Thursday, October 24, 2013
The settlor created an inter vivos trust for benefit of his sons. The settlor was the trustee until his death when Rachal, the attorney who had drafted the trust, became the trustee. The trust included a clause requiring the arbitration of “any dispute of any kind” involving the trust or the beneficiaries and trustees. One of the beneficiaries sued for a temporary injunction alleging that Rachal had misappropriated trust assets and refused to provide an accounting. Rachal moved to compel arbitration.
In Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013), the Texas Supreme Court reversed the intermediate appellate court, and held the arbitration clause was binding on the beneficiary for two reasons: first, enforcing the settlor’s intent requires enforcement of the arbitration provisions, and second, because the Texas Arbitration Act requires a written agreement to arbitrate which in turn requires mutual assent, under the doctrine of direct benefits estoppel, the beneficiary’s acceptance of trust benefits and suit to enforce the trust constitute assent to arbitrate.
Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.