McArthur v. McArthur ( 2014 )

Filed 3/11/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
PAMELA MCARTHUR,
Plaintiff and Respondent,
A137133
v.
KRISTI MCARTHUR, as Trustee, etc., (Contra Costa County
Super. Ct. No. MSP1200053)
Defendant and Appellant.
In 2001, Frances E. McArthur created an inter vivos trust naming her three
daughters—Deborah Tamisia, Kristi (Jensen) McArthur and Pamela McArthur—as
coequal beneficiaries.1 Frances amended the trust instrument in 2011, allocating a greater
portion of the trust property to Kristi and adding a provision requiring arbitration of
disputes. After Frances’s death, Pamela sued Kristi, alleging financial elder abuse and
claiming the 2011 amendment was invalid due to Kristi’s undue influence and Frances’s
lack of testamentary capacity. Kristi moved to compel arbitration of Pamela’s claims
under the terms of the 2011 trust amendment. The trial court denied the motion because
Pamela was not a signatory to the arbitration agreement. We affirm.
I. BACKGROUND
In 2001, Frances created the Frances E. McArthur 2001 Living Trust, and
provided that upon her death the trust estate would be divided equally among her three
daughters or their issue. In January 2011, the trust was amended to provide that, upon
Frances’s death, the trust estate would instead be distributed in accordance with a
1
We hereafter refer to the trustor and parties by their first names given the family
relationships and mutual surnames. We intend no disrespect.
1
schedule of specific bequests with Kristi receiving the remainder. The amended trust
document (2011 Trust) designated Kristi as a cotrustee and added a “Christian Dispute
Resolution” provision that required mediation and if necessary arbitration of “any claim
or dispute arising from or related to the Trust as amended.”2
Frances died on August 12, 2011. In January 2012, Pamela filed a petition and
action contesting the 2011 Trust, seeking removal of the trustee (Kristi), and suing for
damages based on financial elder abuse. The pleading alleged that Kristi exercised undue
influence over Frances when the 2011 Trust was executed, that Frances lacked
testamentary capacity when she executed the amendment, and that Kristi committed
financial elder abuse by wrongfully taking property from Frances “by way of donative
transfer and testamentary bequests.” Pamela sought a declaration that the 2011 Trust was
void, compensatory and punitive damages, replacement of Kristi as trustee, and an order
disqualifying Kristi as a trust beneficiary pursuant to Probate Code section 259.3
2
“The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe
that the Bible commands them to make every effort to live at peace and to resolve
disputes with each other in private or within the Christian church (see Matthew 18:15-20;
1 Corinthians 6:1-8). Therefore, the Trustor and Co-Trustees agree that any claim or
dispute arising from or related to the Trust as amended shall be settled by biblically based
mediation and, if necessary, legally binding arbitration before the Institute for Christian
ConciliationTM, a division of Peacemaker® Ministries, in accordance with its Rules of
Procedure for Christian Conciliation (the ‘Rules’ found at www.peacemaker.net). To the
extent authorized by the Rules, the provisions of California Code of Civil Procedure
section 1283.05 (right to discovery in arbitration) are incorporated herein and made a part
hereof. Judgment upon an arbitration decision may be entered in any court otherwise
having jurisdiction. The Trustor and Co-Trustees understand that these methods shall be
the sole remedy for any controversy or claim arising out of the Trust Agreement and
expressly waive their right to file a lawsuit in any civil court against one another for such
disputes except to enforce an arbitration decision. This Section shall also be binding on
all successor trustees and benefices for the Trust as amended.”
3
As relevant here, the statute provides that a beneficiary under a will or trust shall
not receive any property from a decedent’s estate if found liable for physical abuse,
neglect, or financial abuse of the decedent, who was an elder or dependent adult, and
shall be deemed to have predeceased the decedent. (Prob. Code, § 259, subds. (a)(1),
(c).)
2
Kristi filed a verified “Response and Objections” supported by multiple exhibits.
She described a long history of Deborah’s and Pamela’s hostility toward her and
mistreatment of Frances, which purportedly explained Frances’s revision of her estate
plan in January 2011. Kristi and the attorney who drafted the 2011 Trust averred that
Frances was mentally lucid when she executed the amendment and clearly communicated
her testamentary wishes. In June 2011, Frances reportedly met one-on-one with the
attorney and confirmed her estate plan with a certificate of independent review.
Kristi moved to compel arbitration of Pamela’s claims pursuant to the arbitration
provision in 2011 Trust. The trial court issued a tentative decision, without receiving
opposition briefing from Pamela, denying the motion because “[t]here is no evidence that
the beneficiaries gave either their consent or consideration to the arbitration clause in
order to achieve the status of beneficiary. Thus there is no binding agreement between
the parties compelling arbitration.” Kristi then filed a “Reply” to the tentative decision,
citing Suh v. Superior Court (2010) 181 Cal. App. 4th 1504, 1513 (Suh) (nonsignatories to
an arbitration agreement may be bound by the agreement by equitable estoppel or on a
third party beneficiary contract theory) and Estate of Bodger (1955) 130 Cal. App. 2d 416,
424–425 (a trust is a third party beneficiary contract). On the eve of the hearing, Pamela
filed an opposition brief citing Schoneberger v. Oelze (Ariz.Ct.App. 2004) 96 P.3d 1078
(Schoneberger),4 which held that arbitration clauses contained in trust instruments are
generally not enforceable against nonsignatory beneficiaries.
After the hearing on Kristi’s motion to compel arbitration, the California Supreme
Court decided Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US),
LLC (2012) 55 Cal. 4th 223 (Pinnacle), which permitted enforcement of an arbitration
provision in a condominium development’s recorded declaration of covenants, conditions
and restrictions. (Id. at pp. 231–232.) Kristi filed a supplemental brief addressing the
new decision and the trial court heard further oral argument. The court then issued a
September 26, 2012 written order denying the motion: “The doctrine of delegated
4
Superseded by Arizona Revised Statutes section 14-10205. (See p. 5 & fn. 6
post.)
3
authority to consent articulated in Pinnacle is inapplicable to the case of a trust . . . .
Instead, [Kristi] argued there was ‘implied in fact’ consent. No facts were presented to
support such a claim, and this Court does not find that Pinnacle went that far in its
decision. [¶] . . . [¶] Because there was no evidence that the beneficiaries of this Trust
gave either their consent to or consideration for the arbitration provision in order to
become beneficiaries, the motion to compel arbitration must be denied.” The court
denied Kristi’s motion for reconsideration.
II. DISCUSSION
“A written agreement to submit to arbitration an existing controversy or a
controversy thereafter arising is valid, enforceable and irrevocable, save upon such
grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.) A party
seeking to compel arbitration of a dispute “bears the burden of proving the existence of
an arbitration agreement, and the party opposing arbitration bears the burden of proving
any defense, such as unconscionability. [Citation.] Where . . . the evidence is not in
conflict, we review the trial court’s denial of arbitration de novo. [Citation.]” (Pinnacle,
supra, 55 Cal.4th at p. 236.)
There are circumstances in which nonsignatories to an agreement containing an
arbitration clause can be compelled to arbitrate under that agreement. (Suh, supra,
181 Cal.App.4th at p. 1513.) Whether an arbitration agreement is operative against a
nonsignatory is likewise reviewed de novo. (Id. at p. 1512.)
