OF JUDGMENT: 07/12/2017
COUNTY CIRCUIT COURT, HON. WINSTON L. KIDD JUDGE.
COURT ATTORNEYS: KRISTI ROGERS BROWN EDWARD C. TAYLOR
PATRICIA ANNE GORHAM AMELIA TOY RUDOLPH R. DAVID KAUFMAN
TAYLOR BRANTLEY McNEEL.
ATTORNEYS FOR APPELLANT: R. DAVID KAUFMAN AMELIA TOY RUDOLPH
PATRICIA ANNE GORHAM TAYLOR BRANTLEY McNEEL.
ATTORNEYS FOR APPELLEE: EDWARD C. TAYLOR KRISTI ROGERS BROWN.
RANDOLPH, P.J., COLEMAN AND CHAMBERLIN, JJ.
RANDOLPH, PRESIDING JUSTICE.
Singing River Health System a/k/a Singing River Hospital
System ("Singing River") sued KPMG, LLP, in Hinds
County Circuit Court. KPMG sought to compel arbitration of
Singing River's claims. The circuit court declined to
order Singing River to the arbitral forum, and KPMG appealed.
The Court affirms the trial court's order denying
KPMG's motion to compel arbitration and remands the case
for further proceedings.
AND PROCEDURAL HISTORY
Singing River is a county-owned community hospital and a
political subdivision of Jackson County, Mississippi,
organized in accordance with the community-hospital statutes
and governed by a board of trustees. Miss. Code Ann.
§§ 41-13-10 to -107 (Rev. 2013). Singing River is
the second largest employer in Jackson County, employing
approximately 2, 400 employees. KPMG is one of the largest
audit, tax, and advisory firms in the United States. KPMG
(and its predecessor firm, Peat Marwick) audited Singing
River's financial statements from 1978 to 2012.
In fiscal years 2008 through 2012, Singing River's former
Chief Financial Officer Michael Crews signed engagement
letters issued by KPMG regarding proposed auditing services.
The 2008 and 2009 letters had various attachments that
contained dispute-resolution provisions. In 2010, 2011, and
2012, KPMG issued a two-page letter, which was to serve as an
"amendment" to the March 31, 2009, letter. The only
attachment to these two-page letters was a single appendix,
labeled "Services and Billing Schedule." For those
three years, no separate attachment regarding dispute
resolution had been included.
On May 7, 2008, the Singing River Audit and Compliance
Committee ("Committee") met and discussed
KPMG's 2008 proposal. A relevant portion of the
Committee's minutes state that
Mr. Crews reviewed the Engagement Letter for the Fiscal Year
2008 audit by KPMG. Mr. Crews discussed the breakdown of
proposed audit fees as stated on the Billing Schedule of the
Engagement Letter in detail. On a motion made by Mr.
Strickland and a second by Mr. Heidelberg, the Committee
voted unanimously to approve the Engagement Letter, including
all proposed audit fees. . . .
The members of the Committee agreed that the Management
Letter, Report on Internal Control, and Engagement Letter
should be transmitted to the full Singing River Hospital
System Board of Trustees with a recommendation for approval.
The Committee's minutes are silent as to the terms and
conditions of KPMG's 2008 proposal. Additionally, the
letters were neither attached to, nor included in, the
minutes of the Committee. The very next day, on May 8, 2008,
Crews signed the letter "on behalf of Singing River
Hospital System," twenty days before the next
Singing River Board of Trustees ("Board") meeting.
The Board met on May 28, 2008. The Board minutes concerning
the 2008 letter read as follows:
Mr. Crews stated that the Audit & Compliance Committee
held a meeting on May 7, 2008, during which they approved the
Report on Internal Control, Management Letter, and fiscal
year 2008 Engagement Letter, copies of which were included in
the agendas in advance of the meeting. After discussion and
on a motion by Mr. Cronier and a second by Mr. Strickland,
the Board voted unanimously to approve the minutes of the
Audit & Compliance Committee meeting held May 7, 2008,
Report on Internal Control, Management Letter, and fiscal
year 2008 Engagement Letter with KPMG, as presented and
included in the minutes by reference.
