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 I. Supp.2d at 1004-05.

, The same reasoning applies with equal force to 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, plaintiffs
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 Weinhult as one party, Massey and Watts as onc 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 anticipate that defendants (with the possible
exception of Deloitte & Touche) shall be parties 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 Lo

arbitrate exists, as well as any challenge to 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



Hotfman v. Deloitte and Touche, ct al., 143 F. Supp.2d 995 (N.D. IIL. 2001). All defendants have

moved to 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 Purchase Agreement
contained an arbitration provision that provides:

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

and finally settled by arbitration administered by the American Arbitration

Association (“AAA”). , ..

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

Discussion

In 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 Purchasc Agrcements in Hoffman,

between the plaintiffs and EPS, contained arbitration clauses identical to the arbitration clauses at
issue 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 of the written sale agreements, and (2) all raised

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



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

Yo 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 wrillen
contract, including an agreement to arbitrate, can modify that contract in writing. Scc Hall v. Romp,

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

679, S. Ct. Ca, 2000). Of course, the issue is not whether parties to a written arbitration agrecment
can ever mutually agree to modify it, but whether they can do so umilaterally afler others have
asserted rights under the original agreement. 1n the instant case, plaintiffs brought claims that relate
to the original agreement against all defendants. Defendants asserted their right to arbitrate under
the original agreements, a right that this court has already upheld in Hoffman.

California follows the Restatement (Second) of Contracts. See Aronowicz v. Nalley’s lnc.,
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 promissce or a third person and which docs induce

such action or forbearance is binding if injustice can be avoided only by enforcement
of the promise, Remedy for breach may be limiled as justice requires,



¥

‘Minute Order Form (06/97)

United States District Court, Northern District of IMlinois

motions to stay and to compel an audit are granted.

al) @ [For further detail see order attached to the original minute ordcr.]

Name of Assigned Judge Sitting Judge if Oth
or Magistrate Judge Robert W. Gettleman than “Assigned ‘sudge
CASE NUMBER 02 C 3088 DATE Oct. 21, 2002
CASE Moses K. Cheung v Deloitte and Touche
TITLE
[In the following box (a) indicate the purty filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, und (b) state briefly the nature
MOTION: of the motion being presented]
DOCKET ENTRY:
qQ) Oo Filed motion of [ use listing in “Motion” box above.]
(2) QQ Brief in support of motion due
6) a Answet bricf to motion due____. Reply to answer brief due. :
(4) oO Ruling/Hearing on set for at
(5) Oo Status hearing
(6) oO Pretrial conference[held/continued to] [sct for/re-set for] on set for atl
(7) oO Trial(set for/re-set for] on at
(8) a [Bench/Jury trial] [Hearing] held/continued to at
(9) 0 This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OGeneral Rule 21 CFRCP4I(a)\(1) O FRCP41(a)(2).
ao [Other docket entry]

Memorandum opinion and order entered. Accordingly, defendants’

No notices required, advised in open court.

No notices required, number of notices

x | Notices mailed by judge’s staff.

DCT 3 1 2002

sont date duckotod = =

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge. ine

courtroom date smated novice

deputy's

initials

GDS

Date/time received in
central Clerk’s Office

mailing deputy initials



In the instant cases, plaintiffs knew at the time they filed suit that this court had already
dctcrmined that defendants have a right to assert the arbitration clauses in the agreements thal form
the basis of plaintiffs’ complaints. Plaintiffs knew that defendants had already asserted those rights
prior to plaintiffs’ atlempted modifications of the 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 aright to arbitrate under the arbitration
clauses set forth in the original, unmodified agreements.’

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

granted,

ENTER: October 21, 2002

“Valchy (fie

Robert W. Gettleman
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 beneficiary, 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



“4

IN THE UNITED STATES DISTRICT COURT

DOCKET:

OCT 31 2002

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

CONRAD P. LEE, individually and/or as successor/ )
assignee of the Conrad Lee Company, on behalf of )
himself and all others similarly situated,
Plaintiff,
v.

DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

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

DELOITTE AND TOUCHE, LLP, ct 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

Ve eee ee ee eee eS ee ee ee ee eee

No. 02 C 3087

Judge Robert W, Gettleman

No. 02 C 3088

Judge Robert W. Getileman

No. 02 C3089

Judge Robert W. Gettleman

AIS



+

VICTOR ARIAS, individually and on behalf of
others similarly situated,

Plaintiffs,
No. 023090
v.
Judge Robert W. Gettleman
DELOITTE AND TOUCHE, LLP, et al.,

Defendanis.

TIMOTHY J. O'BRIEN, ct al.,

Plaintiffs,
No. 02 C3091
y.
Judge Robert W. Gettleman
DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

SEAN MCLERNON,

Plaintiff,
No. 024505
Vv.
Judge Robert W. Gettleman
DELOITTE AND TOUCHE, LLP, et al.,

Defendants.

eS SS SS SS SS SS eS SS SS

MEMORANDUM OPINION AND ORDER

In these related actions, plaintiffs have filed separate lawsuits alleging that they were
fraudulently induced to sell their companies as part of a large “roll-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,