KPMG LLP v Cocchi | U.S. Supreme Court Holds that a Court May Not Deny Arbitration When Some of the Claims Are Nonarbitrable

Last week, the U.S. Supreme Court held that courts must enforce arbitration agreements even if the plaintiff’s Complaint contains nonarbitrable claims.

In KPMG LLP v. Cocchi565 U.S. ___ ( 2011) the Fourth District Court of Appeal of the State of Florida upheld a trial court’s refusal to compel arbitration in a lawsuit involving claims brought against the auditing firm KPMG LLP (“KPMG”) by investors owners of a limited partnership (“Respondents”) who were defrauded by Bernie Madoff. Respondents alleged four causes of action: negligent misrepresentation; violation of the Florida Deceptive and Unfair Trade Practices Act; professional malpractice; and aiding and abetting a breach of fiduciary duty.

KPMG filed to a motion to compel arbitration based on the audit agreement that existed between itself and the Respondents. That agreement provided that “[a]nydispute or claim arising out of or relating to . . . the services provided [by KPMG] . . . (including any dispute or claim involving any person or entity for whose benefit the services in question are or were provided) shall be resolved” either by mediation or arbitration. The issue was whether the Respondents’ claims were derivative of the partnership, (therefore, arbitrable) or direct (nonarbitrable).

The trial court denied KPMG’s motion and the appellate court affirmed, holding that the negligent misrepresentation and consumer fraud claims were direct claims thus, not subject to the arbitration agreement. The Court of Appeal, however, did not address the professional malpractice and the breach of fiduciary duty claims.

Citing Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 217 (1985), the Supreme Court stated that “when a complaint contains both arbitrable and nonarbitrable claims, the [Federal Arbitration] Act requires courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.” The Court further explained that “[a] court may not issue a blanket refusal to compel arbitration under the Federal Arbitration Act merely on the grounds that some of the claims could be resolved by the court without arbitration.” Accordingly, the Supreme Court vacated the decision and remanded for the appellate court to determine whether the other two claims require arbitration.

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