Wade Harvey, Ex Rel. Alexis Breanna Gladden v. Cumberland Trust And Investment Company

10/20/2017
IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE
January 10, 2017 Session
WADE HARVEY, EX REL. ALEXIS BREANNA GLADDEN v.
CUMBERLAND TRUST AND INVESTMENT COMPANY, ET AL.
Appeal by Permission from the Court of Appeals
Circuit Court for Hamblen County
No. 12CV119 Thomas J. Wright, Judge
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No. E2015-00941-SC-R11-CV
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In this interlocutory appeal, the trustee of a trust executed an investment/brokerage
account agreement that included a provision requiring the arbitration of disputes. The
trust beneficiary filed a lawsuit asserting claims against the investment broker, and the
defendant broker sought to compel arbitration under the arbitration provision in the
account agreement. The trial court granted the motion to compel arbitration and granted
permission for this interlocutory appeal. The Court of Appeals reversed. On appeal, we
are asked to determine whether the signature of the trustee on the account agreement
binds the beneficiary of the trust to the predispute arbitration provision. We hold that the
Tennessee Uniform Trust Code is intended to give trustees broad authority to fulfill their
duties as trustee. We also hold that the Tennessee Uniform Trust Code gives trustees the
power to enter into predispute arbitration agreements, so long as doing so is not
prohibited under the operative trust instrument. We hold that the trust instrument in this
case gives the named trustee broad authority and does not prohibit the trustee from
entering into a predispute arbitration agreement. As a result, we interpret the trust
instrument as authorizing the trustee to execute the account agreement with the defendant
broker, including the predispute arbitration provision therein. Thus, under both the
Tennessee Uniform Trust Code and the operative trust instrument, the trustee had
authority to enter into the arbitration agreement contained within the account agreement.
The question of whether the trust beneficiary in this case is bound by the arbitration
provision is governed by the principle that a third party who seeks the benefit of a
contract must also bear its burdens. Applying this principle, the trust beneficiary in this
case may be bound to arbitrate claims against the investment broker that seek to enforce
the account agreement. We reverse the decision of the Court of Appeals and vacate the
trial court order compelling arbitration of all claims. We remand the case to the trial
court for further proceedings, including a determination as to which if any of the claims
asserted by the trust beneficiary seek to enforce the account agreement.
Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
Reversed; Case Remanded to the Trial Court
HOLLY KIRBY, J., delivered the opinion of the court, in which JEFFREY S. BIVINS, C.J.,
and CORNELIA A. CLARK, SHARON G. LEE, and ROGER A. PAGE, JJ., joined.
Mark D. Griffin and Will E. Routt, Memphis, Tennessee, for the appellants, Albert
Alexander, Jr., and Wunderlich Securities, Inc.
William Lewis Jenkins, Jr., Dyersburg, Tennessee, and F. Braxton Terry, Morristown,
Tennessee, for the appellee, Wade Harvey, Jr., ex rel. Alexis Breanna Gladden.
OPINION
FACTUAL AND PROCEDURAL BACKGROUND
Trust Formation
The minor trust beneficiary in this case, Alexis Breanne Gladden, was born in
1997 to Shauna Gladden (a/k/a Shauna Lynn Harvey) (“Mother”) and Billy P. Gladden
(“Father”). When Alexis was eight months old, she was hospitalized with fever and
possible sepsis. In the hospital, there was apparently a delay in administering antibiotics
to Alexis. Complications ensued. Alexis endured a lengthy hospitalization and multiple
surgeries, including several amputations, and ended up significantly disabled.1
As a result, Mother filed a lawsuit in the Circuit Court for Hamblen County,
Tennessee, against the pediatric practice, the physicians, the hospital, and the nurses. The
lawsuit asserted that they were responsible for the catastrophic illness and injuries to
infant Alexis. All of the defendants initially denied liability.
In May 2001, Mother settled with the physicians and the pediatric practice for a
total of $1,000,000. In connection with its approval of the settlement, the circuit court
required the establishment of a trust for the benefit of Alexis to receive the settlement
1
Eighteen months after this incident, Mother and Father divorced. Mother was awarded custody
of Alexis.
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proceeds. Pursuant to this directive, a trust instrument (“Trust Instrument”) was executed
and approved by the circuit court, establishing the Alexis Breanne Gladden Irrevocable
Trust (“Trust”). The Trust Instrument states that the Trust was created “as a means by
which trust assets may be held for the benefit” of Alexis, and recites an intent “to provide
a system for fiscal management, administration and disbursement, advocacy, care and
emotional guidance” for Alexis.2 As outlined below, the Trust Instrument gave the
Trustee broad authority to invest the trust assets and settle and arbitrate disputes.3
A.G. Edwards Trust Company, FSB (“A.G. Edwards”), was designated as the
Trustee. Slightly less than half of the proceeds from the settlement with the physicians
and the pediatric practice were paid to A.G. Edwards as the Trustee and ultimately
became the initial Trust assets. Of the remainder, $150,000 went to Mother individually,
and the balance was paid toward attorney fees and expenses.
Two months later, Mother settled with the hospital and the nurses for a total of
$3,350,000. Of this total, almost $2,100,000 was paid to the Trustee to pay into the
Trust, $130,000 was paid to Mother individually, and the rest went toward attorney fees
and expenses. Thus, the Trust received a total of almost $2,600,000 in settlement monies
for the benefit of Alexis.4
In October 2002, Mother successfully petitioned the circuit court to remove A.G.
Edwards as Trustee and appoint the Wilmington Trust Company (“Wilmington”) as the
successor Trustee, with Defendant/Appellant Albert M. Alexander, Jr., to serve as
financial advisor to the Trust. During Wilmington’s tenure as Trustee, the Trust
2
The stated objective in the Trust Instrument was to permit Alexis to “live as independently as
possible in a safe environment,” with a preference for Alexis to “live in a private residence with personal,
professional and financial assistance as needed” and avoid residing in an institutional setting.
3
The pertinent provisions of the Trust Instrument are discussed in the Analysis section of this
Opinion.
4
The Trust Instrument named Alexis as the sole beneficiary of the Trust and recognized that she
would “require continuing support, assistance and supervision for the rest of her life.” Under the Trust
Instrument, Alexis was not the owner of the Trust property (except for income tax purposes) and would
have no access to either the principal or the income of the Trust. Instead, the Trustee was tasked with the
responsibility for determining the discretionary distributions of principal and income from the Trust.
Along the same lines, the trial court’s order provided for the settlement proceeds to be paid into the Trust
without transferring ownership of the settlement proceeds to Alexis.
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retained Defendant/Appellant Wunderlich Securities, Inc. (“Wunderlich”), to supervise
and direct some of the Trust assets.5
In 2004, again at Mother’s request, the circuit court removed Wilmington as
Trustee and appointed Cumberland Trust and Investment Company (“Cumberland”) in its
stead.6 Pursuant to Mother’s petition, the circuit court specified that Mr. Alexander
would remain as the financial advisor to the Trust. After Cumberland became the
Trustee, the Trust continued to invest Trust assets with Wunderlich.
Investment Account Agreement
In 2009, Cumberland entered into the agreement that contains the arbitration
clause that is the subject of this appeal. In July 2009, Cumberland and Wunderlich
executed a contract entitled “Pathways Client Agreement” (“Client Agreement”), under
which Cumberland engaged Wunderlich’s investment services for the Trust.7 The Client
Agreement identifies the Trust as the subject of the parties’ agreement and Alexis as the
beneficiary of the Trust. In addition, page one of the Client Agreement contains a notice
in bold letters that it includes a predispute arbitration agreement, and provides for the
parties to sign an acknowledgement that they received a copy of the arbitration
agreement.8 Following this notice are the signatures of the representatives of both
5
Wunderlich’s involvement with the Trust roughly coincided with the engagement of Mr.
Alexander as financial advisor to the Trust, and it is undisputed that Mr. Alexander was an employee of
Wunderlich. However, it is unclear in the record exactly when Mr. Alexander’s employment with
Wunderlich began; specifically, it is unclear whether Mr. Alexander was already employed by
Wunderlich at the time Wunderlich was retained to supervise and direct Trust assets. Regardless, the
parties do not dispute that Mr. Alexander was a registered representative of Wunderlich at all times
material to this lawsuit.
6
The change in trustees had no effect on the obligations of the Trustee under the Trust
Instrument. As noted below, the trial court’s October 12, 2004 order appointing Cumberland as successor
Trustee stated that Cumberland would have “all rights, powers, and privilege[s] and be subject to all of
the obligations and duties, both discretionary and ministerial” under the Trust Instrument. With approval
from the trial court, Cumberland, as Trustee, “completely” restated the Trust “to carry out the original
intention of the Court and the parties hereto.”
7
Wunderlich’s relationship with the Trust included contracts other than the Client Agreement
that also contained predispute arbitration clauses. Nevertheless, in this appeal, the Defendants appear to
rely only on the predispute arbitration clause contained in the Client Agreement, so our analysis is
confined to that contract.
8
The notice on page one of the Client Agreement states: “THIS AGREEMENT CONTAINS A
PREDISPUTE ARBITRATION CLAUSE LOCATED ON PAGE 5, SECTION 21. THE
UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT.” As
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Cumberland and Wunderlich, as well as the signature of Mr. Alexander as financial
advisor to the Trust.
Lawsuit Underlying This Appeal
For reasons that are not stated expressly in the record, in June 2011, the circuit
court appointed Alexis’s maternal grandfather, Plaintiff/Appellee Wade Harvey, Sr., as
the guardian of Alexis.9
Almost a year later, on May 10, 2012, Mr. Harvey, as next friend of Alexis
(“Plaintiff”), filed the lawsuit underlying this appeal in the Circuit Court of Hamblen
County, Tennessee. Among others, the amended complaint named as defendants
Cumberland, Mr. Alexander, and Wunderlich.10
discussed further below, in relevant part, the arbitration agreement on pages five and six of the Client
Agreement provides:
This Agreement contains a predispute arbitration clause. By signing an arbitration
agreement, the parties agree as follows: All of the 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 the claim is filed.
....
It is agreed that all controversies or disputes which may arise between you and
Introducing Firm, Clearing Agent and any Sub-Advisor (and/or any other agent),
(collectively, “us”) concerning any transaction or the construction, performance or breach
of this Agreement or any other agreement between us, whether entered into prior to, on,
or subsequent to the date of this Agreement, including any controversy concerning
whether an issue is arbitrable, shall be determined by arbitration conducted before, and
only before, an arbitration panel set up by the Financial Industry Regulatory Authority
(“FINRA”) in accordance with its arbitration procedures. Any of us may initiate
arbitration by filing a written claim with FINRA. Any arbitration under this Agreement
will be conducted pursuant to the Federal Arbitration Act and the Laws of the State of
New York.
In another section, the Client Agreement states: “This Agreement is made and will be interpreted
under applicable federal law, including the Federal Arbitration Act and the laws of the State of New
York, regardless of choice of laws thereof.”
9
Later events outlined below indicate the possible impetus for the appointment of Mr. Harvey as
guardian.
10
In addition, the Amended Complaint named the following defendants: Joi S. Chatman (a trust
officer at Cumberland), Wells Fargo & Company, Wells Fargo Advisors, LLC as successor in interest to
A.G. Edwards, Inc. d/b/a A.G. Edwards & Sons, Inc., A.G. Edwards, Inc., and A.G. Edwards & Sons, Inc.
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The complaint alleged that, after Mr. Harvey was appointed as Alexis’s guardian
in June 2011, he discovered that the Trust funds had been drastically depleted. The
complaint noted that, until approximately 2008, the Trust had retained a corpus totaling at
least $2,300,000. Soon, however, the Trust assets began to be “recklessly depleted.”
According to Plaintiff, during 2009, there were $578,000 in disbursements from the
Trust. The rate of depletion accelerated during 2010. That year, there were $886,000 in
disbursements, some of which went to build a large five-bedroom house on seven acres
of land, an expenditure that the complaint characterized as being of “no use” to Alexis.
