IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 10, 2009
No. 08-50100 Charles R. Fulbruge III
Clerk
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
No. 08-50104
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
No. 08-50100 consolidated with 08-50104
Defendants - Appellees-Cross-Appellants
Appeals from the United States District Court
for the Western District of Texas
Before JOLLY, DeMOSS, and PRADO, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
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
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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.
I.
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
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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
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No. 08-50100 consolidated with 08-50104
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.
II.
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.
A.
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.
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No. 08-50100 consolidated with 08-50104
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 T EX. O CC. C ODE § 901.504(2) (1999) (“[T]he board . . . shall revoke the
registration and license of a . . . partnership . . . that does not meet each
qualification for registration prescribed by this chapter.”). 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 profits that KPMG generated through its Texas operations
from 1984 until 1999, as well as punitive damages, statutory damages (including
attorney’s fees), and costs.
KPMG (on behalf of all defendants except Maresh) moved to dismiss under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). KPMG argued that: (A)
the State Board possesses exclusive jurisdiction over this dispute; (B) the
competitors’ claim of injury is too speculative to confer Article III standing; (C)
the competitors’ claim of injury is too speculative to give rise to a claim for which
relief can be granted; and (D) injury aside, the competitors fail for various
reasons to state a claim for which relief can be granted under the legal theories
that they assert. The competitors responded to KPMG’s motion to dismiss,
KPMG replied, and the competitors sur-replied.
Maresh separately filed a motion to dismiss, in which he adopted by
reference the other defendants’ arguments for dismissal. Maresh also filed a
motion for partial summary judgment on the bases of absolute and qualified
immunity. The competitors opposed these motions.
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No. 08-50100 consolidated with 08-50104
The district 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 dismissed the action under Federal Rule of Civil Procedure
12(b)(1) or, alternatively, under Federal Rule of Civil Procedure 12(b)(6).
Having dismissed the action on these grounds, the district court resolved
only part of KPMG’s alternative arguments. It concluded that the State Board
does not possess exclusive jurisdiction over the action and that the competitors
pleaded fraud with enough particularity to satisfy Federal Rule of Civil
Procedure 9(b). The district court did not consider other of the parties’
arguments, such as whether the competitors sufficiently pleaded a conspiracy
or a RICO enterprise. The district court dismissed Maresh’s motion for partial
summary judgment as moot. The competitors timely appealed from the
action’s dismissal. KPMG timely cross-appealed (on behalf of all defendants,
including Maresh). KPMG challenges the grounds of the dismissal, urging that
the State Board possesses exclusive jurisdiction over this dispute.1
B.
In the clients’ action, the live pleading is the second-amended complaint.
In the original complaint, the putative class’s named plaintiffs were NAB Asset
Venture I L.P. (“NAB I”), NAB Asset Venture II L.P. (“NAB II”), NAB Asset
Venture III L.P. (“NAB III”), NAB Asset Venture IV L.P. (“NAB IV”), and Asset
Collectors L.P. (“Asset Collectors”). In the first-amended complaint, Desert
Eagle Distributing of El Paso, Inc. (“Desert Eagle”) replaced NAB II, NAB III,
and NAB IV as named plaintiff. The second-amended complaint reflected
1
KPMG gave notice of challenging the denial of Maresh’s motion for partial summary
judgment, but it did not pursue the argument in its appellate briefs. “Because arguments not
asserted in an original brief are generally deemed to be abandoned, we will not address this
argument.” LaBarge Pipe & Steel Co. v. First Bank, 550 F.3d 442, 449 n.5 (5th Cir. 2008).
7
No. 08-50100 consolidated with 08-50104
changes to the clients’ causes of action and relief sought. It continued to name
as plaintiffs NAB I, Asset Collectors, and Desert Eagle.
When NAB I, Asset Collectors, and Desert Eagle filed the second-amended
complaint, NC Ventures and St. James moved to intervene as plaintiffs. KPMG
opposed the motion, and it also alleged that NAB I and Asset Collectors lack
standing. The district court granted the motion to intervene. The parties
stipulated to the dismissal of NAB I and Asset Collectors. The action’s current
plaintiffs are Desert Eagle, NC Ventures, and St. James.
