FRANKFORT, Ky. (Legal Newsline) -- The Kentucky Supreme Court ruled in a decision published this month that an arbitration agreement, which provides it is controlled by the Federal Arbitration Act, is enforceable in state courts.
The question presented to the state's high court was: "Can Kentucky's courts enforce an arbitration agreement that fails to require the arbitration to be held in the state but states that the Federal Arbitration Act governs its interpretation and enforcement?"
In the case at issue, appellant MHC Kenworth-Knoxville/Nashville sold a truck to appellee M&H Trucking LLC, a company based out of Knott County, Ky., and owned and operated by Mike and Harold Hall.
A deal was reached for a truck with certain options at a specific price.
The parties executed a Customer Sales Order, which was signed by MHC Kenworth salesman Vance Suratt on behalf of the company and by Mike and Harold Hall.
At the bottom of the first page of the order, in all-capital letters and set off from the rest of the text, were the words: "THIS ORDER CONTAINS A BINDING ARBITRATION PROVISION, WHICH MAY BE ENFORCED BY THE PARTIES."
When the truck was delivered, the Halls were dissatisfied. They claimed they had ordered a premium model of the truck but that the delivered truck was a far-less-valuable, stripped-down version.
After several unsuccessful attempts to resolve the situation, the Halls believed they had been subjected to a fraudulent bait-and-switch scheme.
Mike Hall, on behalf of himself and M&H Trucking, sued MHC Kenworth, proceeding pro se initially. The complaint alleged fraud and intentional misrepresentation.
MHC Kenworth moved the trial court to stay the litigation and compel arbitration under the arbitration clause in the sales order.
Hall and M&H Trucking, then represented by counsel, responded that the arbitration agreement was invalid under Kentucky law.
They also stated that MHC Kenworth had "offered no evidence to prove the document attached to the... motion [for arbitration] was actually signed by the Plaintiffs" and that the order had not been notarized nor had evidence, such as an affidavit, been produced to show that they had signed the agreement.
The trial court, in a short order, denied the motion to compel arbitration and allowed the litigation to proceed.
MHC Kenworth filed an appeal with the state Court of Appeals. The court affirmed the lower court's decision, finding that the case was controlled by a 2009 state Supreme Court decision, Ally Cat, LLC v. Chauvin.
In Ally Cat, the high court held that Kentucky courts have no jurisdiction to enforce an arbitration agreement under the Kentucky Arbitration Act unless the agreement provides that the arbitration will occur in the state.
Because the arbitration provision in this case did not require the arbitration to occur in Kentucky, and because the arbitration would be held in Georgia -- the location of the American Arbitration Association office closest to the location of MHC Kenworth -- the appeals court held that the trial court was correct and that the arbitration provision could not be enforced to bar the lawsuit.
MHC Kenworth, in response, sought discretionary review from the state Supreme Court.
The court, in its eight-page opinion rendered Feb. 21 and published March 14, said M&H Trucking's brief -- like the Court of Appeals decision -- failed to recognize its recent line of cases holding that "we need not consider Kentucky's Uniform Arbitration Act" when "the agreement explicitly require[s] that disputes be governed by the Federal Arbitration Act."
Instead, when the agreement "includes a 'choice of law' provision selecting the Federal Arbitration Act as the law governing any dispute between the parties... the Federal Arbitration Act governs the arbitration clause."
"The Customer Sales Order's arbitration provision in this case specifically states that 'the United States Arbitration Act (Title 9 of the United States Code) shall govern the interpretation, enforcement and proceedings pursuant to the arbitration provisions of this Order,'" Deputy Chief Justice Mary C. Nobel wrote for a unanimous court.
"Thus... the Federal Arbitration Act controls, not the Kentucky Arbitration Act, and the circuit court has jurisdiction to enforce the arbitration provision."
The court reversed the Court of Appeals judgment and remanded the case to the trial court.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.