November 08, 2011

Supreme Court Decides KPMG LLP v. Cocchi

On November 7, 2011, the U.S. Supreme Court decided KPMG LLP v. Cocchi, No. 10-1521, holding that under the Federal Arbitration Act (FAA), a court must determine the arbitrability of each claim separately and may not deny arbitration entirely because it finds only some of the claims to be non-arbitrable.    

Plaintiffs are owners of limited partnership interests who sued the partnership's accounting firm KPMG LLP in state court, asserting theories of negligent misrepresentation, statutory consumer fraud, professional malpractice, and aiding and abetting breach of fiduciary duty.  The firm's contract with the partnership contained an arbitration clause covering any dispute arising out of the firm's services.  The firm moved to compel arbitration, and the arbitrability issue turned on whether the limited partners' claims were derivative of the partnership's, and thus arbitrable, or direct, and thus not subject to the arbitration clause.  The trial court denied arbitration, and the Florida Court of Appeal affirmed, holding that the negligent misrepresentation and consumer fraud claims were direct claims and therefore not subject to the arbitration clause.  The Court of Appeal's decision did not address the professional malpractice and the breach of fiduciary duty claims. 

The Supreme Court vacated and remanded in a per curiam decision.  The Court noted that under its holding in Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 217 (1985), the FAA requires that if a dispute presents multiple claims, some arbitrable and some not, the former must be sent to arbitration even if this will lead to piecemeal litigation.  Here, because the Florida Court of Appeal had not addressed whether two of the four claims were arbitrable, the Supreme Court could not determine whether the lower court had correctly applied the FAA.  The Supreme Court therefore vacated the decision and remanded for the Court of Appeal to consider the arbitrability of the other two claims.  Faegre & Benson LLP represents the limited partners in the litigation. 

The decision of the Court was issued without argument and on the basis of the cert petition briefing. The decision was per curiam.

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