Texas Supreme Court: Incorporating the AAA Rules Does Not Delegate Arbitrability Issues to the Arbitrator

In 2013, the Supreme Court of Texas in Rachal v Reitz found that arbitration clauses in trust documents may be enforced regarding claims by beneficiaries against trustees. The finding was based on the intent of the settlor, and that mutual assent was satisfied through the theory of direct-benefits estoppel.

Rule 7(a) of the Commercial Arbitration Rules of the American Arbitration Association (AAA) specifies that parties may decide that an arbitrator has the power to decide initial issues, such as “validity, enforceability, and scope of an arbitration agreement.”

However, in  Jody James Farms, JV v. Altman Grp., Inc., the Texas Supreme Court held on May 11, 2018 that an incorporation of the rules of AAA did not send arbitrability issues to the arbitrator as between nonsignatories to an agreement. The Court refused to rules on the issue at it pertain to signatories.

“Arbitrators are generally inclined to keep claims and parties in arbitration where courts may be more unbiased on those issues. So, now, where the beneficiary or trustee does not sign the trust/will, the court will determine these issues and not the arbitrator. This may greatly impact the enforceability of arbitration clauses in trusts and wills in Texas.”

See David Fowler Johnson, The Texas Supreme Court Holds That Incorporating The AAA Rules Does Not Delegate Arbitrability Issues To The Arbitrator for Signatories, Texas Fiduciary Litigator, May 18, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.