Sunday, March 23, 2014
On March 11, 2014, California's intermediate appellate court ruled that a mandatory arbitration clause in an inter vivos trust would not control, where the beneficiary challenging the trust "was not a signatory to the arbitration agreement." The daughter who challenged the document alleged her mother lacked capacity to sign the newly revised agreement in question and contended the revisions were the product of "elder abuse" and undue influence. The decision offers much to consider.
In McArthur v. McArthur, the court noted enforceability of arbitration provisions in trusts was a question of first impression in California and turned to other states for guidance. In Schoneberger v. Oelze, 96 P. 3d 1078 (Az. Ct. App. 2004), the Arizona court ruled that arbitration clauses contained in trusts agreements are generally not enforceable against nonsignatory beneficiaries, a decision that was later superseded by revisions to Arizona statutes. In Rachal v. Reitz, 203 S.W. 3d 840 (Tex. 2013), the Texas Supreme Court relied on wording of the state's arbitration law in concluding a trust beneficiary can be bound to arbitrate, regardless of whether the trust document was analyzed as a contract.
In ruling against mandatory arbitration, the California court characterized one daughter's argument that "public policy" favored arbitration of trust disputes as more appropriate for the Legislature. The Court concluded that "whatever the national trend might be, [the proponent of the trust and mandatory arbitration] fails to demonstrate that any other jurisdiction would compel arbitration under the facts of this case, where the [contesting] beneficiary has not either expressly or implicitly sought the benefits of a trust agreement containing the disputed arbitration provision."
The California decision also points to several law review articles addressing arbitration provisions in trusts disputes, including a 1995 article by Yale Professor John H. Langbein, and a 2012 article by University of Missouri Law Professor S. I. Strong. By email, Professor Strong notes it will be interesting to see whether the McArthur case goes to the California Supreme Court.
While not addressed in the opinion directly, the details of the trust history in the California case also suggest another potentially interesting question, about the use of particular "mandatory" dispute mechanisms or mandated organizations that could favor a certain result.
The original McArthur trust, created in 2001, apparently granted the three daughters equal shares of their mother's estate. The challenged 2011 amendment, however, allegedly favored one daughter and as described in footnote 2, added a "Christian Dispute Resolution" provision that described the mother and that same daughter as "Christians [who] believe the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church." The mother as "Trustor" and the mother and daughter as "Co-Trustees agree that any claim or dispute arising from or related to the Trust as amended shall be settled by biblically based mediation and, if necessary, legally binding arbitration before the Institute for Christian Conciliation (TM), a division of Peacemaker (R) Ministries...."
So, if one challenges the very essence of the amended trust and the role of the new co-trustee, doesn't that suggest the challenger might have a uniquely steep uphill climb, whether or not a "member" of the faith or organization granted the power of enforcement?