Hal Rachal, Jr. v. John W. Reitz

IN THE SUPREME COURT OF TEXAS
444444444444
NO . 11-0708
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HAL RACHAL, JR., PETITIONER,
v.
JOHN W. REITZ, RESPONDENT
4444444444444444444444444444444444444444444444444444
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS
4444444444444444444444444444444444444444444444444444
Argued November 7, 2012
Federal and state policies favor arbitration for its efficient method of resolving disputes, and
arbitration has become a mainstay of the dispute resolution process.1 Today we determine whether
these policies render an arbitration provision contained in an inter vivos trust enforceable against the
trust beneficiaries. The trust here contained a provision requiring all disputes regarding the trust and
the trustee to proceed to arbitration. When a trust beneficiary sued the trustee, the trustee moved to
compel arbitration. The trial court denied the motion. The court of appeals, sitting en banc,
affirmed, concluding that the provision could not be enforced under the Texas Arbitration Act (TAA)
because there was no agreement to arbitrate trust disputes.2 We conclude that the arbitration
provision contained in the trust at issue is enforceable against the beneficiary for two reasons. First,
1
See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1749 (U.S. 2011); Nafta Traders, Inc. v. Quinn, 339
S.W .3d 84, 94 & n.48 (Tex. 2011); Ellis v. Schlimmer, 337 S.W .3d 860, 862 (Tex. 2011).
2
347 S.W .3d 305, 311.
the settlor determines the conditions attached to her gifts, and we enforce trust restrictions on the
basis of the settlor’s intent. The settlor’s intent here was to arbitrate any disputes over the trust.
Second, the TAA requires enforcement of written agreements to arbitrate, and an agreement requires
mutual assent, which we have previously concluded may be manifested through the doctrine of direct
benefits estoppel. Thus, the beneficiary’s acceptance of the benefits of the trust and suit to enforce
its terms constituted the assent required to form an enforceable agreement to arbitrate under the
TAA. We reverse the judgment of the court of appeals and remand to the trial court to enter an order
consistent with this opinion.
I. Background
Andrew Francis Reitz established the A.F. Reitz Trust in 2000, naming his sons, James and
John, as sole beneficiaries and himself as trustee. The trust was revocable during Andrew’s lifetime
and irrevocable after his death. Upon Andrew’s death, Hal Rachal, Jr., the attorney who drafted the
trust, became the successor trustee.
In 2009, John Reitz sued Rachal individually and as successor trustee, alleging that Rachal
had misappropriated trust assets and failed to provide an accounting to the beneficiaries as required
by law. Reitz sought a temporary injunction, Rachal’s removal as trustee, and damages.
Rachal generally denied the allegations and later moved to compel arbitration of the dispute
under the TAA, relying on the trust’s arbitration provision. That provision states:
Arbitration. Despite anything herein to the contrary, I intend that as to any dispute
of any kind involving this Trust or any of the parties or persons concerned herewith
(e.g., beneficiaries, Trustees), arbitration as provided herein shall be the sole and
exclusive remedy, and no legal proceedings shall be allowed or given effect except
as they may relate to enforcing or implementing such arbitration in accordance
2
herewith. Judgment on any arbitration award pursuant hereto shall be binding and
enforceable on all said parties.
The trust further provided that “[t]his agreement shall extend to and be binding upon the Grantor,
Trustees, and beneficiaries hereto and on their respective heirs, executors, administrators, legal
representatives, and successors.”
The trial court denied Rachal’s motion to compel and Rachal filed this interlocutory appeal.