The clients’ substantive legal argument proceeds as follows. From 1984
until 1999, KPMG represented that it was properly registered and licensed to
practice public accountancy in Texas. As KPMG’s partners knew, this
representation was false. KPMG did not qualify to register in Texas because
Hudson practiced public accountancy there without a license and certification.
As a consequence of KPMG misrepresentations, the clients bargained for and
paid for the services of a properly-registered accounting firm. They instead
received the services of an accounting firm whose registration and license were
subject to mandatory revocation.
The market price for a properly-registered accountancy firm’s services, the
clients allege, exceeds the market price for the identical services of a firm whose
registration and license are subject to mandatory revocation. This is so because
the latter firm’s services carry an element of risk: if the State Board revokes the
firm’s registration and license, the client: (A) must incur additional expenses to
have the accounting work checked by a licensed accountant or accountancy firm
and (B) may incur civil liability for sharing the firm’s work with third parties
while representing the work as having been performed by a firm that was
registered and licensed.
The clients thus assert that, because of KPMG’s misrepresentations, they
bargained and paid for risk-free accounting services but instead received less-
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No. 08-50100 consolidated with 08-50104
valuable, risk-bearing accounting services. They contend that KPMG’s conduct
toward them constituted actual and constructive fraud, breach of fiduciary duty,
simple or gross negligence, negligent misrepresentation, breach of contract,
breach of warranty, Texas Deceptive Trade Practices Act violations, and RICO
violations. They seek to recover the services’ overcharge (measured as benefit-of-
the-bargain damages, out-of-pocket damages, lost profits, equitable
disgorgement, or pecuniary damages), statutory damages (including attorney’s
fees), and punitive damages. To support their assertions, the clients attached
to their second-amended complaint an affidavit of Wanda Lorenz (a former State
Board member) and a declaration of Herbert Warner (a former KPMG partner).
On behalf of all defendants except Maresh, KPMG moved to dismiss the
clients’ action under Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 9(b).
KPMG argued in favor of dismissal that: (A) the State Board possesses exclusive
jurisdiction over this dispute; (B) the clients’ action is an impermissible
collateral attack of the State Board’s 1984-1999 registration decisions; (C) the
clients lack standing to enforce the TPAA through a private right of action for
damages; (D) the clients failed to plead actual, concrete injury; and (E) injury
aside, the clients otherwise fail to state a claim for which relief can be granted
under the particular legal theories that they assert.
The clients responded to the motion to dismiss, KPMG replied, and the
clients sur-replied. Maresh separately filed a motion to dismiss, in which he
adopted by reference the other defendants’ arguments in favor of dismissal.
Maresh also filed a motion for partial summary judgment on the bases of
absolute and qualified immunity. The clients opposed these motions.
The district court rejected KPMG’s arguments that the State Board
possesses exclusive jurisdiction over this dispute, that the action is a collateral
attack of the State Board’s registration and licensing decisions, and that the
clients lack standing because the TPAA does not create a private right of action
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No. 08-50100 consolidated with 08-50104
for damages. It held, however, that the clients failed to plead actual, concrete
injury sufficient to give rise to a claim for which relief can be granted. It
dismissed the action under Federal Rule of Civil Procedure 12(b)(6). Having
dismissed the action on these grounds, the district court denied KPMG’s motion
to dismiss insofar as KPMG sought dismissal under Federal Rule of Civil
Procedure 9(b); the clients’ allegations were particular enough to satisfy that
rule.
KPMG separately moved to strike the Lorenz and Warner exhibits. It
contended that the exhibits constituted expert-opinion testimony and that
expert-opinion testimony is inappropriate at an action’s pleading stage. The
clients opposed the motion, characterizing Lorenz and Warner as “uniquely
qualified” experts but also contending that the exhibits contained non-expert
factual testimony. That testimony, the clients asserted, was not additive of the
complaint’s factual allegations (in the sense of providing fresh allegations) but
instead merely gave context to the complaint’s allegations.
The district court granted KPMG’s motion to strike the Lorenz and
Warner exhibits. It concluded that the exhibits contained expert testimony and
that any non-opinion testimony that they contained was inextricably intertwined
with the expert testimony. Under this court’s precedents, the district court held,
expert testimony is inappropriate at the pleading stage. It ordered the Lorenz
and Warner exhibits stricken from the second-amended complaint.
