KPMG Can’t Arbitrate Class Action Over Singing River Pension Plan

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By Carmen Castro-Pagan

KPMG LLP can’t compel arbitration of class claims by Singing River Health System workers who accuse the accounting firm of breaching its fiduciary duties in its role as auditor of the hospital’s allegedly underfunded pension plan ( Jones v. Singing River Health Servs. Found. , 2017 BL 2607, 5th Cir., No. 16-60263, unpublished 1/5/17 ).

The workers’ fiduciary breach claims aren’t directly dependent on the contract between Singing River and KPMG that provides for arbitration, the U.S. Court of Appeals for the Fifth Circuit held Jan. 5. KPMG failed to show how the workers must necessarily rely on a contract to which they weren’t a party in order to make their case, therefore a district court didn’t err in denying KPMG’s motion to compel arbitration, a three-judge panel said.

The allegations against KPMG follow accusations against the Mississippi health-care system for allegedly failing to make required contributions to its pension plan since 2009. In 2016, the system agreed to a $156.4 million settlement that ended three federal class actions and two state court lawsuits. The district court also awarded $4.8 million in attorneys’ fees to the class.

KPMG audited the annual financial statements of Singing River and its pension plan starting in 2008. After the plan allegedly became underfunded, a host of litigation ensued.

The lawsuit at issue said KPMG was aware of or recklessly disregarded the underfunding and was therefore complicit in the alleged breaches of fiduciary duty by the plan’s trustees.

KPMG moved to compel arbitration in two class actions. The district court granted KPMG’s request in one case because the pleading specifically invoked the contract that required arbitration. However, the trial court declined to compel arbitration in the other case because the class pleaded solely common law claims and made no factual allegation invoking the contract.

The workers’ lawsuit said KPMG “knowingly participated” in the trustees’ alleged breach of fiduciary duty, but those trustees were neither coextensive with Singing River nor parties to an arbitration agreement with KPMG, the appeals court said. Therefore, their claims exist “separate and apart in tort law from the terms” of the arbitration contract, the court said.

The opinion was issued by Judge Edith H. Jones and joined by Judges Rhesa H. Barksdale and Gregg Jeffrey Costa.

Whatley Kallas LLC and Roger K. Doolittle represented the workers. Brunini Grantham Grower & Hewes PLLC and Sutherland Asbill & Brennan LLP represented KPMG.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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