Category: Madoff

US Supreme Court rules on Palm Beach County arbitration motion.

Palm Beach County is famous for many things.  Burt Reynolds, Tiger Woods, Michael Jordan, Spring Training for the World Series-winning St. Louis Cardinals are among them.  Sometimes Palm Beach County gets in the news because the United States Supreme Court finds something worthy emanating from our court system.

In this case, the Supreme Court took issue with a ruling from the Fourth District Court of Appeals, which agreed with a ruling by Hon. David French, denying a motion to compel arbitration by KPMG, a national accounting firm.  This dispute is more fallout from Bernard Madoff and his admitted fraud.

It appears that the plaintiffs lost money investing through one or more of the feeder funds, Termont Partners and others.  They claim, according to the court, that they relied on audits performed by KPMG.  They further claimed that the audits were not done properly.  And, of course, they claim that they lost money.

When they sued, KPMG moved to compel arbitration because there was an arbitration clause in the audit engagement agreement.  According to the court, there were professional malpractice claims along with some Florida state law claims.  The court differentiated the claims, under a Delaware choice-of-law provision, as direct or derivative.  The trial court and the Fourth DCA both held that arbitration was unavailable because the direct claims did not have to be arbitrated.

The US Supreme Court disagreed.  The Court held that, even though it may appear judicially inefficient, the arbitrable claims, referred to as “derivative”, must be arbitrated.  The Court also held that the “direct” claims need to be examined to see if they are arbitrable as well.  This could very well leave the litigation split between two arenas, likely increasing costs and complexity.

Not sure how I feel about this decision.  The US Supreme Court continues its support of arbitration “above all.”   But in a situation where the cases will be split, it seems that the costs of litigation will increase dramatically and no real benefit will be served by forcing the parties to arbitration.

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Madoff Trustee victorious in calculating “profits”

The New York Times reports that Irving Picard, the SIPC trustee in the Bernard Madoff Securities liquidation, was successful in justifying his method of validating claims. His method, which uses the traditional “cash-in, cash-out” methodology, is one that has been used time and time again.

On the other hand, there were people who felt that, even though they had gotten some, or all, of their money back from Madoff, they were entitled to the values contained on their account statements, no matter how false. I was surprised to hear this theory has been used since it doesn’t make any sense to me. In fact, it would encourage people to believe whatever is told to them, rather than be diligent in their choice of advisors and investments. One could conceive a scenario where a fraudster conspired with “victims” to inflate values and let SIPC pay out. That doesn’t make any sense.

I said it when I was writing The Law Planet Blog, and I’ll say it again, there’s no free lunches, people. Bernie Madoff got away with this for so long because no one asked the simple question of “how does he do it when nobody else can?” No one, except for Harry Markopoulos, was willing to say that the Emperor was wearing no clothes. And that fell on deaf ears.

Mr. Picard’s lawyer says he expects the other side to appeal. It’s unlikely that the appeal will be successful, in my opinion.

But that’s the opinion of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin and what do I know?

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