Paul A. Krallman; Andrew Krallman; James E. Krallman; Robert A. Krallman; and Miter Masonry Contractors, Inc. v. Nikki Krallman, Individually and as the Mother of J.K., a Minor; J.K., a Minor; Ellie Krallman; Tommy Krallman; and the Gerald Krallman Trust

Summary

The Kentucky Court of Appeals held that the arbitration provision in the parties’ Buy-Sell Agreement was unenforceable under the Kentucky Uniform Arbitration Act because it did not provide for arbitration in Kentucky. The court nevertheless concluded that the provision could be enforceable under the Federal Arbitration Act if the underlying agreements evidenced transactions involving interstate commerce. The court affirmed the KUAA ruling but vacated and remanded for findings concerning the validity of the arbitration agreement and the applicability of the FAA.

Holdings

1. The arbitration provision is unenforceable under the KUAA because it does not designate Kentucky as the place of arbitration, and KRS 417.200 therefore does not confer jurisdiction on a Kentucky court to enforce it under the KUAA.
2. An arbitration agreement that does not satisfy KRS 417.200 may nevertheless be enforceable in a Kentucky court under the FAA if the underlying contract evidences a transaction involving interstate commerce.
3. The circuit court must first determine whether the arbitration provision is valid under state-law contract principles and, if so, determine whether the buy-sell and transfer agreements evidence transactions involving interstate commerce under the FAA.
4. The circuit court may address issues concerning the validity of the arbitration agreement, but challenges to the validity of the underlying contracts are for the arbitrator.

Questions Presented

1. Whether the arbitration provision was enforceable under the Kentucky Uniform Arbitration Act when it did not designate Kentucky as the place of arbitration.
2. Whether an arbitration agreement unenforceable under the KUAA may nevertheless be enforced under the Federal Arbitration Act when the underlying contracts evidence transactions involving interstate commerce.
3. What proceedings the circuit court must conduct on remand concerning the validity of the arbitration agreement and the interstate-commerce requirement.
4. Whether issues concerning the validity and scope of the arbitration agreement may be addressed by the circuit court before arbitration.

Disposition

remanded