674 F. App'x 382
5th Cir.2017Background
- KPMG audited Singing River Health System (SRHS) and its pension Plan under Engagement Letters (2008–2012 for SRHS; 2008–2011 for the Plan) that included broad arbitration clauses and defined KPMG’s audit role.
- Former SRHS employee Lowe, a vested Plan participant, filed a 2015 class-action alleging KPMG knowingly or recklessly participated in trustees’ breaches of fiduciary duty causing Plan underfunding; her claims are common-law torts and do not reference the Engagement Letters.
- KPMG moved to compel arbitration; the district court granted arbitration in a related Jones action (whose complaint invoked the Engagement Letters) but denied KPMG’s motion as to Lowe.
- KPMG appealed, arguing (1) gateway arbitrability issues should be decided by an arbitrator and (2) Lowe is bound to arbitrate under direct-benefit (equitable) estoppel because her claims necessarily depend on the Engagement Letters.
- The Fifth Circuit affirmed: (1) KPMG waived the arbitrability-gateway argument by submitting it to the district court; and (2) KPMG failed to show Lowe’s tort claims are directly dependent on the Engagement Letters so as to compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether gateway arbitrability questions must be decided by an arbitrator | Lowe: court should decide arbitrability because parties waived arbitrator consideration | KPMG: the arbitration clause’s broad language delegates gateway issues to arbitrators | Waived—KPMG submitted the issue to the district court; cannot resurrect on appeal. |
| Whether nonsignatory Lowe is bound to arbitrate under direct-benefit (equitable) estoppel | Lowe: claims are tort-based, do not rely on or invoke the Engagement Letters | KPMG: Lowe sues KPMG for its role as auditor, which is defined by the Engagement Letters, so claims must be decided by reference to them | Denied—KPMG did not show Lowe’s claims are directly dependent on the Engagement Letters; equitable estoppel does not compel arbitration. |
Key Cases Cited
- Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347 (5th Cir. 2003) (nonsignatory may be bound by arbitration under ordinary contract/agency principles)
- Noble Drilling Servs., Inc. v. Centex USA, Inc., 620 F.3d 469 (5th Cir. 2010) (describes two ways a nonsignatory can ‘embrace’ a contract and limits equitable estoppel application)
- Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514 (5th Cir. 2006) (explains direct-benefit estoppel and non-signatory binding principles)
- Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524 (5th Cir. 2000) (standards for abuse of discretion review)
- Scruggs v. Wyatt, 60 So.3d 758 (Miss. 2011) (claims directly dependent on a contract require arbitration)
- Pinnacle Trust Co. v. McTaggart, 152 So.3d 1123 (Miss. 2014) (denying estoppel where claims were not directly dependent on the contract)
- Hattiesburg Health & Rehab Ctr., LLC v. Brown, 176 So.3d 17 (Miss. 2015) (distinguishes tort claims that can proceed without relying on an admission agreement)