The appeal arose from a consolidated case, originally three separate class actions, resulting from the alleged underfunding of Singing River Health System’s pension plan and KPMG’s alleged failure to detect that underfunding due to allegedly faulty auditing. The plaintiff from one of these class actions (Lowe) brought claims against KPMG but did not expressly rely upon KPMG’s engagement letters with Singing River – which included arbitration clauses. KPMG argued that, notwithstanding that the members of the Lowe class were not signatories to the engagement letters, the Lowe claims implicitly relied on the engagement letters because the letters “defined the scope of KPMG’s contractual role.” Therefore, KPMG argued, “equitable estoppel compel[led] the submission of Lowe’s claims to arbitration.”
Both the district court and the Fifth Circuit disagreed with KPMG’s argument. The Fifth Circuit explained, “the present case is based on tort rather than contract law. While it might well be easier for Lowe to pursue her claims based on the Engagement Letters, the standard for showing ‘direct dependence’ is what she pled, not what she might have pled … “ And, because Lowe’s tort claims were not “directly dependent” on the engagement letters, the Fifth Circuit found that KPMG’s motion was properly denied. The Court did go on to note, however, that if Lowe “later attempts to claim a remedy under the Engagement Letters, KPMG can seek relief including a renewed request for arbitration.” Thomas Jones, et al. v. Singing River Health Services Foundation, et al., Case No. 16-60263 (5th Cir. Jan. 5, 2017).
This post written by Brooke L. French.
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