Court Opinion

ID: 3213770
Source: CourtListenerOpinion
Date Created: 2016-06-16 14:04:36.841339+00
Date Added: 2024-06-11T15:22:21.262332
License: Public Domain

RENDERED: JUNE 16, 2016
                                                           TO BE PUBLISHED

                 „Suprtint Cgourf                      ritfuritv
                                  2016-SC-000002-I

 THE KENTUCKY SHAKESPEARE FESTIVAL,                                        MOVANT
  INC.

                     ON REVIEW FROM COURT OF APPEALS
 V.                      CASE NO. 2015-CA-001547-I
                 JEFFERSON CIRCUIT COURT NO. 14-CI-003526

 BRANTLEY DUNAWAY                                                   RESPONDENT

                OPINION OF THE COURT BY JUSTICE VENTERS

                       DENYING INTERLOCUTORY RELIEF

       Movant, Kentucky Shakespeare Festival, Inc. (KSF), seeks interlocutory

 relief following the Court of Appeals' denial of its CR 65.07 motion for an order

to compel the Jefferson Circuit Court to confirm what KSF calls an "arbitration

award" arising from an employment contract between KSF and Respondent,

Brantley Dunaway. Upon review of KSF's motion and Dunaway's response, we

decline to grant relief because we are persuaded that the dispute was not

subject to an arbitration agreement and no "arbitration award" existed to be

confirmed by the circuit court.

                 I. FACTUAL AND PROCEDURAL BACKGROUND
       In May 2011, KSF, a nonprofit theatrical organization, hired Brantley

Dunaway to serve as its director. KSF and Dunaway entered into an

Employment Agreement which provided Dunaway with an annual salary to be

supplemented with bonus payments each fiscal year if certain revenue
 increases were achieved. Two years later, amid accusations of impropriety,

 KSF terminated Dunaway's employment. In connection with the termination,

 the parties negotiated a Severance and Release Agreement (Severance

Agreement) that included a provision requiring KSF to pay Dunaway the 2013

fiscal year bonus calculated in accordance with the Employment Agreement.

       Section 5 of the Employment Agreement contained the provisions for

Dunaway's bonus compensation. Section 5(e) is the provision that KSF

proffers as an agreement to arbitrate. The following portions of Section 5 are

relevant to our review:

       5(a): In addition to the Base Salary, [KSF] agrees to pay [Dunaway]
       an amount equal to ten percent (10 %) of the year over year
       increase in net revenues for education programming for each fiscal
       year of this employment agreement, computed beginning October
       1, 2012, for the fiscal year from October 1, 2011, to September 30,
       2011. . . .

      5(b): In addition to the Based Salary, [KSF] agrees to pay
      [Dunaway] an amount equal to ten percent (10%) of the year over
      year increase in net revenues for non-educational, non-grant
      revenues for each fiscal year of this employment agreement,
      computed beginning October 1, 2012, for the fiscal year from
      October 1, 2011, to September 30, 2011 . . . .

     5(e): Sound accounting principles will be used to determine the
     increases for each fiscal year, and state and federal income taxes
     will not be deducted. The parties agree to abide by the
     determination of the independent firm of certified public accountants
     currently employed by [KSFJ to prepare the financial statement for
     the fiscal year in question in case of a dispute as to the true amount
     of the net profits, and each party agrees to accept such
     determination as final.
(Emphasis added).

                                        2
       The independent accounting firm referred to in Section 5(e) was Deming

Malone Livesay 86 Ostroff ("DMLO"). It is not clear whether the parties

attempted to calculate the 2013 bonus before the dispute developed, but it is

clear that a dispute arose, and pursuant to Section 5(e), DMLO was called

upon to determine the "true amount of the net profits" from which the bonus

pay would be calculated.' On February 10, 2014, KSF informed Dunaway by

letter as follows:

       [DMLO] recently completed their audit of Kentucky Shakespeare's
       financial records for Fiscal Year 2013. As part of that audit, and
       as required by the employment contract in effect between you and
       Kentucky Shakespeare during FY13, DMLO calculated your
       performance bonus in accordance with the net revenue formulas in
       your contract as applied in prior years. They have calculated that
       no bonus is due. The detail of that calculation is attached.

       After KSF informed Dunaway that he was not entitled to a bonus for the

2013 fiscal year, Dunaway filed suit for breach of contract. 2 In response to

Dunaway's suit, KSF asserted no claim that Dunaway's bonus calculation was

governed by an arbitration agreement, nor did it assert that the bonus issue

had already been resolved by binding arbitration. KSF did not file a counter-

claim seeking a judicial confirmation of an arbitration award for the 2013

bonus issue. The first reference to "arbitration" came nearly a year after the

        1 It has not escaped our attention that Sections 5(a) and 5(b) base Dunaway's
bonus pay on "net revenues" while Section 5(e) provides that when a dispute arises,
DMLO shall determine the "true amount of the net profits." Whether the incongruity
of "net revenue" and "net profit" is purposeful or inadvertent is not germane to our
review.
     2 Appellant also claimed entitlement under the Severance Agreement to other
payments, but the validity of those claims is not before us.

                                           3
 suit was filed when, in June 2015, KSF filed a "Motion for Partial Summary

 Judgment and Declaratory Relief." The declaratory judgment component of

 KSF's motion requested a declaration that, pursuant to the terms of the

 Employment Agreement and the Severance Agreement, the parties must abide

 by KSF's accounting firm's "determination that Dunaway is not entitled to a

 Fiscal Year 2013 bonus" because that determination was a binding "arbitration

 award."

        Neither Section 5 nor any other part of the Employment Agreement

 specifically refers to "arbitration," nor does it mention submitting bonus

disputes to an arbitrator or any other process of alternative dispute resolution.

The Severance Agreement explicitly provided that the venue for any proceeding

involving the Severance Agreement would be a "court of competent jurisdiction

for Jefferson County, Kentucky."

       The Jefferson Circuit Court denied KSF's motion for declaratory relief,

holding that Section 5(e) was not an agreement to forgo litigation and arbitrate

any bonus dispute, and thus KSF was not entitled to an order of the court

confirming DMLO's "arbitration award." KSF then sought interlocutory relief in

the Court of Appeals pursuant to CR 65.07. The Court of Appeals agreed with

the circuit court, concluding that Section 5(e) constituted an agreement for an

appraisement rather than an agreement to arbitrate. 3 Unsuccessful at the

        3 Black's Law Dictionary (10th ed. 2014) defines appraisement as "An
alternative-dispute-resolution method used for resolving the amount or extent of
liability on a contract when the issue of liability itself is not in dispute. Unlike
                                             4
 Court of Appeals, KSF brought this action pursuant to CR 65.09, which

 provides: "Any party adversely affected by an order of the Court of Appeals in a

 proceeding under Rule 65.07 or Rule 65.08 may . . . move the Supreme Court

 to vacate or modify it." KSF petitions this Court for a "declaration confirming

 the arbitration award rendered by the accounting firm[ .]" For the reasons
                                                            .

 stated below, we decline to do so.

                                       IL ANALYSIS

       KSF petitions this Court for an order compelling the Jefferson Circuit

Court to "issue a declaration confirming the arbitration award rendered by the

accounting firm of Deming, Malone, Livesay 86 Ostroff." Based upon our review

of the record, we are persuaded that no arbitration agreement existed between

KSF and Dunaway. We are satisfied that no arbitration proceeding occurred,

and there is no arbitration award to be confirmed.

       As it did before the Court of Appeals, KSF claims before this Court that

Section 5(e) of the Employment Agreement contains an agreement to arbitrate

any dispute about Dunaway's annual salary bonus. The critical language of

Section 5(e) is this sentence:

       The parties agree to abide by the determination of the independent
       firm of certified public accountants currently employed by [KSF] to
       prepare the financial statement for the fiscal year in question in
       case of a dispute as to the true amount of the net profits, and each
       party agrees to accept such determination as final.

arbitration, appraisement is not a quasi-judicial proceeding but instead an informal
determination of the amount owed on a contract."

                                           5
       KSF argues that Section 5(e) is a "delegation of the calculation of

Dunaway's bonus to a third-party decision maker" which "constitute[s] an

agreement to arbitrate, not litigate, any dispute related to Dunaway's bonus

calculation." KSF bears the burden of proving that Section 5(e) was intended

by the parties as an arbitration agreement, and further, that the DMLO

determination of net profit constitutes an "arbitration award" that qualifies for

judicial confirmation. "[A] party seeking to compel arbitration has the initial

burden of establishing the existence of a valid agreement to arbitrate."     Ping v.

Beverly Enterprises, Inc., 376 S.W.3d 581, 590 (Ky. 2012) (citations omitted).

"Questions concerning the formation of an arbitration agreement are resolved

in accordance with the applicable state law governing contract formation."

Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306, 320 (Ky. 2015).

      We accordingly apply here the same fundamental principles of contract

interpretation that would apply for interpreting any other type of contract. Our

review must begin with an examination of the plain language of the

instrument. "'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." Wehr Constructors, Inc. v. Assurance Company of America,

384 S.W.3d 680, 687 (Ky. 2012) (quoting Frear v. P.T.A. Industries, Inc., 103

S.W.3d 99, 106 (Ky. 2003). "A contract is ambiguous if a reasonable person
would find it susceptible to different or inconsistent interpretations."   Hazard

 Coal Corporation v. Knight, 325 S.W.3d 290, 298 (Ky. 2010) (citation omitted).

