No. 96,823
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
THE CITY OF ANDOVER, KANSAS,
Appellee,
v.
SOUTHWESTERN BELL TELEPHONE, L.P.,
Appellant.
SYLLABUS BY THE COURT
1. The interpretation and legal effect of written instruments are matters of law, over which an appellate court exercises unlimited review.
2. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.
3. Generally, courts seek to uphold arbitration agreements even where the contract provisions are somewhat uncertain and indefinite.
4. Arbitration clauses will not be enforceable upon such grounds as exist at law or in equity for the revocation of any contract.
5. Any claim that would call the validity of a contract and its formation into question, such as fraud, misrepresentation, mistake, illegality, and lack of consideration, can avoid an arbitration clause. An arbitration provision is similarly unenforceable if it provides for arbitration of a claim in tort.
Appeal from Butler District Court; DAVID A. RICKE, judge. Opinion filed March 9, 2007. Affirmed.
Timothy S. Pickering, Bruce A. Ney, and Melanie N. Sawyer, of Southwestern Bell Telephone, L.P., of Topeka, for appellant.
Norman G. Manley, of Davis, Manley & Lane, of El Dorado, for appellee.
Before CAPLINGER, P.J., HILL and BUSER, JJ.
HILL, J.: We consider here an order denying arbitration of a claim of the City of Andover (Andover) against Southwestern Bell Telephone, L.P. (SWBT). Andover sued SWBT, alleging that the phone company's negligence in not promptly locating its buried cables forced the city into later making a contract with SWBT to move those cables. SWBT successfully moved the cables and was paid for its work. But the parties' contract had an arbitration clause and, when sued by Andover, SWBT unsuccessfully sought arbitration of the claim. We hold that the district court properly refused to compel arbitration because under Kansas law, tort claims are not subject to contract provisions requiring arbitration of disputes.
Background Facts
In May 2005, Andover was planning development of a commercial addition to the city called "The River at Andover." Andover forwarded the proposed construction plans, which included the location of roads, sewer lines, and water lines, to SWBT and other various utilities. Andover requested that each utility identify any conflicts that might arise between the existing utility structures and the proposed construction. Other than requesting an additional 20-foot easement, SWBT did not indicate that there was any problem with the plans. But in June 2005, SWBT notified Andover that some of its underground cables did actually conflict with the development.
Andover originally demanded that SWBT relocate the conflicting cables at its own expense. SWBT refused, claiming that the existence of a legal easement precluded it from having to honor the demand. Because the cables were not in a public right-of-way, Andover had no authority to relocate the cables; it therefore had to rely on SWBT to do the work.
In July 2005, the parties signed an agreement in which Andover agreed to pay SWBT $67,977.23 to relocate the cables. The contract also contained a "Choice of Law and Arbitration" provision:
"Should any dispute arise between the parties concerning the subject matter of this agreement, or any term contained therein, the parties agree that the dispute or claim shall be submitted to binding arbitration before the American Arbitration Association. The parties further agree that the prevailing party in any such dispute will be entitled to recover attorney's fees and costs of arbitration."
Andover paid SWBT $67,977.23 before the relocation work began, in compliance with their contract. Andover stipulates that SWBT satisfactorily completed relocation of the underground utility cables.
In January 2006, Andover filed a petition seeking as damages from SWBT the cost of relocating the cables. Andover alleged that prior to commencement of construction, SWBT had negligently failed to record its utility easement or provide Andover with notice of the location of the utilities. Had SWBT either recorded the easement or provided Andover with proper notice when SWBT reviewed the subdivision plans, the proposed plat could have been amended or modified to avoid conflict with the existing underground utilities. As a result, Andover was forced to pay to have the conflicting cables relocated. Andover alleged that SWBT's negligence was the "approximate (sic) cause of the costs associated with relocating said utilities." Therefore, Andover insisted that SWBT had been "unjustly enriched" by its payment and demanded judgment in that amount.
Shortly thereafter, SWBT made a formal, written demand on Andover to submit the dispute to arbitration in accordance with their agreement. Andover rejected SWBT's demand for arbitration, and SWBT filed a motion to stay proceedings and compel plaintiff to submit to arbitration, and simultaneously filed its answer citing the arbitration provision in their agreement as an affirmative defense
Ultimately, the district court denied SWBT's motion to stay proceedings and compel arbitration, ruling:
"This express claim of 'unjust enrichment' is an equitable claim which reaches the very essence of whether the contract obligating [the City] to pay is valid. The Court construes [the City's] cause of action as one seeking to nullify the purported contractual obligation to pay for [SWBT's] services, and for return of the amount previously paid. Pursuant to K.S.A. 5-401(b), this claim by [the City] is a case wherein 'grounds as exist at law or in equity for the revocation of a(ny) contract' are being asserted."
In a footnote, the district court commented that a provision mandating arbitration for a claim of tort is not enforceable under K.S.A. 5-401(c)(3). Despite describing Andover's initial pleading as a claim in tort, the district court interpreted the petition as an equitable claim under K.S.A. 5-401(b).
In this appeal, SWBT argues that Andover's claims are directly related to the subject matter of their agreement and the case should be submitted to arbitration. SWBT argues that the district court erred in failing to apply the threshold test established in City of Wamego v. L. R. Foy Constr. Co., 9 Kan. App. 2d 168, 171, 675 P.2d 912, rev. denied 234 Kan. 1076 (1984): "[W]henever a motion to compel arbitration comes on for hearing, the threshold determination to be made by the court is whether an agreement to arbitrate exists and whether this agreement includes arbitration of the specific point at issue. [Citation omitted.]" SWBT also argues that had the district court applied this threshold test, it would have properly determined that the agreement here includes the claims raised in Andover's petition.
Scope of Review and Other Points of Law
The interpretation and legal effect of written instruments are matters of law, over which an appellate court exercises unlimited review. McGinley v. Bank of America, N.A., 279 Kan. 426, 431, 109 P.3d 1146 (2005). "Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect. [Citation omitted.]" Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001).
"'Generally, courts seek to uphold arbitration agreements even where the contract provisions are somewhat uncertain and indefinite.'"