VANHOOK ENTERPRISES, INC. APPELLANT
v.
KAY & KAY CONTRACTING, LLC APPELLEE
ON
REVIEW FROM COURT OF APPEALS CASE NO. 2015-CA-001977-MR
PULASKI CIRCUIT COURT NO. 13-CI-00922
COUNSEL FOR APPELLANT: Larry F. Sword SWORD & BROYLES
COUNSEL FOR APPELLEE: Darren J. Duzyk
OPINION
CUNNINGHAM, JUSTICE.
The
United States Small Business Administration ("SBA")
regulates the Historically Underutilized Business Zone
("HUBZone") Program. 15 U.S.C. § 657a. Through the
HUBZone program, the SBA provides contracting assistance to
small businesses seeking federal government contracts. To
qualify as a HUBZone-eligible contractor, one must be a small
business within an economically distressed area. Id.
In
2010, the U.S. Army Corps of Engineers sought bids from
HUBZone-eligible contractors to replace the Cumberland Bridge
Street Bridge over the Poor Fork of the Cumberland River in
Cumberland, Kentucky. The HUBZone contract price was $1, 029,
394.20. Kay & Kay Contracting, LLC ("Kay &
Kay"), a large construction firm in London, was
interested in the construction job, but was not a
HUBZone-eligible business.
Accordingly,
Kay & Kay negotiated with Vanhook Enterprises, Inc.
("Vanhook"), a HUBZone-eligible contractor in
Somerset, and entered into a series of agreements with
Vanhook whereby Vanhook would apply for the HUBZone contract.
Vanhook would receive the HUBZone contract price from the
federal government, which it would then split with Kay &
Kay as a subcontractor working on the HUBZone project. On
July 7, 2010, this relationship culminated in the so-called
Team Agreement between the parties, whereby Vanhook agreed to
serve as the prime contractor for the HUBZone contract.
On
January 13, 2011, Vanhook and Kay & Kay entered into the
so-called Subcontract Agreement, which outlined services that
Kay & Kay was to perform as a subcontractor under the
HUBZone project. The Subcontract Agreement stated that
Vanhook would pay Kay & Kay $37, 500 for
"Mobilization" and a $410, 000 lump sum for
"All Materials, Labor, Equipment[, ] and applicable
taxes for the construction of the Bridge Street Bridge."
Later
in 2011, during construction, the parties entered into a
subsequent written agreement whereby Vanhook rented equipment
and an equipment operator from Kay & Kay for an
additional $12, 300. This agreement was expressly excluded
from the Subcontract Agreement. See Subcontract
Agreement, Exhibit A ("The lump-sum item shall include
all costs associated with the construction of the bridge that
are not otherwise identified as being paid
separately." (emphasis added)).
After
completion of the bridge, Vanhook remitted an undisputed
$459, 790.04 to Kay & Kay under the Subcontract Agreement
and subsequent written agreement: $37, 500 for
"Mobilization, " the $410, 000 lump sum, and $12,
300 for the additional equipment rental and operator
contract. On December 8, 2011, Kay & Kay Vice President
Ron Pfaff executed a writing titled "Affidavit and
Waiver of Lien, Acknowledgement of Full and Final
Payment." Therein, Pfaff swore that Kay & Kay had
been fully compensated for materials, provided and services
performed under the Subcontract Agreement by "full and
final payment due including any applicable retainage."
However, despite its letter, Kay & Kay continued to seek
additional payment from Vanhook.
In the
summer of 2013, Kay & Kay sued Vanhook for breach of
contract and quantum meruit in the alternative,
asserting that the parties had entered into a separate
agreement after the Team Agreement, but before the
Subcontract Agreementâthe so-called Prime Agreement. Under
that alleged agreement, Kay & Kay claimed that Vanhook
was obligated to pay greater than the lump-sum price. Kay
& Kay claimed it performed 76% of total work under the
43-bid item projectâ$785, 814.16 of the $1, 029, 394.20
HUBZone contract priceâand, thus, performed $326, 024.12
worth of work outside of the Subcontract Agreement's
contract price. Kay & Kay maintained that the expenses it
incurred in excess of the $410, 000 lump sum were for
services it performed outside of the scope of the Subcontract
Agreement, and thereby unjustly enriched Vanhook by rendering
those services without adequate compensation.
Vanhook
responded that no such Prime Agreement existed, and, even if
it did, that the Subcontract Agreement superseded all prior
agreements and negotiations between the parties. Therefore,
Vanhook moved for judgment on the pleadings. CR 12.03. The
Pulaski Circuit Court found the Subcontract Agreement to be a
complete integration of the dealings between Vanhook and Kay
& Kay regarding the Bridge Street Bridge project.
Accordingly, the Pulaski Circuit Court held that the alleged
"additional work" was included within a plain,
ordinary reading of Exhibit A of the Subcontract Agreement as
"any other ancillary items required to provide a
complete bridge structure."
On
appeal, the Kentucky Court of Appeals affirmed the trial
court's finding that the Subcontract Agreement was an
integration. However, the Court of Appeals held that it was
unclear whether Kay & Kay's "additional
work" fell within the "any other ancillary
items" language of the contract. In other words, it was
unclear whether the Subcontract Agreement was a full
integration or a partial integration. The Court of Appeals
declared that whether the "additional work" Kay
& Kay allegedly performed was covered by the Subcontract
...