       "When no ambiguity exists in the contract, we look only as far as the four

corners of the document to determine the parties' intentions."     3D Enterprises

 Contracting Corporation v. Louisville and Jefferson County Metropolitan Sewer

District, 174 S.W.3d 440, 448 (Ky. 2005) (citation omitted). If the language is

ambiguous, the court's primary objective is to effectuate the intentions of the

parties. Cantrell Supply, Inc. v. Liberty Mutual Insurance Company, 94 S.W.3d

381, 384 (Ky. 2002). "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." Abney v. Nationwide Mutual Insurance Company,

215 S.W.3d 699, 703 (Ky. 2006) (quoting Cantrell, 94 S.W.3d at 385). 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.

Id.

       Section 5 of the Employment Agreement has ambiguities, such as the

one identified above in Footnote 1. However, the critical passage proffered by

KSF as the arbitration clause is free of ambiguity: "The parties agree to abide

by the determination of the independent firm of certified public accountants

currently employed by [KSF] to prepare the financial statement for the fiscal

year in question in case of a dispute as to the true amount of the net profits,

and each party agrees to accept such determination as final." By its plain

language, Section 5(e) directs that if the parties disagree on the net profit figure

                                         7
 to be used for calculating Dunaway's bonus, KSF's accounting firm, (now

 DMLO), will "prepare the financial statement for the fiscal year in question"

 based upon "sound accounting principles" and its calculation of KSF's net

 profit shall be binding. No reasonable reading of Section 5 supports the

conclusion that DLMO will calculate Dunaway's bonus, or that the parties are

in any way bound by a final calculation of the bonus rendered by DMLO.

Section 5(e) provides a resolution only for disputes about KSF's "net profit" for

whatever effect that figure may have on bonus calculation as otherwise set

forth in the contract.

       Significantly, Section 5(e) makes no express reference to "arbitration,"

nor does it employ words of similar import connoting an arbitrational process

before a tribunal of decision makers from which we might imply the parties'

intention to arbitrate. The fact that KSF did not promptly assert the arbitration

award as an affirmative defense against that portion of Dunaway's lawsuit

certainly suggests that KSF did not immediately think of Section 5(e) as an

arbitration clause and did not immediately regard the DMLO calculation as a

binding arbitration award.

      Even more telling is the fact that the Severance Agreement expressly

guarantees Dunaway the right "to be paid . . . bonus amounts earned under

the terms of [his] employment agreement with [KSF]" and has the additional

provision that the "[v]enue for any proceedings regarding this Agreement shall

be in a court of competent jurisdiction for Jefferson County, Kentucky." Thus,

the Severance Agreement that afforded Dunaway the contractual right to the

                                        8
 bonus pay for which he filed suit contains the further provision for litigation of

 the dispute in a court of Jefferson County, Kentucky. The language of Section

 5 does not expressly or implicitly provide for arbitration of the bonus dispute,

 and the Severance Agreement explicitly militates against an arbitration of the

 dispute.

       We are mindful of the Kentucky Uniform Arbitration Act (KUAA), KRS

 417.045-417.240, and specifically KRS 417.050, which excludes from the

 provisions of the Act "arbitration agreements between employees and

employers." Consequently, the fundamental due process provisions governing

arbitration proceedings which are set forth in KRS 417.090 and KRS 417.100

may not directly apply to arbitration clauses in employment contracts. 5

                                                                               Neverthel s , those provis ons reflect he common perception that arbitration is

an adversarial process with the fundamental components of due process

including a hearing with an opportunity to present evidence and cross-examine

witnesses, and to have representation by counsel if desired.

       An agreement to abide by a "net profit" calculation of a particular

accounting firm is fundamentally different than having the accounting firm

serve as the binding arbitrator of the broader question of the bonus amount.

       4 In pertinent part, KRS 417.050 provides: "This chapter does not apply to: (1)
Arbitration agreements between employers and employees or between their respective
representatives . . . ."
       5 Generally, KRS 417.090 and KRS 417.100 provide that unless otherwise
agreed, arbitration proceedings shall be conducted upon reasonable notice with an
opportunity for each party to be heard by presenting evidence and witnesses and by
examining opposing evidence and witnesses, and to be represented by counsel if
desired.

                                          9
Arbitration is a process, not an answer. We believe the trial court and the

Court of Appeals correctly regarded Section 5(e) as something other than an

arbitration clause. In summary, section 5(e) is unambiguous and contains

none of the characteristics normally included in an arbitration clause or

otherwise associated with the process of arbitration.

                                 III. CONCLUSION
      Since we conclude that Section 5(e) is not an arbitration agreement, it

follows that the DMLO's bonus calculation is not an "arbitration award" that

can be confirmed by an appropriate court. Accordingly, the petition of The

Kentucky Shakespeare Festival, Inc. for interlocutory relief pursuant to Cr

65.09 is denied.

      All sitting. All concur.

COUNSEL FOR APPELLANT:

Steven Clark
John 0. Sheller
Stoll Keenon Ogden, PLLC

COUNSEL FOR APPELLEE:

Callie Elizabeth Walton
Gwin, Steinmetz 86 Baird, PLLC

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