Wednesday, December 22, 2010

Denial Of KPMG's Motion To Compel Arbitration of Madoff Claims Affirmed

Update: On November 7, 2011, the United States Supreme Court vacated the opinion discussed below. The Supreme Court's opinion is discussed HERE. The original post remains unchanged below:

In KPMG, LLP v. Cocchi, et al (4D09-4867 & 4D10-988), the Fourth District affirmed two orders entered by the trial court.  The first denied a motion to compel arbitration and the second denied a motion to dismiss on forum non conveniens grounds.  The facts were described as follows:
The plaintiffs are nineteen individuals and entities, most of whom are Florida residents, who bought a limited  partnership interest in one of three  limited  partnerships  – referred to collectively  here as the “Rye Funds.”  The limited partnerships invested with Bernard Madoff in his infamous Ponzi scheme and lost  millions of dollars.  The limited partnerships were managed  by Tremont Group Holding, Inc., and Tremont Partners,  Inc.  The plaintiffs sued the limited partnerships and the Tremont  defendants,  together  with  its  auditing  firm  KPMG.  As  to KPMG, the plaintiffs alleged causes of action for negligent misrepresentation, violation of the  Florida Deceptive  and Unfair Trade Practices Act (“FDUTPA”),  professional malpractice, and aiding and abetting a breach of fiduciary duty. 
The court concluded:
We affirm the order denying the motion to compel arbitration, because the arbitral agreement upon which KPMG relied would not apply to the direct claims made by the individual plaintiffs. We affirm the order denying the motion to dismiss for forum non conveniens, because neither the motion nor its attached affidavit, nor the argument at hearing, was legally sufficient to overcome the  strong  presumption in favor of the resident plaintiffs’ choice of forum. 
With regard to the arbitration issue, applying Delaware law, the court stated:
In Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004), the Delaware Supreme Court established a test when analyzing whether an action by stockholders (or limited partners) was direct or derivative of the corporation/general partnership’s cause of action. The questions which must be asked are: 1) who suffered the harm, the corporation or the stockholders individually, and 2) who received the benefit of the recovery or remedy? Because the claims of negligent misrepresentation and violation of FDUTPA allege individual harm to the plaintiffs and involve torts directed at the individual limited partners, we conclude that the limited partners suffered individual harm....We therefore affirm the trial court’s denial of the motion to compel arbitration. 
With regard to the forum non conveniens issue, the court stated:
KPMG also moved to dismiss on forum non conveniens grounds, claiming that all of its activities occurred in New York where it audited the defendants. With its motion it filed a two-page affidavit of a senior manager, stating that in connection with its agreement to audit the various limited partnerships, it performed all of its work in New York. The trial court denied the motion, concluding that the affidavit was insufficient to carry KPMG’s burden of persuasion.  On appeal, KPMG argues, among other things, that the trial court applied an incorrect legal standard in ruling on the forum non conveniens issue. Even if we were to agree, we conclude that the motion and supporting affidavit were legally insufficient to warrant a change of forum.
The court then concluded:
Florida has adopted the doctrine of forum non conveniens in Kinney System, Inc. v. Continental Insurance Co., 674 So. 2d 86 (Fla. 1996), and it is now codified in Florida Rule of Civil Procedure 1.061(a)....A strong presumption favors a resident plaintiff’s choice of forum....The defendant seeking dismissal bears the burden of persuasion as to each factor....
In this case, the motion and the affidavit addressed only one private interest factor...Without addressing all of the factors of private interest, as well as factors of public interest, the motion, the affidavit and the hearing argument were decidedly inadequate to warrant dismissal of the action. The trial court cannot be said to have abused its discretion in determining that the motion and affidavit were insufficient to carry the burden for KPMG.
Judge Warner wrote the opinion and Judge Polen and Judge Farmer concurred.


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