City of Louisa v. Newland

• Citation: 705 S.W.2d 916
• Decision Date: 27 February 1986
• Docket Number: No. 85-SC-560-DG,85-SC-560-DG
• Parties: The CITY OF LOUISA, Appellant, v. Robert NEWLAND and George Riegel, Jr., d/b/a R.D.I. Construction Company, Appellees.
• Court: United States State Supreme Court (Kentucky)

Page 916

705 S.W.2d 916

The CITY OF LOUISA, Appellant, v. Robert NEWLAND and George Riegel, Jr., d/b/a R.D.I Construction Company, Appellees.

No. 85-SC-560-DG

Supreme Court of Kentucky.

Feb. 27, 1986.

Eldred E. Adams, Jr., Louisa, for appellant.

Phillip D. McKenzie, Grayson, for appellees.

WINTERSHEIMER, Justice.

This appeal is from a decision of the Court of Appeals which had affirmed in part and reversed in part a summary judgment of the circuit court.

The only issue here is the specific enforcement of an arbitration clause included in two contracts for the construction of sewer improvements in the City of Louisa. Both contracts were entered into after public advertisement for competitive bids.

This Court affirms the decision of the Court of Appeals in regard to the matter of venue. The city was properly sued in the county in which it was located. Willis v. City of Corbin, Ky.App., 572 S.W.2d 610 (1978).

This Court also affirms the Court of Appeals on the issue of arbitration and adopts the rationale and parts of the opinion of the Court of Appeals written by Judge Howerton and concurred in by Chief Judge Hayes and Judge Gudgel, as follows:

"In 1983, the City of Louisa entered into two contracts with the construction company for work to be performed for and within the city. Each contract contained the following provision concerning arbitration.

'All claims, disputes and other matters in question arising out of, or relating to, the CONTRACT DOCUMENTS or the breach thereof, except for claims which have been waived by the making and acceptance of final payment as provided by Section 20, may be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in any court having jurisdiction thereof.

'Notice of the demand for arbitration shall be filed in writing with the other party to the CONTRACT DOCUMENTS and with the American Arbitration Association, and a copy shall be filed with the ENGINEER. Demand for arbitration shall in no event be made after institution of legal proceedings based on any claim, dispute, or other matter in question which would be barred by the applicable statute of limitations.

'The CONTRACTOR will carry on the WORK and maintain the progress schedule during any arbitration proceedings unless otherwise mutually agreed in writing.

"Some problems arose concerning the work to be done and various change orders and extensions of time were requested. The city refused to comply with the requests, and the construction company served written notice of its demand to have the questions submitted to arbitration. The city refused to arbitrate, and the action was filed in the Boyd Circuit Court. The construction company sought to arbitrate change orders, which would allow an extension of time and additional monies for such things as delays caused by power lines, unscheduled gas and water lines, additional manholes, and unforeseen and unanticipated geological problems. The construction company also sought to recover for a pump which was allegedly destroyed by employees or agents of the city, for various violations of contractual provisions and for liquidated damages as allowed by the contract.

"Arbitration is a generally accepted method for dispute resolution, and it has become more favorable in recent years. Kodak Mining Co. v. Carrs Fork Corp., Ky., 669 S.W.2d 917 (1984). In looking at the contract as a whole, we determine that the contract means that arbitration is a permissible method for resolving impasses, if either party demands it. If neither party seeks to use arbitration, courts are always available.

"The construction company formally requested arbitration on February 9, 1984, and the disputes should have been resolved by arbitration as provided for in the contract. The company was entitled to specific performance.

"A question which was not raised prior to oral argument, but which we believe should be considered, is whether a municipal corporation can agree to arbitration as a method for resolving disputes. Cities may not delegate to private individuals legislative or discretionary functions assigned to it by the state legislature. 56 Am.Jur.2d Municipal Corporations Secs. 196, 197 (1971). Delegation of administrative powers is permissible, however. City of Newport v. Gugel, Ky., 342 S.W.2d 517 (1961). The problem is in determining what are legislative or discretionary functions as opposed to administrative functions.

"In City of Covington v. Covington Lodge No. 1, Fraternal Order of Police, Ky., 622 S.W.2d 221 (1981), the Kentucky Supreme Court declared a contract between the city and the police union illegal because it contained a provision for binding arbitration. The contract involved wages, bonuses, vacations, insurance, holidays, leaves of absence, shift differentials, overtime and supplemental pay, seniority, transfer procedures, job classifications, health and safety measures, evaluation of personnel, procedures for staff reductions, uniform and clothing allowances, hospitalization, training, and grievance procedures. The agreement also contained a provision that if an impasse persisted for 20 days on any issue or issues, either party 'may' request arbitration 'which shall be binding.' City of Covington, supra, at 223. The court held that the statutes specifically placed the control of a police department under the legislative body of the city. The contract between the parties involved practically everything that constituted control of the police department. Such things as the size of the department, the salaries and cots for the department were items which had to be finally determined by the legislative body and could not be delegated to private individuals. The court also determined that there was no 'clear necessity' for the delegation of the authority as had been found permissible in Miller v. Covington Development Authority, Ky., 539 S.W.2d 1 (1976). The City of Covington opinion concluded at 223:

We only decide that this particular agreement, with its binding arbitration clause, is an illegal delegation of legislative powers. We specifically reserve the question of the legality of arbitration agreements to settle future disputes.

"Although the result of the arbitration agreement...