A. Out-of-State Authority
No published California decision addresses the precise issue before us—whether
an arbitration clause in a trust document can bind a beneficiary.5 Nor is there a great deal
5
When the trial court issued its September 26, 2012 decision, the only published
California appellate decision on point (finding that the beneficiary was not bound to
arbitrate) had been superseded. (Diaz v. Bukey (May 10, 2011, B225548), review granted
Aug. 10, 2011, S194150.) After the trial court here issued its decision, the Supreme
Court transferred the Diaz v. Bukey case to the Second District Court of Appeal with
directions to vacate and reconsider its decision in light of Pinnacle, supra, 55 Cal. 4th
223. Kristi asked the trial court to reconsider its ruling in light of that transfer order, but
4
of case law on the subject from other jurisdictions. Two relatively recent out-of-state
decisions, however, address the issue and may provide useful guidance. The Arizona
Court of Appeal held that, although a trust instrument required arbitration, the
beneficiaries were not bound to arbitrate because the trust document was not a “contract”
subject to the state’s general arbitration statute.6 (Schoneberger, supra, 96 P.3d at
p. 1079.) The Texas Supreme Court held, based on the wording of that state’s arbitration
law, that a trust beneficiary can be bound to arbitrate whether or not the trust document is
considered to be a contract. (Rachal v. Reitz (Tex. 2013) 403 S.W.3d 840, 842 (Rachal).)
Schoneberger arose from a suit by two beneficiaries of irrevocable inter vivos
trusts against the settlors and trustees, alleging mismanagement and dissipation of trust
assets. (Schoneberger, supra, 96 P.3d at pp. 1079–1080.) As we have noted, the court
held an arbitration provision in the trust documents was unenforceable under the Arizona
general arbitration statute, which applied (with respect to predispute arbitration
agreements) to “a provision in a written contract to submit to arbitration any controversy
thereafter arising between the parties.” (Ariz. Rev. Stat. § 12-1501, italics added;
Schoneberger, at pp. 1079, 1082.) The court found the statutory language determinative:
“Consistent with the wording of [Arizona Revised Statutes section] 12-1501, Arizona
courts have recognized that the fundamental prerequisite to arbitration is the existence of
an actual agreement or contract to arbitrate. [Citations.]” (Schoneberger, at p. 1082.)
The court further noted that under Arizona law, “an inter vivos trust is not a contract,”
and that it had previously “discussed the distinctions between a trust and a contract. We
explained that a beneficiary of a trust receives a beneficial interest in trust property while
the court declined. The Second District subsequently dismissed the Diaz v. Bukey appeal
without issuing a new opinion pursuant to a stipulation of the parties. Citation to this
case is for purposes of factual context only. (See Cal. Rules of Court, rule 8.1115(a), (b);
Conrad v. Ball Corp. (1994) 24 Cal. App. 4th 439, 443–444, fn. 2 [discussing citation to
unpublished opinions for reasons other than reliance upon them].)
6
The Arizona Legislature subsequently enacted Arizona Revised Statutes section
14-10205, which provides: “A trust instrument may provide mandatory, exclusive and
reasonable procedures to resolve issues between the trustee and interested persons or
among interested persons with regard to the administration or distribution of the trust.”
5
the beneficiary of a contract gains a personal claim against the promissor. Moreover, a
fiduciary relationship exists between a trustee and a trust beneficiary while no such
relationship generally exists between parties to a contract. [Citation.] . . . Drawing on the
Restatement (Second) of Trusts (1959), we further noted: . . . ‘The creation of a trust is
conceived of as a conveyance of the beneficial interest in the trust property rather than as
a contract.’ [Citation.]” (Schoneberger, at pp. 1082–1083.) Since the arbitration
provision was contained in a trust, it was not enforceable against the nonsignatory
beneficiaries under then applicable state law, regardless of the settlor’s intent or the
trustee’s consent to arbitration.7 (Id. at pp. 1083–1084.)
The Texas Supreme Court reached a different conclusion based on statutory
language and trust beneficiary conduct in a case where an irrevocable inter vivos trust
beneficiary sued the trustee for misappropriation of trust assets. (Rachal, supra,
403 S.W.3d at p. 842.) The court held that an arbitration provision in the trust was
enforceable against the beneficiary under the Texas Arbitration Act, which applied, like
California’s statute, to a “ ‘written agreement’ ” to arbitrate. (Rachal, at pp. 844–845,
quoting Tex. Civ. Prac. & Rem. Code § 171.001(a); Rachal, at p. 849 [noting similarity
7
In re Calomiris (D.C. 2006) 894 A.2d 408 followed Schoneberger’s reasoning in
holding that a former District of Columbia arbitration law did not apply to a testamentary
trust created pursuant to the terms of a will that included an arbitration provision
applicable to the trust. Like Schoneberger, the District of Columbia Court of Appeal
relied on the arbitration law’s express reference to an arbitration “provision in a written
contract” (In re Calomiris, at p. 409, quoting D.C. Code former § 16-4301), and its
conclusion that a will is not a contract (In re Calomiris, at p. 410). However,
enforceability of the arbitration provision was not decided. Rather, the court dismissed
the interlocutory appeal because the arbitration law at issue—a law authorizing
immediate appeals of orders denying arbitration—applied only where the motion to
compel was based on an arbitration provision in a written contract. (Id. at pp. 410–411;
D.C. Code former §§ 16-4301, 16-4317(a)(1).) The District of Columbia arbitration law
has since been substantially revised and now requires enforcement of “[a]n agreement
contained in a record to submit to arbitration any existing or subsequent controversy
arising between the parties to the agreement.” (D.C. Code § 16-4406(a); see Bank of
America, N.A. v. District of Columbia (D.C. 2013) 80 A.3d 650, 661, fn. 11 [discussing
2008 revision of the arbitration law].)
6
between Tex. & Cal. arbitration laws].) Noting that the Texas statute elsewhere referred
to the law of “contract,” the Rachal court concluded that the Legislature intended
“written agreement” to have a different meaning from “contract.” (Rachal, at p. 845.) It
reasoned that “written agreement” was broader than “contract” and included any
agreement that was supported by mutual assent. (Ibid.)
The Rachal court then found the necessary element of mutual assent not in the
written agreement itself, but under the doctrine of “direct benefits estoppel.” (Rachal,
supra, 403 S.W.3d at pp. 845–846.) “[A] beneficiary who attempts to enforce rights that
would not exist without the trust manifests her assent to the trust’s arbitration clause. . . .
[¶] Here, [the plaintiff beneficiary] both sought the benefits granted to him under the trust
and sued to enforce the provisions of the trust. . . . [This] conduct indicated acceptance of
the terms and validity of the trust.” (Id. at p. 847, fn. omitted.)
Other courts have similarly concluded that a beneficiary who seeks to enforce
rights under a trustee’s contract with a third party may be compelled to arbitrate the
dispute pursuant to an arbitration clause in the contract: “[the beneficiary] cannot
simultaneously assert a claim against [the third party] based on the [contract] and seek to
repudiate the arbitration clause in the [contract].” (In re Blumenkrantz (N.Y.Surr.Ct.
2006) 824 N.Y.S.2d 884, 888; see also In re Jean F. Gardner Amended Blind Trust
(Wash.Ct.App. 2003) 70 P.3d 168, 238–239; Smith v. Multi-Financial Securities Corp.
(Colo.Ct.App. 2007) 171 P.3d 1267, 1273–1274.) The Schoneberger court also
recognized that a nonsignatory may be barred from avoiding arbitration if he has claimed
or received some direct benefit from the agreement containing the arbitration clause.
(Schoneberger, supra, 96 P.3d at p. 1081.)
Here, Pamela has not accepted benefits under the 2011 Trust nor has she attempted
to enforce rights under the amended trust instrument. Instead, Pamela argues the
2011 Trust is invalid and seeks to have it set aside. Rachal acknowledges that a
“beneficiary may disclaim an interest in a trust. [Citations.] And a beneficiary is also
free to challenge the validity of a trust: conduct that is incompatible with the idea that
she has consented to the instrument. [Citation.] Thus, beneficiaries have the opportunity
7
to opt out of the arrangement proposed by the settlor” and consequently to not be bound
by the arbitration provision. (Rachal, supra, 403 S.W.3d at p. 847.) We agree.
Kristi argues that Pamela has accepted the benefits of the 2011 Trust: “[Pamela]
manifested implied consent through the trust contest itself. She could have chosen to
take nothing from the trust instrument, attacking [it in] its entirety. Instead, she sought to
establish the trust terms prior to its last amendment.” This argument conflates “the trust”
created by Frances in 2001 with the 2011 Trust—the only trust instrument containing an
arbitration clause. It is illogical to suggest that Pamela’s claim of entitlement to benefits
under “the trust” as it existed before the 2011 amendment amounts to acceptance of an
arbitration clause first appearing in the 2011 amendment, a document she specifically
challenges as invalid.
Kristi also argues that she produced undisputed evidence establishing the validity
of the trust in support of her motion to compel arbitration and, because Pamela failed to
dispute Kristi’s evidence or produce conflicting evidence, Pamela has forfeited her
opportunity to contest the validity of the trust. But the validity of the 2011 Trust has not
been adjudicated by virtue of the motion to compel arbitration or otherwise. And even
assuming the validity of the 2011 Trust were to be upheld, the arbitration clause in the
trust would nevertheless be unenforceable against Pamela unless and until she accepts or
seeks to enforce benefits under the 2011 Trust. Insofar as the record before us discloses,
she has not done so. Since Pamela has done nothing to manifest her assent to the terms
of the 2011 Trust, we find that she cannot be bound to its arbitration provision by
estoppel.
B. Application of Pinnacle
We next must complete the assignment originally given by the Supreme Court to
our colleagues in Diaz v. Bukey, supra, B225548: consider the application of Pinnacle to
these circumstances. Kristi insists that Pinnacle mandates that arbitration be compelled
here because the Supreme Court held that an entity was bound by an arbitration clause
even though the entity did not exist when the clause was promulgated and did not
8
subsequently consent to the clause. We agree with the trial court that Pinnacle is
materially distinguishable.8
In Pinnacle, the arbitration provision appeared in a recorded declaration of
covenants, conditions and restrictions (CC&R’s) for a condominium development.
(Pinnacle, supra, 55 Cal.4th at pp. 231–232.) Consistent with a detailed statutory
scheme, the Davis-Stirling Common Interest Development Act (Davis-Stirling Act),9 the
development project’s CC&R’s were approved by a state regulator, and each
condominium owner agreed to be bound by the recorded CC&R’s at the time of
purchase. The CC&R’s provided for the creation of a homeowners’ association
consisting exclusively of the condominium owners who had assented to the CC&R’s, and
the arbitration provision purported to bind the association as well as the individual
condominium owners in any construction defect suit against the developer. The
association opposed the developer’s motion to compel arbitration of construction defect
claims. (Pinnacle, at pp. 232–234, 248.)
Although the Supreme Court discussed in some detail the “contractual nature” of
the CC&R’s (Pinnacle, supra, 55 Cal.4th at pp. 237, 239–240),10 the holding of Pinnacle
rests heavily on elements of the Davis-Stirling statutory scheme, including consumer
8
Because we find Pinnacle otherwise inapplicable, we need not decide whether
reference to a “written agreement” in Code of Civil Procedure section 1281, rather than a
“contract,” is sufficient to permit us to disregard in the trust context the Supreme Court’s
frequent statements that “ ‘[g]eneral principles of contract law determine whether the
parties have entered a binding agreement to arbitrate’ [Citations].” (Pinnacle, supra,
55 Cal.4th at p. 236.)
9
Civil Code former section 1350 et seq.; see Pinnacle, supra, 55 Cal.4th at
pages 232, 236–239, 242–243. Effective January 1, 2013, and operative January 1, 2014,
the Davis-Stirling Act was reorganized and recodified as Civil Code section 4000 et seq.