Board failed to recite a single term and/or condition of the
2008 proposal in its minutes. For example, the minutes are
silent as to the date of the letter; the term or length of
the service; the scope of work or service to be performed;
the fees, expenses, or charges to be paid by the hospital;
and other contractual provisions, including a now disputed
resolution clause. Although the minutes reflect that copies
of the vaguely described documents were included in the
Board's agendas in advance of the meeting, the minutes
are unclear what meeting the minutes are referencing,
i.e., the Board's meeting or the Committee's
meeting on May 7. Finally, although the minutes state that
the 2008 letter had been presented and incorporated by
reference in the minutes, the letter was not attached to the
On May 7, 2009, only two of the four voting members of the
Committee met and discussed KPMG's 2009 letter. The
Committee's minutes reflect that
Mr. Crews presented the Engagement Letter from KPMG for the
FY 2009 audits, including the Financial Statement Audit,
A-133 Audit, and the Benefit Plan Audit. He reviewed the
proposed fee schedule, which is identical to the proposed fee
schedule on the FY 2008 audit.
Mr. Crews also reviewed the Engagement Letter from KPMG for
assistance in the preparation of the FY 2009 Medicare Cost
Report. He reviewed the proposed fee for the Cost Report
assistance, which is also identical to the proposed fees
included in the Engagement Letter from the prior year.
Mr. Crews asked the Committee to approve the Engagement
Letters as presented. On a motion made by Mr. Heidelberg and
a second by Mr. Tolleson, the Committee voted unanimously to
approve the Engagement Letters. The Engagement Letters will
also be taken to the SRHS Board of Trustees for final
The Committee noted that KPMG was to perform a financial
statement audit, an A- 133 audit, and a benefit plan audit,
but the minutes again failed to include any terms or
conditions. Further, the letter was not attached to the
Committee's minutes. Crews signed the letter "on
behalf of Singing River Health System" on May 14, 2009.
Because only two of the four voting members were present at
the May 7, 2009, meeting, a telephonic conference was held on
June 23, 2009-one day before the Board was scheduled to
meet-for the express purpose of approving the actions taken
at the May 7 meeting, including approval of KPMG's
proposal. The terms and conditions of the 2009 letter were,
once again, omitted from the Committee's minutes.
Likewise, the letter was not attached to the Committee's
June 23, 2009, telephonic conference minutes.
The Board met on June 24, 2009. The minutes of the Board
reflect that the Committee's minutes for May and June
were unanimously approved, including the approval of
KPMG's 2009 proposal:
Mr. Anderson explained that previous to this meeting, a Board
member suggested that since there were only two of four
Committee members present for the May 7, 2009, meeting that
the minutes be approved while there was a quorum present. For
this purpose, a phone poll was conducted of the Committee
members on June 23, 2009, and minutes were typed to reflect
the approval with a full quorum present. Copies of the
minutes of the June 23, 2009, phone poll were distributed at
the meeting. Mr. Crews explained the purpose of the May 7,
2009, Audit & Compliance Committee meeting. After
discussion and on motion by Mr. Strickland and a second by
Ms. Tanner, the Board unanimously approved the minutes of the
May 7, 2009, Audit & Compliance Committee meeting, and
the minutes of the phone poll conducted on June 23, 2009.
Then on a motion by Mr. Tolleson and a second by Mr.
Strickland, the Board unanimously approved the report on
Internal Control, Management Letter, fiscal year 2009
Engagement Letter, and Cost Report Assistance Engagement
Letter, all of which were approved by the Audit &
Compliance Committee at their meeting held May 7, 2009, as
presented and included in the minutes by reference.
the Board failed to include a single term and/or condition of
the 2009 letter in its minutes. The letter was not attached to
the Board's minutes.