Court Opinion

ID: 7618021
Source: CourtListenerOpinion
Date Created: 2022-07-29 14:05:22.806886+00
Date Added: 2024-06-11T16:24:59.974800
License: Public Domain

RENDERED: JULY 22, 2022; 10:00 A.M.
                               TO BE PUBLISHED

                    Commonwealth of Kentucky
                                Court of Appeals

                                    NO. 2022-CA-0149-I

PSC INDUSTRIES, INC.                                                    MOVANT

                      MOTION FOR INTERLOCUTORY RELIEF
                     ARISING FROM KENTON CIRCUIT COURT
v.                   HONORABLE PATRICIA M. SUMME, JUDGE
                            ACTION NO. 21-CI-01023

TOYOTA BOSHOKU AMERICA, INC.                                      RESPONDENT

                          OPINION AND ORDER
               GRANTING MOTION FOR INTERLOCUTORY RELIEF

                                         ** ** ** ** **

BEFORE: CLAYTON, CHIEF JUDGE; DIXON AND K. THOMPSON,
JUDGES.

CLAYTON, CHIEF JUDGE: This matter comes before the Court on a motion by

Movant, PSC Industries, Inc. (PSC), for interlocutory relief under CR1 65.07. PSC

challenges an order entered by the trial court on January 21, 2022, denying its

1
    Kentucky Rules of Civil Procedure.
motion to compel Toyota Boshoku America, Inc. (TBA) to submit to arbitration

and granting TBA’s motion to stay arbitration. Having reviewed the record, and

otherwise being sufficiently advised, it is hereby ORDERED that PSC’s motion for

interlocutory relief shall be, and hereby is, GRANTED.

                                I.     BACKGROUND

             PSC is a manufacturer of automotive parts. TBA is a consumer of

those parts. The parties have an ongoing relationship as seller and buyer. Each has

a set of standard terms and conditions which it utilizes when doing business. The

central question in the case sub judice is which of these terms and conditions, if

either, governs the parties’ relationship.

             In 2021, PSC filed an arbitration demand with the American

Arbitration Association (AAA). The demand alleges TBA aided and abetted a

former PSC employee, Gary Young, in breaching fiduciary duties owed by him to

PSC. PSC alleges Young opened a competing business while serving as a highly

compensated executive of PSC. In short, PSC contends that TBA tortiously

purchased goods from Young’s competing company under a variety of theories of

recovery. The merits of the arbitration dispute are beyond the scope of this

Opinion and Order.

             PSC provided price quotes to TBA on various component parts by

way of documents entitled “quotation(s).” The quotations provided of record

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contain several key terms including part number, description, volume, lead time,

and place of delivery. Each quotation contains “Terms and Conditions of Sale.”

The relevant terms and conditions of the quotations introduced as evidence in this

case include:

            1. The terms contained herein shall control the parties’
               transaction. These terms may not be waived, varied
               or changed, nor are additional terms added by the
               Buyer acceptable, except as consented to in a writing
               signed by the authorized agent of [PSC]. [TBA’s]
               acceptance is expressly limited to [PSC’s] terms,
               notwithstanding any provision contained in [TBA’s]
               forms.

                ...

            4. The parties agree that any dispute arising between
               them shall be subject to the jurisdiction of the courts
               of the State of California, County of Los Angeles and
               that the laws of the state of California shall control the
               parties’ transaction.

            A quotation does not have a signature line for a buyer such as TBA.

After receiving a quotation, TBA issues a “framework letter agreement” to PSC.

This agreement references TBA’s own terms and conditions, which include a

requirement that “any dispute arising under the Contract Documents or the parties’

obligations thereunder” be resolved by a single arbitrator “in accordance with the

Commercial Arbitration Rules of the [AAA.]”

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                          II.    STANDARD OF REVIEW

             A motion for interlocutory relief under CR 65.07 is an appropriate

vehicle for PSC to seek review of the trial court’s order denying its motion to

compel. This method was noted with approval in Kindred Hospitals Ltd.

