Askenazy, et al. v. KPMG LLP, et al. (Lawyers Weekly No. 11-066-13)
NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us 12‑P‑863 Appeals Court DOROTHY ASKENAZY & others[1] vs. KPMG LLP & others.[2] No. 12‑P‑863. Suffolk. December 6, 2012. ‑ May 23, 2013. Present: Berry, Fecteau, & Carhart, JJ. Auditor. Fraud. Negligence, Misrepresentation. Arbitration, Arbitrable question, Appeal of order compelling arbitration. Federal Arbitration Act. Contract, Arbitration. Civil action commenced in the Superior Court Department on December 10, 2010. A motion to compel arbitration was heard by Janet L. Sanders, J. Gary F. Bendinger, of New York (Gregory G. Ballard, of New York, & Lisa C. Wood with him) for KPMG LLP. Jeff Ross, of Minnesota, for the plaintiffs. FECTEAU, J. KPMG LLP (KPMG) appeals from the denial, by a judge of the Superior Court, of its motion to compel arbitration, pursuant to G. L. c. 251, § 18(a)(1). KPMG claims error in the judge’s order on the ground that the plaintiffs’ claims are derivative, and thus the plaintiffs ought to be bound by KPMG’s engagement letters with Tremont Partners, Inc. (Tremont Partners), and Tremont Capital Management, Inc. (Tremont Capital), which provided arbitration as the sole method of dispute resolution. In a lengthy and well-reasoned memorandum, the judge allowed most of the plaintiffs’ claims against KPMG to proceed on the basis that the claims were direct and not derivative. We affirm. Background. This matter relates to the fraudulent Ponzi investment scheme run by Bernard L. Madoff. The plaintiffs here were limited partners of the Rye Select Broad Market Prime Fund, L.P.; and the Rye Select Broad Market XL Fund, L.P. (collectively, Rye Funds), two hedge funds serving as so-called “feeder” funds to Madoff’s company, and being managed by Tremont Partners as the Rye Funds’ general partner. In 2008, after Madoff admitted his fraud and was arrested, the Rye Funds were discovered to be valueless and the plaintiffs’ investments unrecoverable. The plaintiffs brought suit in 2010 against Tremont Partners; its upstream corporate parent, Tremont Capital; KPMG; and various other entities. The specific remaining claims against KPMG sound in tort: fraud in the inducement, negligent misrepresentation, G. L. c. 93A violations, aiding and abetting fraud, and professional malpractice. Over a period of years, KPMG performed various audit and tax services for the Rye Funds. In general, the plaintiffs allege that KPMG did not adequately perform its auditing and tax functions and, essentially, by certifying its […]