The end result, the complaint alleged, was reduction of the Trust corpus to less than
$200,000.
The complaint asserted that Wunderlich and Mr. Alexander (together
“Defendants”) had breached a number of duties to Alexis. These included their fiduciary
duty in investing Trust monies; their duty to either disclose conflicts of interest or
withdraw in the event of such conflicts; and their duty to act in Alexis’s best interest and
safeguard the Trust monies. Among other things, the complaint asserted that the
Defendants failed to disclose facts material to their decision-making; failed to properly
oversee the Trust assets and disbursements; negligently mismanaged Trust funds; gave
negligent investment advice to the Trust; misappropriated Trust funds; engaged in
deceptive and unfair trade practices under the Tennessee Consumer Protection Act; and
fraudulently allowed Trust monies to be used on purchases that had no value to Alexis,
resulting in the near complete depletion of the Trust monies.
As to Mr. Alexander, the complaint alleged that he entered into an inappropriate
relationship with Mother, “which led to the unscrupulous spending” of Trust monies
intended to benefit Alexis. In turn, the complaint asserted, the other defendants
negligently failed to monitor Mr. Alexander, who held himself out as an investment
advisor. The complaint alleged that Mr. Alexander advised Mother to change from
trustee to trustee, which facilitated their manipulation of the Trust to accomplish their
personal desires. As relief, the complaint sought a complete accounting of the Trust
funds and an award of compensatory damages “in an amount no less than $3,925,000.”
Cumberland filed an answer to Plaintiff’s amended complaint.11 Wunderlich and
Mr. Alexander jointly filed a notice of appearance followed by a motion to compel
arbitration and stay all court proceedings.
In November 2012, Plaintiff took a voluntary nonsuit without prejudice as to Wells Fargo & Company,
Wells Fargo Advisors, LLC, as successor in interest to A.G. Edwards, Inc., d/b/a A.G. Edwards & Sons,
Inc., A.G. Edwards, Inc., A.G. Edwards & Sons, Inc.
11
Co-defendant and Cumberland trust officer Joi Chatman filed a joint answer with Cumberland.
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In February 2013, the trial court granted the motion to compel arbitration and stay
all proceedings.12 The Plaintiff filed a motion for permission to seek an interlocutory
appeal from the order compelling arbitration, pursuant to Rule 9 of the Tennessee Rules
of Appellate Procedure. See Tenn. R. App. P. 9. In the motion, the Plaintiff argued that
the Trustee had no authority to execute a predispute arbitration agreement or waive the
right to a jury trial, and that the arbitration agreement was not enforceable against the
beneficiary of the Trust. The Defendants opposed the Plaintiff’s request for permission
for interlocutory appeal.
On July 11, 2013, Alexis died. In September 2013, all parties consented to
substitute Mr. Harvey as Plaintiff in the lawsuit. Mr. Alexander and Wunderlich added a
proviso that their consent to substitute parties should not be construed as a waiver of their
right to have the disputes arbitrated.
In December 2014, the trial court held a hearing on the Plaintiff’s request for
permission to seek an interlocutory appeal and on May 8, 2015, the trial court granted
permission for the appeal. In its order, the trial court stated the reason it granted
permission for the appeal as well as the question certified:
[A]lthough this Court granted Defendants’ motion to compel arbitration
based on the facts and arguments presented by the parties and controlling
precedent under Tennessee law, the Court is not aware of a Tennessee case
directly on point addressing the precise issue of whether the signature of a
trustee on an investment/brokerage account agreement may bind a
beneficiary of a trust to conduct arbitration. The parties presented
conflicting authority from out of state on this precise issue in connection
with the motion to compel arbitration. If resolution of that particular issue
would be dispositive of whether or not an arbitrator had authority to hear
12
Also in February 2013, Plaintiff filed a motion to compel the payment of benefits to Mr.
Harvey for the care of Alexis. The motion alleged that the home built with Trust monies had been sold at
auction but that the Plaintiff had been provided no information about the sale or its proceeds. The motion
further asserted that the handicap-accessible van purchased by the Trust for Alexis, used to transport her
to numerous medical appointments, had been repossessed because the Trust did not properly title and
register the vehicle. Without the van, the motion said, Mr. Harvey was forced to physically pick up
Alexis and move her in and out of his car in order to transport her. Despite the substantial expenses
associated with providing Alexis twenty-four-hour-a-day care in all aspects of her life, and despite an
explicit request for payment from the Defendants, the motion alleged, during the preceding twenty-one
months Mr. Harvey had been caring for Alexis, he received no funds or assistance from the Trust other
than a single $1,500 payment to cover some expenses.
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this case, then an interlocutory appeal at this point will assist in potentially
reducing needless litigation.
As required under Rule 9, the Court of Appeals granted permission for the appeal
as well. See Tenn. R. App. P. 9. The Court of Appeals stated that it granted permission
for appeal on “the sole issue of whether the signature of the trustee on an
investment/brokerage account agreement agreeing to arbitration binds the Minor
beneficiary of the Trust to conduct arbitration of unknown future disputes and claims.”
Gladden v. Cumberland Trust & Inv. Co., No. E2015-00941-COA-R9-CV, 2016 WL
1166341, at *4 (Tenn. Ct. App. Mar. 24, 2016).
The Court of Appeals decided the issue based on its construction of the language
in the Trust Instrument. It acknowledged that the Trust Instrument gives the Trustee the
right to “settle, by compromise, arbitration or otherwise any and all claims and demands.”
Id. at *5. The intermediate appellate court observed: “[W]ithout question the trustee has
the right under the Trust [Instrument] to agree to arbitration binding the Minor
beneficiary as to claims or demands once they have arisen.” Id. However, it construed
the word “claim” as used in these provisions as referring only to existing claims, not
“disputes that have not yet arisen.” Id. On this basis, the Court of Appeals reasoned that
the phrase “any and all” in the Trust Instrument did not modify “claims and demands” to
refer to disputes “not yet in existence.” Id. It concluded that the Trust Instrument “does
not provide that the trustee has the right to agree to arbitration prior to a claim or demand
arising,” so the Trustee’s signature on the Client Agreement did not bind Plaintiff to
arbitrate the disputes with Wunderlich. Id. at *6. Accordingly, the Court of Appeals
reversed the trial court’s order compelling arbitration. Id.
The Defendants applied to this Court for permission to appeal, which was granted.
ISSUES ON A PPEAL AND STANDARD OF REVIEW
In this case, the trial court granted permission to appeal pursuant to Rule 9 of the
Tennessee Rules of Appellate Procedure. See Tenn. R. App. P. 9. As required under
Rule 9, the Court of Appeals granted permission for the appeal as well. Id. The scope of
the issues that may be considered in a Rule 9 appeal differs from the scope of the issues
that may be raised in an appeal as of right under Rule 3 of the Tennessee Rules of
Appellate Procedure:
Unlike an appeal as of right under Tennessee Rule of Appellate Procedure
3, in which both the appellant and the appellee have broad latitude with
regard to the issues that may be raised, “[w]hen dealing with an
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interlocutory appeal, the Court can and will deal only with those matters
clearly embraced within the question certified to it.”
Young v. City of LaFollette, 479 S.W.3d 785, 789 (Tenn. 2015) (quoting Tenn. Dep’t of
Mental Health & Mental Retardation v. Hughes, 531 S.W.2d 299, 300 (Tenn. 1975)).
In their request to this Court for permission to appeal, the Defendants ask the
Court to consider several issues.13 As required under our Rules, we focus on the question
certified by the trial court in its order granting permission to seek an interlocutory appeal,
in the Court of Appeals order granting the appeal, and “‘matters clearly embraced within
the question certified’” to us. Young, 479 S.W.3d at 789 (quoting Hughes, 531 S.W.2d at
300). The trial court certified the question of “[W]hether the signature of a trustee on an
investment/brokerage account agreement may bind a beneficiary of a trust to conduct
arbitration.” The Court of Appeals stated the question similarly: “whether the signature
of the trustee on an investment/brokerage account agreement agreeing to arbitration binds
the Minor beneficiary of the Trust to conduct arbitration of unknown future disputes and
claims.” Gladden, 2016 WL 1166341, at *4. We consider the issues the Defendants seek
to raise only to the extent that they are embraced within the question certified below.
This appeal arises from the trial court’s order granting the motion to compel
arbitration. We review the enforcement of an arbitration agreement de novo, with no
presumption of the correctness of the lower courts’ rulings. Rosenberg v. BlueCross
BlueShield of Tenn., Inc., 219 S.W.3d 892, 903 (Tenn. Ct. App. 2006) (citing Cooper v.
MRM Inv. Co., 367 F.3d 493, 497 (6th Cir. 2004)). “A trial court’s order on a motion to
compel arbitration addresses itself primarily to the application of contract law. We
review such an order with no presumption of correctness on appeal.” Id.; see also Great
Earth Cos. v. Simons, 288 F.3d 878, 888 (6th Cir. 2002) (review of a lower court’s ruling
compelling arbitration is de novo).
In order to resolve the arbitration issue in this case, we must construe the Trust
Instrument and applicable statutory provisions. These issues also present questions of
13
In the Defendants’ application for permission to appeal to this Court, they seek to raise three
questions for our review: (1) whether the finding by the Court of Appeals “that a trustee cannot agree to
arbitrate future or unknown disputes is in conflict with the Tennessee Uniform Trust Code and Tennessee
case law and accordingly in error;” (2) whether the Court of Appeals “applied the wrong standard to the
question of the powers granted to trustees under the Tennessee Uniform Trust Code by not considering
whether the trust agreement at issue in this instance ‘expressly provided’ that the trustee could not agree
to arbitrate future or unknown disputes;” and (3) whether the Court of Appeals “erred when it found that
the language of the trust agreement at issue in this instance did not provide the trustee with the power to
agree to arbitration of unknown future claims or disputes.” Pet’rs’ Appl. Perm. to Appeal 2, May 23,
2016.
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law, reviewed de novo with no presumption that the lower courts’ rulings are correct.
See BSG v. Check Velocity, Inc., 395 S.W.3d 90, 92 (Tenn. 2012) (“The interpretation of
a written contract is a question of law, which we review de novo.”); Marks v. S. Trust
Co., 310 S.W.2d 435, 437-38 (Tenn. 1958) (trust instruments should be construed and
interpreted similarly to contracts and wills); Presley v. Hanks, 782 S.W.2d 482, 487
(Tenn. Ct. App. 1989) (“[C]onstruction of a will is a question of law for the court . . . .”).
We must also construe applicable statutory provisions. Am. Heritage Apartments, Inc.
v. Hamilton Cnty. Water & Wastewater Treatment Auth., 494 S.W.3d 31, 40 (Tenn.
2016) (“We review the interpretation of the statutes by the lower courts de novo, with no
presumption of correctness.”).
ANALYSIS
The parties to this appeal approach the issues from very different vantage points.
Appellant/Defendants Wunderlich and Mr. Alexander contend that the governing Act, the
Tennessee Uniform Trust Code, Tennessee Code Annotated sections 35-15-101 through
35-15-1206 (2015), grants trustees broad authority and allows a trustee to enter into
predispute arbitration agreements unless the governing trust instrument expressly
provides that the trustee does not have such power. Wunderlich and Mr. Alexander
maintain that the Trust Instrument does not prohibit the Trustee from entering into
predispute arbitration agreements, so the Trustee had authority to do so. They contend
that Appellee-Plaintiff Mr. Harvey, on behalf of Alexis, is bound by the arbitration
agreement executed by Wunderlich and the Trustee, so all of the claims asserted in this
lawsuit must be arbitrated.
In response, Plaintiff contends that Tennessee trust law gives trustees only the
powers expressly granted in the governing trust instrument. Plaintiff agrees with the
Court of Appeals’ approach and maintains that the Trust Instrument in this case only
grants the Trustee authority to enter into arbitration after the subject claim has arisen.
