Little v. Kpmg Llp
| Decision Date | 10 July 2009 |
| Docket Number | No. 08-50104.,No. 08-50100.,08-50100.,08-50104. |
| Citation | 575 F.3d 533 |
| Parties | Douglas Alan LITTLE, On Behalf of Themselves and All Others Similarly Situated; Little, Roberts & Company, PC, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants-Cross-Appellees, v. KPMG LLP; Franklin W. Maresh; David J. Kirkpatrick; Robert W. Lambert; Jerry Wayne Claiborne; James Terry Strange, Jr.; Jack Turner Taylor, Jr.; Richard E. Sexton; Sara Lou Brown; Larry Evans, Defendants-Appellees-Cross-Appellants. Desert Eagle Distributing of El Paso, Inc., Plaintiff-Appellant-Cross-Appellee, NC Ventures, Inc.; St. James Capital Partners LP, Intervenor Plaintiffs-Appellants-Cross-Appellees, v. KPMG LLP; Franklin W. Maresh; David J. Kirkpatrick; Robert W. Lambert; Jerry Wayne Claiborne; James Terry Strange, Jr.; Jack Turner Taylor, Jr.; Richard E. Sexton; Sara Lou Brown; Larry Evans, Defendants-Appellees-Cross-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
KiwiAlejandro Danao Camara (argued), Amir H. Alavi, Demetrios Anaipakos, Ahmad, Zavitsanos & Anaipakos, Houston, TX, Gregory Scott Coleman, Yetter, Warden & Coleman, LLP, Austin, TX, Finis E. Cowan, David Edward Warden, Yetter, Warden & Coleman, L.L.P., Houston, TX, for Plaintiffs-Appellants Cross-Appellees.
John K. Villa (argued), Robert A. Van Kirk, Williams & Connolly, L.L.P., Washington, DC, Michael Vance Powell, Locke, Lord, Bissell & Liddell, LLP, Dallas, TX, for Defendants-Appellees Cross-Appellants.
George H. Spencer, Jr., Kathryn A. Stephens, Clemens & Spencer, San Antonio, TX, for Maresh.
Appeals from the United States District Court for the Western District of Texas.
Before JOLLY, DeMOSS and PRADO, Circuit Judges.
John Hudson ("Hudson") was a partner at KPMG LLP from 1984 until 1999, practicing public accountancy in Texas. He did not, however, have the required Texas license to practice. It is alleged that KPMG LLP's Texas license and registration were therefore improper; its participation in Texas's public-accountancy market, unlawful. It is further alleged that KPMG LLP managed to maintain its Texas license and registration only by concealing Hudson's unlicensed practice from the relevant authorities.
In 2005, a public accountant and a public-accountancy firm in Texas brought a putative class action against KPMG LLP and several of its partners (collectively, "KPMG"). The putative class (the "competitors") contends that, from 1984 until 1999, its members lost business to KPMG when KPMG participated in Texas's public-accountancy market unlawfully.
A second putative class action was brought against KPMG by a group of its Texas clients. This putative class (the "clients") contends that, from 1984 until 1999, KPMG misrepresented the nature of its public-accountancy services and overcharged for them unlawfully. Over KPMG's opposition, NC Ventures Inc. ("NC Ventures") and St. James Capital Partners LP ("St. James") intervened as plaintiffs.
The district court dismissed both actions on the pleadings. The court held that the competitors' claim of injury is too speculative to confer Article III standing or to give rise to a claim for which relief can be granted. It held that the clients have failed to plead actual, concrete injury sufficient to give rise to a claim for which relief can be granted. The putative classes appeal from the dismissals. The clients also appeal from a ruling to strike two exhibits that they attached to their second-amended complaint. KPMG cross-appeals from ancillary rulings in both actions.
We have consolidated the actions for appeal. We hold that, as the district court decided, the competitors' claim of injury is too speculative to confer Article III standing. The clients have failed to plead actual, concrete injury sufficient to survive dismissal under Federal Rule of Civil Procedure 12(b)(6). We affirm.
The putative class actions arise from the same factual allegations. Because these appeals are from dismissals on the actions' pleadings, we must assume the allegations are true and describe them as if they were fact.
The Texas Public Accountancy Act ("TPAA"), as in force from 1984 until 1999, required firms of certified public accountants to register annually with the Texas State Board of Public Accountancy (the "State Board"). A firm did not qualify to register unless each of its partners practicing public accountancy in Texas held a Texas public-accountancy license and certification. The State Board enforced this requirement by having firms annually submit, under oath, the name and Texas license number of each partner who practiced public accountancy in Texas.