See TEX . CIV . PRAC. & REM . CODE § 171.098(a)(1) (authorizing interlocutory appeal for orders
denying applications to compel arbitration). A divided court of appeals, sitting en banc, affirmed
the trial court’s order. 347 S.W.3d 305, 312. The court of appeals held that a binding arbitration
provision must be the product of an enforceable contract between the parties, reasoning that such a
contract does not exist in the trust context, in part because there is no consideration and in part
because the trust beneficiaries have not consented to such a provision. Id. at 308, 310–11. The court
further concluded that because there is no contractual agreement to arbitrate in this context, it is for
the Legislature, rather than the courts, to decide “whether and to what extent the settlor of this type
of a trust should have the power to bind the beneficiaries of the trust to arbitrate.” Id. at 311–12.
The four dissenting Justices reasoned that further legislation is not necessarily required
because a trust can be “a written agreement to arbitrate” within the meaning of the TAA even
without the signatures of the beneficiaries and successor trustee. 347 S.W.3d at 312–13 (Murphy,
J., dissenting) (quoting TEX . CIV . PRAC. & REM . CODE § 171.001(a)). The dissent notes that the
TAA does not require a formal contract to arbitrate but only a written agreement, a broader term that
includes legal contracts but also less formal agreements. Id. The dissent concludes that, because the
3
Legislature chose the broader term “agreement” in the TAA, rulings in other jurisdictions that
arbitration provisions in trusts are unenforceable are inapplicable to arbitration provisions under the
TAA. Id. at 313–14. We granted the trustee’s petition to decide whether an arbitration provision
under the TAA in an inter vivos trust is enforceable against trust beneficiaries.3
II. Discussion
A. Standard of Review
Rachal moved to compel arbitration under the TAA, which provides that a “written
agreement to arbitrate” is enforceable if it provides for arbitration of either an existing controversy
or one that arises “between the parties after the date of the agreement.” TEX . CIV . PRAC . & REM .
CODE § 171.001(a). As a threshold matter, a party seeking to compel arbitration must establish the
existence of a valid arbitration agreement and the existence of a dispute within the scope of the
agreement. Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 305 (Tex. 2006).
We review de novo whether an arbitration agreement is enforceable. In re Labatt Food Serv.,
L.P., 279 S.W.3d 640, 643 (Tex. 2009). When reviewing a denial of a motion to compel arbitration,
we defer to the trial court’s factual determinations that are supported by evidence but review the trial
court’s legal determinations de novo. Id.
This case also requires us to construe a statute. Our primary goal in construing a statute is
to give effect to the Legislature’s intent. Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 452 (Tex.
2012); TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011). We defer to
3
Although a court of appeals’ decision in an interlocutory appeal is ordinarily final, this Court has jurisdiction
to review the appellate court’s decision when, as here, there is a dissent in the court of appeals. T EX . G O V ’T C O DE
§§ 22.001(a), 22.225(b)(3), 22.225(c).
4
the plain meaning of a statute as the best indication of the Legislature’s intent unless a different
meaning is apparent from the context of the statute or the plain meaning would yield absurd results.
Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex. 2011). Moreover, we determine legislative intent
from the entire act, not merely from isolated portions. Ruttiger, 381 S.W.3d at 454; TGS-NOPEC,
340 S.W.3d at 439.
B. Trusts and the TAA
Rachal echoes the dissenting justices’ view that the TAA does not require a formal contract
but rather only an agreement to arbitrate future disputes. Reitz argues that even if the TAA requires
only an agreement to arbitrate—as opposed to a formal contract—the trust instrument here does not
meet that less exacting standard because it lacks mutual assent and unity in thought between its
parties. We agree with Rachal.
1. Settlor’s Intent
Generally, Texas courts endeavor to enforce trusts according to the settlor’s intent, which we
divine from the four corners of unambiguous trusts. Frost Nat’l Bank of San Antonio v. Newton, 554
S.W.2d 149, 153 (Tex. 1977); see also Huffman v. Huffman, 339 S.W.2d 885, 888 (Tex. 1960)
(“Assuming that there is a valid will to be construed, it is the place of the court to find the meaning
of such will, and not under guise of construction or under general powers of equity to assume to
correct or redraft the will in which testator has expressed his intentions.” (quotation marks omitted)).