Partnership v. Lutrell, 190 S.W.3d 916 (Ky. 2006), which involved a wrongful

death claim against a nursing home. The nursing home filed a motion for

interlocutory relief under CR 65.07 after the trial court denied a motion to dismiss

or, in the alternative, to stay pending arbitration. The Kentucky Supreme Court

held that the nursing home could proceed under a motion for CR 65.07 relief as “a

denial of a motion to compel arbitration and to stay litigation is akin to a denial of

an injunction.” Id. at 919.

             An appellate court reviews de novo the trial court’s application of

rules governing the validity of an arbitration contract, but the court’s factual

findings, if any, will be disturbed only if clearly erroneous. Frankfort Medical

Investors, LLC v. Thomas by and Through Thomas, 577 S.W.3d 484, 487 (Ky.

App. 2019). As such, this Court applies the analysis set forth in Padgett v.

Steinbrecher, 355 S.W.3d 457, 459 (Ky. App. 2011) (citations omitted):

                    In reviewing an order denying enforcement of an
             arbitration clause or agreement, we apply a two-fold
             standard of review. First, we examine the trial court’s
             findings of fact. Those factual findings are reviewed
             under the clearly erroneous standard and are deemed
             conclusive if they are supported by substantial evidence.
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             Second, we review the circuit court’s legal conclusions
             de novo to determine if the law was properly applied to
             the facts.

             While no published case addresses the issue, the question of whether a

meeting of the minds created a binding contract is one of law, subject to de novo

review. As the Kentucky Supreme Court observed in Central Bank v. Gill, No.

2011-SC-0442-DG, 2013 WL 5436257, at *4 (Ky. Sep. 26, 2013) (citations

omitted):

                    We believe in the case sub judice that whether
             there was a meeting of the minds and, thus, an
             enforceable contract is an issue of law to be determined
             by the court. Generally, the construction of a contract is
             a matter of law. Furthermore, the parties have presented
             us with no factual disputes regarding whether the
             agreement reached at the Master Commissioner’s hearing
             constituted a meeting of the minds, as the entire
             stipulated settlement agreement is on the record.

             Kentucky law also dictates that appellate courts treat a CR 65.07

motion concerning an arbitration agreement differently than a typical grant or

denial of an injunction. The inquiry in this context acts more as an interlocutory

appeal. CR 65.07(3)(b) provides that the basis for relief under CR 65.07 is

identical to the grounds specified in CR 65.04(1). Thus, the rule generally requires

a showing that “the movant will suffer immediate and irreparable injury, loss, or

damage pending a final judgment in the action, or the acts of the adverse party will

tend to render such final judgment ineffectual.” CR 65.04(1). The Kentucky

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Supreme Court has held, however, that in the context of an improper denial of a

motion to compel arbitration, this immediate and irreparable harm is presumed.

North Fork Collieries, LLC v. Hall, 322 S.W.3d 98, 102 (Ky. 2010). With these

principles in mind, we turn to the instant case.

                                   III.   ANALYSIS

                The only question before us is whether the parties had a binding

agreement to arbitrate. It is well established the party seeking to compel

arbitration bears the burden of proving, in the first instance, the existence of an

agreement to arbitrate. Ping v. Beverly Enterprises, Inc., 376 S.W.3d 581, 590

(Ky. 2012). Under both the Federal Arbitration Act, 9 U.S.C.2 § 2 (FAA), and the

Kentucky Uniform Arbitration Act (KUAA), KRS3 417.045, “[t]hat question is

controlled by state law rules of contract formation.” Genesis Healthcare, LLC v.

Stevens, 544 S.W.3d 645, 649 (Ky. App. 2017).

                PSC argues the trial court erred in ruling that the “knockout rule”

applied to the fulfillment of orders between the parties. We agree. This is a matter

of contract formation, not construction.

                KRS 355.2-207 codifies the knockout rule, and provides, in relevant

part, as follows:

2
    United States Code.
3
    Kentucky Revised Statutes.
                                            -6-
             (1) A definite and seasonable expression of acceptance
                 or a written confirmation which is sent within a
                 reasonable time operates as an acceptance even
                 though it states terms additional to or different from
                 those offered or agreed upon, unless acceptance is
                 expressly made conditional on assent to the
                 additional or different terms.

