Reddam v. Kpmg Llp

• Decision Date: 10 August 2006
• Docket Number: No. 05-56671.,No. 05-56664.,05-56664.,05-56671.
• Parties: J. Paul REDDAM; J. Paul Reddam Trust; Clarence Ventures, LLC, a Delaware Limited Liability Company; Zed Corporation, a California Corporation, Plaintiffs-Appellees, v. KPMG LLP; Presidio Advisors, LLC; Presidio Advisory Services Inc.; Presidio Fund Advisors, LLC, d/b/a Holland Park Capital Advisors, LLC; Deutsche Bank AG; Olson Lemons PC, Defendants, and Sidley Austin Brown and Wood, LLP, Defendant-Appellant. J. Paul Reddam; J. Paul Reddam Trust; Clarence Ventures, LLC, a Delaware Limited Liability Company; Zed Corporation, a California Corporation, Plaintiffs-Appellees, v. KPMG LLP, Defendant-Appellant, and Presidio Advisors, LLC; Presidio Advisory Services Inc.; Presidio Fund Advisors, LLC, d/b/a Holland Park Capital Advisors, LLC; Sidley Austin Brown and Wood, LLP; Deutsche Bank AG; Olson Lemons PC, Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

457 F.3d 1054

J. Paul REDDAM; J. Paul Reddam Trust; Clarence Ventures, LLC, a Delaware Limited Liability Company; Zed Corporation, a California Corporation, Plaintiffs-Appellees, v. KPMG LLP; Presidio Advisors, LLC; Presidio Advisory Services Inc.; Presidio Fund Advisors, LLC, d/b/a Holland Park Capital Advisors, LLC; Deutsche Bank AG; Olson Lemons PC, Defendants, and Sidley Austin Brown and Wood, LLP, Defendant-Appellant.

J. Paul Reddam; J. Paul Reddam Trust; Clarence Ventures, LLC, a Delaware Limited Liability Company; Zed Corporation, a California Corporation, Plaintiffs-Appellees, v. KPMG LLP, Defendant-Appellant, and Presidio Advisors, LLC; Presidio Advisory Services Inc.; Presidio Fund Advisors, LLC, d/b/a Holland Park Capital Advisors, LLC; Sidley Austin Brown and Wood, LLP; Deutsche Bank AG; Olson Lemons PC, Defendants.

No. 05-56664.

No. 05-56671.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 25, 2006.

Filed August 10, 2006.

Daniel L. Geyser, Munger, Tolles & Olson LLP, Los Angeles, CA, for defendant-appellant Sidley Austin LLP.

Dale E. Barnes, Bingham McCutchen LLP, San Francisco, CA, for defendant-appellant KPMG LLP.

Laura Lindgren, Hennigan, Bennett & Dorman LLP, Los Angeles, CA; David W. Wiechert, Law Office of David W. Wiechert, San Clemente, CA, for the plaintiffs-appellees.

Appeal from the United States District Court for the Central District of California; Virginia A. Phillips, District Judge, Presiding. D.C. No. CV-04-01227-VAP.

Before: FERNANDEZ, RYMER, and CLIFTON, Circuit Judges.

FERNANDEZ, Circuit Judge:

KPMG LLP and Sidley Austin LLP (Sidley) appeal the district court's remand of this case, which had been removed from the Superior Court of the State of California for the County of Orange (Orange County Superior Court) pursuant to 9 U.S.C. § 205 (removal of actions relating to arbitration agreements under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards). They argue that the district court erred when it remanded after it determined that an arbitration agreement had become unenforceable because the arbitrator (the National Association of Securities Dealers, Inc.) had declined jurisdiction over the parties.

We have jurisdiction and we reverse.

BACKGROUND

J. Paul Reddam, J. Paul Reddam Trust, Clarence Ventures, LLC, and Zed Corporation (collectively Reddam) assert that KPMG, Presidio Advisors LLC, Sidley¹ and Deutsche Bank AG formed a joint venture in which they agreed to develop, implement and market certain complex programs ("the programs"), which were designed to reduce the taxes of those who adopted the programs. The detailed nature of the programs is not relevant to this action. Suffice it to say that, as relevant here, Reddam was to purchase shares of Deutsche Bank stock and that required the use of a securities broker. Reddam was referred to Deutsche Bank Securities Investments (DBSI), a subsidiary of Deutsche Bank, for that purpose.

Reddam became involved because upon selling a company, DiTech Funding Corp., for a substantial sum,² Reddam desired to minimize income tax liabilities. Reddam, on the advice of KPMG and Sidley, did adopt the programs. As contemplated by the design of the programs, Reddam did use DBSI as a broker and entered into customer agreements for that purpose. Each of those customer agreements contained an identical arbitration clause which provided that:

all controversies which may arise between us concerning any transaction of construction, performance, or breach of this or any other agreement between us . . . shall be determined by arbitration. Any arbitration under this agreement shall be determined pursuant to the rules then in effect of the National Association of Securities Dealers, Inc., as the undersigned you may elect. If the undersigned fails to make such election, then you may make such election.