We enforce the settlor’s intent as expressed in an unambiguous trust over the objections of
beneficiaries that disagree with a trust’s terms. Newton, 554 S.W.2d at 153. For example, in
Newton, a trust provided for a portion of the trust to be distributed for the education of certain
5
student beneficiary relatives, with excess income paid during the life of the trust to other relatives
who would receive the ultimate distribution when the trust terminated. Id. at 151–52. The trust
provided that the trustee could terminate the trust if the income was insufficient. Id. at 151. When
the student beneficiaries completed their education, the ultimate beneficiaries argued the trust should
be terminated because its primary purpose had been accomplished. Id. at 153. But we noted the
additional purpose of the trust was the payment of excess income to those ultimate beneficiaries and
refused to distinguish between the two purposes as primary or secondary because it would require
venturing beyond the settlor’s intent in the express language of the trust. Id. at 154. Accordingly,
we enforced the trust with the restriction that the settlor intended: that the trust only terminate when
the income was insufficient. Id.; see also Moore v. Smith, 443 S.W.2d 552, 555–56 (Tex. 1969)
(assessing settlor’s intent by examining the four corners of the trust).
Here, the settlor unequivocally stated his requirement that all disputes be arbitrated. He
specified that, “[d]espite anything herein to the contrary,” arbitration would be “the sole and
exclusive remedy” for “any dispute of any kind involving this Trust or any of the parties or persons
connected herewith (e.g., beneficiaries, Trustees) . . . .” Because this language is unambiguous, we
must enforce the settlor’s intent and compel arbitration if the arbitration provision is valid and the
underlying dispute is within the provision’s scope. Meyer, 211 S.W.3d at 305.
2. The TAA
The TAA provides that a “written agreement to arbitrate is valid and enforceable if the
agreement is to arbitrate a controversy that: (1) exists at the time of the agreement; or (2) arises
between the parties after the date of the agreement.” TEX . CIV . PRAC. & REM . CODE § 171.001(a)
6
(emphases added). The TAA further states that a “party may revoke the agreement only on a ground
that exists at law or in equity for the revocation of a contract.” Id. § 171.001(b) (emphasis added).
The Legislature specifically chose to enforce “agreements” to arbitrate. Id. § 171.001(a). It knew
how to enforce only “contracts;” it selected that term to specify the grounds for revoking an
agreement to arbitrate. Id. § 171.001(b). The language of the TAA indicates legislative intent to
enforce arbitration provisions in agreements. If the Legislature intended to only enforce arbitration
provisions within a contract, it could have said so. See id.; TGS-NOPEC, 340 S.W.3d at 441 (“The
meaning of a word that appears ambiguous when viewed in isolation may become clear when the
word is analyzed in light of the terms that surround it.”).
Because the TAA does not define agreement, we must look to its generally accepted
definition. TGS-NOPEC, 340 S.W.3d at 439. Black’s Law Dictionary defines an agreement as “a
manifestation of mutual assent by two or more persons.” BLACK’S LAW DICTIONARY 78 (9th ed.
2009). Contract treatises have made similar observations. Williston commented:
An agreement, as the courts have said, “is nothing more than a manifestation of
mutual assent by two or more legally competent persons to one another.” In some
respects, the term agreement is a broader term than contract, and even broader than
the term bargain or promise. It covers executed sales, gifts, and other transfers of
property.
