Despite the Supreme Court’s best efforts, some myths of arbitration law just will not die. In yesterday’s per curiam decision of the Supreme Court, the Justices tried to put a stake through the heart of a common myth: that a party may successfully avoid a motion to compel arbitration by arguing that not all claims and/or not all parties fall within the scope of the arbitration agreement. KPMG LLP v. Cocchi, __ U.S. __, 2011 WL 5299457 (Nov. 7, 2011). Surely you have seen this in your cases, the non-moving party usually invokes the phrase “piecemeal litigation,” i.e. “if I am forced to arbitrate, it will result in expensive and duplicative piecemeal litigation.” SCOTUS is tired of this argument.
In Cocchi, 19 investors in what turned out to be a Ponzi scheme brought four claims against the auditor, KPMG, in state court in Florida. (Florida is the same state whose refusal to compel arbitration got smacked down in 2006’s Buckeye Check Cashing v. Cardegna decision.) KPMG moved to compel arbitration based on provisions of its contract with its client, the alleged Ponzi schemer. The contract stated 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” either by mediation or arbitration.
The Florida trial court and appellate court denied KPMG’s motion to compel arbitration. Because KPMG was relying on its contract with the Ponzi schemer, and had not contracted with the investors, the Florida courts noted that the arbitration provisions could only be enforced if the claims were “derivative.” After analyzing two of the four claims and finding that they were direct, the Florida courts denied the motion to compel arbitration.
The Supreme Court vacated the Florida appellate decision and remanded the case for consideration of all four claims. If any of those claims are derivative, the Court directed, the investors must be compelled to arbitrate the derivative claim(s) against KPMG. It took the occasion to remind us all that: “when a complaint contains both arbitrable and nonarbitrable claims, the 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.'”