Alas, the programs did not have the desired tax avoidance effects, and Reddam incurred substantial tax liabilities as a result.³ Reddam then filed this action against KPMG, Sidley, Deutsche Bank and others in the Orange County Superior Court. Reddam did not bring an action against DBSI, although DBSI was mentioned in the complaint. Deutsche Bank removed on the ground that the action related to the arbitration agreement with DBSI. See 9 U.S.C. § 205. Deutsche Bank, along with KPMG and Sidley, then moved to compel arbitration. Reddam responded with a motion to remand on the basis that the district court lacked removal jurisdiction as to Deutsche Bank and that, at any rate, the claims against KPMG and Sidley should be remanded. The district court determined that it did have removal jurisdiction and that Deutsche Bank, KPMG and Sidley could all enforce the arbitration agreements.⁴

Before the NASD, Reddam deleted all reference to DBSI from its complaint, asserted that DBSI was not a party, and suggested that the NASD did not have jurisdiction. The NASD agreed with Reddam and refused to take jurisdiction over the arbitration because, as it said, no named party was a member or associated person of the NASD.

The parties then returned to the district court where Reddam moved for remand because the NASD was no longer available. KPMG and Sidley argued that the district court should exercise its authority under 9 U.S.C. § 5 to appoint a substitute arbitrator rather than remanding. However, the district court agreed with Reddam and declared that "the claims are no longer subject to arbitration" because the NASD had declined to proceed. Thus, the district court remanded the case to the Orange County Superior Court and refused to stay its order pending appeal.

This appeal by KMPG and Sidley followed.⁵

STANDARDS OF REVIEW

"We review de novo the district court's determination that it lacked subject matter jurisdiction" over the action. Kelly v. Fleetwood Enters., Inc., 377 F.3d 1034, 1037 (9th Cir.2004).

We also review de novo the district court's determinations about the scope and validity of the contractual DBSI arbitration clauses. See Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1462-63 (9th Cir.1983). Similarly, we review de novo the district court's determination about whether the issues remain arbitrable. See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir.1999).

JURISDICTION

Reddam argues that we do not have jurisdiction to review the remand to the Orange County Superior Court because "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise." 28 U.S.C. § 1447(d). We disagree.

It is a commonplace that an order that is actually issued pursuant to 28 U.S.C. § 1447(c), which provides for remand when there is a defect in the removal or when there is a lack of subject matter jurisdiction, cannot be reviewed by us. See, e.g., Kircher v. Putnam Funds Trust, ___ U.S. ___, ___, 126 S.Ct. 2145, 2153, 165 L.Ed.2d 92 (2006); Abada v. Charles Schwab & Co., Inc., 300 F.3d 1112, 1116 (9th Cir.2002); Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 276 (9th Cir.1984). But despite its apparently comprehensive language, § 1447(d) does not mean quite what it says. Where the remand order is not based on defective removal or lack of subject matter jurisdiction at the time of removal,⁶ § 1447(c) does not apply and the § 1447(d) restriction does not apply either. As the Supreme Court has put it, "only remand orders issued under § 1447(c) and invoking the grounds specified therein . . . are immune from review under § 1447(d)." Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 346, 96 S.Ct. 584, 590, 46 L.Ed.2d 542 (1976). Moreover, we are not bound by the district court's characterization of the basis for its remand order. See Abada, 300 F.3d at 1117; cf. Kunzi v. Pan Am. World Airways, Inc., 833 F.2d 1291, 1293-94 (9th Cir.1987) (district court did not specify basis, but it was apparent that the basis was § 1447(c)).

In the case at hand, the district court expressly declared that it had jurisdiction in the first place. It never deviated from that declaration. This case is unlike cases where a district court later determines that there was no jurisdiction ab initio.⁷ In this case, the district court determined that a later event—the NASD's refusal to arbitrate—had made the arbitration provision unenforceable as to the parties then before it.

We recognize that the district court referred to § 1447(c) when it decided the removal issue, but that is not dispositive. On the face of its order, the district court explained that it would remand because "[h]ere, based on the decision by the NASD to decline jurisdiction, the claims are no longer subject to arbitration. It follows, therefore, that the sole basis for federal jurisdiction is no longer present. . . . Thus, the Court has no basis for jurisdiction, and must remand the case to state court." (Emphasis added). That plainly indicates that the later occurring events were the basis for the decision. That cannot be a basis for a § 1447(c) remand order. See Davis v. UAW, 392 F.3d 834, 837-38 (6th Cir.2004), petition for cert. filed, 74 U.S.L.W. 3051 (U.S. Jul. 15, 2005) (No. 05-107); Poore, 218 F.3d at 1290-91; Sparta Surgical, 159 F.3d at 1211-13.

Therefore, we have jurisdiction to review the propriety of the remand order.⁸

DISCUSSION

At root, the district court remanded because the NASD refused to act as the arbitrator. That, argued Reddam, meant that the issues could not be arbitrable at all. The argument, accepted by the district court, raises two questions. First, did the agreement amount to a choice of forum clause? Second, if it did, did the refusal of that forum to conduct the arbitration mean that no arbitration at all could go forward—that is, was the choice of forum clause integral? The district court answered both questions in the affirmative. We do not.

A. Was There a Choice of Forum Clause?

As we have already pointed out, the arbitration...