1 SAMUEL WILLISTON & RICHARD A. LORD , A TREATISE ON THE LAW OF CONTRACTS § 1:3, at 13–14
(4th ed. 1990) (citations omitted); see also 3 STEPHEN ’S COMMENTARIES ON THE LAWS OF ENGLAND
4 (Edward Jenks ed., 17th ed. 1922) (“The term ‘agreement,’ although frequently used as
synonymous with the word ‘contract,’ is really an expression of greater breadth of meaning and less
technicality. Every contract is an agreement; but not every agreement is a contract. In its colloquial
7
sense, the term ‘agreement’ would include any arrangement between two or more persons intended
to affect their relations (whether legal or otherwise) to each other.”). Thus, although an agreement
need not meet all the formal requirements of a contract, it must be supported by mutual assent.4
BLACK’S LAW DICTIONARY 78 (9th ed. 2009); 1 SAMUEL WILLISTON & RICHARD A. LORD , A
TREATISE ON THE LAW OF CONTRACTS § 1:3, at 13–14 (4th ed. 1990).
We therefore address whether the trust here was supported by the mutual assent required to
render the trust an agreement and the arbitration provision valid. Typically, a party manifests its
assent by signing an agreement. See Mid-Continent Cas. Co. v. Global Enercom Mgmt., Inc., 323
S.W.3d 151, 157 (Tex. 2010) (holding that, in formal contract negotiations, signing the contract is
not required so long as there is assent). But we have also found assent by nonsignatories to
arbitration provisions when a party has obtained or is seeking substantial benefits under an
agreement under the doctrine of direct benefits estoppel.5 For example, in the case of In re
FirstMerit Bank, N.A., the de los Santos plaintiffs purchased a mobile home for their daughter and
her husband (the Alvarezes, their co-plaintiffs) under a retail installment financing agreement with
the seller. 52 S.W.3d 749, 752 (Tex. 2001). The agreement contained an arbitration addendum. Id.
4
W e acknowledge that we have previously discussed arbitration agreements under contract principles. See J.M.
Davidson, Inc. v. Webster, 128 S.W .3d 223, 227–28 (Tex. 2003) (“Arbitration agreements are interpreted under
traditional contract principles. Thus, an employer attempting to enforce an arbitration agreement must show the
agreement meets all requisite contract elements.” (citations omitted)). Those holdings are not in tension with our analysis
here in light of Rachal’s arguments, our long-standing deference to the settlor’s intent, and the unique requirements of
the TAA.
5
W e have noted that there are at least six theories in contract and agency law that may bind nonsignatories to
arbitration agreements: (1) incorporation by reference; (2) assumption; (3) agency; (4) alter ego; (5) equitable estoppel;
and (6) third-party beneficiary. In re Kellogg Brown & Root, Inc., 166 S.W .3d 732, 739 (Tex. 2005). Direct benefits
estoppel, discussed herein, is a type of equitable estoppel. Id.
8
at 752. The de los Santoses signed the agreement but the Alvarezes did not. Id. at 752, 755. The
seller assigned the contract to FirstMerit Bank, and the de los Santoses ceased making payments
when the seller failed to make certain repairs. Id. at 753. FirstMerit took possession of the home,
the de los Santoses and the Alvarezes both sued, and FirstMerit moved to compel arbitration. Id.
We stated: “a litigant who sues based on a contract subjects him or herself to the contract’s terms.”
Id. at 755. We thus held that, even though the Alvarezes did not sign the contract containing the
arbitration clause, their suit on the contract was their assent to the contract’s terms, including the
arbitration provision. Id. at 755–56. We later noted that in addition to filing suit on the contract, the
Alvarezes’ occupancy of the home and planned future ownership of it further indicated their
acceptance of the contract. In re Weekley Homes, L.P., 180 S.W.3d 127, 134 (Tex. 2005).
We expressly adopted the federal doctrine of direct benefits estoppel in the context of
arbitration agreements under state law in In re Kellogg Brown & Root, Inc., where we held that a
non-signatory who is seeking the benefits of a contract or seeking to enforce it “is estopped from
simultaneously attempting to avoid the contract’s burdens, such as the obligation to arbitrate
disputes.” 166 S.W.3d 732, 739 (Tex. 2005). As the Fourth Circuit described it, “the doctrine
recognizes that a party may be estopped from asserting that the lack of his signature on a written
contract precludes enforcement of the contract’s arbitration clause when he has consistently
maintained that other provisions of the same contract should be enforced to benefit him.” Int’l Paper
Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000) (quoted in
Kellogg Brown & Root, 166 S.W.3d at 739). We noted in Kellogg Brown & Root that if the claims
are based on the agreement, they must be arbitrated, but if the claims can stand independently of the
9
agreement, they may be litigated. 166 S.W.3d at 739–40; see also In re U.S. Home Corp., 236
S.W.3d 761, 765 (Tex. 2007) (per curiam).
