Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management

The California Court of Appeals says that while investor Irene Mastick can proceed with her securities litigation against Oakwood Capital Management LLC, she has to arbitrate her securities claim against TD Ameritrade Inc. Mastick had sued representatives of the two financial firms, along with M.E. Safris & Co. and her accountant Michael Safris alleging that she had been provided with poor investment counsel.

Mastick claims that after meeting the defendants in 2008, she was advised to take the proceeds from her life insurance policies and invest them. Contending that she was given bad advice regarding this strategy’s tax consequences, she filed her fraud lawsuit.

Safris, who is a New Jersey resident, had the securities case removed to federal court and Mastick amended her complaint to include the firm representatives. Oakwood and TD Ameritrade then sought to compel arbitration but the federal court then denied their petitions and remanded the lawsuit due to lack of diversity. TD Ameritrade and again sought to compel arbitration.

While Mastick’s agreement with Oakwood is subject to California law and states that disputes are to be dealt with via arbitration per American Arbitration Association rules, her agreement with TD Ameritrade is under Nebraska law, with disputes to be handled via arbitration per FINRA rules. Noting inconsistent ruling, the trial court rejected both petitions. The two financial firms then appealed.

Now, the California appeals court is reversing in part and affirming in part. It is affirming the rejection of Oakwood’s arbitration petition to arbitrate and reversing the denial of TD Ameritrade’s arbitration petition to arbitrate. The court said that per FAA, courts have to enforce arbitration terms in contracts involving interstate commerce, and they do not have the authority to either stay arbitration pending a litigation’s resolution or refuse to enforce an arbitration provision that is valid in order to avoid duplicative proceedings or conflicting rulings. However, contracting parties can agree that their arbitration is not governed by FAA even when interstate commerce is involved. Therefore, the court found that Mastick and Oakwood’s selection of California law gives the trial court the power to invoke California Code of Civil Procedure Section 1281.2, subd (c) to their arbitration agreement. This means that the trial court could decide to reject an arbitration deal if one of the parties also was part to a related lawsuit with a third party that sets up the possibility of rulings that conflict on a “common issue of law or fact.” The appeals court noted that Safris, who is “party to this litigation,” is not involved in the arbitration agreement between Mastick and Oakwood. The latter two must now litigate.

As for Mastick’s allegations against TD Ameritrade, the court noted that the Nebraska Uniform Arbitration Act also doesn’t allow a court to stay arbitration or deny enforcement of such a provision to avoid “duplicative proceedings or conflicting rules.” Because of this, the court has to stay the action between TD Ameritrade and Mastick and it is compelling both of them to resolve their disagreement in arbitration.

Mastick v. TD Ameritrade Inc. and Oakwood Capital Management LLC (PDF)

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