Fifth Circuit Affirms Order Denying Motion to Compel Arbitration in Employee Pension Plan Dispute

The United States Court of Appeals for the Fifth Circuit has issued an unpublished opinion stating an accounting firm may not compel a group of hospital workers’ claims over an allegedly underfunded pension plan to arbitration. In Jones v. Singing River Health Servs. Found., et al., No. 16-60263 (5th Cir., January 5, 2017), an accounting firm, KPMG, performed a multiyear financial audit for an employee pension plan sponsored by a hospital, Singing River Health Services (“SRHS”).  Prior to performing the audit, KPMG entered into a series of engagement letters with SRHS that contained a provision requiring any disputes arising out of the agreement between the parties to be submitted to arbitration.

Later, a SRHS employee filed a class-action lawsuit (the “Jones class”) against KPMG over the accounting firm’s purported knowledge the pension plan was not sufficiently funded.  According to the worker, KPMG was complicit in the plan trustees’ alleged breach of fiduciary duty.  In addition, another collective action lawsuit (the “Lowe class”) was filed against KPMG over the same issue.  After the two cases were procedurally consolidated, KPMG filed a motion to compel both disputes to arbitration based on the accounting firm’s agreement with SRHS.

Because the Jones class specifically referenced the engagement letters between KPMG and SRHS in the pleadings, a district court ordered the class to arbitrate its claims against KPMG based on the doctrine of equitable estoppel.  Despite this, the court denied KPMG’s arbitration request with regard to the Lowe class because the plaintiffs were non-signatories to the engagement letters and they relied solely on common law claims in the pleadings.  After that, KPMG filed an appeal over the court’s order with regard to the Lowe class.

On appeal, the Fifth Circuit agreed with the lower court.  According to the appellate court:

Lowe has chosen to disclaim any reliance on the agreements containing the arbitration clause as a source of KPMG’s obligations to the Plan. If that choice makes it harder for her to prove her case, so be it. If she later attempts to claim a remedy under the Engagement Letters, KPMG can seek relief including a renewed request for arbitration. What is clear is that based on Lowe’s pleadings and the arguments proffered by KPMG, Lowe’s claims are not directly dependent on the Engagement Letters. Therefore, the district court correctly denied the motion to compel arbitration.

Ultimately, the United States Court of Appeals for the Fifth Circuit affirmed the district court’s order denying KPMG’s motion to compel the Lowe class to arbitration.

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