Court Opinion

ID: 8482937
Source: CourtListenerOpinion
Date Created: 2022-11-10 16:04:58.310135+00
Date Added: 2024-06-11T16:49:42.999098
License: Public Domain

RENDERED: NOVEMBER 4, 2022; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2022-CA-0167-MR

JON MAND                                                             APPELLANT

                 APPEAL FROM RUSSELL CIRCUIT COURT
v.              HONORABLE VERNON MINIARD, JR., JUDGE
                        ACTION NO. 21-CI-00223

BARRY BACK AND
CATHERINE BACK                                                        APPELLEES

                               OPINION
                       REVERSING AND REMANDING

                                  ** ** ** ** **

BEFORE: ACREE, MCNEILL, AND L. THOMPSON, JUDGES.

THOMPSON, L., JUDGE: Jon Mand appeals from an order of the Russell Circuit

Court which denied his motion to compel arbitration. Appellant argues that the

contract at issue requires arbitration. We agree; therefore, we reverse and remand.

                   FACTS AND PROCEDURAL HISTORY

            On August 23, 2021, Appellant entered into a contract to purchase a

vacant lot from Barry and Catherine Back. The parties utilized a broker and
Appellant deposited a $5,000 earnest money deposit into an account with the

brokerage. The contract gave Appellant the option to declare the contract null and

void within thirty days of acceptance. Appellant ultimately utilized that provision.

                Appellant then sought the return of the $5,000 deposit. Appellees

refused to return the money. The parties went to mediation, but that was

unsuccessful. Appellees then filed suit for breach of contract. Appellant moved to

dismiss and compel arbitration. Appellant argued that the contract required

arbitration. The trial court denied the motion to compel arbitration and this appeal

followed.

                                       ANALYSIS

                We will first set forth the contract clauses at issue in this case. The

second clause of the purchase contract states in relevant part:

                Failure to deliver the earnest money deposit as described
                herein shall constitute a breach of this contract, in which
                case Seller may either grant an extension of time, declare
                the contract null and void, or pursue a claim for damages
                as a result of the breach. The deposit shall only be
                removed from the broker’s escrow account shown above
                upon closing, written agreement of all parties, court
                order, or as provided by law, in accordance with KRS[1]
                324.111(6). If either party fails to perform his/her
                obligation hereunder, the other party may accept the
                deposit as liquidated damages, with both parties signing a

1
    Kentucky Revised Statutes.

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                release, or subject to paragraph 16,[2] may pursue any
                available legal or equitable remedy. In the event that any
                legal action is necessary as a result of the Buyer’s or
                Seller’s refusal to release the earnest money deposit, in
                addition to any other remedies available under this
                Contract, the prevailing party shall be entitled to recover
                the earnest money deposit and any and all
                mediation/arbitration or Court costs and the reasonable
                attorney’s fees required to obtain the return of said
                deposit.

The fifteenth clause of the contract states in relevant part:

                Any dispute or claim . . . of Seller, Buyer, Broker, Agents
                or any of them for a sum greater than the limits of small
                claims court jurisdiction[3] arising out of this Contract or
                breach thereof . . . shall first be submitted to mediation
                and arbitration[.]

                If mediation does not result in an agreement signed by
                the Parties, all such claims or disputes shall be decided
                by binding arbitration . . . . Any proceeding to determine
                damages shall be conducted by an arbitrator pursuant to
                this paragraph 15 and not in court and shall be conducted
                in the Commonwealth of Kentucky. In the event a party
                fails to proceed with arbitration when so required, or
                unsuccessfully challenges the arbitrator’s award, the
                other party is entitled to recover its costs, including
                reasonable attorney fees, for having to compel arbitration
                or defend/enforce the award.

2
 Paragraph 16 concerns amendments to the contract and is not relevant to this appeal. Appellant
argues that this was a typographical error and it should say “paragraph 15,” which concerns
arbitration. We need not address whether this was a typographical error as it has no bearing on
our judgment.
3
    No claim for over $2,500 can be brought in small claims court. KRS 24A.230.

