FROM HARDIN CIRCUIT COURT HONORABLE KELLY EASTON, JUDGE
ACTION NO. 14-CI-01820
FOR APPELLANT: Sheryl G. Snyder Jason P. Renzelmann
FOR APPELLEE: Palmer G. Vance II Matthew R. Parsons
Lexington, Kentucky Thomas R. Johnson Courtney R. Peck
ARGUMENT FOR APPELLANT: Sheryl G. Snyder Louisville,
ARGUMENT FOR APPELLEE: Thomas R. Johnson Portland, Oregon.
BEFORE: KRAMER, J. LAMBERT AND TAYLOR, JUDGES.
OPINION REVERSING AND REMANDING
appeal involves a February 1, 2007 design/build agreement
governing the rights of the several parties involved with a
military housing construction and renovation project at Fort
Knox, Kentucky. Specifically, on October 31, 2014, appellee
Knox Hills, LLC (the owner of the project) filed a breach of
contract action in Hardin Circuit Court against Ambac
Assurance Corporation (the senior lender of the project)
relating to what it characterized as Ambac's wrongful
withholding of consent to a change order that would have
substantially reduced the scope of the project. Additionally,
Knox Hills sought an order staying the proceedings and
compelling Ambac to arbitrate. For reasons discussed more
thoroughly below, Ambac opposed Knox Hills' motion to
compel arbitration. The circuit court granted the motion.
Following arbitration, the circuit court entered an order
confirming the arbitrator's award in favor of Knox Hills.
Ambac now appeals. Upon review, we reverse the circuit court
in both respects and remand for further proceedings.
are two dispositive questions presented in this appeal.
First, which tribunal should have determined whether
arbitration was required between Knox Hills and Ambac?
Second, was arbitration required? With respect to the first
of these questions, the answer depends upon whether
Ambac's refusal was based upon procedural arbitrability
or substantive arbitrability -- a point that was recently and
succinctly explained by the United States Court of Appeals
for the Eighth Circuit:
Under the FAA,  arbitration agreements are deemed
"valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of
any contract." 9 U.S.C. § 2. But the FAA also
imposes a basic principle: arbitration is a process of
consent and not coercion. See Stolt-Nielsen S.A. v.
AnimalFeeds Int'l Corp., 559 U.S. 662, 681, 130
S.Ct. 1758, 176 L.Ed.2d 605 (2010). "[A]rbitration is a
matter of contract and a party cannot be required to submit
to arbitration any dispute which he has not agreed so to
submit." Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)
(internal quotation marks omitted). Courts must therefore
play a threshold role to determine "whether the parties
have submitted a particular dispute to arbitration."
These threshold or gateway issues are called substantive
questions of arbitrability. Substantive questions include
"whether the parties have a valid arbitration agreement
at all or whether a concededly binding arbitration clause
applies to a certain type of controversy." Green
Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct.
2402, 156 L.Ed.2d 414 (2003). Courts presume that substantive
questions are "for judicial determination [u]nless the
parties clearly and unmistakably provide otherwise."
Howsam, 537 U.S. at 83, 123 S.Ct. 588 (alteration in
original) (internal quotation marks omitted). Because
arbitration is about consent of the parties, we
"hesitate to interpret silence or ambiguity" in an
agreement as grounds for committing such important questions
to an arbitrator. See First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 945, 115 S.Ct. 1920, 131 L.Ed.2d
Many questions that arise in the arbitration context are
procedural or subsidiary questions that courts presume an
arbitrator may decide. Howsam, 537 U.S. at 84, 123
S.Ct. 588. "Procedural questions arise once the
obligation to arbitrate a matter is established, and may
include such issues as the application of statutes of
limitations, notice requirements, laches, and estoppel."
Dell Webb Cmtys., Inc. v. Carlson, 817 F.3d 867, 873
(4th Cir.), cert. denied sub nom. Carlson v. Del Webb
Cmtys., Inc., ___ U.S. ___, 137 S.Ct. 567, 196 L.Ed.2d
444 (2016). These are questions for an arbitrator both
because the parties would most likely expect an arbitrator to
decide them, see Howsam, 537 U.S. at 84, 123 S.Ct.
588, and because they do not challenge the arbitrator's
underlying authority, see AT&T Techs., Inc. v.
Commc'ns Workers of Am., 475 U.S. 643, 648-49, 106
S.Ct. 1415, 89 L.Ed.2d 648 (1986).
Catamaran Corp. v. Towncrest Pharmacy, 864 F.3d 966,
970 (8th Cir. 2017) (footnote added).
Ambac refused to arbitrate Knox Hills' breach of contract
action for two interrelated reasons. First, Knox Hills
failed, prior to commencing arbitration, to submit its
dispute to an "Advisor" described in the agreement.
Second, Knox Hills and other relevant parties to the contract
concededly failed to designate the "Advisor" within
forty-five days after the agreement was executed on February
1, 2007. To understand what this means, and whether
it dealt with matters of substantive arbitrability (as Ambac
argues) or procedural arbitrability (as the circuit court
cited as its basis for allowing the ...