November 8, 2011
U.S. Supreme Court Criticizes Blanket Refusal to Compel Arbitration Without Scrutinizing All Claims
In a per curiam opinion the U.S. Supreme Court vacated a judgment of a Florida appellate court that upheld a trial court's refusal to compel arbitration of investors' claims against an auditing firm that asserted an arbitration clause in its audit services contract with the fund manager. KKMG LLP v. Cocchi, 556 U.S. (Nov. 7, 2011) (Download KPMGv.Cocchi). The trial court refused to compel arbitration after it determined that two of the four claims asserted by the investors were direct claims (negligent misrepresentations, Florida Deceptive and Unfair Trade Practices Act violation) and were therefore not arbitrable. The trial court's opinion was silent, however, with respect to the two other claims (professional malpractice, aiding and abetting a breach of fiduciary duty), yet the trial court recognized that if the investors' claims were derivative, the arbitration clause could be enforced. Because state courts "have a prominent role to play as enforcers of agreements to arbitrate," the court could not issue a blanket refusal to compel arbitration merely because some of the claims were not arbitrable. The Supreme Court thus reaffirmed Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985): if a dispute presents multiple claims, some arbitrable and some not, the arbitrable claims must be sent to arbitration, even if this leads to piecemeal litigation.
While not relevant to the merits, the investors' claims arise out of investments in Bernard Madoff's Ponzi scheme.
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