United States 9th Circuit Court of Appeals Reports

REDDAM v. KPMG LLP, 05-56664 (9th Cir. 2006) 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. Nos. 05-56664, 05-56671. United States Court of Appeals, Ninth Circuit. Argued and Submitted July 25, 2006 — Pasadena, California. Filed August 10, 2006.

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.

Daniel L. Geyser, Munger, Tolles & Olson LLP, Los Angeles, California, for defendant-appellant Sidley Austin LLP. Dale E. Barnes, Bingham McCutchen LLP, San Francisco, California, for defendant-appellant KPMG LLP.

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

Before: Ferdinand F. Fernandez, Pamela Ann Rymer, and Richard R. Clifton, Circuit Judges.

Opinion by Judge Fernandez.

OPINION

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, Sidley[fn1] 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,[fn2] 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.[fn3] 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.[fn4]

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.[fn5]

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.

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