March 21, 2014
Arbitration Clause in a Trust - McArthur v. McArthur
Arbitration is a common non-judicial method of resolving legal disputes. An arbitrator, who is typically a retired judge, will weigh the evidence from both sides and issue a ruling. Arbitration clauses are typically inserted in employments contracts and consumer contracts.
Recently settlors, the people who author trusts, have begun to insert arbitration clauses in their trust agreements. The intent behind this, presumably, is to reduce the cost of litigation and to keep the matter private. As for the cost, arbitration is typically cheaper than judicial action for a number of factors, notably lower discovery thresholds, e.g. interrogatories, depositions, etc. Thus in arbitration, litigants cannot poke and prod for the same volume of information as in a judicial matter. As for the privacy aspect, arbitration is not done in a public venue such as a superior court courtroom. Rather arbitration is done behind close-doors so to speak. Still, an arbitrator's ruling is, generally speaking, subject to judicial review.
One such person who pursued the arbitration route was Frances McArthur. In her original 2001 trust, Ms. McArthur named her three daughters as co-equal beneficiaries, Pamela, Kristi and Deborah. Then in 2011, she amended her trust and allocated a larger share of the trust to one daughter, Kristi, and included a "Christian Dispute Resolution" clause to resolve disputes:
"The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe that 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 (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the Trustor and 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™, a division of Peacemaker® Ministries, in accordance with its Rules of Procedure for Christian Conciliation (the `Rules' found at www.peacemaker.net). To the extent authorized by the Rules, the provisions of California Code of Civil Procedure section 1283.05 (right to discovery in arbitration) are incorporated herein and made a part hereof. Judgment upon an arbitration decision may be entered in any court otherwise having jurisdiction. The Trustor and Co-Trustees understand that these methods shall be the sole remedy for any controversy or claim arising out of the Trust Agreement and expressly waive their right to file a lawsuit in any civil court against one another for such disputes except to enforce an arbitration decision. This Section shall also be binding on all successor trustees and benefices for the Trust as amended."
Following Ms. McArthur's death in 2011, Pamela sued Kristi for financial elder abuse and sought, inter alia, to have the 2011 trust invalidated. Kristi moved to compel arbitration, citing the clause in the 2011 trust. Pamela objected to this and the trial court agreed, finding that because Pamela was not a signatory to the agreement, she could not be compelled to arbitrate her claims against her sister. Kristi then appealed her decision to the 1st District Court of Appeal.
The appellate court agreed with the trial court's decision, finding that because Pamela had neither expressly or implicitly sought the benefits of the 2011 trust, she was not compelled to arbitrate.