PADUCAH FEDERAL CREDIT UNION APPELLANT v. CONSULTANTS AND BUILDERS INC APPELLEE (2011)

NOT TO BE PUBLISHED

OPINIONAFFIRMING

Paducah Federal Credit Union appeals from an order entitling Consultants and Builders, Inc. (CBI) to enforce in Kentucky a foreign judgment based upon an arbitration award.   The Credit Union argues:  (1) a foreign arbitration award is precluded from enforcement when the arbitration agreement fails to provide for arbitration in Kentucky;  and (2) independent grounds for federal jurisdiction must exist for enforcement of an award under the Federal Arbitration Act (FAA).   We affirm.

The Credit Union planned on constructing a fourth branch office in Paducah, Kentucky.   CBI, a Georgia corporation, submitted the low bid.   The parties' agreement contained an arbitration clause, but did not specify any particular location for the arbitration to take place.   Shortly thereafter, a dispute arose over the cost of the project, the project was halted, and the Credit Union refused to pay the $57,000.00, which CBI had billed for its design services.

CBI filed an arbitration claim in Georgia.   The Credit Union responded by filing a motion in McCracken Circuit Court to prohibit CBI from proceeding with arbitration, which the trial court granted.   CBI appealed and this Court reversed the trial court and compelled arbitration.  Consultants and Builders, Inc. v. Paducah Federal Credit Union, 266 S.W.3d 837 (Ky.App.2008).   This Court found that any issues of enforceability in Kentucky were premature and did not consider them.  Id. at 841.

Subsequently, the arbitration proceeding was conducted in Georgia.   CBI was awarded $78, 587.00.   CBI sought to enforce the arbitration award in the United States Court for the Northern District of Georgia.   The Credit Union did not appear before the federal court and CBI obtained judgment by default.   Citing the recent Kentucky Supreme Court case, Alley Cat, LLC v. Chauvin, 274 S.W.3d 451 (Ky.2009), the Credit Union again moved the McCracken Circuit Court to enjoin CBI was enforcing the foreign judgment in Kentucky.   The trial court denied the motion and entered an order entitling CBI to enforcement of the foreign judgment.   This appeal followed.

The Credit Union first argues that enforcement of a foreign arbitration award is precluded when the arbitration agreement fails to provide for the arbitration to take place in Kentucky.

Alley Cat, supra, held that the plain language of KRS 417.200 only allows enforcement of arbitration agreements which specifically state that the arbitration is to be held in Kentucky.   However, “Ally Cat has no applicability to an arbitration agreement governed exclusively by the Federal Arbitration Act.” Ernst & Young, LLP v. Clark, 323 S.W.3d 682, 687 fn.   8 (Ky.2010).   Therefore, the issue before us is whether the trial court correctly determined that this arbitration agreement was governed by the FAA.

9 U.S.C.A. § 2 states:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

In Fite & Warmath Const.   Co., Inc. v. MYS Corp., 559 S.W.2d 729, 734 (Ky.1977), the Supreme Court of Kentucky held that the FAA is applicable “to actions brought in the courts of this state where the purpose of the action is to enforce voluntary arbitration agreements in contracts evidencing transactions in interstate commerce.”  Fite held that a contract involving the construction of a shopping mall evidenced a transaction involving interstate commerce.   In Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 273-4, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), the United States Supreme Court held that a contract between an Alabama homeowner and a local Terminix franchise involved interstate commerce.   The Court centered its analysis on the fact that Terminix was a commercial entity, the parties were from different states, and the materials used by Terminix came from outside Alabama.  Id. at 281, 115 S.Ct. 834.   The Court also applied a broad interpretation of § 2 of the FAA. Id. In the present case, the undisputed evidence demonstrated that both parties to the contract are commercial entities from different states and both personnel and materials would have been transported from outside Kentucky to complete the project.   Therefore, we conclude that the FAA is applicable because the contract evidenced a transaction involving interstate commerce.

The Credit Union next argues that the federal court was without jurisdiction to confirm the arbitration award to judgment because there were no independent grounds to confer jurisdiction upon the federal court.

9 U.S.C.A. § 4 states in pertinent part:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

The United State Supreme Court stated:

§ 4 of the FAA does not enlarge federal-court jurisdiction;  rather, it confines federal courts to the jurisdiction they would have “save for [the arbitration] agreement.”   Mindful of that limitation, we read § 4 to convey that a party seeking to compel arbitration may gain a federal court's assistance only if, “save for” the agreement, the entire, actual “controversy between the parties,” as they have framed it, could be litigated in federal court.

Vaden v. Discover Bank, 129 S.Ct. 1262, 1275 (2009).   The Credit Union's reliance on Vaden is misplaced because CBI did not petition the federal court to compel arbitration under § 4 of the FAA. Rather, CBI made an application for the federal court to confirm the arbitration award under § 9 of the FAA.

9 U.S.C.A. § 9 states in pertinent part:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.   If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.   Notice of the application shall be served upon the adverse party, and thereupon the court shall have jurisdiction of such party as though he had appeared generally in the proceeding.   If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court.   If the adverse party shall be a nonresident, then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.  (Emphasis added.)

Here, the agreement between the parties did not specify the court to enter judgment upon the arbitration award.   The plain language of § 9 of the FAA permits the recipient of an arbitration award to make an application for confirmation and judgment in the federal district court where the award was made.   The Credit Union has not asserted lack of notice of the federal court proceedings.   Also, in its brief, the Credit Union admits it did not participate in the proceedings.   Therefore, we conclude that the arbitration award was properly confirmed under § 9 of the FAA.

Accordingly, the order of the McCracken Circuit Court is affirmed.

ALL CONCUR.

ISAAC, SENIOR JUDGE: