Shaik v. Charles Schwab & Co., Inc. et al

Filing 19

Order Accepting Findings and Recommendations re: 15 Findings and Recommendations on Motion For the foregoing reasons, the Court OVERRULES Shaik's objections, GRANTS Schwabs Motion to Compel, DENIES Shaik's Motion for Sanctions, C OMPELS this case to arbitration, and STAYS this case pending the outcome of the arbitration. The Court ADOPTS the reasoning of the FCR in all respects as its own. The Court further ORDERS that the Parties submit a Joint Status Report summarizing the status of the arbitration proceedings once every 90 days starting June 9, 2025. (Ordered by Judge Mark Pittman on 3/10/2025) (wxc)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
ZAK SHAIK,
Plaintiff,
v.

No. 4:24-cv-00817-P

CHARLES SCHWAB & CO. INC.,
Defendants.
ORDER ACCEPTING FINDINGS, CONCLUSIONS, AND
RECOMMENDATION OF THE UNITED STATES
MAGISTRATE JUDGE
On January 24, 2025, the United States Magistrate Judge issued
Findings, Conclusions, and a Recommendation (“FCR”) in this case. ECF
No. 27. The FCR recommended the Court compel the case to arbitration
and deny Plaintiff Zak Shaik’s motion for sanctions. Plaintiff filed an
Objection to the FCR the day it was issued. ECF No. 16. The Court
accordingly conducted a de novo review of the FCR.
As detailed below, the Court will overrule all of Shaik’s objections,
adopt the reasoning of the FCR in whole, grant Schwab’s Motion to
Compel, stay this case pending arbitration, and deny Shaik’s CrossMotion for Sanctions.

BACKGROUND
Shaik worked as a Registered Investment Advisor for Defendant
Charles Schwab & Co., Inc. (“Schwab”). In 2023, Schwab ended its
contract with Shaik. Shaik sued Schwab for breach of contract, tortious
interference with contract, defamation, and a smattering of other
claims. ECF No. 1. Because Shaik appeared pro se, the Clerk referred
his case to a Magistrate Judge for pretrial management. See N.D. Tex.
Special Order 3–251 (Mar. 8, 2006). Schwab moved to compel the case
to arbitration, citing the arbitration provisions in the Investment

Advisor Service Agreement (“IASA”)—its contract with Shaik. ECF No.
8. The IASA provides that “any controversy over the arbitrability of a
dispute” would be decided by an arbitrator. Id. at 5. Shaik opposed the
motion to compel arbitration and filed a motion for sanctions. ECF No.
11.
The Magistrate issued its FCR. The FCR recommended granting
Schwab’s motion, compelling the case to arbitration, and staying the
case in the meantime. ECF No. 15. The Magistrate Judge reasoned that
the parties had formed a valid agreement to arbitrate, that Shaik had
no affirmative defenses to the contract, and that Shaik’s claims fell
within the scope of the arbitration agreement. Id. Shaik filed a timely
objection to the FCR. ECF No. 16. His objections are ripe for review.

LEGAL STANDARD
A Magistrate Judge’s findings, conclusions, and recommendations
for a dispositive matter are reviewed de novo if a party timely objects.
FED. R. CIV. P. 72(b)(3). The district court may then accept, reject, or
modify the recommendations or findings in whole or in part. Id. The
Court will not consider arguments raised for the first time in objections
to the FCR. See United States v. Armstrong, 951 F.2d 626, 630 (5th Cir.
1992).

ANALYSIS OF OBJECTIONS
Shaik objects to the Magistrate Judge’s conclusion that neither the
arbitration provision nor the delegation provision in the IASA are void
for unconscionability. He argues that the provisions are both
procedurally and substantively unconscionable. Shaik also objects to the
Magistrate Judge’s finding that sanctions are inappropriate.
Under the Federal Arbitration Act, a court must compel an action to
arbitration when the parties have agreed to arbitrate a dispute.
Martinez v. Experian Info. Sols., No. 3:24-cv-0744-X, 2024 WL 3906775,
at *1 (N.D. Tex. Aug. 22, 2024) (Starr, J.). In such a case, the court has
no discretion to deny a motion to compel arbitration. Harvard Prop.
Trust, LLC v. Cardillo, No. 3:10-cv-1844-K, 2011 WL 1792866, at *2

