November 2, 2011

Trust Arbitration

Arbitration is a non-judicial process for resolving disputes. Instead of litigating a contentious matter in state and federal court, litigants go to an arbitrator to resolve the matter. It is common to see mandatory arbitration clauses in employment and consumer cases. For example, a very recent United States Supreme Court Case dealt with the enforceability of an arbitration clause in a cellphone contract that disallowed class-action suits, AT&T Mobility v. Concepcion, 563 U.S. _____ (2011).  

In regards to trusts, arbitration clauses have been included in these documents as well. A recent court decision touched upon the enforceability of arbitration clauses. In, Diaz v. Bukey (2011) 195 CA4th 315, two beneficiaries, Marie and Paulette, became entangled in a legal squabble over the handling of their late parents’ trust. Marie was the successor trustee as well as a beneficiary and Paulette was the other beneficiary. In May 2009 Paulette requested that Marie provide her an accounting of the trust. When Marie provided an unsatisfactory accounting to Paulette, she filed a petition in November 2009 to have her removed as trustee for breach of fiduciary duty. Marie tried to have the case dismissed because the trust contained a mandatory arbitration clause. The trial court overruled the dismissal and Marie appealed this decision to the Court of Appeal. On appeal, the Court of Appeal held that the arbitration clause was unenforceable because Paulette was not a party to the arbitration agreement when her parents created the trust, which is generally required to enforce an arbitration clause.

However, Marie appealed this decision to the California Supreme Court and the Court agreed to review the appeal on August 10, 2011. Thus, the enforceability of an arbitration clause in a California trust hinges upon the decision of the California Supreme Court. So we shall see................