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Court Watch

By Charles G. Miller and Darryl A. Hart
December 20, 2011

Under the FAA, Courts Have Duty to Determine If Any Claims Are Arbitrable

In an interesting offshoot of the Bernie Madoff scandal, the U.S. Supreme Court weighed in to leave no doubt that the Federal Arbitration Act (“FAA”) required courts to order arbitration even where non-arbitrable claims remained that may result in inefficient or possibly duplicative litigation.

In KPMG, LLP v. Robert Cocchi, et al., __ U.S. __, 132 S.Ct. 23, __ L.Ed.2d __(2011), Madoff investors, who had purchased partnership interests, sued the auditors of the partnerships. The partnerships had an engagement agreement with the auditing firm that required arbitration. The action was filed in state court and alleged claims for negligent misrepresentation, violation of Florida's little FTC Act, professional malpractice, and aiding and abetting a breach of fiduciary duty. The state court decided that the negligent misrepresentation and little FTC Act claims were direct in the sense that the investors were not suing the auditor derivatively for wrongs to the partnership. It thus denied the motion to compel arbitration without deciding anything about the remaining claims.

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