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FutureSelect Portfolio Management, Inc. v. Tremont Group Holdings, Inc.

Supreme Court of Washington, En Banc

March 15, 2018

FUTURESELECT PORTFOLIO MANAGEMENT, INC., FUTURESELECT PRIME ADVISOR II LLC, THE MERRIWELL FUND, L.P., AND TELESIS IIW, LLC, Petitioners,
v.
TREMONT GROUP HOLDINGS, INC., TREMONT PARTNERS, INC., OPPENHEIMER ACQUISITION CORPORATION, MASSACHUSETTS MUTUAL LIFE INSURANCE CO., GOLDSTEIN GOLUB KESSLER LLP, ERNST & YOUNG LLP, Defendants, and KPMG LLP, Respondent.

          STEPHENS, J.

         FutureSelect Portfolio Management Inc. seeks to challenge a 2011 King County Superior Court order granting KPMG LLP's motion to compel arbitration. FutureSelect argues that the Court of Appeals erred by dismissing its appeal as untimely because either the relevant law changed after 2011 in our decision in Hill v. Garda CL Northwest, Inc., 179 Wn.2d 47, 308 P.3d 635 (2013), the 2016 appeal followed entry of a final judgment against another defendant, or discretionary review was appropriate. Because none of these rationales provides a basis for FutureSelect's untimely appeal, we uphold the Court of Appeals' order of dismissal.

         FACTS AND PROCEDURAL HISTORY

         Lead plaintiff FutureSelect is headquartered in Washington, and it manages a number of investment funds. The second named defendant, Tremont Partners Inc., is headquartered in New York and serves as the general partner to the Rye Funds, whose status as feeder funds to Bernard L. Madoff Investment Securities LLC (BMIS) is at the heart of this dispute. Tremont allegedly offered FutureSelect a valuable opportunity to invest with BMIS, and made assurances regarding its oversight and understanding of BMIS's operation. Relying on these assurances and the audit opinions of the accounting firm hired by Tremont, FutureSelect decided to invest in the Rye Funds in 1998. Between 1998 and late 2008, when BMIS's Ponzi scheme finally came to light, FutureSelect continued investing additional funds in the Rye Funds allegedly based on the representations it regularly received from Tremont and its auditors. In all, FutureSelect invested $195 million with Tremont. But, BMIS never invested any of this capital channeled through Rye Funds. As a result, FutureSelect lost its entire investment. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc. 180 Wn.2d 954, 960-61, 331 P.3d 29 (2014). Believing that it was misled by Tremont, FutureSelect sued Tremont and its parent companies Massachusetts Mutual Life Insurance Company and Oppenheimer Acquisition Corporation in August 2010; as well as Tremont's auditors-Ernst & Young (EY), KPMG, and Goldstein Golub Kessler LLP. Clerk's Papers (CP) at 1-51 (Compl).

         On June 3, 2011, the trial court granted KPMG's motion to compel arbitration and stayed the case against KPMG pending resolution of these arbitration proceedings. CP at 400-01 (Order Granting KPMG LLP's Mot. to Compel Arbitration). FutureSelect filed a notice of appeal, to which KPMG responded with a motion to dismiss, arguing that the order compelling arbitration was not immediately appealable and that discretionary review was not warranted under RAP 2.3(b). KPMG LLP's Mot. to Dismiss Appeal, No. 67302-5-1, at 5-9 (Wash.Ct.App. May 11, 2011). On November 11, 2011, a three-judge panel granted KPMG's motion to dismiss and denied discretionary review, thus terminating review. FutureSelect did not seek further review of the order in this court, and a certificate of finality was issued on December 30, 2011. Notation Ruling, No. 74611-1 -I, at 2 (Wash.Ct.App. May 20, 2016).

          FutureSelect then indicated to the superior court that it intended to proceed with arbitration of claims against KPMG without delay. It did so in the context of seeking a certificate of finality of orders dismissing other defendants. See CP at 762, 764 (Pis.' Mot. for Entry of Final J. at 5, 7) ("The arbitration between Plaintiffs and KPMG will be a complex proceeding that will take several years to resolve.... [A]n appeal of the judgments in favor of the Dismissed Defendants would not delay this action, which has been stayed, and will not delay the arbitration proceedings against Plaintiffs and KPMG.").[1] To date, FutureSelect and KPMG have not initiated arbitration proceedings.

         After settling with several defendants, FutureSelect obtained a judgment against another defendant, auditor EY. CP at 701-03 (J. for Pis.). A different trial judge had earlier denied EY's motion to compel arbitration, based on waiver and a finding that the plaintiffs were not bound by the engagement agreement with the auditor, as they were not signatories and their claims were direct rather than derivative.[2]

         In January 2016, FutureSelect filed a notice of appeal of the same June 3, 2011 order compelling arbitration with KPMG that it had unsuccessfully appealed in 2011. KPMG moved to dismiss, arguing that the June 2011 order was not properly before the Court of Appeals. The Court of Appeals commissioner dismissed the appeal as untimely. See Notation Ruling at 3. A panel of the Court of Appeals denied FutureSelect's motion to modify. Order Den. Mot. to Modify, No. 74611-1-1 (Wash.Ct.App. Oct. 5, 2016). FutureSelect then sought review in this court.[3]

         ANALYSIS

         Although FutureSelect asserts a global right to immediately appeal from an order compelling arbitration, this case is less about arbitration rules than appellate rules. FutureSelect primarily argues that at this juncture our review is appropriate because the prior rulings in 2011 conflict with our intervening decision in Hill, 179 Wn.2d 47. FutureSelect also argues that review is timely following entry of a final judgment against EY, and that discretionary review should have been granted in any event. All of these arguments fail. The Court of Appeals properly dismissed FutureSelect's appeal as untimely.

         I. Hill Does Not Provide a Basis for Review of the 2011 Order Compelling Arbitration

         In Hill, we granted discretionary review of a labor dispute and reversed the Court of Appeals affirmation of a trial court order compelling arbitration because we found the arbitration clause unconscionable. Id. at 50. In rejecting an argument to not reach the unconscionability issue, we observed in Hill that

"arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." To that end, we have recognized our authority to decide "gateway dispute[s]." These types of disputes go to the validity of the contract and are preserved for judicial determination, as opposed to arbitrator determination, unless the parties' agreement clearly and unmistakably provides otherwise. Unconscionability is one such gateway dispute.

Id. at 53 (alteration in original) (internal quotation marks and citations omitted) (quoting Satomi Owners Ass'n v. Satomi, LLC,167 Wn.2d 781, ...


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