             (2) The additional terms are to be construed as
                 proposals for addition to the contract . . . .

             (3) Conduct by both parties which recognizes the
                 existence of a contract is sufficient to establish a
                 contract for sale although the writings of the parties
                 do not otherwise establish a contract. In such case
                 the terms of the particular contract consist of those
                 terms on which the writings of the parties agree,
                 together with any supplementary terms incorporated
                 under any other provisions of this chapter.

             KRS 355.2-207 is not applicable to this case. Each transaction

between the parties ends with PSC accepting TBA’s terms in a written agreement.

The framework letter agreements are signed by both parties and therefore exhibit

an intent by both to be bound by their terms. The Court need not resort to the

knockout rule because the parties have executed a written contract. Courts may

resort to extrinsic evidence to resolve an ambiguity in a contract but not to create

an ambiguity where none exists. Frear v. P.T.A. Industries, Inc., 103 S.W.3d 99,

106 (Ky. 2003).

             The Kentucky Uniform Commercial Code codifies the parol evidence

rule at KRS 355.2-202. The framework letter agreements in question constitute a

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“writing intended by the parties as a final expression of their agreement[,]” and

therefore “may not be contradicted by evidence of any prior agreement” except as

may be explained or supplemented under circumstances not present here. Id.

             The trial court’s ruling hinges on a lack of a meeting of the minds,

merely because PSC had at one time proposed terms different than those ultimately

accepted. This concept has no application when the parties have entered into a

subsequent written agreement.

             We decide today only that an agreement to arbitrate exists between

the parties. This agreement is governed by the FAA, which applies to arbitration

agreements within a contract or transaction involving interstate commerce. 9

U.S.C. § 2. The FAA requires that the trial court, “upon being satisfied that the

issue involved in such suit or proceeding is referable to arbitration under such an

agreement, shall . . . stay the trial of the action until such arbitration has been

had[.]” 9 U.S.C § 3. This federal statute is enforceable in Kentucky state courts.

Kodak Min. Co. v. Carrs Fork Corp., 669 S.W.2d 917, 919 (Ky. 1984). See also

North Fork Collieries, LLC, 322 S.W.3d at 102 n.2.

             The question remains as to whether this particular claim is governed

by the arbitration agreement between the parties. The trial court did not reach this

issue, as it found that no agreement to arbitrate existed. The AAA Commercial

Arbitration Rules provide that the “arbitrator shall have the power to rule on his or

                                           -8-
her own jurisdiction, including . . . the arbitrability of any claim or counterclaim.”

While courts retain the right and responsibility to determine whether an agreement

to arbitrate exists, voluntary adoption of similar AAA rules properly transfers the

power to “arbitrate the arbitrability” to an arbitrator. Ally Align, Inc. v. Signature

Advantage, LLC, 574 S.W.3d 753, 756 (Ky. 2019) (emphasis omitted) (citing

American Arbitration Association, Commercial Arbitration Rules & Mediation

Procedures, R-7(a) Jurisdiction (Oct. 1, 2013)) (available at https://www.adr.org/

sites/default/files/CommercialRules_Web.pdf) (last accessed Jul. 15, 2022).

                                 IV.    CONCLUSION

             For the reasons set forth above, PSC’s motion for intermediate relief

under CR 65.07 is hereby GRANTED. This case is remanded to the trial court

with instructions to enter an order granting PSC’s motion to compel arbitration and

to stay the underlying action pending completion of the arbitration process.

             ALL CONCUR.

 ENTERED: July 22, 2022____
                                         CHIEF JUDGE, COURT OF APPEALS

                                          -9-
COUNSEL FOR MOVANT:      COUNSEL FOR RESPONDENT:

David S. Kaplan          Kevin L. Murphy
Casey L. Hinkle          Nicholas R. Gregg
Louisville, Kentucky     Fort Mitchell, Kentucky

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