              IN THE SUPREME COURT OF MISSISSIPPI

                      NO. 2018-CA-00071-SCT

JACKSON COUNTY, MISSISSIPPI

v.

KPMG, LLP


DATE OF JUDGMENT:             12/22/2017
TRIAL JUDGE:                  HON. JAMES D. BELL
TRIAL COURT ATTORNEYS:        WILLIAM LEE GUICE, III
                              MARIA MARTINEZ
                              R. DAVID KAUFMAN
                              TAYLOR BRANTLEY McNEEL
                              AMELIA TOY RUDOLPH
                              PATRICIA ANNE GORHAM
                              EDWARD C. TAYLOR
                              EARL L. DENHAM
                              WILLIAM HARVEY BARTON
                              BRETT K. WILLIAMS
                              A. KELLY SESSOMS, III
                              HANSON DOUGLAS HORN
                              KRISTI ROGERS BROWN
COURT FROM WHICH APPEALED:    JACKSON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT:      WILLIAM LEE GUICE, III
                              MARIA MARTINEZ
ATTORNEYS FOR APPELLEE:       R. DAVID KAUFMAN
                              TAYLOR BRANTLEY McNEEL
                              LAUREN OAKS LAWHORN
                              AMELIA TOY RUDOLPH
                              PATRICIA ANNE GORHAM
NATURE OF THE CASE:           CIVIL - CONTRACT
DISPOSITION:                  REVERSED AND REMANDED - 01/17/2019
MOTION FOR REHEARING FILED:
MANDATE ISSUED:



     BEFORE RANDOLPH, P.J., MAXWELL AND BEAM, JJ.
       MAXWELL, JUSTICE, FOR THE COURT:

¶1.    Recently, this Court unanimously held that KPMG, LLP, could not enforce arbitration

agreements attached to five annual engagement letters with Singing River Health System

(Singing River), a community hospital, because the terms and condition of the letters were

not sufficiently spread upon the hospital board’s minutes to create an enforceable contract.

KPMG, LLP v. Singing River Health Sys., 2017-CA-1047-SCT, 2018 WL 5291088 (Miss.

Oct. 25, 2018), reh’g denied Jan. 10, 2019. In the present appeal, KPMG seeks to enforce

the very same arbitration agreements attached to the very same engagement letters with

Singing River—but this time the entity against which KPMG seeks arbitration enforcement

is Jackson County, Mississippi, which acted as Singing River’s bond guarantor. For the same

reason we affirmed the trial court’s denial of KPMG’s motion to compel arbitration in

KPMG, LLP v. Singing River Health System, we reverse and remand the trial court’s grant

of KPMG’s motion to compel arbitration in this case.

                      Background Facts and Procedural History

¶2.    Jackson County owns Singing River, a community hospital 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). For years, Singing River used the annual auditing services

of KPMG. But in 2013, to save costs, Singing River hired Horne, LLP, to conduct the

hospital’s annual audit. Through Horne, Singing River learned that KPMG’s prior annual

audits had resulted in an $88,000,000 overstatement of Singing River’s accounts receivable.




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Singing River also claimed KPMG’s negligent audits left it unaware that its employee

pension plan was underfunded by approximately $150,000,000.

¶3.    In October 2015, Singing River sued KPMG in Hinds County Circuit Court, alleging

breach of contract, negligence, and professional malpractice. KPMG, LLP, 2018 WL

5291088, at *3 (¶13). In March 2016, Jackson County filed its own lawsuit against KPMG

in Jackson County Circuit Court. According to Jackson County’s complaint, “KPMG failed

to conduct its audits of [Singing River] pursuant to its contractual and professional duties,

proximately causing damage to Jackson County.” Specifically, Jackson County asserted

“KPMG’s actions left [Singing River] with a massive financial deficit, an underfunded

pension plan, defending multiple lawsuits brought by members of its pension plan, and out

of compliance with its bond covenants which has negatively affected [Singing River].”

KPMG’s actions also negatively impacted Jackson County, as Singing River’s bond

guarantor. Had KPMG’s statements accurately reflected Singing River’s financial status,

Jackson County asserts it would have never guaranteed the bonds. But based on KPMG’s

negligent audit, Jackson County did guarantee certain bond issues to the benefit of Singing

River, which led to a downgrade in its bond rating. Jackson County also alleged KPMG’s

actions led to various federal lawsuits against Singing River. And in order to facilitate a

$149,950,000 settlement by Singing River, Jackson County agreed to contribute $13,600,000

to Singing River to support indigent care and prevent bond default by supporting operations.

