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KPMG engagement agreements with Miss. public hospital voided because terms were not sufficiently “spread upon the minutes” of hospital’s board

For several years, global accounting firm KPMG did audits for a county-owned community hospital in Mississippi. After switching firms, the hospital sued KPMG for malpractice.  KPMG invoked an arbitration clause contained in the firm’s signed en­gage­ment agreements with the hospital.  The trial court, how­ever, denied KPMG’s motion to compel arb­i­tra­tion, on grounds that the terms of the engagement agreements were not sufficiently “spread upon the min­utes” of the hospital’s board of trustees as required by state law. The state’s supreme court affirmed, observing that:

The Board failed to recite a single term and/or condition of the 2008 [audit engagement] pro­po­sal in its minutes.

For example, the minutes are silent as to the date of the letter; the term or length of the service; the scope of work or service to be performed; the fees, expenses, or charges to be paid by the hospital; and other contractual provisions, including a now disputed resolu­tion clause.

Al­though the minutes reflect that copies of the vaguely de­scribed docu­ments were included in the Board’s agendas in advance of the meeting, the min­utes are unclear what meeting the minutes are referencing, i.e., the Board’s meeting or the Committee’s meeting on May 7.

Finally, although the minutes state that the 2008 letter had been presented and in­corp­orated by reference in the minutes, the letter was not attached to the Board’s minutes.

KPMG, LLP v. Singing River Health Sys., No. 2017-CA-01047-SCT, slip op. at 4  (Miss. Oct. 25, 2018) (footnote omitted, extra paragraphing added).

The supreme court summarized Mississippi law on the point, concerning contracts entered into by public boards:

The obligations and liabilities of KPMG and Singing River cannot be de­ter­mined either by the Board’s or by the [Audit] Committee’s minutes. Ac­cord­ingly, KPMG’s 2008 letter cannot be enforced, nor can the separately at­tached dispute-resolution provision.

Id. at 15.

The supreme court was unmoved by the fact that it was the hospital board, not KPMG, that had prepared the inadequate minutes:  “It was KPMG’s folly to rely upon the Board to record the terms and conditions of the letters in its min­utes.” Id. at 20.

I did a Google search for “spread upon the minutes”; only one other non-Mississippi reference popped up, namely a 1996 Florida statute, Fla. Stat. 230.23(2), concerning the power of school boards to contract to buy property, sell it, etc.

Lesson for drafters: When dealing with any kind of governmental- or quasi-governmental entity, it might be wise to double-check the requirements for con­tracts with such entities to be binding — and then make sure those re­quire­ments are met.

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