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Monday, May 27, 2024 | Back issues
Courthouse News Service Courthouse News Service

Madoff Victims May Have to Arbitrate Claims

(CN) - An arbitrator may get to hear claims over millions in losses from funds that invested with Bernie Madoff, even though the proceedings might result in "piecemeal litigation," the Supreme Court ruled on Monday.

A Florida appeals court had upheld a judge's order refusing to compel arbitration since two of four claims were nonarbitrable.

On Monday, the justices of the high court found that the arbitrability of the other two claims still needs assessment.

"State and federal courts must examine with care the complaints seeking to invoke their jurisdiction in order to separate arbitrable from nonarbitrable claims," the unsigned opinion states. "A court may not issue a blanket refusal to compel arbitration merely on the grounds that some of the claims could be resolved by the court without arbitration."

Robert Cocchi is the lead plaintiff in a suit brought by 19 individuals and entities who bought limited partnership interests in the so-called Rye Funds, which were managed by Tremont Group Holding and Tremont Partners, both of which were audited by KPMG. Investing these funds with Madoff allegedly caused millions of dollars in losses.

KPMG moved to compel arbitration of the claims against it based on the agreement it had signed with Tremont. But the Florida courts determined sidelined arbitration since none of the plaintiffs had conceded to arbitration.

"Applying Delaware law, which both parties agreed was applicable, the court of appeal concluded that the negligent misrepresentation and the violation of FDUTPA claims were direct rather than de­rivative," according to the five-page decision, which uses the abbreviationfor Florida Deceptive and Unfair Trade Practices Act. "A fair reading of the opinion reveals nothing to suggest that the court came to the same conclusion about the professional malpractice and breach of fiduciary duty claims. Indeed, the court said nothing about those claims at all."

The trial court again refused to compel arbitration when the plaintiffs added a fifth claim.

"What is at issue is the court of appeal's apparent refusal to compel arbitration on any of the four claims based solely on a finding that two of them, the claim of negligent misrepresentation and the alleged violation of the FDUTPA, were nonarbitrable," the justices wrote.

They ordered the appeals court to examine whether either of the two remaining claims require arbitration.

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