                                               -3-
             Appellees believe they are entitled to pursue any legal or equitable

remedy pursuant to clause 2. Appellees claim this clause allows them to pursue

their cause of action in the circuit court. Appellant, on the other hand, argues that

clause 15 requires binding arbitration. The trial court agreed with Appellees.

             On appeal, Appellant argues that the contract is clear that arbitration is

required in this case. Appellees argue that because the contract is ambiguous, it

must be construed in their favor and allow litigation in court.

             Because arbitration is fundamentally a matter of contract
             an arbitration agreement is treated as all other contracts
             and if the agreement is valid, it will be enforced[.] Once
             the party seeking to enforce an agreement meets its
             burden of establishing with prima facie evidence a valid
             arbitration agreement exists, the burden shifts to the party
             seeking to avoid the agreement to rebut the
             presumption. [A]ny doubts concerning the scope of
             arbitrable issues should be resolved in favor of
             arbitration, whether the problem at hand is the
             construction of the contract language itself or an
             allegation of waiver, delay, or a like defense to
             arbitrability.

LP Louisville East, LLC v. Patton, No. 2019-SC-0016-DG, 2020 WL 13559023, at

*3 (Ky. Aug. 20, 2020), as modified on denial of reh’g (Apr. 29, 2021) (internal

quotation marks and citations omitted).

                   The interpretation of a contract, including
             determining whether a contract is ambiguous, is a
             question of law to be determined de novo on appellate
             review.

                                          -4-
                    . . . A basic rule of contract interpretation requires
             that preference be given to the interpretation which gives
             a reasonable, lawful, and effective meaning to all the
             terms over a reading which leaves a part unreasonable,
             unlawful, or of no effect.

                    Moreover, in the absence of ambiguity, a written
             instrument will be enforced strictly according to its
             terms, and a court will interpret the contract’s terms by
             assigning language its ordinary meaning and without
             resort to extrinsic evidence. A contract is ambiguous if a
             reasonable person would find it susceptible to different or
             inconsistent interpretations.

                    When no ambiguity exists in the contract, we look
             only as far as the four corners of the document to
             determine the parties’ intentions. If the language is
             ambiguous, the court’s primary objective is to effectuate
             the intentions of the parties. The fact that one party may
             have intended different results, however, is insufficient to
             construe a contract at variance with its plain and
             unambiguous terms.

Maze v. Board of Directors for Commonwealth Postsecondary Education Prepaid

Tuition Tr. Fund, 559 S.W.3d 354, 363 (Ky. 2018) (internal quotation marks and

citations omitted).

             As it pertains to this contract and the arbitration clause, we conclude

that the trial court erred in not compelling arbitration. Clause 2 states that disputes

regarding the deposit shall be pursued via “any available legal or equitable

remedy.” Clause 15 then states that any dispute or claim arising out of the contract

                                          -5-
“shall” go to mediation and arbitration if the amount at issue exceeds the small

claims jurisdictional amount.4

                 We do not believe the contract is ambiguous. Looking at the four

corners of the contract, and reading clauses 2 and 15 together, it is clear that the

only available legal avenue to determine who is entitled to the deposit is to submit

the issue to arbitration. “By all rules of construction and interpretation with which

we are familiar we are required to give the words of the agreement their ordinary

meaning. ‘Shall’ does not mean ‘may’ but is mandatory.” Fayette Cnty. Ed. Ass’n

v. Hardy, 626 S.W.2d 217, 220 (Ky. App. 1980). Causes of action arising from the

contract with damages exceeding $2,500 shall go to mediation and arbitration

according to the clear terms of the contract. The damages being sought here are

$5,000; therefore, arbitration is required. Ignoring the arbitration clause would be

unreasonable. Our interpretation reconciles both clauses at issue and gives effect

to all terms of the contract. Maze, supra.

                                         CONCLUSION

                 Based on the foregoing, we reverse and remand. On remand, the trial

court shall compel arbitration.

                 ALL CONCUR.

4
    The damages in this case do exceed this jurisdictional amount.

                                                 -6-
BRIEFS FOR APPELLANT:    BRIEF FOR APPELLEES:

Lee H. Donahue           Donald L. Wilkerson III
Louisville, Kentucky     Jeffrey H. Hoover
                         Jamestown, Kentucky

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