ERNST v. CLARK, 2007-SC-000770-TG
| Decision Date | 26 August 2010 |
| Docket Number | 2007-SC-000936-TG.,No. 2007-SC-000770-TG,2007-SC-000770-TG |
| Court | United States State Supreme Court — District of Kentucky |
| Parties | ERNST & YOUNG, LLP & David S. Meyer, Appellants, v. Sharon P. CLARK (In Her Official Capacity as Commissioner for the Kentucky Department of Insurance and Rehabilitator of AIK Comp); Stephen P. Lattanzio; Actuarial & Technical Solutions, Inc.; and John and Jane Does, all Unknown Actuaries and Accountants, Appellees. and Ernst & Young, LLP, Appellant, v. Appalachian Regional Healthcare, Inc.; Apollo Oil, LLP; Art's Electric, Inc.; Crittenden Health Systems; European Design, Inc.; Fischer Special Manufacturing Company; Gallatin Health Care, LLC; Hopewell Farm, LLC; Louden & Company, LLC; M & M Cartage, Inc.; Modco Transport; and Pattie A. Clay Regional Medical Center, Appellees. |
OPINION TEXT STARTS HERE
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William D. Kirkland, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Frankfort, KY, Brooks R. Burdette, Christopher H. Giampapa, Schulte, Roth & Zabel, LLP, New York, NY, John A. Chandler, King and Spalding, LLP, Atlanta, GA, David J. Tocco, Vorys, Sater, Seymour, and Pease, LLP, Cleveland, OH, Eric Wade Richardson, Victor Allen Walton, Jr., Vorys, Sater, Seymour, and Pease, LLP, Cincinnati, OH, Counsel for Appellants.
Perry Mack Bentley, John Melvin Camenisch, Jr., Stoll, Keenon & Ogden, PLLC, Lexington, KY, Justin Drew Clark, Walter L. Sales, Stoll, Keenon & Ogden, PLLC, Louisville, KY, Paul C. Harnice, Stoll, Keenon & Ogden, PLLC, Frankfort, KY, Counsel for Appellee, Sharon P. Clark, in her Official Capacity as Commissioner for the Kentucky Department of Insurance and Rehabilitator of AIK Comp.
Bernard F. Lovely, Jr., Bowles, Rice, McDavid, Graff & Love, LLP, Lexington, KY, Counsel for Stephen P. Lattanzio and Actuarial & Technical Solutions, Inc.
Robert W. Bishop, Bishop & Associates, PSC, Louisville, KY, Ronald Richard Parry, Robert R. Sparks, Parry, Deering, Futscher & Sparks, PSC, Covington, KY, J. Guthrie True, Johnson, True & Guarnieri, LLP, Frankfort, KY, Gregory Eugene Mitchell, Frost, Brown & Todd, LLC, Jan De Beer, Lexington, KY, Counsel for Appellees, Appalachian Regional Healthcare, Inc., et al.
This appeal arises out of the insolvency of AIK Comp, a workers' compensation self-insurance group, and the efforts of the Rehabilitator appointed pursuant to Kentucky's “Insurers Rehabilitation and Liquidation Law” 1 (IRLL) to assert tort claims on behalf of AIK Comp against Appellants, Ernst & Young LLP, and others. Similar claims against Appellants were also asserted by the individual members of AIK Comp 2 in a class action. The Franklin Circuit Court entered orders in each case denying Ernst & Young's motion to enforce contractual provisions calling for such claims be submitted to “binding arbitration.” Appeals from those orders were consolidated and transferred to this Court. Two issues are presented: first, whether the arbitration agreements in Ernst & Young's contracts with AIK Comp may be enforced against the Rehabilitator; and second, whether the same arbitration agreements force the plaintiffs in the class action to arbitrate their claims against Ernst & Young.
We hold that the arbitration agreements are not enforceable over the Rehabilitator's objection and affirm that order of the Franklin Circuit Court. However, for reasons set forth in section III of this opinion, we conclude that the circumstances that require the Rehabilitator's claims to remain in the Franklin Circuit Court are not applicable to the class action claims, and thus those claims are subject to the arbitration requirements. Accordingly, we reverse that order of the Franklin Circuit Court.
AIK Comp (formerly known as Associated Industries of Kentucky Selective Self-Insurance Fund) is a workers' compensation self-insured group organized under KRS 342.350, 3 to provide its member-employers with the workers' compensation insurance required by KRS 342.340. At all times relevant to this action, KRS 342.347(1) 4 mandated the Commissioner of the Kentucky Department of Insurance (now the Executive Director of the Kentucky Office of Insurance) to periodically examine the financial condition of workers' compensation self-insured groups. KRS 342.347(2) required each self-insurance workers' compensation group, including AIK Comp, to be annually audited by an independent certified public accountant and to file with the Commissioner a detailed statement of its financial condition as disclosed by the audits. The statute specified the particular information to be included in the annual statement of financial condition. 5 KRS 342.347(5) required the insurance Commissioner to “make such recommendations to the Governor and legislative committees as may be appropriate to strengthen the oversight of self-insureds so that payment of liabilities to workers under this chapter is assured.”
In 1999 and each year thereafter through 2003, the Chief Executive Officer of AIK Comp, Maurice Turner, and a representative from Ernst & Young, David S. Meyer, executed a written agreement (the “engagement letters”) whereby Ernst & Young LLP, a certified public accounting and auditing firm, agreed to provide accounting services for AIK Comp to satisfy the statutory auditing and reporting requirements. Each engagement letter called for Ernst & Young to audit AIK Comp's finances for the previous fiscal year. A mediation and arbitration clause was included in the first engagement letter, and was thereafter incorporated by reference in the subsequent engagement letters. For the audits completed for fiscal years 1998 to 2001, the arbitration clause stated as follows:
[a]ny controversy or claim arising out of or relating to the services covered by this letter or hereafter provided by us to the Company (including any such matter involving any parent, subsidiary, affiliate, successor in interest, or agent of the Company or of Ernst & Young LLP) shall be submitted first to voluntary mediation, and if mediation is not successful, then to binding arbitration, in accordance with the dispute resolution procedures set forth in the attachment to this letter. Judgment on any arbitration award may be entered in any court having proper jurisdiction.
The dispute resolution procedures set forth in the attachment included a choice of law provision requiring that any dispute...
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