Arbitration – Retroactivity – ‘Other services’

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Where a plaintiff college alleged that the defendant accounting firm committed malpractice when it failed to detect serious financial irregularities that occurred in the college’s financial aid office during fiscal years 1998 through 2004, the plaintiff’s claims are not subject to an arbitration clause in the parties’ 2005 agreement.

“… For the fiscal years at issue in the malpractice action, [plaintiff] Merrimack had hired [defendant] KPMG through a succession of separate annual service agreements. … None of the annual agreements from 1998 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. …

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

“… The principal question we face is whether, as a matter of contract law, the parties agreed that the dispute resolution provision in the 2005 engagement letter was intended to apply retroactively to disputes arising under their earlier agreements. …

“[T]he dispute resolution provision included in the 2005 engagement letter applies to disputes ‘arising out of or relating to’ three categories of things: (1) ‘the engagement letter,’ (2) ‘the services provided thereunder,’ and (3) ‘any other services’ that KPMG provided. KPMG acknowledges that the past services that it provided to Merrimack pursuant to earlier engagement letters do not fit within the first two categories. Instead, KPMG claims that its pre-2005 services fit within the sweep of the third category. …

“The question before us is whether, by executing the 2005 engagement letter, Merrimack thereby signed away its right to sue KPMG for malpractice based on services that KPMG previously had provided under wholly separate contracts. In our view, notwithstanding the facial breadth of the term ‘any other services provided,’ the only reasonable interpretation of that language in the context of this forward-looking agreement is in reference to services that KPMG would perform after the new contract was executed. Had KPMG wanted to insist that Merrimack forfeit its existing rights to pursue a civil action for past disputes, it easily could have included language expressly stating that the dispute resolution provision had retroactive application. … As we recently observed, where ‘it would have been a simple matter for’ the contract drafter to include a term it now claims is brought within the sweep of arguably ambiguous contractual language, ‘[w]e see no reason to add th[at] term[] now.’ Ajemenian v. Yahoo!, Inc., 83 Mass. App. Ct. 565, 577 (2013).

“Our conclusion finds support in analogous cases from other jurisdictions. …

“As a secondary argument, KPMG contends that the question whether Merrimack gave up its right to have its malpractice claim against KPMG decided in a judicial forum, itself, must be decided by arbitration. …

“The question of arbitrability is ordinarily for a court to decide, and courts will not defer that issue to arbitration absent ‘clea[r] and unmistakabl[e] evidence’ that the parties agreed to do so. … 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.”

Merrimack College v. KPMG LLP (Lawyers Weekly No. 11-002-16) (10 pages) (Milkey, J.) (Appeals Court) Motion to compel arbitration heard by Sanders, J., in Superior Court. Ira M. Feinberg, of New York, and Christopher H. Lindstrom, of Nutter, McClennen & Fish, for the defendant; T. Christopher Donnelly, of Donnelly, Conroy & Gelhaar, and Kelly A. Hoffman for the plaintiff (Docket No. 15-P-122) (Jan. 6, 2016).