(See Stats. 2012, ch. 180, §§ 1, 2.)
10
Pinnacle involved arbitration pursuant to the Federal Arbitration Act, which
applies to “[a] written provision in . . . a contract evidencing a transaction involving
commerce to settle by arbitration a controversy” (9 U.S.C. § 2, italics added). Unlike the
party seeking arbitration in Pinnacle, Kristi does not argue that the arbitration clause at
issue here is enforceable under the Federal Arbitration Act.
9
protection elements:11 “[T]he Legislature has crafted a statutory scheme providing for
the capacity of a developer to create a condominium development subject to covenants
and restrictions governing its operation and use. There appears no question that, under
the Davis-Stirling Act, each owner of a condominium unit either has expressly consented
or is deemed by law to have agreed to the terms in a recorded declaration. As the
exclusive members of an owners association, the owners have every right to expect that
the association, in representing their collective interests, will abide by the agreed-upon
covenants in the declaration, including any covenant to invoke binding arbitration as an
expeditious and judicially favored method to resolve a construction dispute, in the
absence of unreasonableness. That a developer and condominium owners may bind an
association to an arbitration covenant via a recorded declaration is not unreasonable;
indeed, such a result appears particularly important because (1) the Davis-Stirling Act
confers standing upon an association to prosecute claims for construction damage in its
own name without joining the individual condominium owners (Civ. Code, [former]
11
The court noted that “the Legislature has provided various protections to help
insure that condominium purchasers know what they are buying into. For example,
developers and subsequent sellers must provide copies of the declaration and other
governing documents to prospective purchasers. (Bus. & Prof. Code, § 11018.6;
Civ. Code, [former] § 1368, subd. (a).) Additionally, developers generally must provide
prospective purchasers with a copy of the Department of Real Estate’s public report
approving the particular condominium development and a copy of a statutory statement
outlining general information regarding common interest developments. (Bus. & Prof.
Code, § 11018.1, subds. (a), (c); see Bus. & Prof. Code, § 11018.2.) . . . [¶] Another
significant way in which the [Davis-Stirling] Act promotes stability and predictability is
by providing that the ‘covenants and restrictions in the declaration shall be enforceable
equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all
owners of the separate interests in the development.’ (Civ. Code, [former] § 1354,
subd. (a), italics added.) . . . [¶] . . . [¶] Moreover, settled principles of condominium law
establish that an owners association, like its constituent members, must act in conformity
with the terms of a recorded declaration. (See Civ. Code, [former] § 1354, subd. (a);
[citations].) . . . That a declaration operates to bind an association is both logical and
sound, for the success of a development would be gravely undermined if the association
were allowed to disregard the intent, expectations, and wishes of those whose collective
interests the association represents. [Citations.]” (Pinnacle, supra, 55 Cal.4th at
pp. 238–239.)
10
§ 1368.3) and (2) as between an association and its members, it is the members who pay
the assessments that cover the expenses of resolving construction disputes. Given these
circumstances, an association should not be allowed to frustrate the expectations of the
owners (and the developer) by shunning their choice of a speedy and relatively
inexpensive means of dispute resolution. Likewise, condominium owners should not be
permitted to thwart the expectations of a developer by using an owners association as a
shell to avoid an arbitration covenant in a duly recorded declaration. [Citation.]”
(Pinnacle, supra, 55 Cal.4th at p. 241, italics added.)
The Supreme Court analogized the Pinnacle case to Ruiz v. Podolsky (2010)
50 Cal. 4th 838 (Ruiz) (another case Kristi relies on in this appeal), which also involved a
statutory scheme that justified flexibility in binding nonsignatories to arbitration clauses.
“[T]he Legislature can . . . provide for the reasonable delegation of authority to consent.
([Ruiz,] at pp. 852–854.) [¶] In Ruiz . . . we addressed the operation of Code of Civil
Procedure section 1295, which allowed, but did not require, a patient to contract with a
health care provider to resolve all medical malpractice claims through binding arbitration.
The question presented was whether an arbitration agreement signed by a patient applied
to the resolution of wrongful death claims, which are not considered derivative of a
patient’s claims, even though the wrongful death claimants were not themselves
signatories to the arbitration agreement. (See Ruiz, at p. 841.) After observing that the
statute intended to create ‘a capacity of health care patients to bind their heirs to arbitrate
wrongful death actions,’ we found that binding the heirs ‘does not in any sense’
extinguish or restrict their claims, ‘but merely requires that the claims “be resolved by a
common, expeditious, and judicially favored method.” ’ (Id. at p. 852.) We firmly
rejected the argument that a rule permitting a person to bind his or her adult children to
arbitration would violate the state constitutional right to a jury trial. (Cal. Const., art. I,
§ 16.) As we explained, ‘the Legislature may devise reasonable rules in civil litigation to
permit the delegation to another party of the power to consent to arbitration instead of a
jury trial. . . . In the present case, the Legislature by statute has created the right of certain
heirs to a wrongful death action and may also by statute place reasonable conditions on
11
the exercise of that right.’ (Ruiz, at p. 853.)” (Pinnacle, supra, 55 Cal.4th at pp. 240–
241, italics added.)
Here, there is no similar statutory scheme that would require that a trust
beneficiary be bound by an arbitration clause in a trust instrument. Unlike Arizona
Revised Statutes section 14-10205, enacted following Schoneberger, our Probate Code
contains no specific legislative authorization for predispute trust arbitration provisions,
despite otherwise establishing specific remedies and procedures for trust beneficiaries.12
We find the doctrine of delegated authority to consent articulated in Pinnacle
inapplicable in the context of a trust.
C. Other Contract Theories
Kristi argues California courts have characterized trusts as contracts between
settlors and trustees, and contends that because the trusts are formed for the benefit of the
trust beneficiaries they should be enforceable against nonsignatory beneficiaries as with
other third party beneficiary contracts. Older California decisions discuss trust
documents as contracts between settlors and trustees as to the terms of the trustees’
services, in particular, the rate of compensation for the trustees’ services. (See Estate of
Bodger, supra, 130 Cal.App.2d at pp. 417, 424–426 [court cannot reduce trustee
compensation on ground that compensation provided for in trust document is excessive];
Estate of Guasti (1953) 117 Cal. App. 2d 612, 614–616 [applying contract interpretation
law to trust provision for compensation of trustee]; Estate of Whitney (1926) 78 Cal. App.
638, 648–649 [trustee not entitled to greater compensation than provided in trust
document].) Even if these cases remain good law,13 the arbitration clause in the trust
document here is not consequently enforceable against Pamela as a third party
beneficiary. Although Kristi asserts generally that contractual arbitration clauses are
12
Cf. Probate Code section 9621 (authorizing estate personal representative to
enter into a written agreement to submit postdispute third party claim to arbitration; such
an agreement must be filed with, and approved by, the court).
13
See Estate of Bodger, supra, 130 Cal.App.2d at p. 425 (relying in part on Civ.
Code, former § 2218, which described a trust as a contract); Stats. 1986, ch. 820, § 7,
p. 2730 (repealing Civ. Code, former § 2218).
