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Jones v. Singing River Health Services Foundation

United States District Court, S.D. Mississippi, Southern Division

November 9, 2017

THOMAS JONES, JOSEPH CHARLES LOHFINK, SUE BEAVERS, RODOLFOA REL, and HAZEL REED THOMAS, on behalf of themselves and other similarly situated PLAINTIFFS
v.
SINGING RIVER HEALTH SERVICES FOUNDATION, et al. DEFENDANTS AND REGINA COBB, SUSAN CREEL, and PHYLLIS DENMARK, on behalf of themselves and others similarly situated PLAINTIFFS
v.
SINGING RIVER HEALTH SYSTEM, et al. DEFENDANTS AND MARTHA EZELL LOWE, individually and on behalf of a class of similarly situated employees PLAINTIFFS
v.
SINGING RIVER HEALTH SYSTEM, et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER CONCERNING KPMG'S MOTIONS TO COMPEL ARBITRATION

          LOUIS GUIROLA, JR. CHIEF U.S. DISTRICT JUDGE

         BEFORE THE COURT are the Motion to Compel Arbitration and Stay Proceedings Pending Arbitration, or in the alternative to Dismiss Plaintiffs' Claims [154] that was filed by KPMG LLP in the Jones action, cause number 1:14cv447- LG-RHW[1], and the Motion to Compel Arbitration and Stay Proceedings Pending Arbitration, or in the alternative to Dismiss Plaintiff's Claims [29] filed by KPMG LLP in the Lowe action, cause number 1:15cv44-LG-RHW. The Motions have been fully briefed by the parties. After reviewing the submissions of the parties, the record in this matter, and the applicable law, the Court finds that the Motion to Compel Arbitration and for a stay should be granted as to the Jones lawsuit and denied as to the Lowe lawsuit. The request for dismissal of the Jones plaintiffs' claims against KPMG is also denied.

         I. BACKGROUND

         These three putative class actions - Jones, Cobb, and Lowe - arose out of the alleged under-funding of the Singing River Health System Employees' Retirement Plan and Trust. The Jones plaintiffs and Martha Ezell Lowe have sued KPMG, the company that audited the annual financial statements of Singing River Health Services (SRHS) and the Plan.[2]

         A. THE JONES ACTION

         In their Second Amended Complaint, the Jones plaintiffs assert that KPMG's audits “expressed opinions regarding the funding policy of the [P]lan, the annual pension costs and net pension liability, trend information, and that the Plan was adequately funded when it was not.” (3d Am. Compl. at 13, ECF No. 151, Cause No. 1:14cv447-LG-RHW). They claim:

KPMG's misstatement of the true financial situation relating to the Plan was the result of an ongoing conspiracy between the Defendants to suppress the true financial picture of the Plan and the hospital. Alternatively, the failure to disclose the true financial situation relating to the underfunded liability was the result of negligence in the performance of the audit.

(Id.) The Jones plaintiffs note that KPMG and SRHS entered into engagement letters that required KPMG to perform its accounting duties in accordance with Generally Accepted Auditing Standards (“GAAS”), Generally Accepted Government Auditing Standards (“GAGAS”), and Generally Accepted Accounting Principles (“GAAP”). (Id.) According to the Third Amended Complaint, KPMG issued audit reports that did not comply with those standards. (Id. at 14, 52-53). The Jones plaintiffs have filed the following claims against KPMG: breach of fiduciary duty, Section 1983 conspiracy, negligence and professional malpractice, and fraud, fraudulent misrepresentation, and deceit.

         B. THE LOWE ACTION

         In her Complaint, Lowe alleges that KPMG was either aware of the fact that SRHS had stopped contributing to the Plan, or in the alternative, it recklessly disregarded the fact that SRHS had stopped contributing to the Plan. (Lowe Compl. at 5, ECF No. 1, Cause No. 1:15cv44-LG-RHW). Lowe also claims that KPMG provided consulting services related to the $70 million purchase of a new electronic record retention system that allegedly contributed to SRHS's inability to fund the Plan. (Id. at 6). She further alleges that KPMG either knowingly participated in or aided and abetted a breach of fiduciary duty. (Id. at 14). In support of this claim, she asserts:

The Defendant KPMG knew or should have known that the Defendant SRHS had defaulted on its pension contributions since 2009. In its audits of SRHS (which included auditing the Plan) for both fiscal years 2010 and 2011, Defendant KPMG allowed or did not correct statements that attributed the Trust's under-funding to returns on investments and changed actuarial assumptions. Defendant KPMG knew or should have known that these statements were misleading.

(Id.)

         C. KPMG'S MOTIONS TO COMPEL ARBITRATION

         KPMG argues that these claims must be submitted to binding arbitration pursuant to the Dispute Resolution clause contained in an attachment to engagement letters entered into by KPMG and SRHS. The ...


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