Supreme Court vacates Florida Court of Appeal judgment refusing to compel arbitration | Practical Law

Supreme Court vacates Florida Court of Appeal judgment refusing to compel arbitration | Practical Law

The US Supreme Court has vacated a Florida Court of Appeal decision that upheld a trial court’s denial of a motion to compel arbitration because the Court of Appeal found that two of the four claims at issue were non-arbitrable and so failed to address the remaining two claims.

Supreme Court vacates Florida Court of Appeal judgment refusing to compel arbitration

by Abby Cohen Smutny (Partner) and Lee A. Steven (Counsel), Leah Witters (Associate), White & Case LLP
Law stated as of 01 Dec 2011Florida, International, USA (National/Federal)
The US Supreme Court has vacated a Florida Court of Appeal decision that upheld a trial court’s denial of a motion to compel arbitration because the Court of Appeal found that two of the four claims at issue were non-arbitrable and so failed to address the remaining two claims.
In KPMG LLP v Cocchi, (Nov. 7, 2011), 19 individuals and entities obtained limited partnership interests in Rye Funds, which was comprised of three limited partnerships. Tremont Group Holding and Tremont Partners (Tremont) managed the Rye Funds. Tremont entered an auditing agreement with KPMG, which contained an arbitration clause stating that "[a]ny dispute 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" by mediation or arbitration.
After the Rye Funds allegedly suffered substantial losses caused by a scheme to defraud, the 19 individuals and entities sued Rye Funds, Tremont, and KPMG. The complaint made four claims against KPMG for:
  • Negligent misrepresentation.
  • Violation of the Florida Deceptive and Unfair Trade Practices Act 1973.
  • Professional malpractice.
  • Aiding and abetting breach of fiduciary duty.
In response, KPMG moved to compel arbitration based on its agreement with Tremont. The court denied the motion.
The Court of Appeal affirmed the court's denial of the motion. It explained that none of the 19 individuals and entities expressly agreed to the arbitration provision in the agreement between KPMG and Tremont. Therefore, the parties could be forced to arbitrate only if the claims were derivative, that is, the claims arose from services by KPMG under its agreement with Tremont. The Court of Appeal found that the negligent misrepresentation and Florida Deceptive and Unfair Trade Practices Act claims were not derivative claims. It did not address whether the remaining two claims were derivative or direct claims.
The Supreme Court vacated the Court of Appeal decision. It explained that the Federal Arbitration Act (FAA), and case law interpreting the FAA, requires that courts compel arbitration for all arbitrable claims in a complaint, even if there are also non-arbitrable claims that would require separate proceedings in a different forum. The Supreme Court found that by only determining the arbitrability of two claims in the complaint, and not addressing the arbitrability of the other two, the Court of Appeal "failed to give effect to the plain meaning of the [FAA]" and case law interpreting the FAA. Therefore, the Supreme Court vacated the judgment and remanded for the Court of Appeal to determine whether the two other claims were arbitrable.
This case demonstrates the application of the FAA and the "emphatic federal policy in favor of arbitral dispute resolution" in situations where enforcing arbitration agreements can lead to multiple proceedings in different forums. Even if proceedings will become more complex, the courts must still enforce agreements to arbitrate.