Last week, the Supreme Court of Texas ordered that a trust dispute must be submitted to arbitration.  InRachal v. Reitz, 11-0708, (Tex. May 3, 2013), a trust beneficiary, John Reitz, sued a successor trustee who was also the attorney who drafted the trust, Hal Rachal, Jr., for breach of fiduciary duty, misappropriation of trust assets, and failure to provide an accounting as required by state law.  In addition, Reitz sought a temporary injunction against Rachal, his removal as trustee, and damages.

Rachal moved to compel the dispute to arbitration pursuant to the Texas Arbitration Act (“TAA”) based upon a provision in the trust documents.  The arbitration provision specified that it was “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 and he filed an interlocutory appeal.  After an en banc Court of Appeals affirmed the trial court’s decision, Rachal appealed the matter to the Supreme Court of Texas.

First, the Supreme Court said a party who seeks arbitration under the TAA must demonstrate that a valid agreement to arbitrate exists and the dispute falls within the scope of that agreement.  The Court added that it must look to the Legislature’s intent and the plain meaning of the words when construing a statute.  Next, the Court stated it agreed with Rachal’s argument “that the TAA does not require a formal contract but rather only an agreement to arbitrate future disputes.”

After that, Texas’ high court looked to the settlor’s intent when he created the trust.  The court said “We enforce the settlor’s intent as expressed in an unambiguous trust over the objections of beneficiaries that disagree with a trust’s terms.”  According to the Court,

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 here with (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.

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Tags: Hal Rachal, John Reitz, Jr., Supreme Court of Texas, Texas Supreme Court