12
enforceable against third party beneficiaries of the contract, the case law in fact requires
that the third party claim benefits or rights under the contract before he or she will be
bound to arbitrate.14 (See Suh, supra, 181 Cal.App.4th at pp. 1513–1514
[anesthesiologists not bound by arbitration clause in contract between their medical group
and a hospital because they never benefited from the contract by working for the hospital
in the relevant time period]; Knight et al., Cal. Practice Guide: Alternative Dispute
Resolution (The Rutter Group 2013) ¶ 5:276.4a, p. 5-198.1 (rev. #1, 2013) [discussing
Suh and stating, “there was no evidence that the anesthesiologists received benefits under
the agreement[; t]herefore, the anesthesiologists were not third party beneficiaries and
were not required to arbitrate”]; see also In re Jean F. Gardner Amended Blind Trust,
supra, 70 P.3d at p. 239 [trust beneficiary seeking to enforce rights under contract
between trustee and third party bound by arbitration clause as third party beneficiary of
the contract]; Smith v. Multi-Financial Securities Corp., supra, 171 P.3d at pp. 1273–
1274 [same].)
14
Kristi also cites scholarly analyses in support of the third party beneficiary
contract view of trusts. (See Langbein, The Contractarian Basis of the Law of Trusts
(1995) 105 Yale L.J. 625, 627, 646, 650–651; Bruyere & Marino, Mandatory Arbitration
Provisions: A Powerful Tool to Prevent Contentious and Costly Trust Litigation, But Are
They Enforceable? (2007) 42 Real Prop. Prob. & Tr. J. 351, 361–363; Strong, Arbitration
of Trust Disputes: Two Bodies of Law Collide (2012) 45 Vand. J. Transnat’l L. 1157,
1177 (hereafter Strong).) One of these articles suggests (without resolving the issue) that
it may be appropriate to require arbitration of a beneficiary’s challenge to the validity of a
trust on the ground of the settlor’s lack of capacity or undue influence over the settlor.
(Strong, at p. 1221.) However, cases the article cites in support of the argument involve
challenges to the validity of a contract by signatories to the contract, not by nonsignatory
third party beneficiaries to the contract. (See Strong, at pp. 1221–1223 & fns. 334–335,
citing Prima Paint v. Flood & Conklin Mfg. (1967) 388 U.S. 395, 402–407 [signatory’s
fraudulent inducement of contract claim subject to arbitration where no specific claim
that arbitration agreement was fraudulently induced]; Buckeye Check Cashing, Inc. v.
Cardegna (2006) 546 U.S. 440, 445–446 [signatory’s illegal contract claim subject to
arbitration where validity of arbitration agreement was not specifically challenged].)
13
D. Policy Arguments
Finally, Kristi urges that public policy considerations favor arbitration of trust
disputes (see, e.g., Strong, supra, 45 Vand. J. Transnat’l L. at pp. 1181–1187; see fn. 14
ante). Noting that the Arizona Legislature abrogated the Schoneberger holding by
statute, she contends that there is a national trend toward allowing arbitration in the trust
context, and urges us to follow this “trend.” These are arguments best addressed to the
Legislature, not to this court. Moreover, “ ‘[e]ven the strong public policy in favor of
arbitration does not extend to those who are not parties to an arbitration agreement or
who have not authorized anyone to act for them in executing such an agreement.’
[Citations.]” (Suh, supra, 181 Cal.App.4th at p. 1512.) In any event, whatever the
national trend might be, Kristi fails to demonstrate that any other jurisdiction would
compel arbitration under the facts of this case, where the beneficiary has not either
expressly or implicitly sought the benefits of a trust instrument containing the disputed
arbitration provision.
III. DISPOSITION
The order denying Kristi’s motion to compel arbitration is affirmed. Kristi shall
bear Pamela’s costs on appeal.
14
_________________________
Bruiniers, J.
We concur:
_________________________
Jones, P. J.
_________________________
Needham, J.
15
Superior Court of Contra Costa County, No. MSP1200053, Joyce M. Cram, Judge.
Brillant Law Firm, David J. Brillant, Erica L. Shepard; Vaught & Boutris and Jon R.
Vaught for Plaintiff and Respondent.
Bergquist, Wood, McIntosh & Seto and Steven N.H. Wood for Defendant and Appellant.
1