one or more signatories to the contract, the court concluded that the plaintiffs were equitably

estopped from avoiding arbitration with all of the defendants, Hoffman, 143 [°, Supp.2d at 1004-05.

The same reasoning applics with cqual force o the instant motions, Recognizing the futility
in arguing otherwise, plaintiffs instead have attempted to change the rules in the middle of the game
After defendants moved to stay the instant proceedings and compel arbitration based on their right
to assert the arbitration clauses in the original Purchase Agreements as held in Hoffman, plaintilts
and EPS executed purported “modifications” to the arbitration clauses contained in those
agreements. Those “modifications” change the venue of the arbitration, and clearly favor plaintiffs
and EPS over defendants. For example, the modified clauses give EPS and plaintiffs the right to
hand pick the arbitrators, with no input from defendants. It also limits the number of interrogatories
a party may serve, and treats Jefferies and Weinhuff as one party, Massey and Watts as one party,
and Gibson, Dunn and Schindler as one party.!

Plaintiffs do not suggest that the modifications eliminate defendants’ right to arbitrate
Indeed, as noted above, the modifications expressly anlicipate that defendants (with the possible
exception of Deloitte & Touche) shall be partics to the arbitration. Rather, plaintiffs argue that if
defendants have a right to arbitrate they must do so pursuant to the terms of the modified arbitration
clauses. Defendants disagree, and have argued that they should be allowed to withdraw their
motions should the court conclude that the modifications are valid.

Under the Federal Arbitration Act, 9 U.S.C. § 4, this court decides whether an agreement to

arbitrate exists, as well as any challenge (o the validity of the agreement, including questions

‘Surprisingly, the modifications make no reference to Deloitte & Touche as a party. It is
unclear whether this omission was intentional or an oversight.

4


Hofiman v, Deloitte and Touche, et al., 143 F. Supp.2d 995 (ND, II1, 2001). All defendants have

moved (o stay or dismiss the current actions pending arbitration, and/or to compel arbitration, For
the reasons set forth below, these motions are granted.
Background

Plaintiffs in these cases are former roll-up company owners and/or revenue producers of
those roll-up companies. Each company owner entered into either a Stock Purchase Agreement or
an Asset Purchase Agreement (the ‘Purchase Agreements”) with EPS. Each Purchasc Agreement
contained an arbitration provision that provides:

Any controversy or claim arising out of or relating to this Agreement shall be solely

and finally scttled by arbitration administered by the American Arbitration

Association (“AAA”). ..

Each plainti ffreyenue producer entered into separate agreements with EPS, including a stock
holder agreement, a restricted stock purchase agreement and an employment agreement. Each of
these agreements contains similar arbitration clauses.

Tn Hoffman, the plaintiffs were former roll-up companies and their owners, who allege that
the defendants (Deloitte and Touche, Jefferies, Massey and Watts) were engaged in the same
widespread scheme to defraud as alleged in the instant cases. The Purchase Agreements in Hoffman,
between the plaintiffs and EPS, contained arbitration clauses identical to the arbitration clauses at
issuc in the instant cases. The Hoffman defendants all moved to compel arbitration despite not being
signatories to the agreements contained in the arbitration clauses. Because the plaintiffs’ claims
(1) all made reference to and presumed the existence ofthe written sale agreements, and (2) all raised

allegations of substantially interdependant and concerled misconduct by both the non-signatory and


concerning the scope of the arbitration clause and the manner in which the parties agree to conduct
the arbitration, See Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868 (7" Cir. 1985). This court
has already held that a valid agreement to arbitrate cxists. Hoffman, 143 F. Supp.2d at 1004-05. To
determine the scope and manner of the arbitration, the court must decide whether the proposed
modifications are effective. That decision is governed by Califomia law, because it involves the
formation and validity of the contract, and the contracts in question provide for Califomia law to
govern their interpretations, See Hoffman, 143 1, Supp.2d at 1004 n.4.

To support their position that the modifications are effective, plaintiffs go to great lengths

to establish the rather unremarkable proposition that under California law parties to a written

73 Cal.App.2d 377 (1946); Armendariz v. Foundation Health Psycheare Services, Inc., 6 P.3d 669,

679, S. Ct. Ca. 2000). Of course, the issue is not whether parties to a written arbitration agreement
can ever mutually agree to modify it, but whether they can do so unilaterally after others have
asserted rights under the original agreement. In the instant case, plaintif{s brought claims that relate

to the original agreement against all defendants. Defendants asserted their right to arbitrate under

the original agreements, a nght that this court has already upheld in H.

Califomia follows the Restatement (Sccond) of Contracts. Sec Aronowicz v. Nalley’s Inc,,
30 Cal. App. 3d 27 (1972). Section 90(1) of the Restatement incorporates the Doctrine of

Promissory Estoppel, providing:

A promise which the promissor should reasonably expect to induce action or
forbearance on the part of the promissee or a third person and which does induce
such action or forbearance is binding if injustice can be avoided only by enforcement
of the promise. Remedy for breach may be limited as justice requires.