Plaintiff also argues that neither the Tennessee Uniform Trust Code nor the Trust
Instrument permits the Trustee to waive the right to a jury trial and enter into predispute
arbitration agreements. Entering into a predispute arbitration agreement and thereby
waiving future rights, Plaintiff insists, amounts to a breach of the Trustee’s fiduciary duty
to act in utmost good faith. Finally, Plaintiff argues that the arbitration agreement
between the Trust and Wunderlich is not binding on the Trust beneficiary because: (1) the
Trustee was not the agent of the Trust beneficiary; (2) the Plaintiff did not sue to enforce
the contract containing the arbitration agreement; and (3) Alexis was a minor.
Resolution of the issues presented in this appeal requires us to interpret the
Tennessee Uniform Trust Code and the Trust Instrument. To provide necessary
background and context for discerning the legislature’s intent and purpose in adopting the
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Tennessee Uniform Trust Code, we will briefly review the history of trust law, focusing
on the evolution of the trustee’s authority as well as the promulgation of the Uniform
Trust Code, on which the Tennessee Uniform Trust Code is based. Next, we examine the
pertinent provisions of the Tennessee Uniform Trust Code and the Trust Instrument to
determine whether the Trustee had authority to enter into a predispute arbitration
agreement and whether doing so constituted a breach of the Trustee’s fiduciary duty. We
then consider the circumstances under which a trust beneficiary who did not sign a
predispute arbitration agreement may nevertheless be bound by it. We also consider
whether the fact that the Trust beneficiary in this case was a minor renders the arbitration
provision unenforceable. Finally, we remand to the trial court for a determination
regarding which of the Plaintiff’s claims are subject to the arbitration agreement in this
case, under the parameters set forth in this Opinion.
An Abbreviated History of Trusts
In outlining the reasons for proposing uniform trust statutes, a member of the
drafting committee for the Uniform Trust Code commented that “trust law is an ancient
field.” John H. Langbein, Why Did Trust Law Become Statute Law in the United States?,
58 Ala. L. Rev. 1069, 1071 (2007).14 Modern English and American trusts resulted from
the struggle of landowners in medieval England to control the disposition of their real
property. See id. at 1071-72; Richard T. Bowser & James B. McLaughlin, Jr., Wiggins
Wills & Administration of Estates in North Carolina, § 1:3 Norman Conquest (4th ed.
Nov. 2016 Update).
In medieval England, real property constituted the main form of wealth. Under the
common law at that time, land was not devisable. Upon the death of the landowner, it
could not pass by will, but had to descend according to the often unfair rules of
intestacy.15 See Langbein, supra, at 1071; see also Bowser & McLaughlin, supra, § 1:3;
Avisheh Avini, The Origins of the Modern English Trust Revisited, 70 Tul. L. Rev. 1139,
1143-44 (1996); R. H. Helmholz, The Early Enforcement of Uses, 79 Colum. L. Rev.
1503, 1503 (1979).
14
The author, Professor John H. Langbein, served on the Uniform Law Commission in addition
to serving as a member of the drafting committee for the Uniform Trust Code. Langbein, supra, at 1069
n.a1.
15
For example, under the rules of intestacy at the time, a widow was restricted to a one-third life
estate. The entire remaining estate went to the eldest male heir; minors and unmarried females had
further disadvantages in heirship. Langbein, supra, at 1071-72 (citing 4 W.S. Holdsworth, A History of
English Law 442-48 (3d ed. 1924)).
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To complicate matters further, under the English feudal system, the church
continued as a rich and powerful influence in society and the monasteries continued to
increase their ownership of real property. Bowser & McLaughlin, supra, § 1:3 (citing 2
Blackstone 375). The ever-increasing wealth and power of the church led to tension
between the church and Parliament, culminating in the enactment of statutes that
prohibited gifts of land to the church. Id.; Avini, supra, at 1143-44.
To circumvent these statutes and the common-law rules restricting the disposition
of property upon death, the doctrine of uses—that is, trusts—arose. Under the doctrine,
the use of land could be separated from its legal title, and legal title could be transferred
to a person who was entrusted to hold the property for the benefit of another.16 Bowser &
McLaughlin, supra, § 1:3 (citing 2 Blackstone 330); Avini, supra, at 1143. While the
transfer or devise of legal title to land remained constrained, the use of land was freely
transferrable and devisable. Bowser & McLaughlin, supra, § 1:3 (citing 2 Blackstone
330); Avini, supra, at 1145. The “use” made it possible to convey land for the use of the
religious order; this device allowed laymen to avoid the high cost of legal title and gave
them some control over the land upon the owner’s death.17 Avini, supra, at 1144-45
(citing George G. Bogert & George T. Bogert, Handbook of the Law of Trusts 8-9 (5th
ed. 1973)). This heritage established the “fragmentation of title at the core of the trust’s
conceptual structure,” namely, “[l]egal title to the trust assets is transferred from the
settlor to the trustee; equitable title is transferred from the settlor to the trust’s
16
Originally, uses and trusts were not enforceable in any court of law. Avini, supra, at 1145; see
also James Barr Ames, The Origin of Uses and Trusts, 21 Harv. L. Rev. 261, 265 (1908) (“The common
law could give no remedy, for by its principles the feoffee [or trustee] was the absolute owner of the
land.”). Later, the common law courts recognized the trustee’s ownership of legal title to land, “while the
Court of Chancery, administering equity, enforced the rights of the beneficiaries.” Thomas P. Gallanis,
The New Direction of American Trust Law, 97 Iowa L. Rev. 215, 217 (2011).
17
As Professor Langbein explained:
Trust conveyancing deftly evaded this medieval law of succession. The owner of land,
the person whom we now call the settlor, would transfer the land to a trustee or trustees, .
. . subject to trust terms that functioned like a will. Thus, for example, a settlor might
transfer land to trustees to hold it for himself and his spouse for their lives, and upon the
death of the survivor, to transfer it in equal shares among his children. In that simple
example, trust conveyancing allowed the settlor (1) to escape the feudal incidents, (2) to
triple his widow's interest from the one-third life estate of dower, and (3) to defeat
primogeniture by making equal provision for all his children.
Langbein, supra, at 1072.
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beneficiaries.” Gallanis, supra, at 217 (citing 1 Austin Wakeman Scott et al., Scott and
Ascher on Trusts §1.1, at 5 (5th ed. 2008)).18
Trust law remained a branch of real property law “[l]ong into the nineteenth
century.” Langbein, supra, at 1073. When trusts consisted only of real property, trustees
had few duties beyond holding title to the property and then conveying it to beneficiaries.
Id. at 1073. Trustees were not “managers” of the property and “needed little in the way
of powers” to fulfill their role. Id. In fact, the common law disempowered trustees as a
protection for trust beneficiaries—trustees’ restricted transactional powers limited the
harm they could do to the beneficiaries. Id.; see I. Mark Cohen, The Top Fourteen
Things You Need to Know About the Uniform Trust Code, 2 NAELA J. 259, 280
(2006).19
During the twentieth century, financial assets gradually displaced land as the main
form of wealth held in trust. Over time, “[m]ost modern wealth [took] the form of
financial assets—corporate shares, government and corporate bonds, insurance contracts,
pension and annuity interests, bank accounts, interests in pooled investment vehicles such
as mutual funds, and so forth.” Langbein, supra, at 1072. “The management trust [was]
developed in response to the movement away from family real estate as the predominant
form of personal wealth.” Id. Now, “[m]odern trust property typically consists of a
portfolio of these complex financial assets” and the trust is “primarily a management
device for assembling and administering a portfolio of financial assets.” Id. “Such a
portfolio requires skilled and active management.” Id. at 1072-73.
In this changed environment, traditional trust law hampered trustees “not only by
withholding transactional powers but also by deterring market actors from dealing with
trustees.” Id at 1073. Because trustees had no intrinsic powers, a party who sought to
enter into a transaction related to the trust “had to demand and study the trust instrument
in order to determine whether the trust authorized the trustee to transact with the trust
asset in the way that the pending deal envisaged.” Id. at 1074. Thus, “every transaction
with a trustee became a research project,” and the result was to “‘effectively deter third
parties from dealing with trustees.’”20 Id. at 1074 (quoting Peter T. Wendel, Examining
18
The author, Thomas P. Gallanis, served as the assistant executive director of the Joint Editorial
Board for Uniform Trust and Estate Acts within the Uniform Law Commission. Gallanis, supra, at 215
n.a1.
19
The author, I. Mark Cohen, J.D., (LL.M. in Taxation) served as the Virginia Reporter to the
Uniform Trust Code. Cohen, supra, at 259 n.a1.
20
The duties of a party dealing with a trust included the common law requirements of a bona fide
purchaser and the common law duty of inquiry. These requirements
- 13 -
the Mystery Behind the Unusually and Inexplicably Broad Provisions of Section Seven of
the Uniform Trustees’ Powers Act: A Call for Clarification, 56 Mo. L. Rev. 25, 31
(1991)).
Uniform Trust Code
To accommodate the new demands on trusts, a change in trust law became
imperative. Most states “had a paucity of statutory law governing trust formation and
administration,” and the common law supplied much of the law governing trusts.
Marshall H. Peterson, Tennessee Uniform Trust Code: New Formulation for a Trusty
Tool, 41 Tenn. B. J. 24, 25 (2005).21 Not surprisingly, the common law was slow to
address new issues as they emerged. See Langbein, supra, at 1071 (“common law
processes of incrementalism” were not suitable for today’s trust law). Legislation was
required to clear away older inconsistent law, “facilitate the workings of the management
trust,” id. at 1073, and “open the securities and other markets to trustees,” id. at 1074.
Throughout the twentieth century, legislation in the states trended toward maximizing
trustees’ transactional power and facilitating management trusts, id. at 1073-77, 1082; in
large part, “[e]mpowerment replaced disempowerment,” id. at 1073; see also Cohen,
supra, at 280.
Many years before uniform trust statutes were proposed, the National Conference
of Commissioners on Uniform State Laws (“NCCUSL”)22 began participating in states’
worked well in the relatively slow-paced, land-oriented economy of medieval England.
As society progressed and commerce grew increasingly investment oriented, however,
the bona fide purchaser and duty of inquiry requirements grew increasingly burdensome.
This was particularly true with respect to transactions involving commercial paper,
negotiable instruments, and investment securities, and even more so with respect to such
transactions when a fiduciary was involved.
Peter T. Wendel, Examining the Mystery Behind the Unusually and Inexplicably Broad Provisions of
Section Seven of the Uniform Trustees’ Powers Act: A Call for Clarification, 56 Mo. L. Rev. 25, 30-31
(1991).
21
The author, Marshall H. Peterson, served on the Tennessee Bar Association Committee to
review the Uniform Trust Code and suggested revisions for its implementation in Tennessee. Peterson,
supra, at 24 n.a1.
22
The NCCUSL was founded in 1892. It “functions as a consortium of state governments that
operate a pooled drafting service for the states,” emphasizing projects “in fields in which multistate
transactions, interests, or contacts make uniformity of state law advantageous.” Langbein, supra, at 1079-
80. Commissioners from all the states participate. They are appointed by state governors or the state’s
legislature, are members of the state bar, and are a mix of attorneys, judges, state legislators, and
- 14 -
attempts to codify American trust law. Langbein, supra, at 1080-82; Amy Morris Hess,
George Gleason Bogert, & George Taylor Bogert, Bogert Hess Trusts and Trustees § 7
(3d ed. 2007). In 2000, after seven years of effort, the NCCUSL promulgated the first
national codification of American trust law, the Uniform Trust Code. Hess, Bogert &
Bogert, supra, § 7; Peterson, supra, at 25. The Uniform Trust Code was an effort to
promote consistency in trust law among state jurisdictions. Peterson, supra, at 25. It
took the trend of maximizing trustees’ power “to the limit and grant[ed] trustees virtually
unlimited power,” kept in check primarily by the fiduciary duties incumbent upon
trustees:
Specifically, [the Uniform Trust Code] grants the trustee: (1) all powers
over trust property which an unmarried competent owner has over
individually owned property—unrestrained by considerations of marriage,
disability, or cotenancy; (2) any other powers appropriate to achieve the
proper investment, management, and distribution of the trust property; and
([3]) any other powers conferred by the [Uniform Trust Code].