In Weekley Homes, we addressed the circumstances under which direct benefits estoppel
binds parties for actions other than filing suit. 180 S.W.3d at 131–32. There, we stated that a
“nonparty may be compelled to arbitrate if it deliberately seeks and obtains substantial benefits from
the contract itself” during the performance of the agreement. Id. at 132–33. We likened the situation
to promissory estoppel, where a promisor induces substantial action or forbearance by another and
estoppel requires enforcing the promise to prevent injustice. Id. at 133. There, the plaintiff never
signed the agreement to purchase the newly constructed home but claimed the authority of the
agreement in directing the construction and repair of the home, submitted reimbursement claims for
expenses incurred during repairs, and conducted settlement negotiations with the builder. Id. We
held that these were sufficiently substantial actions demanding the builder comply with the contract
to equitably estop the plaintiff from resisting the agreement’s arbitration provision. Id.
We must examine here whether the direct benefits estoppel doctrine applies to an arbitration
provision in a trust. A beneficiary may disclaim an interest in a trust. See TEX . PROP . CODE
§ 112.010; see also Aberg v. First Nat’l Bank, 450 S.W.2d 403, 407 (Tex. App.—Dallas 1970, writ
ref’d n.r.e.) (stating the well-settled rule that a trust beneficiary who has not manifested his
acceptance of a beneficial interest may disclaim such interest). And a beneficiary is also free to
challenge the validity of a trust: conduct that is incompatible with the idea that she has consented to
the instrument. See Rapid Settlements, Ltd. v. SSC Settlements, LLC, 251 S.W.3d 129, 148 (Tex.
App.—Tyler 2008, no pet.) (holding direct benefits estoppel inapplicable when a nonsignatory filed
10
suit for a declaration that an arbitration agreement was not binding on it). Thus, beneficiaries have
the opportunity to opt out of the arrangement proposed by the settlor.
On the other hand, a beneficiary who attempts to enforce rights that would not exist without
the trust manifests her assent to the trust’s arbitration clause. For example, a beneficiary who brings
a claim for breach of fiduciary duty seeks to hold the trustee to her obligations under the instrument
and thus has acquiesced to its other provisions, including its arbitration clause. In such
circumstances, it would be incongruent to allow a beneficiary to hold a trustee to the terms of the
trust but not hold the beneficiary to those same terms.
Here, Reitz both sought the benefits granted to him under the trust and sued to enforce the
provisions of the trust. On the death of the settlor, Reitz did not disclaim an interest in the trust, and
his suit directly seeks actual damages for any amounts inappropriately taken from the trust. See TEX .
PROP . CODE § 112.010 (presuming a beneficiary accepts an interest in a trust and establishing time
period to disclaim that interest). Reitz also sued to enforce the trust’s provisions against the trustee.
The trust specifically prohibited the trustee from making “any distribution to or for the benefit of
himself which is not subject to an ascertainable standard under the Code” and contained a number
of other powers of and restrictions on the trustee. Reitz claimed Rachal “has materially violated the
terms of the Trust and his fiduciary duty by failing to account to the beneficiary and . . . has
materially violated th[e] terms of the Trust by his conversion of the Trust assets which has resulted
in material financial loss to the Trust.” Reitz further claimed, among other things, he was “entitled
to any profits that would accrue to the trust estate if there had been no breach of trust.” In accepting
the benefits of the trust and suing to enforce its terms against the trustee so as to recover damages,
11
Reitz’s conduct indicated acceptance of the terms and validity of the trust.6 In sum, we hold the
doctrine of direct benefits estoppel applies to bar Reitz’s claim that the arbitration provision in the
trust is invalid. See Weekley Homes, 180 S.W.3d at 131–32; Kellogg Brown & Root, 166 S.W.3d
at 739–40; FirstMerit Bank, 52 S.W.3d at 755–56.
Reitz argues, however, that direct benefits estoppel cannot apply here because there is no
underlying contract. We have generally applied direct benefits estoppel when there is an underlying
contract the claimant did not sign, but we have never held a formal contract is required for direct
benefits estoppel to apply. Indeed, in Weekley Homes, we likened direct benefits estoppel to the
defensive theory of promissory estoppel. 180 S.W.3d at 133. “[T]he promissory-estoppel doctrine
presumes no contract exists.” Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212,
226 (Tex. 2002) (citing Wheeler v. White, 398 S.W.2d 93, 96–97 (Tex. 1965)); see also
RESTATEMENT (SECOND ) OF CONTRACTS § 90 & ch. 4, topic 2, intro. note (1981) (addressing
promissory estoppel as one of several types of contracts that need not be supported by consideration
to be enforceable). As equitable defensive theories, direct benefits estoppel and promissory estoppel
promote fairness by holding a party to its position in the performance of an agreement or in bringing
litigation. See Weekley Homes, 180 S.W.3d at 133; Kellogg Brown & Root, 166 S.W.3d at 740–41;
FirstMerit Bank, 52 S.W.3d at 755. A valid, underlying contract is not required under these theories,
6
Although we specified in Kellogg Brown & Root that claims are only subject to arbitration if they are based
on the agreement containing the arbitration provision, the parties do not dispute here that the claims refer to and depend
upon the trust. 166 S.W .3d at 739–40.
12
nor is it required here; thus, Reitz’s argument is without merit. See Subaru of Am., 84 S.W.3d at
226.7
3. Other Jurisdictions
Reitz points to the holdings of two courts in sister states that support his view that arbitration
provisions in trusts are unenforceable. There is a dearth of authority as to the validity of an
arbitration provision in a trust, and the opinions Reitz relies on have been superseded. The two
courts—both intermediate courts—that considered this precise issue declined to enforce mandatory
arbitration provisions in trusts. See Diaz v. Bukey, 125 Cal. Rptr. 3d 610, 615 (Ct. App. 2011), pet.
granted, 257 P.3d 1129 (Cal. 2011), remanded with directions, 287 P.3d 67 (Cal. 2012);
Schoneberger v. Oelze, 96 P.3d 1078, 1079 (Ariz. Ct. App. 2004), superseded by statute, ARIZ. REV .
STAT . § 14-10205. These courts generally concluded that a trust’s arbitration provision is not
enforceable because a trust is not a contract between the grantor, trustee, and beneficiary and thus
does not bind those who do no sign the instrument to arbitrate future trust disputes. This bright-line
distinction between trusts and contracts was first discussed in Schoneberger, where an Arizona court
of appeals explained:
Arbitration rests on an exchange of promises. Parties to a contract may decide to
exchange promises to substitute an arbitral for a judicial forum . . . . In contrast, a
trust does not rest on an exchange of promises. A trust merely requires a trustor to
transfer a beneficial interest in property to a trustee who, under the trust instrument
. . . holds that interest for the beneficiary. The undertaking between trustor and
trustee does not stem from the premise of mutual assent to an exchange of promises
and is not properly characterized as contractual.
7
Reitz has not asserted, and we thus need not decide, whether the doctrine of unclean hands bars Rachal from
relying on the equitable doctrine of direct benefits estoppel.
