Lefoldt v. Horne, L.L.P., 16-60245

• Decision Date: 11 April 2017
• Docket Number: No. 16-60245,16-60245
• Parties: H. Kenneth LEFOLDT, Jr., in his capacity as Trustee FOR the NATCHEZ REGIONAL MEDICAL CENTER LIQUIDATION TRUST, Plaintiff–Appellee, v. HORNE, L.L.P., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

853 F.3d 804

H. Kenneth LEFOLDT, Jr., in his capacity as Trustee FOR the NATCHEZ REGIONAL MEDICAL CENTER LIQUIDATION TRUST, Plaintiff–Appellee,

v.HORNE, L.L.P., Defendant–Appellant.

No. 16-60245

United States Court of Appeals, Fifth Circuit.

FILED April 11, 2017

REVISED April 12, 2017

Brent Bennett Barriere, Alysson Leigh Mills, Esq., Degan Skylar Rosenbloom, Esq., Rebecca Sha, Fishman Haygood, L.L.P., Douglas Scott Draper, Esq., Heller, Draper, Patrick, Horn & Dabney, L.L.C., New Orleans, LA, for Plaintiff–Appellee.

Alan Walter Perry, Counsel, Simon Turner Bailey, Esq., Michael James Bentley, Esq., Bradley Arant Boult Cummings, L.L.P., Jackson, MS, for Defendant–Appellant.

Before KING, OWEN, and HAYNES, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

Horne, L.L.P. (Horne) moved to compel arbitration and to stay proceedings in federal district court pending arbitration. Horne and the chief financial officer of Natchez Regional Medical Center (NRMC), a community hospital that is a Mississippi public entity, signed three documents (in 2009, 2010, and 2012) detailing terms upon which Horne would provide audit services for NRMC. A threshold issue in this interlocutory appeal is whether the "minutes rule," also known as the "minutes requirement," under Mississippi law pertains to "the issue of the contract's validity," or instead more closely resembles "whether the alleged obligor [NRMC] ever signed the contract."¹

We conclude that, with respect to the 2010 and 2012 engagement letters, the minutes rule pertains to whether written agreements between NRMC and Horne were formed in each of those years, and therefore, whether written contracts were consummated is a question for the courts rather than an arbitrator. We conclude that because of the minutes requirement, the 2010 and 2012 engagement letters are not contracts to which NRMC is a party, and therefore, NRMC is not a party to the arbitration provisions contained in the 2010 and 2012 engagement letters.

The minutes of NRMC's board reflect that an agreement with Horne was reached in 2009, and we therefore conclude that the minutes rule does not pertain to that contract's formation. NRMC's arguments based on the minutes rule instead relate to the validity or enforceability of the terms of that agreement generally and do not go "to the making of the agreement to arbitrate."² Parties may agree that the validity or enforceability of a contract's terms are to be resolved in arbitration. However, the scope of the arbitration agreement in the 2009 engagement letter was not raised as an issue in this appeal and has not been resolved in the district court. On remand, the district court should determine the scope of the arbitration agreement—specifically, whether the arbitration agreement in the 2009 engagement letter requires arbitration of the effect of the minutes rule on the validity of the 2009 engagement letter. If the parties did not agree to arbitrate that issue, then the district court should resolve the effect of the minutes rule on the validity of the 2009 letter agreement.

We further conclude that the Mississippi minutes rule is one of general applicability to Mississippi contracts with public entities and the requirement of § 2 of the Federal Arbitration Act (FAA) that "courts must place arbitration agreements on an equal footing with other contracts"³ does not foreclose its application in this case.

The district court's denial of the motion to compel arbitration with regard to the 2010 and 2012 engagement letters was not error. However, we vacate the district court's denial of Horne's motion to compel arbitration with regard to the 2009 letter agreement and remand to the district court for further proceedings.

I

We briefly review the underlying facts and the procedural posture of the proceedings in the district court. NRMC's Chief Financial Officer, Charles Mock (Mock), purportedly on behalf of NRMC, signed three engagement letters that are pertinent to this appeal detailing the terms upon which Horne would provide auditing services to NRMC. Each engagement letter contained arbitration provisions.

The first agreement relevant to this appeal was presented by Horne to Mock in August 2009. On August 12, 2009, the minutes of NRMC's board reflect:

Management Report: Charles Mock reported that he had received a proposal for the annual audit for a one year contract from the Horne CPA Group of Jackson, Mississippi. Mr. Bland asked if other bids were taken and Mock reported that only one bid had been received and that from Horne. No action was taken at this time. Mr. Bland asked Mr. Mock to approach Horne again to request they consider not increasing their bid from the prior year.