Cohen, supra, at 280.
The Uniform Trust Code “reflects a comprehensive attempt to collect, codify, and
make uniform the law of trusts.” Id. at 263. However, because some aspects of trust law
are not amenable to codification, the drafters of the Uniform Trust Code intended for “the
common law of trusts and principles of equity . . . to supplement the [Uniform Trust
Code], and aid in its construction.” Id.; see also David M. English, The Uniform Trust
Code (2000): Significant Provisions and Policy Issues, 67 Mo. L. Rev. 143, 148 (2002)23
(“The [Uniform Trust Code] is supplemented by the common law of trusts, including
principles of equity.”).
As with much of the common law of trusts, the Uniform Trust Code “consists of
rules subject to override by the terms of the trust.” English, supra, at 155; see also
Cohen, supra, at 264 (“Most of the [Uniform Trust Code] consists of default rules that
apply only where the trust instrument is silent.”).
academics. Id. at 1080. A reporter, usually an academic specialist in the relevant field of law, prepares
and revises drafts of uniform laws. Id.
23
The author, David M. English, served as a reporter to the Uniform Trust Code (2000) and as the
Executive Director of the Joint Editorial Board for Uniform Trust and Estate Acts. English, supra, at 143
n.a1.
- 15 -
Thirty-two states, including Tennessee, have adopted the Uniform Trust Code.24
“In Tennessee, a study committee representing the Tennessee Bar Association and
Tennessee Banker’s Association studied the [Uniform Trust Code], made
recommendations for the Tennessee version, and submitted the proposal to the sponsors
of the [Uniform Trust Code] legislation in the General Assembly.” Peterson, supra, at
25. In 2004, the General Assembly enacted the Tennessee Uniform Trust Code.25 Id.
The Tennessee Uniform Trust Code largely follows the Uniform Trust Code but is in
some respects tailored to Tennessee practice.26 Id.
Tennessee Uniform Trust Code
Consistent with the evolution in trust law to facilitate trustees’ management of
financial assets rather than land assets, and also consistent with the reasons for the
codification of trust law and the promulgation of the Uniform Trust Code, the Tennessee
24
See Ala. Code §§ 19-3B-101 to 19-3B-1305 (2007); Ariz. Rev. Stat. Ann. §§ 14-10101 to 14-
11102 (2012); Ark. Code Ann. §§ 28-73-101 to 28-73-1106 (effective 2005); D.C. Code §§ 19-1301.01 to
19-1311.03 (2012); Fla. Stat. §§ 736.0101 to 736.1303 (2017); Kan. Stat. Ann. §§ 58a-101 to 58a-1107
(2012); Ky. Rev. Stat. Ann. §§ 386B.1-010 to 386B.11-050 (2014); Me. Rev. Stat. tit. 18-B, §§ 101 to
1104 (2012); Md. Code Ann., Est. & Trusts §§ 14.5-101 to 14.5-1006 (2015); Mass. Gen. Laws ch.
203E, §§ 101 to 1013 (2012); Mich. Comp. Laws §§ 700.7101 to 700.7913 (2013); Minn. Stat. §§
501C.0101 to 501C.1304 (2016); Miss. Code Ann. §§ 91-8-101 to 91-8-1206 (2014); Mo. Rev. Stat. §§
456.1-101 to 456.11-1106 (2014); Mont. Code Ann. §§ 72-38-101 to 72-38-1102 (2013); Neb. Rev. Stat.
§§ 30-3801 to 30-38,110 (2008); N.H. Rev. Stat. Ann. §§ 564-B:1-101 to 564-B:12-1206 (2006); N.J.
Stat. Ann. §§ 3B:31-1 to 3B:31-84 (2016); N.M. Stat. Ann. §§ 46A-1-101 to 46A-11-1105 (2003); N.C.
Gen. Stat. §§ 36C-1-101 to 36C-11-1106 (2011); N.D. Cent. Code §§ 59-09-01 to 59-19-02 (2010); Ohio
Rev. Code Ann. §§ 5801.01 to 5811.03 (2007); Or. Rev. Stat. §§ 130.001 to 130.910 (2011); 20 Pa. Cons.
Stat. §§ 7701 to 7799.3 (2006); S.C. Code Ann. §§ 62-7-101 to 62-7-1106 (2009); Tenn. Code Ann. §§
35-15-101 to 35-15-1103 (2016); Utah Code Ann. §§ 75-7-101 to 75-7-1201 (2013); Vt. Stat. Ann. tit.
14A, §§ 101 to 1204 (2010); Va. Code Ann. §§ 64.2-700 to 64.2-808 (2012); W. Va. Code §§ 44D-1-101
to 44D-11-1105 (2013); Wis. Stat. §§ 701.0101 to 701.1013 (2014); Wyo. Stat. Ann. §§ 4-10-101 to 4-
10-1103 (2013).
25
In 2004, after Tennessee enacted the Tennessee Uniform Trust Code, the Trust in this case was
re-stated in connection with the appointment of a new trustee. Consequently, there is no question as to
the applicability of the Tennessee Uniform Trust Code in this case.
26
The Tennessee Uniform Trust Code provisions pertinent to this appeal do not differ
substantively from the nationally promulgated Uniform Trust Code. The bill submitted to the Tennessee
General Assembly did not differ in any substantive way from the Uniform Trust Code, except with regard
to certain notice provisions and spendthrift trust provisions, neither of which are at issue in this case.
Other changes included non-substantive word choices made to conform to preexisting language used in
Tennessee law. Hearing on S.B. 560 before the Senate Judiciary Committee, 103d Tenn. Gen. Assemb.
(Mar. 23, 2004) (statement of Bryan Howard, who chaired the Tennessee committee that studied the
Uniform Trust Code for adoption in Tennessee).
- 16 -
Uniform Trust Code confers broad powers on trustees. Section 35-15-815(a) of the
Tennessee Uniform Trust Code provides that a trustee, without authorization by a court,
may exercise:
(1) Powers conferred by the terms of the trust; and
(2) Except as limited by the terms of the trust:
(A) All powers over the trust property which an unmarried
competent owner has over individually owned property;
(B) Any other powers appropriate to achieve the proper investment,
management, and distribution of the trust property; and
(C) Any other powers conferred by this chapter.
Tenn. Code Ann. § 35-15-815(a) (2015). The Comments to the Official Text emphasize:
“This section is intended to grant trustees the broadest possible powers,” to be exercised
in accordance with a trustee’s duties “and any limitations or expansion of such powers or
duties as stated in the terms of the trust.” Id. at § 35-15-815, 2013 Restated Comments.
“This broad authority is denoted by granting the trustee the powers of an unmarried
competent owner of individually owned property, unlimited by restrictions that might be
placed on it by marriage, disability, or cotenancy.” Id.
The Tennessee Uniform Trust Code includes a non-exhaustive list of specific
powers given to trustees, contained in section 35-15-816. Under this provision, a trustee
may:
(4) Deposit trust money in an account in a regulated financial-service
institution;
....
(7) With respect to stocks or other securities, exercise the rights of an
absolute owner, including the right to:
(D) Deposit the securities with a depository or other regulated
financial service institution;
....
(14) Pay or contest any claim, settle a claim by or against the trust, and
release, in whole or in part, a claim belonging to the trust;
....
- 17 -
(23) Resolve a dispute concerning the interpretation of the trust or its
administration by mediation, arbitration, or other procedure for alternative
dispute resolution;
....
(25) Sign and deliver contracts and other instruments that are useful to
achieve or facilitate the exercise of the trustee’s powers[.]
Tenn. Code Ann. § 35-15-816(b) (2015). The Comments to the Official Text note,
however, that these powers are subsumed under the general authority granted in section
35-15-815, so the statutory list of specific powers adds “little of substance not already
granted by T.C.A. § 35-15-815.” Id. at § 35-15-816, 2013 Restated Comments.
The Tennessee Uniform Trust Code does not specifically address a trustee’s
authority to enter into a predispute arbitration agreement. It does, however, permit and
indeed encourage parties to submit claims to arbitration. For example, as to disputes
between a trustee and a beneficiary, section 35-15-111(a) provides that “the trustee and
the qualified beneficiaries may enter into a binding nonjudicial settlement agreement with
respect to any matter involving a trust.” Tenn. Code Ann. § 35-15-111(a) (2015).
Comments to the Trust Code shed light on the drafters’ favorable view of
arbitration: “While the Tennessee Uniform Trust Code recognizes that a court may
intervene in the administration of a trust to the extent its jurisdiction is invoked by
interested persons, or otherwise provided by law, resolution of disputes by nonjudicial
means is encouraged.” Tenn. Code Ann. § 35-15-111, 2013 Restated Comments.
Additionally, the comments to section 35-15-816 observe that subsection (b)(23) of that
section “authorizes a trustee to resolve disputes through mediation or arbitration,” and
add: “The drafters of this Tennessee Uniform Trust Code encourage the use of such
alternate methods for resolving disputes.” Tenn. Code Ann. § 35-15-816, 2013 Restated
Comments.
We agree with the Court of Appeals’ observation that the Tennessee Uniform
Trust Code does not specifically speak to predispute arbitration agreements.
Nevertheless, considering the long history that predates the Uniform Trust Code, the
reasons for the promulgation of the Uniform Trust Code, the breadth of the powers
specifically accorded to trustees under the Tennessee Uniform Trust Code provisions, the
admonition in the Comments that the Tennessee Uniform Trust Code was intended to
accord trustees “the broadest possible powers,” and the Comments indicating the drafters’
approval of arbitration as a means to decide disputes, we conclude that the legislature
intended for the Tennessee Uniform Trust Code to give trustees the power to enter into
predispute arbitration agreements. See Tenn. Code Ann. § 35-15-815; Tenn. Code Ann. §
35-15-815, 2013 Restated Comments.
- 18 -
As noted above, the Comments to the Tennessee Uniform Trust Code caution that
the broad powers given by statute to trustees may be either expanded or limited by the
provisions of the governing trust instrument. See Tenn. Code Ann. § 35-15-815, 2013
Restated Comments (“This section is intended to grant trustees the broadest possible
powers, but to be exercised always in accordance with the duties of the trustee and any
limitations or expansion of such powers or duties as stated in the terms of the trust.”).
Therefore, we look next to the Trust Instrument in this case.
Trust Instrument
The Tennessee Uniform Trust Code provides guidance on the interplay between
its provisions and trust instruments: “Except as otherwise provided in the terms of the
trust, this chapter governs the duties and powers of a trustee . . . .” Tenn. Code Ann. §
35-15-105(a) (2015). “The terms of a trust may expand, restrict, eliminate, or otherwise
vary the duties and powers of a trustee . . . provided, however, that nothing contained in
this subsection (a) shall be construed to override or nullify the provisions of subsection
(b).” Id.27 Significantly, the Comments to the Tennessee Uniform Trust Code also
observe that “most of the Uniform Trust Code consists of default rules that apply only if
the terms of the trust fail to address or insufficiently cover a particular issue.” Tenn.
Code Ann. § 35-15-101, 2013 Restated Comments.
In this case, Article Eleven of the Trust Instrument outlines the Trustee’s powers.28
It states:
The Trustee may exercise, without prior approval from any court, all
powers conferred by this trust agreement and any other powers conferred
by law, including, without limitation, those powers set forth under the
common law or any fiduciary powers act or other laws of the State of
Tennessee, except as otherwise specifically provided in this agreement.
Each power conferred upon the Trustee by state or federal statutes shall be
subject to any express limitations or contrary directions contained in this
agreement.
Trust Instrument, Section 11.01, Introduction to Trustee’s Powers.29
27
Subsection 35-15-105(b) of the Tennessee Uniform Trust Code contains a limited number of
“mandatory rules” that the trust instrument may not override. Tenn. Code Ann. § 35-15-101, 2013
Restated Comments. None of the “mandatory rules” are applicable to the issues in this appeal.
28
The Trust Instrument expressly makes all of the Trustee’s powers subject to the so-called
“prudent man rule.”
- 19 -
The Trust Instrument emphasizes the breadth of the Trustee’s authority to manage
the Trust’s finances and investments. According to the Trust Instrument, the Trustee:
 may execute and deliver any and all instruments in writing which it
considers necessary to carry out any of the powers granted in the Trust
Instrument;
 shall exercise the administrative and investment powers without the order
of any court, as the Trustee determines in its sole and absolute discretion to
be in the best interests of the beneficiaries;
 may invest in any type of investment that it determines is consistent with
the investment goals and overall goals of the Trust;
 “may buy, sell, and deal in stocks, bonds, commodities, options and other
securities of any kind and in any amount”;
 may permit Trust property to be held in the custody of a banking institution
or brokerage firm;
 may place all or any part of the securities held by the Trust in the custody
of a bank or trust company;
 may employ a broker-dealer as a custodian for securities held by the Trust;
may appoint and employ investment advisors and expert advisers, among
other professionals, to advise or assist it in the performance of its duties;
and
 may enter into contracts, and deliver deeds or other instruments as it deems
appropriate to the purposes of the Trust.
A section of the Trust Instrument entitled “Settlement Powers” contains a
subsection of particular importance:
29
Tennessee statutes provide that the “construction and administration of a trust are determined
by the law of the jurisdiction designated in the terms of the trust instrument, which is called a state
jurisdiction provision.” Tenn. Code Ann. § 35-15-107(a) (2015). In this case, the state jurisdiction
provision of the Trust Instrument, found in Section 12.06 (c), generally provides that it is to be construed
in accordance with Tennessee law, with a few exceptions not applicable in this appeal.
- 20 -
The Trustee may settle, by compromise, arbitration or otherwise any and all
claims and demands in favor of or against, or in any way relating to, any
trust created under this agreement upon such terms as the Trustee may
determine. The Trustee may release or abandon any claims in favor of this
trust.
Trust Instrument, subsection 11.05(e). The language in this subsection speaks
specifically to the Trustee’s authority to enter into arbitration in order to settle claims
related to the Trust.
Plaintiff argues that the plain language of subsection 11.05(e) gives the Trustee
power to enter into arbitration only after a claim has arisen. According to Plaintiff,
confining the Trustee’s power to agree to arbitration only after claims have arisen allows
the Trustee to fulfill its duty to always act in the best interest of the Trust beneficiary,
because the Trustee cannot assess in advance of a dispute whether the beneficiary’s best
interests are served by arbitrating it. This reasoning was adopted by the Court of
Appeals; it first determined that the term “claim” as used in the Trust Instrument does not
include disputes that have not yet arisen, and on that premise went on to hold that the
“any and all” language in the Trust Instrument does not indicate that the phrase “claims
and demands” is intended to include disputes “not yet in existence.” Gladden, 2016 WL
1166341, at *5. Finding that the “language of the Trust Agreement did not give the
trustee the power to agree to arbitration of unknown future claims or disputes,” the Court
of Appeals held that the signature of the Trustee on the Client Agreement “does not bind
the Minor beneficiary of the Trust to conduct arbitration of unknown future disputes or
claims.” Id. at *6. We must respectfully disagree.
Trust instruments are to be construed in much the same way we interpret contracts
or wills. Marks, 310 S.W.2d at 437-38. “[T]he important thing in the construction of the
trust instrument is to determine the intention of the settlor as evidenced by all the
provisions of the instrument, giving no portion any greater emphasis than any other.” Id.;
see also Tenn. Code Ann. § 35-15-112 (2015) (“The rules of construction that apply in
this state to the interpretation of and disposition of property by will also apply as
appropriate to the interpretation of the terms of a trust and the disposition of the trust
property.”); Tenn. Code Ann. § 35-15-101, 2013 Restated Comments (“It is a primary
objective of the Tennessee trust statutes that a settlor’s intent be the lodestar by which a
trust is interpreted . . . .”). “In determining this intention we cannot follow any hard and
fast rule but each case must be considered on its own bottom.” Marks, 310 S.W.2d at
438. “The peculiar facts and circumstances and so forth, are considered to determine
what is this intention. It is not necessarily so much the language that is used by the
settlor as it is his or her evident intention which governs.” Id.
- 21 -
To ascertain the meaning of “claim” as used in the Trust Instrument, the Court of
Appeals first looked at a definition in Black’s Law Dictionary: “(1) The aggregate of
operative facts giving rise to a right enforceable by a court . . . . (2) The assertion of an
existing right; any right to payment or to an equitable remedy, even if contingent or
provisional . . . . (3) A demand for money or property to which one asserts a right.”
Gladden, 2016 WL 1166341, at *5 (quoting Black’s Law Dictionary 240 (7th ed. 1999)).
While the Court of Appeals’ reasoning may find some support in the inclusion of the
word “existing” in the second of the three alternative definitions, we see no discernible
temporal element in the first and third definitions. Other dictionary definitions are
likewise not limited to existing claims. For example, the Oxford English Dictionary’s
definitions of the noun “claim” include: “[a] demand or request for something considered
one's due” and “[a] right or title to something.” Oxford English Dictionary Online,
https://en.oxforddictionaries.com/definition/claim (last visited August 9, 2017).30
Moreover, the Court of Appeals’ unduly restrictive interpretation of the word “claim” is
at odds with other language in the Trust Instrument. Specifically, the Trust Instrument’s
addition of the phrase “any and all” indicates intent to give “claim” a broad, inclusive
meaning and evidences no intent to limit its meaning, temporally or otherwise. See, e.g.,
PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996) (characterizing the phrase
“any and all controversies” in an arbitration agreement as “inclusive, categorical,
unconditional and unlimited,” and finding it “elastic enough” to encompass disputes over
whether a claim is timely or within the scope of arbitration). Thus, we must respectfully
disagree with the Court of Appeals’ interpretation of the word “claims” to exclude claims
that may arise in the future.
In addition, we are persuaded that the provisions in the Trust Instrument on the
trustee’s powers evidence an overall intent to give the Trustee wide-ranging authority to
do anything not prohibited by the Tennessee Uniform Trust Code. The settlor clearly
intended to enable the Trustee to enter into contracts and engage the services of banks
and brokerage firms for purposes of investing the Trust property. We are mindful that, in
modern times, engaging the services of banking and brokerage institutions almost
necessarily requires a trustee to enter into predispute arbitration agreements. See Mary F.
Radford, Predispute Arbitration Agreements between Trustees and Financial Services
Institutions: Are Beneficiaries Bound?, 40 ACTEC L. J. 273, 342-43 (2014) (“It is not
practical to prohibit trustees from signing [predispute arbitration agreements] because
they currently appear in virtually every account agreement contract. . . . [T]rustees will be
30
The Webster’s Third New International Dictionary definitions of “claim” include “a demand of
a right or a supposed right.” Merriam Webster’s Third International Dictionary of the English Language
Unabridged 414 (1993).
- 22 -
hard-pressed to find any [financial services] institution that does not include a predispute
arbitration clause in their standard contracts.”).31
Moreover, the Plaintiff has pointed to no language in the Trust Instrument, in
Subsection 11.05(e) or otherwise, that expressly prohibits or limits the Trustee from
agreeing to settle future claims by arbitration. Nor have we found any such language.
We have already concluded that the Tennessee Uniform Trust Code does not
prohibit the Trustee from entering into a predispute arbitration agreement, so long as the
Trust Instrument does not do so. We now conclude that the terms of this Trust
Instrument permit rather than forbid such authority. Under the Tennessee Uniform Trust
Code and the Trust Instrument, the Trustee had the authority to enter into the predispute
arbitration agreement with Wunderlich.
Trustee’s Fiduciary Duty
Plaintiff argues as well that the Trustee’s signature on the predispute arbitration
agreement constituted a breach of its fiduciary duty to exercise good faith, because
entering into such an agreement waives the beneficiary’s right to a trial by jury without
consideration of the particular facts involved in the claim to be arbitrated. In effect,
Plaintiff invites us to hold that a trustee’s decision to enter into a predispute arbitration
agreement on behalf of the trust constitutes a breach of the trustee’s fiduciary duty as a
matter of law, without regard to the surrounding circumstances. We decline to do so.
Classifying the execution of a predispute arbitration agreement “as a breach of
fiduciary duty would contradict the investment standard set forth in the [Uniform Prudent
Investor Act (“UPIA”)],” Radford, supra, at 343, codified in Tennessee’s Code at §§ 35-
14-101 to 114. The UPIA states that “[a] trustee shall invest and manage trust assets as a
prudent investor would.” Id. As noted above, account agreements that contain
predispute arbitration provisions are ubiquitous among financial services institutions.
Consequently, “most ‘prudent investors’ are also subject to them,” and even if
beneficiaries were to object, “the chances are remote that the trustee [would] be able to
find another quality financial services institution that does not include the same provision
in its account agreement.” Radford, supra, at 343. “Discouraging a trustee from signing
such an agreement would have the undesirable result of encouraging the trustee to
proceed on his or her own, without the benefit of a brokerage firm or an investment
adviser. . . . The ‘prudent’ individuals employ financial services institutions to assist
them.” Id.
31
The author of this article served as President of the American College of Trust & Estate
Counsel (ACTEC), 2011-12. Radford, supra, at 273 n.a1.
- 23 -
The strong federal policy of placing arbitration agreements on equal footing with
other contracts also undermines Plaintiff’s assertion that entering into a predispute
arbitration agreement constitutes a breach of the Trustee’s fiduciary duty. The Federal
Arbitration Act (FAA), 9 U.S.C. §§ 1-16 (LexisNexis 2008), provides that a written
provision in “a contract evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such contract or transaction . . . shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.” 9 U.S.C. § 2 (LexisNexis 2008). This is “a
congressional declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the contrary.” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The policy of
placing arbitration agreements on the same level as other contracts applies in state as well
as federal courts.32 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 627 (1985). The FAA was intended to reverse “‘centuries of judicial hostility to
arbitration agreements,’ by ‘plac[ing] arbitration agreements upon the same footing as
other contracts.’” Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 225-26 (1987)
(quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11 (1974)).
United States Supreme Court cases likewise reject the prior judicial antagonism
towards arbitration as a forum for deciding disputes. In Shearson/Am. Exp., Inc. v.
McMahon, 482 U.S. 220, 238 (1987), and Rodriguez de Quijas v. Shearson/Am. Exp.,
Inc., 490 U.S. 477, 483 (1989), the United States Supreme Court “effectively held that
predispute agreements requiring investors to arbitrate disputes under the Securities Acts
were enforceable. Since that time, it has become a widespread if not uniform practice for
broker-dealers33 and investment advisors to include predispute arbitration provisions in
their account agreements.” Radford, supra, at 281 (footnotes omitted); see also
Constantine N. Katsoris, The Securities Arbitrators’ Nightmare, 14 Fordham Urb. L. J. 3,
4 (1986) (“Securities investors are often required, as a condition to opening an account
with a broker-dealer, to sign an agreement to arbitrate future disputes.”).
32
Tennessee has a state statute similar to 9 U.S.C. § 2. Tennessee Code Annotated § 29-5-302
states that “a provision in a written contract to submit to arbitration any controversy thereafter arising
between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in
equity for the revocation of any contract.” Tenn. Code Ann. § 29-5-302 (2012). Moreover, this Court has
acknowledged that both the FAA and the Tennessee Uniform Arbitration Act “were adopted (1) ‘to
promote private settlement of disputes,’ and (2) to ensure the enforceability of private agreements to
arbitrate. Accordingly, arbitration agreements in private contracts are now favored in Tennessee both by
statute and existing case law.” Smythe, 401 S.W.3d at 603 (citations omitted).
