KPMG LLP v. Marc S. Kirschner, in His Capacity of the Millennium Corporate Claim Trust

• Decision Date: 16 April 2020
• Docket Number: 11400N,Index 655664/18
• Citation: 182 A.D.3d 484,122 N.Y.S.3d 18
• Parties: In re KPMG LLP, Petitioner–Respondent, v. Marc S. KIRSCHNER, in his capacity as Trustee of the Millennium Corporate Claim Trust and of the Millennium Lender Claim Trust, Respondent–Appellant.
• Court: New York Supreme Court — Appellate Division

182 A.D.3d 484
122 N.Y.S.3d 18

In re KPMG LLP, Petitioner–Respondent,
v.
Marc S. KIRSCHNER, in his capacity as Trustee of the Millennium Corporate Claim Trust and of the Millennium Lender Claim Trust, Respondent–Appellant.

11400N
Index 655664/18

Supreme Court, Appellate Division, First Department, New York.

ENTERED: APRIL 16, 2020

122 N.Y.S.3d 19

Wollmuth Maher & Deutsch LLP, New York (Lyndon M. Tretter of counsel), for appellant.

Gibson, Dunn & Crutcher LLP, New York (Daniel J. Thomasch of counsel), for respondent.

Renwick, J.P., Oing, Singh, Moulton, JJ.

Order, Supreme Court, New York County (Barry R. Ostrager, J.), entered August 7, 2019, which granted the petition to the extent of compelling arbitration on the issue of arbitrability and staying a California action commenced by respondent for 30 days, unanimously reversed, on the law, with costs, the petition denied and this proceeding dismissed.

Millennium Lab Holdings, Inc. and Millennium Lab Holdings II, LLC (Millennium Holdings, LLC), pursuant to an engagement letter, retained petitioner KPMG LLP to audit their financial statements for certain time periods. The engagement letter contained a clause requiring arbitration of "[a]ny dispute or claim arising out of or relating to this Engagement Letter or the services provided hereunder."

In 2014, Millennium Holdings, LLC and Millennium Laboratories, LLC (collectively, Millennium) entered into a $1,825,000 credit agreement with various banks. On November 10, 2015, Millennium Holdings, LLC and its affiliates filed for Chapter 11 relief under the Bankruptcy Code. The Bankruptcy Court confirmed Millennium's reorganization plan, which, inter alia, resulted in the creation of the Millennium

122 N.Y.S.3d 20

Lender Claim Trust. Respondent, as the Claim Trust trustee, commenced an California action against petitioner asserting, inter alia, claims for negligent and intentional misrepresentation.

Petitioner brought this article 75 special proceeding to stay the California action and to compel arbitration. Supreme Court granted the petition "to the extent of compelling arbitration on the issue of arbitrability and staying the California action for 30 days." Respondent appeals.

The parties agree that "[t]he issue of whether a party is bound by an arbitration provision in an agreement it did not execute is a threshold issue for the court, not the arbitrator, to decide" (Matter of 215–219 W. 28th St. Mazal Owner LLC v. Citiscape Bldrs. Group Inc. , 177 A.D.3d 482, 483, 112 N.Y.S.3d 59 [1st Dept. 2019] ). Accordingly, Supreme Court should have decided this issue. The parties, however, ask us to decide the issue of arbitrability instead of remanding. We do so in the interest of judicial economy (see Hawkeye Funding, Ltd. Partnership v. Duke/Fluor Daniel , 307 A.D.2d 828, 763 N.Y.S.2d 574 [1st Dept. 2003], lv denied 1 N.Y.3d 538, 775 N.Y.S.2d 233, 807 N.E.2d 283 [2003] ).

The parties...