¶4.    KPMG responded to both lawsuits by filing motions to compel arbitration. KPMG

asserted that Singing River and Jackson County were respectively “bound to the arbitration



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provisions, including the delegation clauses, contained in the audit engagement letters

between KPMG and Singing River” for the relevant fiscal years—2008 to 2012.1 Both

Singing River and Jackson County responded that the KPMG Engagement Letters were not

spread on the hospital board’s minutes as required by Mississippi’s “minutes rule.” So no

enforceable contract—and thus no enforceable arbitration clause—ever came into existence.

¶5.    The Hinds County Circuit Court agreed with Singing River and denied KPMG’s

motion to compel arbitration in Singing River’s lawsuit, which KPMG appealed to this

Court. KPMG, LLP, 2018 WL 5291088, at *5 (¶18). The Jackson County Circuit Court,

however, sided with KPMG, finding Jackson County’s “minutes rule” argument was for the

arbitrator, not the court, to decide. So the court granted KPMG’s motion to compel

arbitration in Jackson County’s suit, which Jackson County appealed. See Sawyers v.

Herrin-Gear Chevrolet Co., 26 So. 3d 1026, 1034 (Miss. 2010) (holding that “any final

decision with respect to arbitration is appealable to this Court pursuant to Mississippi Rules

of Appellate Procedure 3 and 4”).

¶6.    On October 25, 2018, this Court unanimously resolved KPMG’s appeal against

Singing River in Singing River’s favor, finding the minutes rule applied and prevented an

enforceable arbitration agreement ever arising. KPMG, LLP, 2018 WL 5291088, at *5-9

       1
         Although Jackson County was not a party to the alleged contract created by the
engagement letters, Jackson County itself claims the auditing services covered by the
engagement letters were partly for its benefit. So if the engagement letters—and thus the
arbitration provisions attached to them—were enforceable against Singing River, they would
likewise be enforceable against Jackson County. See Qualcomm Inc. v. Am. Wireless
License Grp., LLC, 980 So. 2d 261, 269 (Miss. 2007) (holding that “a signatory may
enforce an arbitration agreement against a non-signatory if the non-signatory is a third-party
beneficiary or if the doctrine of equitable estoppel applies”).

                                              4
(¶¶18-33). This leaves only the present appeal, which also turns on the minutes rule.

Jackson County’s primary appellate argument is that the trial court reversibly erred when it

failed to recognize and apply the minutes rule to deny arbitration.2 KPMG counters that the

trial court correctly applied the arbitration agreement’s “delegation clause” to rule that any

enforcement issues based on the minutes rule is for the arbitrator, and not the court, to

decide.

                                         Discussion

¶7.    This Court reviews the grant of a motion to compel arbitration de novo. E. Ford, Inc.

v. Taylor, 826 So. 2d 709, 713 (Miss. 2002).

¶8.    Despite the de novo review, KPMG asserts Jackson County’s minutes-rule argument

is off limits. Citing the “delegation clause” contained in the arbitration provisions, KPMG

argues any application of the minutes rule goes to enforceability of the contracts containing

       2
        Jackson County raised six alternative arguments “to be considered only if the
threshold argument asserted above is rejected”:

       (1)    Section 100 of the Mississippi state constitution prohibits the
              enforcement of arbitration against Jackson County.

       (2)    No authority exists for the imposition of arbitration against a political
              subdivision/Jackson County.

       (3)    Equitable estoppel is not applicable to Jackson County.

       (4)    Jackson County’s claims are not derivative of Singing River’s.

       (5)    Collateral estoppel is not applicable to Jackson County.

       (6)    Federal law does not preempt the Mississippi state constitution.

Because the minutes-rule issue controls, we need not address these alternative arguments.

                                              5
the arbitration provisions, not the formation. And because Singing River has “stipulated”

that it accepted KPMG’s engagement letters, according to KPMG, there is no question that

contracts containing arbitration provisions were formed. Instead, the only question is

whether the contract can be enforced based on the minutes rule. And that question, KPMG

insists, is for the arbitrator, not the court, to decide.3

¶9.    This Court, however, has already rejected this argument, holding that “Singing River

cannot stipulate to that which is prohibited by law.” KPMG, LLP, 2018 WL 5291088, at *8

(¶32). The minutes rule is clear. “[P]ublic boards”—including boards of trustees for

community hospitals such as Singing River—“speak only through their minutes, and their

acts are evidenced solely by entries on their minutes.” Id. at *5 (¶19) (emphasis added)

(citations omitted). “And where a public board engages in business with another entity, no

contract can be implied or presumed”—or, in this case, stipulated to. Id. at *5 (¶20) (quoting

Wellness, Inc. v. Pearl River Cty. Hosp., 178 So. 3d 1287, 1291 (Miss. 2015)). Instead, the

contract “must be stated in express terms and recorded on the official minutes and the action

of the board.” Id.

