Psc Industries, Inc. v. Toyota Boshoku America, Inc. ( 2022 )

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
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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:
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United States Code.
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Kentucky Revised Statutes.
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(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
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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
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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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