Registration, in turn, was a statutory prerequisite to obtain a firm license. The TPAA mandated that the State Board revoke the registration and license of any firm not meeting each qualification for registration.
John Hudson practiced public accountancy as a partner in KPMG's Houston office from January 1, 1984, until January 1, 1999. Hudson held a New York public-accountancy license, but he never held a Texas public-accountancy license. Despite Hudson's unlicensed practice, KPMG registered and received a license to practice public accountancy in Texas every year from 1984 until 1999. KPMG did so by concealing Hudson's lack of a Texas license from the State Board: In 1984 and 1985, KPMG omitted Hudson's name from the list of Texas partners that it submitted to the State Board as part of the annual registration process. In 1986, KPMG included Hudson's name but provided his New York license number instead of a Texas license number. The State Board caught this anomaly and brought it to KPMG's attention, which responded that Hudson was "in the process of applying for his Texas license." KPMG again omitted Hudson's name from its list of Texas partners each year between 1987 and 1999. Hudson retired effective January 1, 1999.
Despite KPMG's representation in 1986 that Hudson was in the process of applying for a Texas public-accountancy license, Hudson did not actually apply for a Texas license until 1992. He applied at the direction of Franklin Maresh ("Maresh"), the managing partner of KPMG's Houston office. Three of Hudson's coworkers in that office — defendants Richard Sexton, Larry Evans, and Sara Lou Brown — signed Hudson's application as character witnesses. Another of Hudson's coworkers, defendant Jerry Claiborne, certified on behalf of KPMG that Hudson's statements in his application were true and correct. Each coworker knew that Hudson had engaged in the unlicensed practice of public accountancy since 1984. Each coworker also knew that Hudson's application contained false statements. The State Board denied Hudson's application, and Hudson never reapplied.
From 1993 until 1999, Maresh furthered KPMG's concealment of Hudson's unlicensed practice even though Maresh had retired from KPMG. In 1993, Maresh joined the State Board's Major Cases Committee, which was the State Board committee that would have been charged with investigating KPMG's license and registration. Maresh continued to work for the State Board, and he became the State Board's Chairman in 1996. He personally knew of Hudson's unlicensed public-accountancy practice (and, consequently, of KPMG's ineligibility to register in Texas), but he never disclosed these facts to the State Board. The State Board never investigated Hudson's unlicensed public-accountancy practice, and it never investigated KPMG's eligibility to register.
At all times from 1984 until 1999, KPMG represented to prospective and actual clients that it was a partnership registered and licensed to practice public accountancy in Texas. This representation was true: at all times material to these appeals, KPMG was registered and licensed to practice public accountancy in Texas. KPMG did not disclose, however, that it had obtained the registration and license fraudulently, or that it was unqualified under the TPAA to hold a firm registration or license. Hudson's unlicensed practice came to light only in 2005, well after KPMG's annual licenses and registrations for the years 1984 through 1999 had expired.
Again, these allegations are taken from the putative classes' relevant pleadings. We must accept them as true for our purposes today.
The two putative classes raise distinct legal arguments, and the two actions' procedural histories differ. We first describe the competitors' legal arguments and their action's procedural history. We next describe the clients' legal arguments and their action's procedural history.
In the competitors' action, the live pleading is the original complaint. The competitors' legal argument is as follows. From 1984 until 1999, KPMG participated in Texas's public-accountancy market — and obtained clients who otherwise would have hired the competitors — unlawfully. KPMG's participation in Texas's public-accountancy market was unlawful because Hudson's unlicensed public-accountancy practice caused KPMG to be ineligible to register in Texas. Had the State Board learned of KPMG's ineligibility to register, it would have revoked KPMG's registration and license to practice public accountancy in Texas. See TEX. OCC.CODE § 901.504(2) (1999) (). Further, the competitors allege, KPMG managed to obtain 1984-1999 registrations and licenses only through acts of concealment and conspiracy. They contend that this conduct constituted constructive fraud, conspiracy to commit constructive fraud, tortious interference with prospective contractual relations, conspiracy to commit tortious interference with prospective contractual relations, Lanham Act violations, Racketeer Influenced and Corrupt Organizations Act ("RICO") violations, and Sherman Act violations. The competitors seek the disgorgement of all revenues or...
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