backOn September 11, 2023, the U.S. Bankruptcy Court for the Southern District of Texas granted in part and denied in part a motion by Deloitte & Touche LLP to compel arbitration of claims asserted by the bankruptcy plan administrator for its former audit client, construction company Katerra Inc. The plan administrator, as the successor to Katerra, asserted numerous common law malpractice-related claims and a fraudulent transfer claim against Deloitte under the Bankruptcy Code, seeking to recover audit fees. The allegations include, in part, that Deloitte failed to detect fraud by Katerra’s management. Deloitte filed a motion to compel arbitration of the claims based on the arbitration provision of its engagement agreement with Katerra.
At the conclusion of the August 24, 2023 hearing on Deloitte’s motion, the court ruled orally that the parties had entered into a valid and enforceable arbitration agreement and that, with respect to the common law claims, enforcement of the agreement would not conflict with the Bankruptcy Code and thus was required under the Federal Arbitration Act. The court found that the fraudulent transfer claim, however, was a “core” bankruptcy claim not required to be arbitrated. The court announced that it would retain that claim but stay all proceedings related to it pending the resolution of the common law claims in the arbitration proceedings. The court then issued its order effecting the earlier oral ruling.
The case is Katerra Inc. v. Deloitte & Touche LLP (In re Katerra, Inc.), No. 22-ap-3344 (Bankr. S.D. Tex. Sept. 11, 2023). The plan administrator is represented by Fox Rothschild LLP. Deloitte is represented by Porter Hedges LLP and Latham & Watkins LLP. The order is available here.