Wednesday, January 6, 2016

Accounting Malpractice Not Subject To Arbitration

A decision in a case involving allegations of accounting malpractice from the Massachusetts Supreme Judicial Court

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 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.


KPMG has not presented clear and unmistakable evidence that Merrimack ever agreed that only arbitrators could resolve whether disputes that arose under prior agreements nevertheless were subject to the arbitration provision in the 2005 engagement letter. Indeed, because Merrimack never agreed that earlier disputes were subject to the new dispute resolution provision (for the reasons set forth supra), it follows that the procedures spelled out in appendix II simply never came into play.

(Mike Frisch)

Comparative Professions | Permalink


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