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Behm v. American International Group Inc.

Superior Court of Delaware, New Castle

July 30, 2013

FRANK J. BEHM, Plaintiff,

Submitted: April 2, 2013

Upon Defendant Ernst & Young LLP's Motion to Dismiss, GRANTED in Part.

David H. Williams, Esq, P. Clarkson Collins, Jr., Esq., Bruce W. Tigani, Esq., James H. McMackin, III, Esq., Jason C. Jowers, Esq., Morris James, LLP, Wilmington, Delaware, Attorneys for Plaintiff Frank J. Behm.

William R. Firth, III, Esq., Zarwin Baum DeVito Kaplan Schaer Toddy, P.C., Wilmington, Delaware, Attorney for Defendant Ernst & Young, LLP.

Steven M. Farina, Esq., William P. Ashworth, Esq., James H. Weingarten, Esq., Williams & Connolly, LLP, Washington, DC, Of Counsel for Defendant Ernst & Young, LLP.

Aleine Porterfield, Esq., John L. Reed, Esq., DLA Piper LLP, Wilmington, Delaware, Attorneys for Defendants American International Group, Inc., AIG Global Real Estate, Asia Pacific, Inc., AIG Global Real Estate Investment Corp., AIG Investment Corporation, AIG Capital Corporation, and AIG Global Asset Management Holdings Corp.


M. Jane Brady Superior Court Judge


This is the Court's ruling on Defendant Ernst & Young, LLP's ("EY") Motion to Dismiss the Second Amended Complaint as against EY for lack of subject matter jurisdiction pursuant to Superior Court Rule 12(b)(1). The issue surrounds two Terms of Service Agreements executed by the parties on August 21, 2009 ("2009 Agreement") and March 27, 2010 ("2010 Agreement")(collectively, the "Agreements") that govern the services EY provided to Plaintiff Frank J. Behm ("Behm").

Upon considering the briefs of the parties, supplemental memoranda and the oral arguments of the parties at two hearings, the transcript of the last hearing received by the Court on April 2, 2013, the Court has determined that it does not have subject matter jurisdiction over some of Behm's claims against EY. The Court will not dismiss the Third Amended Complaint as against EY in its entirety.[1] Instead, the Court orders that Behm must submit to an arbitrator, in accordance with the Dispute Resolution provisions of the Agreements, his claims against EY over which this Court does not have jurisdiction. The litigation between Behm and EY is stayed pending resolution of issues in accordance with the Dispute Resolution provisions in the Agreements.

Procedural History

Behm commenced this action as to EY on July 6, 2011 with the filing of his Second Amended Complaint. EY filed its Motion to Dismiss on August 29, 2011 with a Memorandum of Law attached. The parties stipulated to a briefing schedule on the Motion to Dismiss. Behm filed his answering brief with the Court on January 23, 2012 and EY filed its Reply Brief on February 24, 2012.

The Court heard oral argument on the Motion on March 26, 2012. At the conclusion of oral argument, the Court found that the provisions of the Agreements were not retroactive to the date of the signing of the Agreements.[2] Specifically, the Court held that the Agreements did not cover Behm's claims against EY arising from conduct which occurred before August 21, 2009. Behm and the AIG Defendants had an arbitration hearing scheduled for May 1, 2012, to potentially resolve Behm's claims against AIG. The Court requested counsel to notify the Court of the outcome of the arbitration hearing between Behm and the AIG Defendants.[3]

Behm and the AIG Defendants proceeded with the arbitration hearing, conducted post-hearing briefing and kept the Court informed of the status of that proceeding. The arbitration panel issued its Final decision on November 16, 2012, and the parties notified the Court on December 7, 2012.[4] The parties informed the Court that the matter was not completely resolved and there were still issues to be decided by the Court, however, the parties were in process of settlement discussions.[5]

At a status conference on January 10, 2013, the Court set March 14, 2013 as the date for oral argument on a Pro Hac Vice motion, which was opposed, and supplemental oral argument on EY's Motion to Dismiss.[6] Issues relating to the Pro Hac Vice motion were resolved by the parties. After oral argument was held on EY's Motion to Dismiss on March 14, 2013, the Court reserved decision.

Background Facts[7]

Behm alleges gross negligence and accounting malpractice against EY in a Second Amended Complaint filed on July 6, 2011. Behm's claim against EY arises out of the preparation and filing of U.S. and Japanese tax returns. Specifically, Behm claims that EY should have discovered errors in 2006 and 2007 returns prepared for Behm by Price Waterhouse Cooper, that EY was negligent in preparing Behm's 2009 U.S. and Japanese tax returns, and that EY incorrectly prepared tax equalization and related calculations. Behm claims EY caused him to suffer damages in the form of increased tax liability, penalties and interest, reduced tax refunds, and an audit by the Japanese authorities. Behm additionally claims EY acted in concert with AIG to deprive Behm of contractual rights and employment benefits by siding with AIG and preparing taxes in a manner that favored AIG.[8]

As part of Behm's compensation for taking the position heading AIG's Global Real Estate Group in Japan and Asia-Pacific, AIG agreed to provide Behm with tax equalization and preparation services. In May, 2008, EY replaced Price Waterhouse Coopers ("PWC"), who originally was engaged to provide these services to Behm. EY was to prepare Behm's tax returns for tax years 2008 forward as well as perform other tax services for Behm.

The Terms of Service Agreements were "clickwrap" agreements.[9] Each was called a consent form. Behm signed them by logging into his myEYonline account for his EY services, clicking the form in the "Important Info" section, and completing the form. Although Behm alleges he has no recollection of completing these forms, Behm signed other consent forms for EY in 2008, 2009, and 2010.[10]

The 2009 Agreement was to commence work on Behm's 2008 tax returns,[11] and the 2010 Agreement was to disclose Behm's tax return information.[12] As to each, Behm logged into his online account and completed the forms, which were posted in an "Important Info" section. Behm alleges that the March, 2010 agreement was presented as a welcome message with instructions to complete a "Terms of Service ...

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