Texas Supreme Court to Determine if Arbitration Clause in Trust is Enforceable

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In Rachal v. Reitz, 347 S.W.3d 305 (Tex. App.–Dallas 2011, pet. filed), a beneficiary of a trust (the “Beneficiary”) sued the trustee (the “Trustee”), alleging failure to provide an accounting and breach of fiduciary duties.  The Trustee filed a motion to compel arbitration and to stay litigation, arguing that the Beneficiary must arbitrate his claims against the Trustee pursuant to a provision contained in the trust document.  The arbitration clause at issue stated:

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….

The trial court denied the Trustee’s motion, and the Trustee appealed.

The existence of an arbitration agreement is based on Texas contract law. The sole evidence presented to support the Trustee’s motion—the trust document—expressed the settlor’s intent that disputes involving the trust be resolved by arbitration.  The court of appeals held that the Trustee did not establish how the settlor’s expression of intent satisfied all of the required elements of a contract or how this expression of the settlor’s intent transformed the trust provision into an agreement to arbitrate between the Beneficiary and the Trustee. Accordingly, the court of appeals held that the arbitration provision in the trust document was not enforceable as an agreement to arbitrate.

The Texas Supreme Court agreed to review the appellate court’s decision and is expected to issue a ruling in this case of first impression next year.