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Merrimack College v. KPMG LLP

Appeals Court of Massachusetts, Suffolk

January 6, 2016

Merrimack College
v.
KPMG LLP

Argued November 2, 2015.

Civil action commenced in the Superior Court Department on June 30, 2014.

A motion to compel arbitration was heard by Janet L. Sanders, J.

Ira M. Feinberg, of New York ( Christopher H. Lindstrom with him) for the defendant.

T. Christopher Donnelly ( Kelly A. Hoffman with him) for the plaintiff.

Present: Milkey, Carhart, & Massing, JJ.

OPINION

[42 N.E.3d 1200] Milkey, J.

The defendant, KPMG LLP (KPMG), is an accounting firm that performed annual audits for the plaintiff, Merrimack College (Merrimack). In the underlying action, Merrimack alleges that KPMG committed malpractice when it failed to detect serious financial irregularities that occurred in Merrimack's financial aid office during fiscal years 1998 through 2004. Based on a dispute resolution provision included in a contract the parties executed for fiscal year 2005, KPMG argues that Merrimack waived its right to sue KPMG regarding services it had provided

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in prior years and was required to arbitrate those claims. In addition, KPMG maintains that whether Merrimack's pre-2005 claims are subject to compulsory arbitration must be resolved by arbitration. In a thoughtful decision, a Superior Court judge rejected such arguments and denied KPMG's motion to compel arbitration. We affirm.

Background.

The essential facts are undisputed. For the fiscal years at issue in the malpractice action, Merrimack had hired KPMG through a succession of separate annual service agreements. Each such agreement took the form of a letter that KPMG sent to Merrimack that was then countersigned by Merrimack. None of the annual agreements from 1998 [42 N.E.3d 1201] through 2004, referred to by the parties as " engagement letters," makes any mention of arbitration as an available (much less mandatory) means for the parties to resolve disputes that might arise between them.

In claiming that Merrimack's malpractice action nevertheless is subject to binding arbitration, KPMG is relying on the engagement letter that the parties executed for fiscal year 2005. The 2005 agreement spelled out specific auditing services that KPMG would provide to Merrimack during that year. Unsurprisingly, in laying out KPMG's affirmative obligations, the 2005 engagement letter is a forward-looking document, referring, for example, to the audit report that KPMG " will issue" in accordance with stated terms. The 2005 engagement letter also expressly contemplated that KPMG could provide " other services" to Merrimack, as may be agreed to by the parties during the course of the year.[1]

For the first time in any of their annual agreements, the 2005 engagement letter included a mandatory dispute resolution provision. In pertinent ...


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