CHARLESTON – Sometimes a judge must either decide a case or refer it to arbitration, but Kanawha Circuit Judge Tod Kaufman learned he can't do both.
On March 5, the Supreme Court of Appeals prohibited Kaufman from enforcing an order that would have bound an arbitrator to Kaufman's findings and conclusions.
"This foray into matters reserved for arbitral resolution was clearly improper," Justice Thomas McHugh wrote.
Now an arbitrator can start with a clean slate in resolving claims of investor Dan Salamie against TD Ameritrade and financial advisor Bruce Conrad.
Salamie opened accounts with TD Ameritrade's predecessor, TD Waterhouse, in 1999.
He sued in 2008, claiming Conrad disregarded specific instructions on his accounts.
He held Ameritrade responsible by defining Conrad as its officer or representative.
Ameritrade moved to compel arbitration under a provision in the original contracts, though it denied that the contracts bound it in all respects.
Salamie said he would arbitrate if Ameritrade would stipulate that Conrad was subject to its control under federal securities law. Ameritrade declined the deal.
Salamie didn't oppose the arbitration motion but filed a motion of his own for partial summary judgment defining Conrad as a controlled person.
Kaufman granted both motions last May, compelling arbitration and ordering the arbitrator to treat Conrad as a controlled person.
Kaufman wrote that when Ameritrade moved to compel arbitration, it admitted the viability of all clauses in the original contract.
Ameritrade petitioned the Justices for a writ of prohibition, claiming Kaufman exceeded his authority.
The Justices agreed, writing that a trial court may only decide whether an arbitration agreement exists and whether the claims fall within its scope.
"The law is clear that the trial court had no authority to rule on any issue other than whether arbitration of Mr. Salamie's claims was required under the applicable contracts," McHugh wrote.
"Not only did the trial court err in addressing the merits of matters expressly reserved for arbitration but the trial court also committed error by its issuance of a partial summary judgment ruling," he wrote.
Unresolved factual issues on the relationship between Ameritrade and Conrad and the lack of any discovery precluded partial summary judgment, he wrote.
Ramonda Lyons and Mychal Schulz, of Dinsmore and Shohl in Charleston, represented Ameritrade.
William DePaulo of Charleston represented Conrad.
Former Supreme Court Justice Richard Neely of Charleston represented Salamie.