An Arbitration Clause is Binding on Beneficiaries

The settlor created an inter vivos trust for benefit of hissons.  The settlor was the trustee until his death when Rachal, theattorney who had drafted the trust, became the trustee.  The trustincluded a clause requiring the arbitration of “any dispute of any kind”involving the trust or the beneficiaries and trustees.  One of thebeneficiaries sued for a temporary injunction alleging that Rachal hadmisappropriated trust assets and refused to provide an accounting.  Rachalmoved to compel arbitration. 

In Rachal v. Reitz,403 S.W.3d 840 (Tex. 2013), the Texas Supreme Court reversed the intermediateappellate court,  and held thearbitration clause was binding on the beneficiary for two reasons: first,enforcing the settlor’s intent requires enforcement of the arbitrationprovisions, and second, because the Texas Arbitration Act requires a writtenagreement to arbitrate which in turn requires mutual assent, under the doctrineof direct benefits estoppel, the beneficiary’s acceptance of trust benefits andsuit 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.