The clients have timely appealed from the action’s dismissal and from the
partial grant of KPMG’s motion to strike the Lorenz and Warner exhibits.
KPMG (on behalf of all defendants, including Maresh) timely cross-appealed
from the grant of NC Ventures’s and St. James’s motion to intervene. KPMG
also cross-appealed from the grounds of dismissal and, on cross-appeal, raises
a new argument opposing federal-court jurisdiction: the clients’ claim of injury
is too speculative to confer Article III standing.
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III.
We have appellate jurisdiction under 28 U.S.C. § 1291. We first consider
the cross-appeals from the competitors’ action. We next consider the cross-
appeals from the clients’ action.
A.
We review a dismissal for lack of standing de novo. E.g., Roark & Hardee
LP v. City of Austin, 522 F.3d 533, 542 (5th Cir. 2008).2 “Over the years, our
cases have established that the irreducible constitutional minimum of standing
contains three elements.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
(1992). These elements are “(1) an ‘injury in fact’ that is (a) concrete and
particularized and (b) actual or imminent; (2) a causal connection between the
injury and the conduct complained of; and (3) the likelihood that a favorable
decision will redress the injury.” Croft v. Governor of Texas, 562 F.3d 735, 745
(5th Cir. 2009) (citing Lujan, 504 U.S. at 560-61). “The party invoking federal
jurisdiction bears the burden of establishing these elements.” Lujan, 504 U.S.
at 561. At the pleading stage, allegations of injury are liberally construed. See
id. (“[O]n a motion to dismiss we ‘presum[e] that general allegations embrace
those specific facts that are necessary to support the claim’ [of standing].”
(quoting Lujan v. Nat’l Wildlife Fed., 491 U.S. 871, 889 (1990))). However,
allegations of injury that is merely conjectural or hypothetical do not suffice to
confer standing. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 344-46, 350
(2006). A claim of injury generally is too conjectural or hypothetical to confer
2
The competitors contend that the jurisdictional question is factual: “KPMG based
its motion to dismiss on a challenge to a fact—whether Little suffered a concrete, non-
speculative injury in that KPMG took business from him while unlawfully competing against
him in El Paso—that is central to the merits of Little’s substantive causes of action.” This
contention is without merit; whether Little suffered injury that is concrete and non-speculative
presents a legal question. See, e.g., Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 37, 46
(1976) (vacating denial of motion to dismiss for lack of standing, and remanding with
instructions to dismiss, because the alleged injury was insufficiently concrete and non-
speculative).
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No. 08-50100 consolidated with 08-50104
standing when the injury’s existence depends on the decisions of third parties
not before the court. See, e.g., Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26,
41 (1976) (“[I]njury at the hands of a hospital is insufficient by itself to establish
a case or controversy in the context of this suit, for no hospital is a defendant.”).
Here, the competitors’ claim of injury is lost business: KPMG provided
public-accountancy services to Texas clients who, the competitors assert, would
have hired a putative class member in KPMG’s absence from the market. This
claim of injury requires the following chain of causation. First, had KPMG’s
Texas registration been revoked, KPMG’s Texas clients would have sought to
replace KPMG. Second, the clients would have replaced KPMG with one or more
of the plaintiffs. Third, the clients would have paid for the plaintiffs’ services.
That KPMG’s Texas clients would have sought to replace KPMG requires
speculation. The TPAA permits a firm whose registration has been revoked to
apply for reinstatement. See T EX. O CC. C ODE § 901.507 (1999) (“On receipt of a
written application, and after notice and hearing, the board may . . . (2)
reregister a person whose registration was revoked . . . .”). The competitors
allege that the State Board would have revoked KPMG’s license and registration
because of a single partner’s unlicensed practice (out of as many as seven
hundred Texas partners). The competitors also allege that, from 1984 until
1999, KPMG garnered hundreds of millions of dollars in business from
participating in Texas’s public-accountancy market. KPMG’s motivation to
correct the cause of revocation and to seek reinstatement—quickly—would have
been obvious. It is no less likely that KPMG’s Texas clients would have waited
for KPMG’s reinstatement as that they would have sought to replace KPMG
with another service provider.
