“Counterclaim-Generated Controversies” & the Presumption of Arbitrability
A Detailed Commentary on
Fraternal Order of Police, Lodge 4 v. Lexington-Fayette Urban County Government
Supreme Court of Kentucky, 2025

Introduction

This 2025 decision by the Supreme Court of Kentucky (“the Court”) revisits the perennial tension between judicial intervention and contractual arbitration in public-sector collective bargaining agreements (CBAs). The dispute arose after the Lexington-Fayette Urban County Government (LFUCG) initially agreed—under a reservation of rights—to defend Police Sergeant Christopher Morrow against civil claims, only later to question whether it had any duty to do so once facts emerged showing he was off duty when the alleged assault occurred.

At its heart, the case presented two pivotal questions:

• When does a dispute become a “controversy” that must be processed through the CBA’s grievance/arbitration machinery?
• May a court decide the merits of that dispute before ordering arbitration?

The Court answers by establishing a new, clarifying rule: Once a party files a declaratory action or counterclaim that seeks judicial clarification of contractual duties, that filing itself crystallises an arbitrable controversy, triggering the presumption of arbitrability and precluding the court from deciding the merits until arbitration occurs. The case thereby introduces the concept of a “counterclaim-generated controversy.”

Summary of the Judgment

Reversing the Court of Appeals, Chief Justice Lambert (for the majority) held:

1. The original March 2020 grievance was properly denied as premature because, at that moment, LFUCG was still providing a defence and had not taken any steps to withdraw it, so no “controversy” yet existed.
2. However, LFUCG’s later counterclaim—seeking a declaration that it had no duty to defend or indemnify Morrow—created an active controversy concerning the meaning and application of Article 19 of the CBA (“Legal Protection”). Under Article 11’s broad arbitration clause (“Any controversy concerning the meaning and application of any provision … shall be adjusted” via the grievance/arbitration procedure), that dispute must go to arbitration.
3. The trial court therefore erred by bypassing arbitration and adjudicating the substantive question (whether Morrow’s conduct was within the scope of employment). Its merits ruling and associated attorney-fee award were vacated, and the matter remanded for advisory arbitration, after which the court may review the arbitrator’s advisory opinion.
4. The separate conclusion that LFUCG’s self-insurance policy did not cover Morrow remains undisturbed, as that policy was not incorporated into the CBA.

Justice Goodwine, joined by Justice Bisig, dissented, labelling the majority’s remand a “waste of resources” because, on undisputed facts, the arbitration can reach only one rational outcome—Morrow was off-duty—and any trial-court error was therefore harmless.

Analysis

Precedents Cited and Their Influence

• The Steelworkers Trilogy (1960) – American Manufacturing, Warrior & Gulf, and Enterprise Wheel
  Established the foundational principles that (1) arbitration is a matter of contract; (2) courts decide “arbitrability” unless parties unmistakably agree otherwise; (3) courts may not reach merits when assessing arbitrability; and (4) a presumption of arbitrability arises from broad arbitration clauses.
• AT&T Technologies, Inc. v. CWA, 475 U.S. 643 (1986)
  Re-affirmed the Trilogy, emphasising that the judicial role is limited to determining whether the parties agreed to arbitrate a particular dispute, not the merits.
• United Brick & Clay Workers v. Lee Clay Products, 488 S.W.2d 331 (Ky. 1972)
  Kentucky’s leading adoption of federal labour-arbitration principles; held that even “patently baseless” claims must be sent to arbitration if within the contract’s language.
• Louisville/Jefferson Cty. Metro Gov’t v. Braden, 519 S.W.3d 386 (Ky. App. 2017)
  Discussed scope-of-employment under the Claims Against Local Governments Act (CALGA) but did not involve arbitration; trial court mistakenly leaned on Braden to decide merits.

By quoting extensively from the Trilogy and United Brick, the Court signalled that Kentucky public-sector labour disputes remain firmly tethered to federal substantive labour law. The opinion purposely distances itself from decisions like Braden when arbitration is in play.