13
96 P.3d at 1083 (internal citations and quotations omitted). A California intermediate court later
adopted the Arizona court’s explication. Diaz, 125 Cal. Rptr. 3d at 615. The court of appeals here
followed the analysis in Schoneberger. 347 S.W.3d at 310–11.
But the Arizona Legislature superseded Schoneberger and the California Supreme Court
vacated Diaz. Unlike the TAA’s requirement that the arbitration provision be in an “agreement,”
the Arizona statute at issue in Schoneberger required the arbitration provision to be “in a written
contract.”8 96 P.3d at 1082. The Arizona Legislature superseded Schoneberger, providing that: “A
trust instrument may provide mandatory, exclusive and reasonable procedures to resolve issues
between the trustee and interested persons or among interested persons with regard to the
administration or distribution of the trust.” ARIZ. REV . STAT . § 14-10205.9
A California appellate court followed Schoneberger in refusing to enforce an arbitration
provision in a trust. Diaz, 125 Cal. Rptr. 3d at 615. The California statute at issue, like the Texas
statute, addresses arbitration provisions in “written agreements.” CAL. CIV . PROC. CODE § 1281.1
(“[A]ny request to arbitrate . . . shall be considered as made pursuant to a written agreement to
submit a controversy to arbitration.”). The California Supreme Court instructed the court of appeals
to vacate its decision and reconsider the case in light of Pinnacle Museum Tower Association v.
Pinnacle Market Development (US), LLC, 282 P.3d 1217 (Cal. 2012). Diaz v. Bukey, 287 P.3d 67,
8
The District of Columbia Court of Appeals has applied the same reasoning to decline to enforce a mandatory
arbitration provision in a will. In re Calomiris, 894 A.2d 408, 410 (D.C. 2006). The court based its holding on
W ashington D.C.’s arbitration act, which— like Arizona’s statute— refers to a contract rather than an agreement. Id. at
409.
9
Florida has also enacted a statute providing for the arbitration of some trust disputes. F LA . S TAT . § 731.401.
Rachal suggests that this legislation was necessary because that arbitration statute required contracts rather than
agreements to arbitrate.
14
67 (Cal. 2012). In Pinnacle, a condominium developer included a mandatory arbitration provision
in the recorded declaration of restrictions, which also provided for the creation of an owners’
association. Id. at 1221–22. The association sued the developer for construction defects, and the
developer moved to compel arbitration based on the provision in the declaration of restrictions. Id.
at 1223. The California Supreme Court held that the Federal Arbitration Act applied to the provision
in question, which refers to arbitration provisions “in . . . a contract.” Id. (quoting 9 U.S.C. § 2).
The court held that the recorded declaration was contractual in nature, despite the fact that the
individual owners—not the owners’ association—agreed to be bound by the declaration, and that
enforcing the arbitration provision against the owners’ association was not unconscionable. Id. at
1228–29, 1233–34. The court of appeals has yet to issue its new opinion in light of Pinnacle.
We note that other courts, while not addressing the precise issue raised here, have
nonetheless favorably viewed arbitration provisions in trusts. See, e.g., Radian Ins., Inc. v. Deutsche
Bank Nat’l Trust Co., 638 F. Supp. 2d 443, 458 (E.D. Pa. 2009) (remanding a trust dispute involving
a rescission claim to arbitration while retaining jurisdiction over questions of interpretation that arise
during the arbitration); Roehl v. Ritchie, 54 Cal. Rptr. 3d 185, 187 (Ct. App. 2007) (determining that
judicial confirmation of an open-ended arbitration award in a trust dispute did not bar a subsequent
arbitration to resolve undetermined issues); see also New S. Fed. Sav. Bank v. Anding, 414 F. Supp.
2d 636, 643 (S.D. Miss. 2005) (noting that an arbitration provision in deed of trust is “not
unenforceable solely because it is one-sided”).
