Vanhook Enterprises, Inc. v. Kay & Kay Contracting, LLC

          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 Agreement—the 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 project—$785, 814.16 of the $1, 029, 394.20 HUBZone contract price—and, 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 ...