Minute Order Form (06/97)

United States District Court, Northern District of Minois

Mwy Mayiaratedudge | Obert W. Gettleman — | “yin‘setgned Judge

CASE NUMBER 02 C 3089 DATE Oct, 21, 2002
CASE Timothy Shoecraft v Deloitte and Touche
TITLE

Lin the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.

MOTION:

DOCKET ENTRY:

(1) oO Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) o Answer brief to motion due,__. Reply to answer brief due__

(4) oO Ruling/Hearing on set fort.

(5) oO Status hearing

(6) a Pretrial conference[held/continued to] [set for/re-set for]on, ss setfor at

(7) a Trial[set for/re-set for]on_ at

(8) i] ([Bench/Jury trial] [Hearing] held/continued to at

(9) Oo This case is dismissed [with/without] prejudice and without costs[{by/agreement/pursuant to]
OFRCP4(m) OGeneralRule2l1 O FRCP41(a)(1) O FRCP41(a)(2).

(10) | | [Other docket entry]

motions to stay and to compel an audit are granted.

ad) # [For further detail see order attached to the original minute order.]

Memorandum opinion and order entered. Accordingly, defendants’

No notices requited, advised in open court.

No notices required, umber vl motive

X | Notices mailed by judge’s staff.
Notified counsel by telephone.

Meise

I 2p
dcMdockare He

Docketing to mail notices.

Mail AO 450 form.

: ing deputy initiala
Copy to judge/magistrate judge, !
courtmom date male notice
Gps deputy’s
initials
Date/time received in 7
central Clerk's Office ‘mailing deputy initiala



In the insiant cases, plaintiffs knew at the time they filed suit that this court had alrcady
determined that defendants have a right to assert the arbitration clauses in the agreements that [orm
the basis of plaintiffs’ complaints. Plaintiffs knew that defendants had already asserted those rights
prior to plaintiffs’ attempted modifications ofthe agreements. Thus, plaintiffs knew that defendants
had already justifiably acted in reliance on the arbitration clauses in the original agreements.
Allowing plaintiffs’ to negate that reliance by a subsequent modification of the agreements would
be unjust. Plaintiffs have presented no case in which a court has allowed such a subsequent
modification and this court has found none. Accordingly, the court concludes that the modifications
to the arbitration clauses are invalid, and that defendants have a right to arbitrate under the arbitration
clauses set forth in the original, unmodified agreements.’

For the reasons set forth above, defendants’ motions to stay and to compel arbitration are

granted.

ENTER: October 21, 2002

‘\Ghchy (ee

Robert W. Gettieman
United States District Judge

In Hoffman, the court also held that Deloitte & Touche is a third party beneficiary to the
Purchase Agreements. Under § 311 of the Restatement (Second) of Contracts, the power to
modify a duty owed to a beneficiary terminates when the bencticiary, before receiving
notification of the modification, materially changes his position in justifiable reliance on the
promise or brings suit on it. This section provides an additional ground by which Deloitte &
Touche can enforce its right to arbitrate under the original agreements.

6



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION DORE se

CONRAD P. LEE, individually and/or as successor/ )
assignee of the Conrad Lee Company, on behalf of )

himself and all others similarly situated,
Plaintiff,
Vv.
DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

MOSES K. CHEUNG, individually and/or as
successor/assignee of MKC Enterprises, Inc.,
formerly known as The Oxxford Group, Inc.,
Plains ff,
v.

DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

TIMOTHY SHOECRAFT, NORMAN BEVAN
WALTER DUEMER, et al., individually and on
behalf of all similarly situated persons,
Plaintiffs,
v.

DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

Loe eee eee

OCT $ 1 2002

No. 02 € 3087

Judge Robert W, Gettleman

No. 02 C 3088

Judge Robert W, Gettleman

No. @ 02 C3089."

Judge Robert W. Gettleman


VICTOR ARIAS, individually and on behalf of )
others similarly situated, )
)
Plaintiffs, )
) No. 02C 3090
v. )
) Judge Robert W. Gettleman
DELOISTE AND TOUCHE, LLP, et al., )
)
Defendants. ,)
)
)
TIMOTHY J. O'BRIEN, et al., )
)
Plaintiffs, )
) No. 02 C3091
v. )
) Judge Robert W. Gettleman
DELOITTE AND TOUCHE, LLP, et al., )
)
Defendants. }
)
)
SEAN MCLERNON, )
)
Plaintiff, )
y No, 02 C 4505
v. )
} Judge Robert W. Gettleman
PELOITTE AND TOUCHE, LLP, ct al., )
)
Defendants, )

MEMORANDUM OPINION AND ORDER

tn these related actions, plaintiffs have filed separate lawsuits alleging that they were
fraudulently induced to sell their companies as part ofa large “Soll-up” into a newly created company
called EPS Solutions Corp. (“EPS”). A detailed description of the alleged scheme to defraud and

each defendant’s alleged participation in it can be found in the court’s opinion in a related case,

Nv