(N.D. Tex. May 6, 2011) (Kinkeade, J.). The movant shows the existence
of an agreement to arbitrate a dispute by showing: “(1) there exists
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between the parties a valid agreement to arbitrate, and (2) the dispute
in question falls within the scope of the agreement.” In re Online Travel
Co., 953 F. Supp. 2d 713, 717 (N.D. Tex. 2013) (Boyle, J.). Courts apply
the law of the state governing the agreement to the question of contract
validity. Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 264 (5th
Cir. 2004). Here, the parties agree that California law governs the IASA.
ECF No. 8 at 7, No. 16 at 1.
Unconscionability is a high bar, even under California law. 1 To avoid
an arbitration agreement on unconscionability grounds, the party must
show that either the whole contract or a part of it is both procedurally
and substantively unconscionable. Sanchez v. Valencia Holding Co.,
LLC, 353 P.3d 741, 748 (Cal. 2015). The doctrine of unconscionability
does not protect contracting parties from a “simple old-fashioned bad
bargain.” Id. The defense applies only to terms that “impair the integrity
of the bargaining process or otherwise contravene the public interest or
public policy” or “attempt to alter in an impermissible manner
fundamental duties otherwise imposed by the law, fine-print terms, or
provisions that seek to negate the reasonable expectations of the
nondrafting party, or unreasonably and unexpectedly harsh terms . . . .”
Id.
Shaik argues that the IASA was procedurally and substantively
unconscionable. He rests his procedural argument on: (1) the take-it-orleave-it nature of the agreement; (2) his relative lack of bargaining
power compared to Schwab; (3) the disproportionate benefit the
agreement gave to Schwab; (4) the delegation provision’s purported
denial of Shaik’s Seventh Amendment right to a jury trial; and (5) public
policy, which Shaik argues the IASA offends.
Shaik, who is proceeding without the aid of counsel, does not
explicitly point to the flaws in the FCR. Instead, he rehashes the
arguments from his opposition to the motion to compel arbitration.
Therefore, rather than discuss each of these arguments on their own,
the Court will instead simply point to a few facts about the IASA that
support the Magistrate Judge’s findings.
1The contract provides that California law applies, and the Parties agree.

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First, the IASA imposes the obligation to arbitrate on both parties.
ECF No. 8-2 ¶ 15. This fact alone belies all of Shaik’s arguments to some
degree. For example, Shaik cites Armendariz v. Foundation Health
Psychcare Services, Inc. for the proposition that arbitration agreements
presented on a take-it-or-leave-it basis come with “a high degree of
procedural unconscionability.” 6 P.3d 669, 690 (Cal. 2000); ECF No. 16
at 1. But Armendariz’s discussion of “take it or leave it” contracts
focused on “one-sided” terms. But here, the terms bind both sides. The
Magistrate Judge therefore correctly found that the IASA did not
disproportionately benefit Schwab. ECF No. 15 at 18. For the same
reason, Shaik’s right to a jury trial was not taken from him but
voluntarily and mutually waived. 2
Moreover, the fourteenth paragraph of the IASA discloses the nature
and consequences of the arbitration provisions in the following
paragraph. Paragraph fourteen makes the following disclosures, among
others:
By signing an arbitration agreement, the parties
agree as follows:
•

All parties to this Agreement are giving up the
right to sue each other in court, including the
right to a trial by jury, except as provided by
the rules of the arbitration forum in which a
claim is filed.

•

Arbitration awards are generally final and
binding; a party’s ability to have a court
reverse or modify an arbitration award is very
limited.

•

The ability of the parties to obtain documents,
witness statements, and other discovery is
generally more limited in arbitration than in
court proceedings.

2Shaik

cites Granite Rock Co. v. Int’l Brotherhood of Teamsters for the
proposition that courts, not arbitrators, should decide questions of arbitrability
unless parties clearly and unmistakably delegate that authority. 561 U.S. 287,
299 (2010); ECF No. 16 at 2. But the parties did clearly and unmistakably
delegate that authority here. See ECF No. 8-2 ¶ 15.

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[. . .]
ECF No. 8-2 ¶ 14 (bolded text in original). Shaik cannot credibly claim
to be blindsided or surprised by the terms of the arbitration agreement
when Schwab drew his attention to it so deliberately.
Finally, the IASA is not a contract for employment. See ECF No. 8-2
¶ 1. Shaik contracted with Schwab as an Investment Advisor. Id. He
brought his clients to Schwab for Schwab to serve as “custodian.” Id. The
IASA provides that Shaik and Schwab are “not affiliated with each other
in any way.” Id. Shaik’s status as a contractor, and not an employee, all
but eliminates any tendency of the adhesion contract toward
unconscionability. To be clear, even if the adhesion contract were for
Shaik’s employment, the adhesive nature of the agreement alone would
not be proof of unconscionability under California law. See Serafin v.
Balco Props. Ltd., LLC, 185 Cal. Rptr. 3d 151, 161 (Cal. Ct. App. 2015).
As a contractor, Shaik has even less basis to argue that the IASA is
unconscionable.
Finally, the Court will overrule Shaik’s objection to the Magistrate
Judge’s recommendation to deny his motion for sanctions. Shaik’s
motion for sanctions is moot given that his arguments opposing
arbitration fail.
* * *
The Court also agrees with the Magistrate Judge that a stay of
proceedings is the only permissible course of action to take while the
case moves through arbitration. See Smith v. Spizzirri, 601 U.S. 472,
475–76 (2024).

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CONCLUSION
For the foregoing reasons, the Court OVERRULES Shaik’s
objections, GRANTS Schwab’s Motion to Compel, DENIES Shaik’s
Motion for Sanctions, COMPELS this case to arbitration, and STAYS
this case pending the outcome of the arbitration. The Court ADOPTS
the reasoning of the FCR in all respects as its own. The Court further
ORDERS that the Parties submit a Joint Status Report summarizing

the status of the arbitration proceedings once every 90 days starting
June 9, 2025.
SO ORDERED on this 10th day of March 2025.

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