Jon Mand v. Barry Back ( 2022 )

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NOT TO BE PUBLISHED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
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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.
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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.
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. . . 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
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“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.
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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
Lee H. Donahue Donald L. Wilkerson III
Louisville, Kentucky Jeffrey H. Hoover
Jamestown, Kentucky
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