Legal Reasoning of the Court

1. No Controversy, No Arbitration (Grievance Stage).
   The March 2020 grievance was legitimately rejected because LFUCG still funded Morrow’s defence; grievance procedures are reserved for existing controversies, not for hypothetical future acts.
2. A “Counterclaim-Generated Controversy.”
   Once LFUCG filed its declaratory counterclaim, the landscape changed: the parties squarely disputed whether Article 19 obligated LFUCG to defend/indemnify. That dispute plainly concerns the “meaning and application” of the CBA and therefore falls inside Article 11’s arbitration clause.
3. Court’s Limited Role.
   Following the Trilogy, the trial court should have asked only: “Did the parties agree to arbitrate this type of dispute?” Because Article 11 is broad and because there was no carve-out for scope-of-employment issues, the answer is yes. The merits (whether off-duty conduct is within scope) had to be left to the arbitrator in the first instance.
4. Mootness Doctrine Correctly Applied (to the original grievance) but Not to the Counterclaim.
   The Court separates the two timelines. The grievance became moot once Bell’s lawsuit settled, but the new dispute (who pays the $5,000 settlement and $22,848.78 in fees) continues to have “practical legal effect.”
5. Self-Insurance Policy Distinct.
   Because the policy was never bargained for or referenced in the CBA, its coverage can be adjudicated by the court without violating arbitration principles. The Court therefore allows the trial court’s insurance holding to stand.

Impact of the Judgment

The decision has significant implications:

• Clarifies Trigger Point for Arbitration – Parties can no longer argue that no arbitrable dispute exists while simultaneously pursuing judicial declarations of their contractual duties. Filing such pleadings now presumptively triggers arbitration.
• Protects Union-Negotiate Procedures – Reinforces that public employers cannot sidestep negotiated grievance mechanisms by going straight to court.
• Advisory Arbitration Endorsed but Not Expanded – The Court leaves intact the advisory (non-binding) nature of arbitration if the CBA so provides, but stresses that courts must await the advisory opinion before ruling.
• Resource Allocation – While the dissent criticises perceived inefficiency, the majority affirms that process values (respect for bargained-for arbitration) outweigh expediency.
• Future Drafting Guidance – Public employers wishing to litigate specific questions should insert explicit carve-outs in CBAs; absent such language, the presumption of arbitrability will prevail.

Complex Concepts Simplified

• Arbitrability vs. Arbitration
  “Arbitrability” is the preliminary judicial question: must the parties arbitrate? “Arbitration” is the merits process conducted by an arbitrator.
• Reservation of Rights
  A party may agree to defend while reserving the right to later deny coverage; it preserves legal positions without immediate breach.
• Scope of Employment
  Under CALGA and Article 19, acts “within the scope” are those undertaken in the course of official duties; off-duty personal acts generally fall outside.
• Mootness
  A claim is moot when court action can no longer affect the parties’ rights; the Court held the original grievance moot but not the later indemnity dispute.
• Advisory Arbitration
  Unlike traditional binding arbitration, advisory arbitration yields a non-binding recommendation; courts retain final say.
• Counterclaim
  A defensive pleading that asserts a claim against the plaintiff; here, LFUCG’s counterclaim for declaratory relief inadvertently triggered arbitration duties.

Conclusion

The Supreme Court of Kentucky’s decision in FOP, Lodge 4 v. LFUCG serves as an emphatic reminder that the pathway to resolving labour disputes is defined by the parties’ own contract. Even where a court views a claim as “patently baseless,” it must first honour the agreed method of dispute resolution—arbitration—before passing on the merits. The newly articulated doctrine of a “counterclaim-generated controversy” closes a procedural gap: once a party seeks judicial clarification of contractual duties, it ipso facto creates an arbitrable dispute if the CBA’s language is broad, and the court must step back until the arbitral process runs its course.

Going forward, Kentucky public employers and unions must draft with precision. Absent clear carve-outs, courts will presume that any disagreement over the “meaning or application” of a CBA provision—no matter how seemingly trivial or foreordained—belongs first in arbitration. In this way, the Court’s decision strengthens the integrity of collective bargaining, while delineating the boundary between arbitral and judicial spheres more sharply than ever before.