In re Charles Schwab & Co.

Darlene Murphy alleges that an investment adviser, Smith, and his firm, SWA, "operated a Ponzi-like scheme" between March 2017 and June 2024 that stole from her, and that the financial institutions Smith used, TD Ameritrade and later its affiliate Charles Schwab, "failed in their duties to detect obvious red flags" in her accounts.¹ Relators say Murphy agreed repeatedly, starting in 2010 with Schwab and since 2017 with TD Ameritrade, to arbitrate before FINRA any controversy relating to her accounts or relationship, and that her petition pleads that she "entered into a valid contract with Defendants for investment services".² Two accounts moved from TD Ameritrade to Schwab in 2023, and Murphy says Relators have produced no signed arbitration agreement for those two accounts and rely on her failure to opt out of emailed notices at the transition.³

This is an original proceeding for a writ of mandamus. Schwab and TD Ameritrade moved to compel arbitration and stay Murphy's suit in the 201st District Court of Travis County. Murphy challenged only two of the arbitration agreements, and in March 2026 the court ordered limited discovery on "whether or not an enforceable and relevant arbitration provision exists" and an evidentiary hearing by August 1, 2026.¹ The Third Court of Appeals denied mandamus relief.² Relators petitioned this Court on April 28, 2026; Murphy responded June 15 and Relators replied June 22 (Docket). The Court issued a stay order on August 7, 2026 and, on October 23, 2026, set the case for oral argument on March 3, 2027 (Docket).

Relators present two issues.:¹

1. Pre-arbitration discovery: where Murphy challenged only two of ten arbitration agreements and conceded the others were valid, did the trial court clearly err by ordering pre-arbitration discovery, and would Relators lack an effective appellate remedy if forced into unnecessary discovery?
2. Evidentiary hearing: where Murphy presented no controverting evidence and conceded dispositive points, did the trial court clearly err by ordering an evidentiary hearing²

Murphy frames the issues as whether Relators have shown a clear abuse of discretion when the court allowed narrow discovery on contract formation for two accounts, and whether a court must decide contract formation before enforcing a delegation clause in the very agreement whose existence is disputed

Issue 1 (pre-arbitration discovery and hearing)

Relators (Charles Schwab & Co., Inc. and TD Ameritrade, Inc.): Under In re Copart, a trial court abuses its discretion by ordering pre-arbitration discovery when the opponent shows no "colorable basis" to believe it would be material, and several concessions made discovery unnecessary: Murphy's pleaded admission of a "valid contract" for investment services; her challenge to only two agreements, which concedes that the other Schwab agreements are valid and that they contain delegation clauses; and her acknowledgment that she signed the TD Ameritrade agreements. Her challenge to the two Schwab agreements rests on conclusory assertions, and she has served about 169 discovery requests and noticed depositions on 28 topics.¹ A party resisting arbitration may obtain an evidentiary hearing only by presenting controverting evidence, and Murphy offered none.² Relators say they have no adequate remedy by appeal.³

Real Party in Interest (Darlene Murphy): This Court has twice confirmed that a trial court may order limited pre-arbitration discovery when it lacks information to decide arbitrability, and Copart granted relief only because the movant there produced a signed, authenticated agreement and met it with a conclusory denial. This case is Copart's "mirror image": no signed agreement exists for the two accounts, and Murphy identified concrete formation defects. A delegation clause sends validity and scope questions to the arbitrator only after a court confirms an agreement was formed. Relators also have an adequate remedy, because protective orders can cure overbroad requests and an order denying arbitration can be appealed.⁴

Relators (reply): Murphy's pleaded admission of a valid contract for investment services ends the analysis, and her attempt to confine the case to two accounts concedes that the many other Schwab agreements require arbitration.⁵ They add that Copart and Houston Pipe Line permit "limited" discovery only if necessary.⁶

Relators say the Court has "clearly stated" that mandamus is appropriate when a trial court erroneously orders pre-arbitration discovery, that the order here conflicts with Copart, and that mandamus is needed to prevent burdensome discovery and "ensure consistency with this Court's arbitration jurisprudence".¹

None

Cases on this site that cite the same authorities as this one. This is a list found by comparing citations, not a recommendation; read the opinions before relying on any of them.

• De Leon v. BFS Group LLC (25-1073)
  Cites the same authorities, including Amazon.com Services, LLC v. De La Victoria (cited 4 times here and 15 there); TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC (cited 6 times here and 56 there); Jody James Farms, JV v. Altman Grp., Inc. (cited 3 times here and 41 there)