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Certain Arbitration Agreements Must Specify Kentucky To Be Enforceable

On January 22, 2009, the Supreme Court of Kentucky refused to enforce a purported agreement to arbitrate in part because the agreement in question did not specify Kentucky as the location of the arbitration.  Ally Cat, LLC v. Chauvin, 274 S.W.3d 451 (Ky. 2009).

The Facts

Ally Cat, LLC (Ally Cat) purchased a condominium unit from N.C. Legacy, LLC (NC Legacy). Following the sale, the sole member of Ally Cat received a Home Owners Limited Warranty (HOLW) from a separate entity that provided that any claim or controversy “shall be settled by binding arbitration submitted to a professional arbitration service under its rules relating to the construction industry and the Kentucky Arbitration Act…” After discovering a roof leak on the premises, Ally Cat filed an action in the Jefferson Circuit Court seeking relief against NC Legacy for several tort claims, including fraud, concealment and negligence. NC Legacy filed a motion to compel arbitration pursuant to the HOLW and the Circuit Court ordered Ally Cat to arbitrate the dispute. Ally Cat appealed to the Court of Appeals of Kentucky seeking relief from the order to arbitrate, which the Court of Appeals denied.

The Decision

On further appeal, the Supreme Court of Kentucky ruled that the Court lacked jurisdiction to enforce the HOLW’s arbitration provision and could not force the parties to arbitrate the dispute. Among other grounds, the Court found that the Kentucky Uniform Arbitration Act (KUAA) requires that arbitration agreements must expressly provide that the arbitration will occur within the state of Kentucky. Because the HOLW did not require that the arbitration would take place in Kentucky, the Court allowed Ally Cat to avoid arbitration altogether and bring its suit directly in the Kentucky courts.

The Bottom Line

Carefully review the arbitration provisions in your agreements. If a contract concerns matters that do not involve “interstate commerce,” such as the sale of local real estate, you should be sure that the agreement clearly provides for arbitration in the state of Kentucky. If you choose to arbitrate the matter outside Kentucky, Kentucky courts may refuse to enforce the award of the arbitrator. For those agreements that involve matters of “interstate commerce,” there may be additional federal protection under the Federal Arbitration Act (FAA). The FAA is substantially similar to the KUAA and can serve as an additional basis for enforcing arbitration agreements so long as they involve matters of interstate commerce. Where applicable, the FAA preempts the KUAA and could provide Kentucky courts with jurisdiction to compel arbitration and enforce arbitration awards.

If you have questions regarding the enforceability of arbitration provisions in your contracts, you should seek legal counsel regarding the nature of the agreement and whether the KUAA, FAA or both may apply. If you or your company have questions about drafting arbitration provisions or if you would like more information, contact any member of Greenebaum’s Alternative Dispute Resolution Team or Corporate and Commercial Group.



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About Greenebaum Doll & McDonald PLLC
Greenebaum Doll & McDonald PLLC is a widely-respected business law firm with approximately 200 legal professionals in six offices, serving local, national and international clients in virtually every industry. A forward-thinking business law firm, Greenebaum is committed to the practice of Breakthrough Law®. For more information, visit www.greenebaum.com.

Copyright 2009 Greenebaum Doll & McDonald PLLC.  All Rights Reserved.

 

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