeals that the arbitrators did not exceed their powers in failing to enforce the no4
damages-for-delay clause of the contract and adopt the preceding language in that
regard . However, while we have adopted the Court of Appeals' preceding rationale
concerning KRS 417.160(1)(c), we find error in the court's interpretation of our opinion
in Carrs Fork, supra .
The Court of Appeals cites to Carrs Fork for the proposition that the circuit court
possessed the authority to vacate the arbitration award pursuant to its equitable powers .
Under the circumstances of this case, we are unable to agree .
In Carrs Fork we applied KRS 417 .018 in conjunction with CR 61 .02, the
palpable error rule, to set aside a portion of an arbitration award because "the majority
of arbitrators and the circuit court ignored the legal maxim that the law abhors a
forfeiture of a coal lease." 809 S .W.2d at 701 . KRS 417 .018 was repealed on July 13,
1984, following the enactment of the Kentucky Uniform Arbitration Act (hereinafter the
"Act") . See 1984 Ky. Acts, Ch. 278, ยง12 . Section 19 of 1984 Ky. Act., Ch. 278 provides
that the Act is only applicable "to agreements made subsequent to the taking effect of
the Act." The now repealed KRS 417 .018 provided that "[n]o award shall be set aside
for the want of form. But courts shall have power over awards on equitable principles
as heretofore." The grounds for vacation of an arbitration award under the Act are set
forth in KRS 417 .160, which reads :
(1) Upon application of a party, the court shall vacate an award where:
(a) The award was procured by corruption, fraud or other undue
means;
(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 party;
(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
party ; or
(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 .
(2) An application under this section shall be made within ninety (90) days
after delivery of a copy of the award to the applicant ; except that, if
predicated upon corruption, fraud or other undue means, it shall be made
within ninety (90) days after such grounds are known or should have been
known .
(3) In vacating the award on grounds other than stated in paragraph (a) of
subsection (1) of this section, the court may order a rehearing before new
arbitrators chosen as provided in the agreement, or in the absence
thereof, by the court in accordance with KRS 417.070, or, if the award is
vacated on grounds set forth in paragraphs (c) and (d) of subsection (1) of
this section, the court may order a rehearing before the arbitrators who
made the award or. their successors appointed in accordance with KRS
417 .070. The time within which the agreement requires the award to be
made is applicable to the rehearing and commences on the date of the
order.
(4) If the application to vacate is denied and no motion to modify or correct
the award is pending, the court shall confirm the award .
The Court of Appeals takes the position that our opinion in Carrs Fork did not rely
on KRS 417 .018, and instead expanded the scope of review of arbitration awards based
on equity . The court further stated that we suggested the grounds on which to vacate
an award set out in the Act were not exclusive .
The question now becomes whether, since the adoption of the Act, a court has
the authority to vacate an arbitration award using its equitable powers . Therefore, we
find that with respect to agreements entered into after the effective date of the Act, a
court may only set aside an arbitration award pursuant to those grounds set forth in the
Act.
When the General Assembly passed the Act, it failed to include language
6
similar to that provided in the now repealed KRS 417.018. "This Court shall not
speculate what the General Assembly may have intended but failed to articulate."
Peterson v. Shake , Ky ., 120 S.W .3d 707, 709 (2003). As such, we hold that all
arbitration awards arising from agreements entered into after the effective date of the
Act may only be set aside by a court pursuant to those grounds listed in the Act. We
reaffirm Carrs Fork 's continuing vitality with regard to the vacation of arbitration awards
arising from agreements entered into prior to the effective date of the Act. Under the
circumstances, we hold that the Court of Appeals committed error when it vacated the
arbitration award . The arbitration award must be reinstated .
Lastly, we conclude that this Court's review of Appellee's sovereign immunity
claim is precluded by Appellee's failure to file a cross-motion for discretionary review.
"It is the rule in this jurisdiction that issues raised on appeal but not decided will be
treated as settled against the appellant in that court upon subsequent appeals unless
the issue is preserved by cross-motion for discretionary review." Commonwealth,
Transp . Cabinet, Dep't of Highways v . Taub , Ky ., 766 S.W.2d 49, 51-52 (1988) . It was
incumbent upon Appellee to file a cross-motion in order to preserve the sovereign
immunity issue for review, as the issue now must be "deemed to have been decided
adversely to" Appellee . Id . at 52 . Further review by this Court is precluded .
For the foregoing reasons, the opinion of the Court of Appeals affirming the
opinion and order of the Fayette Circuit Court is reversed, and this cause is hereby
remanded to the circuit court for entry of an order confirming the arbitration award .
All concur.
COUNSEL FOR APPELLANT :
Thomas E . Roma, Jr .
Parker & O'Connell, PLLC
The Starks Building, Suite 930
455 South Fourth Avenue
Louisville, KY 40202
George Bruce Stigger
Alber Crafton, PLLC
200 Republic Bank Place
661 South Hurstbourne Parkway
Louisville, KY 40222
COUNSEL FOR APPELLEE:
Edward W. Gardner
Lexington-Fayette Urban Co. Government
Department of Law
200 East Main Street
Lexington, KY 40507
Thomas H . Glover
250 West Main Street, Suite 3010
Lexington, KY 40507-1714
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