33
A “broker-dealer” is a person or company in the business of buying and selling securities for
customers or for its own account, or both. Radford, supra, at 278.
- 24 -
In Rodriguez de Quijas, the Court overruled its prior decision in Wilko v. Swan,
346 U.S. 427 (1953), which had held void an agreement to arbitrate future controversies
under the Securities Act of 1933. Rodriguez de Quijas, 490 U.S. at 485. The Rodriguez
de Quijas Court described Wilko as exhibiting the “old judicial hostility to arbitration,” a
view that that “has been steadily eroded over the years.” Id. at 480. The Court indicated
that arbitration was not necessarily a less desirable forum for deciding disputes: “‘There
is nothing in the record before us, nor in the facts of which we can take judicial notice, to
indicate that the arbitral system . . . would not afford the plaintiff the rights to which he is
entitled.’” Id. at 483 (quoting Wilko, 346 U.S. at 439 (Frankfurter, J., dissenting)); see
also McMahon, 482 U.S. at 232 (rejecting the Wilko Court’s aversion to arbitration).
Similarly, this Court has said, “Arbitration agreements do not limit liability, but
instead designate a forum that is alternative to and independent of the judicial forum.
Inside the judicial system, this Court has promulgated a Rule providing for court-
administered alternative dispute resolution, including arbitration.” Buraczynski v. Eyring,
919 S.W.2d 314, 319 (Tenn. 1996) (finding arbitration agreements between physicians
and patients are not per se void as against public policy).
Under all of these circumstances, we decline to hold that the Trustee’s signature
on a predispute arbitration agreement constitutes a per se violation of the Trustee’s
fiduciary duty to act in good faith and in the interest of the beneficiary.34
Third-Party Beneficiary
Having determined that the Trustee had the authority to enter into predispute
arbitration agreements on behalf of the Trust, the issue becomes whether Plaintiff is
subject to the arbitration agreement executed by the Trustee in this case. The signatories
to the Client Agreement are Cumberland Trust as Trustee, Mr. Alexander as financial
advisor, and Wunderlich by firm principal Michelle Hoffman; the minor Trust
beneficiary, of course, did not sign the Client Agreement. We must determine, then,
whether Plaintiff may nevertheless be bound by it.35 See Howsam v. Dean Witter
34
In this appeal, Plaintiff does not allege that there are particular facts in this case that would
make the Trustee’s decision to enter into a predispute arbitration agreement a breach of the Trustee’s
fiduciary duty, and our holding does not preclude such an argument.
35
The FAA applies to the predispute arbitration agreement in this case. “The FAA applies to all
state and federal cases in which the contract at issue requiring arbitration involves or affects interstate
commerce.” Morgan Keegan & Co., Inc. v. Smythe, No. W2010-01339-COA-R3-CV, 2011 WL
5517036, at *5 (Tenn. Ct. App. Nov. 14, 2011) (citing Southland Corp. v. Keating, 465 U.S. 1, 10-11
(1984)) rev’d on other grounds, 401 S.W.3d 595 (Tenn. 2013). Securities transactions clearly involve
- 25 -
Reynolds, Inc., 537 U.S. 79, 84 (2002) (“[A] gateway dispute about whether the parties
are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to
decide.”).
The Defendants contend that Plaintiff must arbitrate all of the claims asserted in
the amended complaint because Alexis is an express beneficiary of the Trust Instrument
and is a third-party beneficiary of the Client Agreement that contains the arbitration
agreement. Citing principles of estoppel as well as the law governing third-party
beneficiaries, the Defendants contend that “Plaintiff is seeking to recover for alleged
breaches of duties that arise directly from the [Client Agreement] containing the
arbitration provision and thus cannot simultaneously assert claims against the Defendants
stemming from the agreement and seek to disavow the arbitration provision included in
the agreement.” A holding that Plaintiff is bound by the arbitration agreement, the
Defendants claim, would be consistent with state and federal “pro-arbitration policies.”
In response, Plaintiff first notes that a trustee is not an agent of the trust
beneficiary; in other words, “a trust relationship is not a principal-agent relationship.” A
trustee is instead a fiduciary for the beneficiary. Therefore, Plaintiff contends, the Trustee
in this case had no power to bind the minor beneficiary, Alexis. Plaintiff argues that
principles of estoppel do not apply. Plaintiff points out that the claims in the amended
complaint do not “involve the prudent investor rule” but instead involve “claims for
negligence, and breach of fiduciary duty by permitting waste and defalcation with trust
assets.” Plaintiff asserts: “The claims in this case arise from wrongs committed, not from
a contract, thus the Plaintiff here [is not] attempting to enforce the contract.”36
It is well established that “arbitrators derive their authority to resolve disputes
only because the parties have agreed in advance to submit such grievances to arbitration.”
AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648-49 (1986). “‘The
duty to arbitrate being of contractual origin, a compulsory submission to arbitration
cannot precede judicial determination that the . . . agreement does in fact create such a
duty.’” Id. at 649 (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47
(1964)). We look to ordinary contract principles to determine who is bound by a written
arbitration agreement, “and of course parties can become contractually bound absent their
interstate commerce and “arbitration agreements connected with such transactions are subject to
enforcement under the FAA.” Id. at *6.
36
Though not precisely stated as such, Plaintiff appears to contend that the claims asserted
against the Defendants are not necessarily asserted as a third-party beneficiary of the Client Agreement.
As noted below, to the extent that we discuss theories regarding third-party beneficiaries, we assume for
purposes of this appeal that the Trust beneficiary may be deemed a third-party beneficiary of the Client
Agreement but make no holding on that issue.
- 26 -
signatures.” Fisser v. Int’l Bank, 282 F.2d 231, 233 (2d Cir. 1960). The “way[] in which
a party may become bound by a written arbitration provision is limited only by generally
operative principles of contract law.” Id.; see also Smith v. Multi-Fin. Sec. Corp., 171
P.3d 1267, 1272 (Colo. App. 2007) (“Generally, when the requirement to arbitrate is
created by an agreement, it can be invoked only by a signatory of the agreement, and only
against another signatory. Nonetheless, based on common law contract principles,
nonsignatories may be bound by agreements to arbitrate.” (citation omitted)).
As referenced above, the Defendants cite federal and state “pro-arbitration
policies” in support of their position that Plaintiff’s claims in this case must be submitted
to arbitration. Indeed, a number of cases, both state and federal, characterize the FAA
and similar state statutes as “favoring” arbitration. See, e.g., Moses H. Cone Mem’l
Hosp., 460 U.S. at 24 (describing the FAA as embodying “liberal federal policy favoring
arbitration agreements, notwithstanding any state substantive or procedural policies to the
contrary”); Morgan Keegan & Co., Inc. v. Smythe, 401 S.W.3d 595, 603 (Tenn. 2013)
(describing arbitration agreements in private contracts as “now favored in Tennessee both
by statute and existing caselaw”). Certainly the FAA and corresponding Tennessee
statutes facilitate arbitration, as a form of alternative dispute resolution, by making it
clear that agreements to arbitrate disputes should be treated in the same manner as other
contracts. However, the FAA policy “favoring” arbitration “is merely an
acknowledgment of the FAA’s commitment to ‘overrule the judiciary’s longstanding
refusal to enforce agreements to arbitrate and to place such agreements upon the same
footing as other contracts.’” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287,
302-03 (2010) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 478 (1989)). The FAA and similar state statutes are intended to
erase the traditional judicial antagonism for arbitration, not force parties into arbitration
who are not otherwise subject to an arbitration agreement under ordinary contract
principles. The policies cited by the Defendants do not obviate the need for a judicial
determination on whether the arbitration agreement in question applies to the subject
dispute. See id. at 302-03.
We agree with Plaintiff that, in signing the Client Agreement, the Trustee did not
act as the agent for the Trust beneficiary. An agency relationship is distinct from a trust
relationship. Restatement (Second) of Trusts § 8 Trust and Agency (1959). “A trustee is
not an agent of the trust estate or of the beneficiary, but acts for [itself] in the
administration of the trust estate, although under restraint of the terms of the trust and of
the law of trusts.” 76 Am. Jur. 2d Trusts § 10 (2005) (footnotes omitted). Many years
ago, the United States Supreme Court clarified the distinction between a trustee and an
agent:
- 27 -
A trustee is not an agent. An agent represents and acts for his principal,
who may be either a natural or artificial person. A trustee may be defined
generally as a person in whom some estate interest or power in or affecting
property is vested for the benefit of another. When an agent contracts in the
name of his principal, the principal contracts, and is bound, but the agent is
not. When a trustee contracts as such, unless he is bound, no one is bound,
for he has no principal. The trust estate cannot promise; the contract is
therefore the personal undertaking of the trustee. As a trustee holds the
estate, although only with the power and for the purpose of managing it, he
is personally bound by the contracts he makes as trustee, even when
designat[ing] himself as such.
Taylor v. Mayo, 110 U.S. 330, 334-35 (1884). In a trust relationship, then, “the trustee
acts in [its] own name.” 76 Am. Jur. 2d Trusts § 10. For this reason, “[a]s a general rule,
contracts and obligations entered into by a trustee do not impose an obligation on the
beneficiaries of the trust.” 90A C.J.S. Trusts § 381 (2002).37 Thus, the Trustee’s
signature on the Client Agreement did not, in and of itself, obligate the Trust beneficiary
to the arbitration provision.
We must now ascertain whether the Trust beneficiary is otherwise bound to
arbitrate her claims against the Defendants. This Court has held that, in some
circumstances, a third-party beneficiary to a contract may be bound by an arbitration
agreement he did not sign. In Benton v. Vanderbilt University, plaintiff Benton, an
insured with Blue Cross Blue Shield, received medical treatment at Vanderbilt University
Medical Center after a car accident, and Vanderbilt was paid a discounted rate by Blue
Cross Blue Shield for treating Benton. 137 S.W.3d 614, 616 (Tenn. 2004). In an
agreement between Vanderbilt and Blue Cross Blue Shield, Vanderbilt agreed not to
37
Tennessee has enacted the Tennessee Uniform Trust Code Representation Statutes, Tennessee
Code Annotated sections 35-15-301 to 305; however, they neither apply nor affect our analysis in this
case. The Tennessee Uniform Trust Code Representation Statutes provide that, to the extent there is no
material conflict of interest with respect to a particular dispute, a trustee may represent and bind the
beneficiaries of the trust. Id. They add: “Such representation principles of this part apply in numerous
circumstances, including . . . for purposes of settlement of disputes, whether by a court or nonjudicially . .
. .” Id. However, “[r]epresentation refers to those who are authorized to receive notices on behalf of, and
otherwise represent and bind persons whose interests must be represented in a particular matter.”
Peterson, supra, at 27 (as noted above, the author of this article served on the TBA Committee to review
the Uniform Trust Code and suggest revisions for implementation in Tennessee). In this case, the Trustee
entered into the Client Agreement with Wunderlich pursuant to its duties and powers to make investments
and manage the Trust money. The Trustee did not enter into the Client Agreement as Alexis’s
representative, or with the express purpose of binding Alexis to the agreement, but rather as the manager
of the Trust assets. Therefore, Section 35-15-303 does not operate to bind Alexis to the Client Agreement
or to the predispute arbitration provision included therein.
- 28 -
“balance bill” any Blue Cross member, that is, Vanderbilt agreed not to bill Blue Cross
members for the difference between the actual medical expenses and the contractually
discounted rates. Id. When Benton filed suit against the owner of the automobile that
struck his vehicle, Vanderbilt filed a statutory lien against Benton’s recovery. Id.
