Fite & Warmath Const. Co., Inc. v. Mys Corp.
| Decision Date | 09 December 1977 |
| Citation | 559 S.W.2d 729 |
| Court | United States State Supreme Court — District of Kentucky |
| Parties | FITE AND WARMATH CONSTRUCTION COMPANY, INC., Appellant, v. MYS CORPORATION et al., Appellees. |
G. Griffin Boyte, Warmath & Boyte, Humboldt, Tenn., Norman E. Harned, Cole, Harned & Broderick, Bowling Green, for appellant.
Trimble, Soyars & Breathitt, Hopkinsville, for MYS Corp., Hopkinsville Associates, and Manufacturers Hanover Trust Co. Milburn C. Keith, Douglas Myers, Keith, Scent, Kirkham & Walton, Hopkinsville, for MYS Corp.
W. E. Rogers, Jr., Hopkinsville, for Planters Bank & Trust Co., Mrs. Gladys Braswell Tate, Frances Tate Rogers and W. E. Rogers, Jr., her husband, Edith Tate LaMotte and Golliday LaMotte, her husband, and Lillian Tate.
Pollard White, Hopkinsville, for Barbara Nell Land and her husband, Myrick E. Land.
Thorpe L. Wolford, Louisville, for Manufacturers Hanover Trust Co.
James R. Reid, Hopkinsville, for Henderson-Moorefield Lumber Co., Inc.
W. Edward Whitfield, Johnson & Whitfield, Hopkinsville, for Naturalite, Inc.
Charles W. Latham and James P. Hanratty (now deceased), Hopkinsville, for Charles W. Latham d/b/a Charles W. Latham Truck Lines.
Maubert R. Mills, Mills, Mitchell, Turner & Donan, Madisonville, for Cantrell Sheet Metal and Roofing Co.
John Phelps & Sons, Inc., Memphis, Tenn., for Jackson Paving Co., Inc.
The decisive issue presented by this appeal is whether the trial court was correct in enforcing a contractual agreement to arbitrate instead of applying what is generally described as the common-law rule, which regards as revocable by either party any agreement between them to arbitrate future disputes.
In November 1969, Fite and Warmath Construction Company, Inc., a Tennessee corporation, entered into a "cost-plus" contract with MYS Corporation, a Kentucky corporation wholly owned by New York residents, in which Fite agreed to serve as general contractor for MYS in the construction of a commercial shopping mall in Hopkinsville, Kentucky. The contract, executed in New York City, was a printed standard-form agreement between owner and general contractor provided by the American Institute of Architects. It contained detailed provisions concerning the rights and duties of the contracting parties. In addition, it contained an agreement to arbitrate which read:
Thereafter, Fite commenced construction and the parties performed under the contract for about one year. On November 19, 1970, precipitated by a series of disputes between them, Fite and MYS entered into a memorandum agreement whereby they mutually agreed to terminate their contract as of 12:00 noon, Monday, November 12, 1970. Besides reciprocal pledges of cooperation to insure an orderly transfer of the project, this memorandum recited that the disputes "shall be decided in accordance with the terms of the original contract," and that "the interpretation of the contract shall be controlled by the laws of the State of Kentucky applicable to the execution of the original contract." (emphasis supplied).
On January 8, 1970, after withdrawing from the job site, Fite filed a mechanics and materialman's lien against the project in the office of the Christian County Clerk.
On April 23, 1971, MYS filed a demand for arbitration with the American Arbitration Association pursuant to section 7.10 of the original contract as reconfirmed in the November 19, 1970, memorandum of agreement terminating the relationship.
In the arbitration demand, MYS alleged 15 separate contractual violations, asserting that Fite had failed to provide qualified supervisory personnel, had awarded subcontracts at higher than market prices, had purchased materials which did not meet trade standards or contract terms, had employed more workmen than were necessary, had permitted unauthorized changes from plans, and had caused unnecessary delays.
On May 6, 1971, Fite filed suit in the circuit court against MYS to enforce its lien (KRS 376.010, et seq.) in the amount of $1,084,246.58 and for general damages in amount of $3,800,000. On May 10, 1971, Fite filed its answer with the arbitration association in which it asserted that there was no necessity to arbitrate because of its pending suit in the state court; it also stated that any award by arbitrators would not be binding upon the state court.
After other procedural skirmishes were completed, the circuit court ruled that the arbitration agreement was enforceable and stayed the state court proceedings until arbitration was completed.
After extensive proceedings in which Fite and MYS fully participated, the arbitration tribunal rendered its award on December 9, 1973. This award was in favor of MYS against Fite in the sum of $326,141.42, plus interest at 6 per cent per annum from April 28, 1971. Despite Fite's various objections to the award, including the complaint that it did not contain separate findings of fact, the circuit court entered the arbitration award as the judgment of the court. Fite appeals. We affirm the judgment of the circuit court for the reasons later stated.
The trial judge held that the United States Arbitration Act of 1925 1 applied. Section 2 of this Act declares in pertinent part that a written provision for arbitration in "any contract evidencing a transaction involving commerce" shall be valid and irrevocable and enforceable except upon such grounds as exist at law or in equity for the revocation of any contract.
From undisputed evidentiary material, the trial judge made the following significant factual findings:
Fite is a Tennessee corporation with its principal place of business in Tennessee. MYS is a Kentucky corporation with its principal place of business in New York, New York. The supervising architects are residents of New York. The construction loan which financed the project was made by the Manufacturers Hanover Trust Company of New York, New York. Eighty-eight per cent of the subcontractors engaged in the construction project were nonresidents of Kentucky and many of the employees crossed the Kentucky-Tennessee border daily to perform work on the mall. The majority of the tenants of the mall are corporations incorporated under the laws of a state other than Kentucky and maintaining their respective principal places of business in a state other than Kentucky.
After reciting these factual findings, the trial judge stated: "The court finds as a matter of fact at the time the parties entered into the contract on November 11, 1969, in New York, New York, both parties contemplated a transaction involving interstate commerce within the meaning of the Federal Arbitration Act, Title 9, U.S.C. Sections 1 and 2." Fite argues that the Supreme Court of the United States has recognized that the U. S. Arbitration Act is not applicable in state courts. It relies as authority upon the cases of Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and Bernhardt v. Polygraph Company of America, Inc., 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199 (1956).
In our view it is unnecessary to explore the problems created when the historical setting of the passage of the U. S. Arbitration Act of 1925 is considered. Suffice it to say that the Arbitration Act was passed before the decision in Erie R. Company v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which mandated that federal courts in diversity cases were bound to follow state rules of decision in matters which are "substantive" or where the matter is "outcome determinative." There is the additional consideration that in 1925 the Supreme Court interpreted the scope of what constituted interstate commerce in a much more restrictive fashion than was true by later decisions of that court.
In Bernhardt, supra, a diversity case, the Supreme Court interpreted the coverage of the U. S. Arbitration Act, particularly the stay provisions of section 3, as limited to maritime transactions and transactions in interstate commerce. After holding that the arbitration agreement in the case did not involve commerce nor affect a maritime transaction, the court decided that for purposes of the Erie doctrine arbitration was outcome determinative, thus requiring a federal court to determine the enforceability of an arbitration agreement not in interstate commerce under state law. The case did not hold, as asserted by Fite, that the U. S. Arbitration Act was not applicable in state courts.
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