¶10.   So Jackson County’s minutes-rule argument goes to the issue of whether a contract

containing an arbitration provision was ever formed in the first place. Contrary to the trial



       3
           According to the delegation clause in the arbitration provisions:

       Any issue concerning the extent to which any dispute is subject to arbitration,
       or any dispute concerning the applicability, interpretation, or enforceability of
       these dispute resolution procedures, including any contention that all or part
       of these procedures is invalid or unenforceable, shall be governed by the
       Federal Arbitration Act and resolved by the arbitrators.

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court’s ruling, this was a question of law for the trial court, and not the arbitrator, to decide.

Wellness, Inc., 178 So. 3d at 1290-91 (applying minutes rule to “first determine if there is

a contract between the Hospital and Wellness within which the parties agreed to mediate or

arbitrate their claims”).

¶11.    Moreover, this was a question definitely answered by this Court in KPMG, LLP.

Under the minutes rule, “the entire contract need not be placed on the minutes.” Wellness,

Inc., 178 So. 3d at 1291. But “enough of the terms and conditions of the contract [must be]

contained in the minutes for determination of the liabilities and obligations of the contracting

parties without the necessity of resorting to other evidence.” Id. As this Court recognized

in KPMG, LLP, “the Board’s minutes are exceedingly sparse as to KPMG’s proposals.”

KPMG, LLP, 2018 WL 5291088, at *7 (¶25). In May 2008, the Board’s minutes reflect that

the Board approved the 2008 engagement letter, but the minutes failed to contain “a single

term or condition of KPMG’s proposal letter, including what KPMG was engaged to do, and

how much KPMG was to be paid.” Id. at *7 (¶26). In May 2009, the Board minutes reflect

that the Board approved two engagement letters, but “[t]he minutes do not reflect that either

letter was from KPMG, much less any details, liabilities, or obligations of the proposal.” Id.

at *8 (¶28). And “[i]n fiscal years 2010, 2011, and 2012, the minutes are completely devoid

of any reference to KPMG’s letters.” Id. at *8 (¶30) (emphasis added). So this Court cannot

enforce the engagement letters, “much less the separately attached dispute-resolution

provision.”4 Id. at *7 (¶27). See also Wellness, Inc., 178 So. 3d at 1291 (holding that the

       4
        In KPMG, LLP, this Court also expressly rejected KPMG’s argument that the
minutes of Singing River’s Audit and Compliance Committee contained sufficient reference

                                                7
board minutes did “not set forth sufficient terms to establish the liabilities and obligations

of the parties, and thus the court cannot enforce the contract, much less the mediation or

arbitration clauses therein”).

¶12.   Therefore, the trial court erred in granting KPMG’s motion to compel arbitration.

Consistent with our holding in KPMG, LLP,5 we reverse the trial court’s order and remand

the case to the trial court with an instruction to deny the motion to compel arbitration.

¶13.   REVERSED AND REMANDED.

    WALLER, C.J., RANDOLPH AND KITCHENS, P.JJ., KING, COLEMAN,
BEAM, CHAMBERLIN AND ISHEE, JJ., CONCUR.




to the engagement letters and its terms to satisfy the minutes rule. This Court found that the
Committee’s minutes were not admissible evidence of Board action. Instead, only the
Board’s minutes can testify to Board action. KPMG, LLP, 2018 WL 5291088, at *8 (¶31).
       5
         After we handed down KPMG, LLP, the United States Supreme Court issued its
opinion in Henry Schein, Inc. v. Archer & White Sales, Inc, No. 17-1272 (U.S. Jan. 8,
2019). While KPMG cites this case as supplemental authority, we find this opinion does not
direct a different outcome.
        First, Henry Schein, Inc., dealt specifically with the lower court’s application of the
“wholly groundless” exception to when parties agree that arbitrability questions will be
decided by the arbitrator. Id., slip op. at 3. And neither KPMG, LLP nor this appeal turn
on the now-rejected “wholly groundless” exception.
        Second, in Henry Schein, Inc., the Supreme Court reaffirmed “that parties may
delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement
does so by ‘clear and unmistakable’ evidence.” Id., slip op. at 6 (emphasis added) (citing
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct. 1920, 131 L. Ed.
2d 985 (1995)). See also Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 69 n.1, 130 S. Ct.
2772, 177 L. Ed. 2d 403 (2010) (also noting the First Options caveat that “courts should not
assume that the parties agreed to arbitrate arbitrability unless there is ‘clear and
unmistakable’ evidence that they did so”). That particular notion is essentially why KPMG’s
arbitration argument fails. Under the minutes rule, we find no evidence spread upon the
minutes that KPMG and Singing River agreed to arbitrate, let alone delegate arbitrability
questions to an arbitrator. KPMG, LLP, 2018 WL 5291088, at *10 (¶¶35-36).

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