Vanderbilt’s filing of the statutory lien prompted Benton to file a separate lawsuit
against Vanderbilt, alleging that the lien filed by Vanderbilt breached the “balance
billing” provision in its contract with Blue Cross, in which Vanderbilt agreed to accept
the discounted payment from Blue Cross as payment in full for treating the insured. Id.
The contract between Vanderbilt and Blue Cross Blue Shield included an arbitration
provision. Vanderbilt filed a motion to compel arbitration pursuant to the arbitration
provision in its contract with Blue Cross Blue Shield, and Benton opposed it. Id. The
trial court in Benton declined to compel arbitration, but the Court of Appeals reversed,
holding that Benton was obliged to arbitrate his claims against Vanderbilt. Id. at 617.
On appeal in Benton, this Court sought to balance, on one hand, the principle that
an arbitration agreement is not binding on one who is not a party to it, and, on the other
hand, the longstanding principle that a third-party beneficiary to a contract must accept its
burdens along with its benefits. See id. at 617-18; see also U.S. Fid. & Guar. Co. v.
Elam, 278 S.W.2d 693, 702 (Tenn. 1955) (quoting 12 Am. Jur. § 289, p. 842) (“‘[B]efore
the beneficiary may accept the benefits of the contract, he must accept all of its . . .
obligations. It has been said that if the beneficiary accepts, he adopts the bad as well as
the good, the burden as well as the benefit.’”). The Benton Court framed the issue as
“whether an arbitration provision in a contract is binding against a third-party beneficiary
who brings an action seeking to enforce the terms of that contract.” Benton, 137 S.W.3d
at 618. First, the Court pointed out that a third party is an intended third-party
beneficiary of a contract where: “(1) the parties to the contract have not otherwise agreed,
(2) recognition of the third-party’s right to performance is appropriate to effectuate the
parties’ intent, and (3) terms or circumstances indicate that performance of the promise is
intended or will satisfy an obligation owed by the promise to the third party.” Id. at 618.
It then focused on the “general rule” that “a third-party beneficiary who seeks to enforce
rights under a contract is bound by an arbitration provision in that contract.” Id.
(emphasis added). The Court elaborated: “[W]here a third-party beneficiary seeks to
enforce rights under a contract, an interpretation of the contract as a whole requires that
the third party not be permitted to interpret the contract in a piecemeal fashion by
avoiding unfavorable terms.”38 Id. at 619-20.
38
The principle relied upon in Benton, that “a person cannot assert a claim that is based on an
agreement while simultaneously seeking to disavow a portion of the agreement,” is sometimes referred to
as an “estoppel” or “equitable estoppel” theory. See Radford, supra, at 311. One author explains it as
follows:
- 29 -
The Court in Benton noted that Benton was a third-party beneficiary to the
contract between Vanderbilt and Blue Cross Blue Shield and that his claim sought to
enforce that contract. Consequently, it held, Benton was subject to the arbitration
provision in the contract. Id. at 620. The Court underscored, however, “that an
arbitration provision in a contract is applicable only to actions brought by a third-party
beneficiary seeking to enforce rights under that contract.” Id. (emphasis added). It
added: “An arbitration provision may not be applicable in cases where claims are raised
under other legal theories and are not intertwined with rights being enforced under the
terms of the contract.” Id.
It is useful to compare the reasoning in Benton with the reasoning used by courts
in other jurisdictions that have reached a similar result. The Alabama Supreme Court
discussed two different rationales for holding a nonsignatory third-party beneficiary
bound by an arbitration agreement in Cook’s Pest Control, Inc. v. Boykin, 807 So. 2d
524, 526-28 (Ala. 2001). In Cook’s, the plaintiff suffered hundreds of fire ant bites while
a patient at the defendant hospital. She filed suit against the defendant hospital and also
against the hospital’s pest control company, alleging negligence and wantonness. The
defendant pest control company sought to compel the plaintiff to arbitrate under the
Equitable estoppel precludes [a] party from claiming benefits of a contract while
simultaneously attempting to avoid burdens that contract imposes. Thus, under the
doctrine of equitable estoppel, a signatory to an arbitration agreement cannot, on the one
hand, seek to hold a nonsignatory liable pursuant to duties imposed by the agreement,
which contains an arbitration provision, but, on the other hand, deny arbitration’s
applicability because the defendant is a nonsignatory.
Martin Domke, Gabriel Wilner & Larry E. Edmonson, 1 Domke on Com. Arb. § 13:8 Estoppel (August
2016 Update) (footnotes omitted). However, this principle is distinct from the common law principle of
equitable estoppel, under which a party who has made a false or misleading representation of fact may be
estopped from later asserting inconsistent facts. See Michael A. Rosenhouse, Application of Equitable
Estoppel Against Nonsignatory to Compel Arbitration Under Federal Law, 43 A.L.R. Fed. 2d 275 (2010)
(“The case law applying ‘equitable estoppel’ to compel arbitration by or against a nonsignatory is a
distinct body of federal law not ostensibly moored in common-law principles of equitable estoppel, which
is primarily concerned with misleading statements of fact.”); Cracker Barrel Old Country Store, Inc. v.
Epperson, 284 S.W.3d 303, 315-16 (Tenn. 2009) (reciting elements of equitable estoppel, contrasting
with judicial estoppel, and holding neither was applicable in that case). For clarity, and to avoid
confusion with the common law doctrine of equitable estoppel, we will refer to the principle set forth in
Benton as a third-party beneficiary theory. See Radford, supra, at 311 (“[C]ourts have used a variety of
overlapping theories to [conclude that a nonsignatory beneficiary is bound by an arbitration agreement
and] have not consistently applied the same labels to these theories . . . .”). We also recognize that the
term “estoppel” can be used in a variety of contexts. See generally Grigson v. Creative Artists Agency
L.L.C., 210 F.3d 524, 531 (5th Cir. 2000) (Dennis, J., dissenting) (quoting 4 Richard A. Lord, Williston
on Contracts § 8.5 (4th ed.1992)) (“[N]early anything can be called estoppel. When a lawyer or a judge
does not know what other name to give for his decision to decide a case in a certain way, he says there is
an estoppel.”).
- 30 -
arbitration provision in the contract between the hospital and the pest control company.
Id. at 525.
The court in Cook’s discussed two different theories under which “a nonsignatory
to a contract can be bound by an arbitration agreement contained therein.” Id. at 526.
The first was similar to the reasoning in our Benton decision, namely, a third-party
beneficiary theory derived from the “general rule” that “‘a third-party beneficiary cannot
accept the benefit of a contract, while avoiding the burdens or limitations of that
contract.’” Id. (quoting Georgia Power Co. v. Partin, 727 So. 2d 2, 5 (Ala. 1998)). The
second was called an “intertwining–claims” theory, under which a nonsignatory to a
contract containing an arbitration provision may be compelled to arbitrate if the
“nonsignatory's claims are ‘intertwined with’ and ‘related to’ the contract.” Id. at 527.
The court found neither theory applicable because the plaintiff’s theories of recovery did
not depend on the existence of the contract. Id. at 526-27. As to the third-party
beneficiary theory, it stated: “Because [the plaintiff] has not invoked the benefits of the
contract, she cannot be considered a third-party beneficiary; thus, she is not burdened by
the contract and cannot be compelled to arbitrate her claims against [the pest control
company] under a third-party-beneficiary theory.” Id. at 527. It held that the
intertwining claims theory was not applicable because the plaintiff’s complaint “makes
substantial allegations of negligence on the part of [the pest control company and the
hospital] that are independent of any contractual obligations.” Id. Consequently, the
court in Cook’s declined to compel the plaintiff to arbitrate her claims.
In a subsequent case, the Alabama Supreme Court held that a trust beneficiary was
required to arbitrate with brokerage defendants. Edward D. Jones & Co. v. Ventura, 907
So. 2d 1035, 1042-43 (Ala. 2005). In that case, the minor beneficiary did not sign the
contract with the brokerage defendants; his mother, as conservator, signed the contract.
Id. at 1038. The beneficiary sought to recover from the brokerage defendants for breach
of fiduciary duty, fraud, and suppression. Id. at 1042. The court commented that it had
“enforced arbitration provisions against nonsignatories under either a third-party-
beneficiary theory or an intertwined-claims theory.” Id. at 1042.
The court in Edward D. Jones deemed the beneficiary subject to the arbitration
provision. It first explained that, under the complaint filed in that case, the beneficiary
had to “rely on or refer to the investment agreements to establish his . . . claims[,]” so
“his claims arise out of the investment agreements for purposes of the motions to compel
arbitration.” Id. at 1042. The court then held that the plaintiff was subject to the
arbitration clause in the investment agreement because he was “a third-party beneficiary
of the accounts and because his claims [arose] out of the manner in which the investment
accounts were managed or should have been managed, [so] he is seeking the benefits of
- 31 -
the investment agreements entered into by [the conservator].” Id. Consequently, the
court compelled the plaintiff to arbitrate his claims.
Additional jurisdictions have found trust beneficiaries bound to arbitration
agreements entered into by a trustee, even though the beneficiaries did not sign the
agreement, because the beneficiary sought to enforce the contract or benefit from it. See
Multi-Fin. Secs. Corp., 171 P.3d at 1274 (non-signatory beneficiaries “estopped” from
avoiding arbitration provisions in account agreements “whose benefits they seek to
enforce.”); Green v. Regions Bank, No. 2013 CA 0771, 2014 WL 3555820, at *6 (La. Ct.
App. Mar. 19, 2014) (“If a non-signatory seeks to enforce the terms of a written
agreement containing an arbitration provision, he must accept all of the terms of the
agreement . . . . [H]e cannot seek to enforce specific terms of the agreement while
seeking to avoid enforcement of the arbitration provision.”).
Using a slightly different lens, other jurisdictions have looked at whether the
nonsignatory beneficiary’s claims “arose out of” the contract that contained the
arbitration provision. See, e.g., In re Blumenkrantz, 824 N.Y.S.2d 884, 888 (Surrogate’s
Ct. 2006) (non-signatory beneficiary’s claims arose from the customer agreement
between trustee and Wachovia Securities, and beneficiary could not simultaneously assert
a claim under the agreement and reject the arbitration provision); Merrill Lynch, Pierce,
Fenner & Smith v. Eddings, 838 S.W.2d 874, 879 (Tex. App. 1992) (non-signatory settlor
and beneficiaries bound by arbitration provision in account agreement because it was
underlying basis for their claims; held that “beneficiaries of a trust are bound by a clause
in an account agreement to arbitrate the claims arising out of transactions in the trust's
account.”); In re Jean F. Gardner Amended Blind Trust, 70 P.3d 168, 170 (Wash. Ct.
App. 2003) (non-signatory beneficiary bound to arbitrate because her claims directly
concerned or arose from the account agreement containing the arbitration clause).
Nonsignatory beneficiaries have not been compelled to arbitrate where their
claims were independent of the contract that contained the arbitration provision. See,
e.g., Pinnacle Trust Co. v. McTaggart, 152 So. 3d 1123, 1129-30 (Miss. 2014)
(beneficiaries not compelled to arbitrate because their claim against former trustee and
trust advisor was based on duty imposed by statute and not on breach of wealth
management agreement); Clark v. Clark, 57 P.3d 95, 98 (Okla. Civ. App. 2002)
(beneficiary’s claims of breach of fiduciary duty and negligence against financial advisor
arose from duties beyond the duties under the account agreement; court reasoned that
under Oklahoma law fiduciary duties can arise outside of a contractual relationship; also
because agreement excluded third-party beneficiaries from being bound). Courts have
also declined to hold a nonsignatory beneficiary subject to an arbitration provision where
the contract was not intended to benefit them. See e.g., Morgan Stanley DW Inc. v.
