Kpmg LLP v. Cocchi
Headline: Court vacates Florida appellate decision and orders state court to send arbitrable claims against KPMG to arbitration, affecting Rye Funds investors who sued over Madoff-related losses.
Holding: The Court vacated the Florida appellate court’s refusal to compel arbitration and remanded so the state court must determine which of the claims against KPMG must be sent to arbitration.
- Requires courts to send arbitrable claims to arbitration even if other claims remain in court.
- Allows KPMG and similar defendants to compel arbitration for contract-linked claims.
- Forces state courts to analyze each claim’s arbitrability rather than reject arbitration wholesale.
Summary
Background
Nineteen people and entities who invested in three limited partnerships called the Rye Funds sued the funds’ managers and KPMG after losing money in an alleged fraud tied to Bernard Madoff. The investors pleaded four claims against KPMG: negligent misrepresentation, a Florida consumer-protection law claim (FDUTPA), professional malpractice, and aiding and abetting a breach of fiduciary duty. KPMG moved to enforce an arbitration clause in its audit services agreement with the fund managers; the trial court denied the motion, and the Florida Court of Appeal affirmed because two claims were held to be direct rather than derivative and the plaintiffs had not expressly agreed to the audit contract.
Reasoning
The central question was whether the appellate court properly refused to compel arbitration for the entire complaint after finding two claims nonarbitrable. The federal Arbitration Act, the Court said, requires courts to separate arbitrable from nonarbitrable claims and to compel arbitration of arbitrable claims even if that leads to piecemeal litigation. Because the Court of Appeal did not address whether the other two claims must be sent to arbitration, the Supreme Court vacated the appellate judgment and remanded for a careful determination of each claim’s arbitrability.
Real world impact
On remand, the state court must analyze each claim to decide whether it must go to arbitration. The ruling stresses that state and federal courts must enforce arbitration agreements where applicable; it is a procedural decision and does not finally resolve the investors’ claims against KPMG.
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