That the clients would have replaced KPMG with one or more of the
plaintiffs requires speculation. Had KPMG’s Texas registration been revoked,
as many as about seven hundred licensed and certified public accountants would
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have found themselves at a firm with potentially diminished capacity to obtain
business. Under such circumstances, some of the accountants may have chosen
to leave KPMG. Clients of the departing accountants, deciding to replace
KPMG, could have taken their business to KPMG’s former partners instead of
the plaintiffs.
That clients who chose to take their business to the plaintiffs ultimately
would have paid the plaintiffs as they had KPMG also requires speculation, but
we will not further belabor the point. The competitors’ claim of injury depends
on several layers of decisions by third parties—at minimum, KPMG’s Texas
clients—and is too speculative to confer Article III standing. We affirm the
dismissal of the competitors’ action under Federal Rule of Civil Procedure
12(b)(1).3
B.
We affirm the dismissal of the clients’ action, dismiss as moot the clients’
appeal from the order striking the Lorenz and Warner exhibits, and do not reach
the merits of KPMG’s cross-appeal from the grant of NC Ventures’s and
St. James’s motions to intervene.
1.
We review a dismissal under Federal Rule of Civil Procedure 12(b)(6) de
novo. “To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead
‘enough facts to state a claim to relief that is plausible on its face.’” Severance v.
Patterson, 566 F.3d 490, 501 (5th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly,
127 S. Ct. 1955, 1974 (2007)).
3
Because the plaintiffs lack standing, we lack jurisdiction to determine whether:
(A) the plaintiffs’ claim of injury is too speculative to give rise to a claim for which relief can
be granted; or (B) injury aside, the competitors otherwise fail to state a claim for which relief
can be granted under the legal theories that they assert. Also, we do not reach the merits of
KPMG’s cross-appeal insofar as it requests an alternative holding that the State Board
possesses exclusive jurisdiction over the competitors’ action.
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The clients allege that they bargained for, and paid for, the risk-free
services of a properly-registered accounting firm but that they received the risk-
bearing services of an improperly-registered accounting firm. As the clients
allege, however, nobody outside of KPMG discovered Hudson’s unlicensed public-
accountancy practice until 2005. The clients do not contest that 2005 was too
late for the State Board to revoke KPMG’s 1984-1999 Texas registrations and
licenses. Without the possibility that KPMG’s registration and license might
have been revoked, the clients’ claim for relief collapses: the clients faced no
prospect of needing to incur additional expenses to have KPMG’s work checked
by a licensed accountant or accountancy firm, and any representations that they
made to third parties that KPMG’s work was the work of a registered and
licensed firm were true. Furthermore, because the potential basis for revoking
KPMG’s license and registration came to light too late for the State Board to do
anything about it, any other claimed difference in market value between
KPMG’s “properly-licensed” and “improperly-licensed” services—even if
theoretically conceivable—is simply implausible.
Whatever the status of KPMG’s registrations and licenses from 1984 until
1999 may have been—“proper” or “improper”—is now only of academic interest
and is immaterial as far as establishing any relief. We affirm the action’s
dismissal under Federal Rule of Civil Procedure 12(b)(6).
2.
The clients also appeal from the ruling to strike the Lorenz and Warner
exhibits. We dismiss the appeal as moot. The clients represented to the district
court that the Lorenz and Warner exhibits are not additive of the complaint’s
factual allegations but instead merely provide context to those allegations. For
the reasons stated above, the complaint’s allegations fail to state a claim for
which relief can be granted. Exhibits that merely give context to those
allegations cannot cure this deficiency.
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3.
KPMG cross-appeals from the grant of NC Ventures’s and St. James’s
motions to intervene as plaintiffs in the clients’ action. We interpret KPMG’s
cross-appeal to be in the nature of an argument in the alternative, seeking to
divide the plaintiffs if KPMG cannot achieve a blanket victory. Because KPMG
prevails against all of the clients under Rule 12(b)(6), reaching this cross-
appeal’s merits is unnecessary.
IV.
For the foregoing reasons, the district court’s judgments are
AFFIRMED.
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