Subsequent board minutes, dated September 2, 2009, reflect:

OTHER BUSINESS: C. Mock presented the bids for auditor with Horne CPA group costing 48,000.00 and BKD CPA costing 58,000.00 plus expense charges including travel, report processing, etc.

R. Grennell made the motion to accept the Horne CPA Group audit bid with B. Pyron seconding the motion. The motion passed unanimously by the Board to accept the Horne CPA Group audit bid at $48,000.00.

Mock, as Chief Financial Officer of NRMC, executed the 2009 engagement letter with Horne following the September 2, 2009, session. Subsequently, in April 2010, minutes of the board of trustees reflect that the board reviewed NRMC's financial statements for 2009 with Horne.

Mock signed two other engagement letters, in 2010 and 2012, purporting to act on behalf of NRMC in retaining Horne to perform auditing services, but there is no mention of either of the agreements in the minutes of NRMC's board of trustees. Nevertheless, NRMC admits that Horne performed annual audit services and that NRMC paid the amount specified in the engagement letters, $48,000 each year.

NRMC filed a voluntary petition for relief pursuant to Chapter 9 of the bankruptcy code in 2014. The court-appointed trustee for NRMC's Chapter 9 bankruptcy estate is H. Kenneth Lefoldt, Jr. The Chapter 9 plan confirmed by the bankruptcy court gave Lefoldt the right to pursue all claims, demands, and causes of action belonging to NRMC. Lefoldt, as Trustee, has sued Horne, contending that Horne committed professional malpractice in auditing NRMC. Because the Trustee stands in the stead of NRMC, and to minimize confusion, we will refer only to "NRMC."

Horne filed a motion in federal district court seeking to compel arbitration and requesting a stay pending arbitration. The district court denied that motion, concluding that because none of the arbitration agreements were set forth or described in the board's minutes, "no such agreement [to arbitrate] exists." The district court additionally rejected Horne's contention that NRMC should be equitably estopped from denying the existence and enforceability of the engagement letters and the arbitration provisions contained in them. Horne has appealed.

II

The 2009 engagement letter contained an arbitration provision, set forth in the margin,⁴ that is more limited than those in the 2010 and 2012 agreements. The 2010 and 2012 engagement letters each have a lengthy "Claims Resolution" section that includes an arbitration clause that provides:

Any dispute arising out of or relating to this engagement will be resolved by binding arbitration conducted before a panel of three arbitrators in accordance with the United States Arbitration Act and, to the extent not inconsistent with such law, the Professional Accounting and Related Services Dispute Resolution Rules of the American Arbitration Association.... The arbitrator ... shall determine any controversy concerning whether a claim is arbitrable.

The Supreme Court has "recognized that parties can agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy."⁵ The Court has explained that "[a]n agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other."⁶ Such an agreement "is valid under § 2'save upon such grounds as exist at law or in equity for the revocation of any contract,' and federal courts can enforce the agreement by staying federal litigation under § 3 and compelling arbitration under § 4."⁷

This appeal presents several questions. Among them are whether the Mississippi minutes rule (1) invalidates the engagement letters, and consequently the arbitration provisions, or (2) invalidates the arbitrations provisions, regardless of whether other provisions in the engagement letters are enforceable, or (3) requires the conclusion that no contract at all was formed between Horne and NRMC. We first consider whether the minutes requirement raises a question as to "whether any agreement between the parties 'was ever concluded.' "⁸

The Supreme Court has drawn a distinction between "validity" of an agreement and "whether any agreement between the parties 'was ever concluded.' "⁹ The Court made clear in Buckeye Check Cashing and Rent–A–Center that when it explained that "[t]here are two types of validity challenges under § 2,"¹⁰ it was not addressing a contention that no agreement was ever concluded by the parties.¹¹ The Court said in Buckeye Check Cashing that:

The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in the cases cited by respondents (and by the Florida Supreme Court), which hold that it is for courts to decide whether the alleged obligor ever signed the contract, Chastain v. Robinson–Humphrey Co. , 957 F.2d 851 (C.A.11 1992), whether the signor lacked authority to commit the alleged principal, Sandvik AB v. Advent Int'l Corp. , 220 F.3d 99 (C.A.3 2000) ;

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