Halliday, 873 So. 2d 400, 402-403 (Fla. Dist. Ct. App. 2004) (beneficiary not bound by
- 32 -
arbitration provision in account agreement signed by trustee under third-party beneficiary
theory because agreement did not clearly express an intent to primarily and directly
benefit the third-party); Schmitz v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 939
N.E.2d 40, 45 (Ill. App. Ct. 2010) (beneficiaries not bound by arbitration clauses under
third-party beneficiary theory because client agreements between trustee and financial
advisor did not expressly show intent to bind or benefit trust beneficiaries).
In Benton, this Court held “that an arbitration provision in a contract is applicable
only to actions brought by a third-party beneficiary seeking to enforce rights under that
contract.” Benton, 137 S.W.3d at 620 (emphasis added). As can be seen, other courts
have enforced an arbitration provision against a nonsignatory beneficiary on somewhat
different reasoning, as where the beneficiary’s claims either “arose out of” the contract
that contained the arbitration provision or were “intertwined with” that contract. We are
not persuaded to go beyond the parameters established in Benton.39 Thus, in accord with
Benton, we hold that a nonsignatory third-party beneficiary is bound to an arbitration
provision in a contract to the extent that the beneficiary’s claims seek to enforce the
contract. This is consistent with the premise for the Benton holding: “‘Before the
beneficiary may accept the benefits of the contract, he must accept all of its . . .
obligations[,] . . . the burden as well as the benefit.’” Id. at 618 (quoting U.S. Fid. &
Guar. Co., 278 S.W.2d at 702). To the extent that Plaintiff’s claims against the
Defendants do not seek to enforce the Client Agreement, Plaintiff is entitled to judicial
resolution of those claims. See Clark, 57 P.3d at 100 (Buettner, J., concurring).
Minor Beneficiary
Plaintiff also argues that, because the beneficiary in this case was a minor, the
arbitration agreement would not be binding “because in Tennessee agreements with
minors are voidable.” We agree that, in Tennessee, “‘[a] minor’s contracts, generally
speaking, are voidable.’” Am. Sur. Co. of N.Y. v. City of Clarksville, 315 S.W.2d 509,
512 (1958) (quoting W. Union Tel. Co. v. Ausbrooks, 257 S.W. 858, 960 (Tenn. 1924)).
“The minor can repudiate such contracts or can elect to claim their advantage.” Id.
However, Plaintiff does not occupy the same position as a minor who signed a contract
and now seeks to repudiate it. We have held that Plaintiff, though a nonsignatory, may
39
We note that the Benton Court uses the word “intertwined” in one sentence: “An arbitration
provision may not be applicable in cases where claims are raised under other legal theories and are not
intertwined with rights being enforced under the terms of the contract.” Benton, 137 S.W.3d at 620. This
passing reference does not equate to an endorsement of an “intertwined claims theory,” and in fact the
same sentence also refers to “rights being enforced under the terms of the contract. We decline to adopt
the intertwined claims theory in this case. In other words, a party should not be compelled to arbitrate
claims that are merely “intertwined with” contractual rights that arise from a contract containing a
predispute arbitration clause.
- 33 -
be bound by the arbitration provision in the Client Agreement to the extent that Plaintiff’s
claims seek to enforce the Client Agreement. If Plaintiff seeks to enforce some portions
of the Client Agreement, Plaintiff may not at the same time choose to repudiate other
portions of the same agreement. Thus, this argument is unavailing.
The fact that Alexis was a minor arises in another context. Courts in Tennessee
assume a special responsibility to protect a minor’s interests. Wright ex rel. Wright v.
Wright, 337 S.W.3d 166, 178 (Tenn. 2011). The state’s concern for minors in the context
of arbitration is evidenced in Tenn. Code Ann. § 29-5-101, which provides: “All causes
of action . . . may be submitted to the decision of one (1) or more arbitrators, except in
one (1) of the following cases: (1) Where one (1) of the parties to the controversy is an
infant or a person adjudicated incompetent; . . . .” Tenn. Code Ann. § 29-5-101 (2012)
(emphasis added).40 This code section forbidding arbitration where one party is a minor
dates back to 1932 and since its enactment has retained the same wording almost
verbatim. See Shannon’s Code of Tenn. 1932, Article I, Arbitration, § 9359. For the
reasons outlined below, we have concluded that this statute has no effect on the issues in
this appeal.
First, the statute does not affect our decision that the Trustee did not breach his
fiduciary duty simply by executing a contract that contained a predispute arbitration
provision. As we have explained, in signing the Client Agreement, the Trustee acted for
itself and not as an agent of the minor Trust beneficiary. In other words, the Trustee only
directly bound itself to arbitrate future disputes with Wunderlich, and did not directly
obligate the minor Trust beneficiary under the arbitration provision in the Client
Agreement.
Second, section 29-5-101 does not render the arbitration provision in the Client
Agreement unenforceable against the minor Trust beneficiary because the state statute is
preempted by federal law, specifically, the FAA. See supra, footnote 36. Section 2 of the
FAA permits arbitration agreements to be declared unenforceable “upon such grounds as
exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (LexisNexis
2008). “This saving clause permits agreements to arbitrate to be invalidated by
‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but
not by defenses that apply only to arbitration or that derive their meaning from the fact
that an agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S.
333, 339 (2011) (emphasis added) (quoting Doctor’s Ass’n., Inc. v. Casarotto, 517 U.S.
40
After oral argument in this case, the Court invited the parties to brief any effect this statute
might have on the issues presented in this appeal. The Court appreciates the excellent supplemental briefs
provided by both parties.
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681, 687 (1996)). “Although § 2’s saving clause preserves generally applicable contract
defenses, nothing in it suggests an intent to preserve state-law rules that stand as an
obstacle to the accomplishment of the FAA’s objectives,” which are “to ensure the
enforcement of arbitration agreements according to their terms.” Id. at 343-44; see also
Casarotto, 517 U.S. at 687 (“Courts may not . . . invalidate arbitration agreements under
state laws applicable only to arbitration provisions.”); Volt, 489 U.S. at 477 (quoting
Hines v. Davidowitz, 312 U.S. 52, 67 (1941)) (state law is preempted “to the extent that it
‘stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress’”). Thus, conflicting state-law rules that apply only to arbitration,
such as section 29-5-101, are preempted by the FAA. Concepcion, 563 U.S. at 341. For
that reason, we hold that section 29-5-101 is not a reason to decline to compel arbitration
in this case.
Remand
On remand, the trial court must determine which of the Plaintiff’s claims are
subject to the arbitration agreement; in other words, which claims seek to enforce the
Client Agreement that contains the predispute arbitration provision. This may be easier
said than done. In some circumstances, for example, claims that seek to enforce the
Client Agreement may be intertwined with claims that do not.
The FAA “requires courts to enforce the bargain of the parties to arbitrate,” and
not substitute the court’s “‘views of economy and efficiency’ for those of Congress.”
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985) (quoting Dickinson v.
Heinold Secs., Inc., 661 F.2d 638, 646 (7th Cir. 1981)). It “divests . . . courts of any
discretion regarding arbitration in cases containing both arbitable and nonarbitrable
claims, and instead requires that the courts compel arbitration of arbitrable claims, when
asked to do so.” Id.
However, the converse is also true. The court may not simply refer all of the
claims to arbitration, “even where the result would be the possibly inefficient
maintenance of separate proceedings in different forums.” Id. at 217. A decision to
require the Plaintiff to arbitrate a claim that does not seek to enforce the Client
Agreement, merely because it is “intertwined” with a claim that does seek to enforce the
Client Agreement, “would ‘threaten to overwhelm the fundamental premise that a party
cannot be compelled to arbitrate a matter without its agreement.’” Bridas S.A.P.I.C. v.
Gov’t of Turkmenistan, 345 F.3d 347, 361 (5th Cir. 2003) (quoting J. Douglas Uloth & J.
Hamilton Rial, III, Equitable Estoppel as a Basis for Compelling Nonsignatories to
Arbitrate—A Bridge Too Far?, 21 Rev. Litig. 593, 633 (2002)) (a finding that plaintiff’s
claims against signatory were “inextricably intertwined” with its claims against non-
signatory is insufficient to justify application of estoppel to non-signatory’s opposition to
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arbitration). The sometimes difficult task of sorting this out is essential to ensuring that
Plaintiff assumes the burden of the Client Agreement only insofar as Plaintiff seeks the
benefit of it.41 Benton, 137 S.W.3d at 618.
In this opinion, we have discussed legal theories regarding third-party
beneficiaries and how one who did not sign a contract may still be bound to a predispute
arbitration agreement therein. However, we make no holding regarding whether Plaintiff
in this case is in fact bound to the predispute arbitration clause in the Client Agreement
based on the claims asserted in the amended complaint. That issue is beyond the purview
of the questions certified in this appeal, so we leave it in the capable hands of the trial
judge.
CONCLUSION
In this interlocutory appeal, we are asked to determine whether the signature of the
trustee on an investment/brokerage account agreement that includes a predispute
arbitration provision binds the minor beneficiary of the trust to the arbitration provision.
We hold that the Tennessee Uniform Trust Code gives trustees broad authority to enter
into contracts in the course of fulfilling their duties as trustee. We also hold that the
Tennessee Uniform Trust Code gives trustees the power to enter into predispute
arbitration agreements, so long as doing so is not prohibited under the operative trust
instrument. We hold that the Trust Instrument in this case gives the Trustee broad
authority and does not prohibit the Trustee from entering into a predispute arbitration
agreement. Consequently, we interpret the Trust Instrument as authorizing the Trustee to
41
On remand, the trial court will be applying common-law principles to determine the extent to
which the nonsignatory third-party beneficiary may be bound to the arbitration provision in the Client
Agreement. This is separate and distinct from interpreting the Client Agreement to determine which
claims are “arbitrable.” Similar to many such agreements, the predispute arbitration provision in the
Client Agreement states that “any controversy concerning whether an issue is arbitrable, shall be
determined by arbitration.” (emphasis added). “When deciding whether the parties agreed to arbitrate a
certain matter (including arbitrability) courts generally . . . should apply ordinary state-law principles that
govern the formation of contracts,” keeping in mind the important qualification that “[c]ourts should not
assume that the parties agreed to arbitrate arbitrability unless there is ‘clear and unmistakable’ evidence
that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (citing AT&T
Techs., 475 U.S. at 649).
Because we do not interpret the Client Agreement in this opinion, we need not consider the
choice-of-law provisions in the Client Agreement, pointed out by Defendants on supplemental briefing.
See Concepcion, 563 U.S. at 344 (“[P]arties may agree to limit the issues subject to arbitration, to
arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes.”); Volt, 489
U.S. at 478-79 (noting that court must honor choice-of-law provision in arbitration agreement).
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execute the Client Agreement, including the predispute arbitration provision therein.
Thus, under the Tennessee Uniform Trust Code and the Trust Instrument, the Trustee had
authority to enter into the arbitration agreement contained within the Client Agreement.
Under Benton v. Vanderbilt University, 137 S.W.3d 614, 616 (Tenn. 2004), a third-party
beneficiary who did not sign a contract containing an arbitration provision may be
required to arbitrate claims against a signatory to the contract under the principle that a
third party who seeks the benefit of a contract must also bear its burdens. Applying this
principle, the Trust beneficiary in this case may be bound to arbitrate claims against
Wunderlich that seek to enforce the Client Agreement. We reverse the decision of the
Court of Appeals and vacate the trial court order compelling arbitration of all claims. We
remand the case to the trial court for further proceedings, including a determination as to
whether Plaintiff is a third-party beneficiary of the Client Agreement and which, if any,
of the claims asserted by Plaintiff seek to enforce the Client Agreement.
Accordingly, we reverse the judgment of the Court of Appeals, vacate the order of
the trial court compelling arbitration, and remand to the trial court for further proceedings
consistent with this Opinion. Costs of this appeal are taxed equally to Appellants Albert
Alexander, Jr., and Wunderlich Securities, Inc., and their surety, and Appellee Wade
Harvey, Jr., ex rel. Alexis Breanna Gladden, for which execution may issue, if necessary.
_________________________________
HOLLY KIRBY, JUSTICE
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