C. Scope
15
Having determined the arbitration provision at issue is enforceable against Reitz, Rachal must
also establish that the dispute is within the scope of the agreement. Meyer, 211 S.W.3d at 305. Once
a valid arbitration agreement is established, a “strong presumption favoring arbitration arises” and
we resolve doubts as to the agreement’s scope in favor of arbitration. Ellis v. Schlimmer, 337
S.W.3d 860, 862 (Tex. 2011). Reitz asserts that his lawsuit falls outside the scope of the agreement
because the trust’s terms indicate the settlor’s intent to exempt trustee misconduct claims from the
scope of the arbitration provision. We disagree.
When determining whether claims fall within the scope of the arbitration agreement, we look
to the factual allegations, not the legal claims. FirstMerit Bank, 52 S.W.3d at 754. The arbitration
provision here requires that:
Despite anything herein to the contrary, I intend that as to any dispute of any kind
involving this Trust or any of the parties or persons concerned herewith (e.g.,
beneficiaries, Trustees), arbitration as provided herein shall be the sole and exclusive
remedy, and no legal proceedings shall be allowed or given effect except as they may
relate to enforcing or implementing such arbitration in accordance herewith.
Reitz’s suit against Rachal to enforce the trust’s restrictions qualifies as “any dispute of any kind
involving this Trust or any of the parties or persons connected herewith.”
Reitz nonetheless argues that a subsequent provision in the trust regarding exoneration of
trustees indicates an intent to allow for litigation of disputes with the trustee. The provision Reitz
relies on refers to a trustee’s liability for unintentional misconduct and permits the trustee to fund
litigation or dispute related costs from the trust, providing that a beneficiary who initiates the
proceedings without good faith shall have the defense costs deducted from his share of the trust
income and assets. This provision does not defeat the arbitration requirement for two reasons. First,
16
to the extent the two provisions conflict, the arbitration provision—by its own terms—prevails over
“anything herein to the contrary.” Second, the trustee exoneration provision, when read in
conjunction with the arbitration provision, still has meaning. Even if the arbitration provision
requires that all disputes over the trust be resolved in arbitration, the trustee exoneration provision
is effective in at least two situations: (1) when a claim filed in court is then sent to arbitration, and
(2) when a claim is filed in, and stays in, court because direct benefits estoppel or another doctrine
that would compel arbitration does not apply. Under the first scenario, the trustee exoneration
provision simply acknowledges that some claims that belong in arbitration will be initiated in court
and determines how these defense costs are paid. Under the second scenario, not all claims initiated
in court can be compelled to arbitration. We previously noted that the doctrine of direct benefits
estoppel will not provide the mutual assent necessary to compel arbitration in all circumstances. One
who does not accept benefits under a trust and contests its validity could not be compelled to
arbitrate the trust dispute under the doctrine of direct benefits estoppel. In such a case, the trustee
exoneration provision determines how these defense costs are paid. Our construction of the
arbitration and trustee exoneration privileges gives meaning to both provisions. Universal C.I.T.
Credit Corp. v. Daniel, 243 S.W.2d 154, 158 (Tex. 1951). In sum, Rachal demonstrated the
existence of a valid arbitration agreement that covers the claims at issue.
III. Conclusion
Beneficiary Reitz sued trustee Rachal to require him to comply with the terms of the trust at
issue, which contains an arbitration provision. The TAA requires arbitration provisions to be in
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written agreements. Reitz’s assent to the trust is reflected in his acceptance of the benefits of the
trust and his suit to compel the trustee to comply with the trust’s terms. Reitz’s claims that Rachal
violated the terms of the trust are within the scope of the arbitration provision, which requires the
arbitration of “any dispute of any kind involving this Trust.” Thus, Rachal carried his burden of
demonstrating that the trust contains a valid arbitration agreement that covers Reitz’s claims. We
reverse the judgment of the court of appeals and remand to the trial court to enter an order consistent
with this opinion.
___________________________
Eva M. Guzman
Justice
OPINION DELIVERED: May 3, 2013
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