The “minutes rule” bites back

The minutes rule

Government Contracts and Minute Books

For well over a century, the Mississippi Supreme Court has consistently held that public boards speak only through their minutes and that their acts are evidenced solely by entries on their minutes.

This rule applies to contracts between public boards and private citizens. The public board simply is not bound by any purported contract if the adoption of that contract and its essential terms are not reflected in the board’s minutes.

Over the years, many a city, county and other public board has been able to avoid liability on a contract by invoking the minutes rule.

Indeed, even when the private party has partially performed the contract, the minutes rule can be invoked to deny the private party payment. See, e.g., Williamson Pounders Architects v. County, 597 F.3d 292, 296 (5th Cir. 2010).

The worm turns.

From 2009 to 2014, Horne, LLP served as the auditor for the Natchez Regional Medical Center, a community hospital owned by the Adams County Board of Supervisors.

Horne’s services were provided pursuant to a series of engagement letters with the Medical Center. Each of those engagement letters contained an arbitration clause.

In 2014, the Medical Center filed for bankruptcy. The Bankruptcy Court appointed Kenneth Lefoldt as its trustee. Acting in this capacity, Lefoldt filed suit against Horne, contending that Horne was guilty of professional malpractice when it failed to detect significant flaws in the Medical Center’s financial controls.

Horne moved to stay the lawsuit so that the parties could arbitrate. The Medical Center balked, pointing out that its minutes did not reflect any agreement to arbitrate.

The district court agreed with the Medical Center and denied Horne’s motion.

Alright, then.

Given the applicability of the minutes rule, Horne moved for summary judgment.

As Horne explained, the Medical Center must prove the existence of a professional relationship in order to prevail on its malpractice claim. Horne argued that since the engagement letters were void under the minutes rule, the Medical Center invalidated the basis for that relationship.

This time, the district court agreed with Horne and granted summary judgment.

The Fifth Circuit affirms.

In its opinion, the Court began with the requirements of proving accounting malpractice:

“Mississippi law requires that a plaintiff in an accounting malpractice case prove by a preponderance of the evidence the existence of a professional relationship.”

“A plaintiff may satisfy this burden in one of two ways. It may demonstrate that the parties entered into a contract. Or it may show that the parties were in privity with one another, such that the accountant assumed a duty to handle the plaintiff’s delineated interests with professional competency and care.”

Invoking the minutes rule, the Fifth Circuit held that “the Medical Center never formed a contract with Horne to perform the four audits.”

So, for the Medical Center to survive summary judgment, it had to show that it was in privity with Horne. Specifically, “the Medical Center must prove that it manifested its intent to engage Horne’s services and that Horne either consented to provide those services or failed to manifest its lack of consent, while reasonably knowing that the Medical Center would rely on Horne to perform.”

The Fifth Circuit acknowledged that there were significant indications that the parties actually created a professional relationship (including Horne’s actual performance of four audits).

But, although this evidence would have been sufficient to overcome summary judgment in a suit involving private parties, the fact was that “the Medical Center is a community hospital run by a public board and therefore subject to Mississippi’s minutes rule.”

“As such, the Medical Center is limited in the type of evidence that it can use to prove its intent to maintain a professional relationship with Horne.”

Under Mississippi’s minutes rule, a public board “speaks and acts only through its minutes.” The minutes are the “sole and exclusive evidence of what the board did” in its official capacity.

Because the minutes submitted by the Medical Center made no mention of doing any business with Horne beyond the 2009 engagement letter, the district court was right to conclude that the Medical Center failed to offer any competent evidence that it was in privity with Horne.

Thus, Horne was entitled to summary judgment.

Panter Law Firm, PLLC, 7736 Old Canton Road, Suite B, Madison, MS 39110

601-607-3156

www.craigpanterlaw.com