The Kentucky Shakespeare Festival, Inc. v. Brantley Dunaway ( 2016 )

RENDERED: JUNE 16, 2016
U " .IS14-7D
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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 [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.
(Emphasis added).
2
The independent accounting firm referred to in Section 5(e) was Deming
Malone Livesay 85 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.
II. 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."
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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
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." 4 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.
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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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