Hal Rachal, Jr. v. John W. Reitz
403 S.W.3d 840
| Tex. | 2013Background
- Texas Supreme Court addresses whether arbitration in an inter vivos trust can bind a trust beneficiary.
- Trust contains a clause stating disputes involving the trust shall be arbitrated and the remedy shall be arbitration.
- Beneficiary John Reitz sued trustee Hal Rachal for misappropriation and accounting failures; Rachal moved to compel arbitration under the Texas Arbitration Act (TAA).
- Trial court denied arbitration; en banc court of appeals affirmed, holding no enforceable arbitration agreement against the beneficiary in trusts.
- Court examines settlor's intent, mutual assent, and whether direct benefits estoppel can bind a non-signatory to arbitration under the TAA.
- Court holds arbitration provision enforceable against the beneficiary and remands for entry of an order consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there a valid arbitration agreement under the TAA in a trust? | Reitz argues no mutual assent and no contract binding the beneficiary. | Rachal argues the trust language creates a mutual assent to arbitrate and that direct benefits estoppel can bind non-signatories. | Yes; the trust creates a valid arbitration agreement via settlor's intent and direct benefits estoppel. |
| Does the arbitration clause cover disputes arising from the trust? | Reitz contends the clause excludes trustee misconduct claims from arbitration. | Rachal contends the clause intends to arbitrate all disputes involving the trust and parties. | Yes; the scope covers any dispute involving the trust. |
| May direct benefits estoppel bind a beneficiary to arbitration in a trust context? | Reitz argues direct benefits estoppel does not apply without an underlying contract. | Rachal argues estoppel can apply when a beneficiary accepts benefits and sues to enforce terms. | Yes; direct benefits estoppel applies, binding Reitz to arbitration. |
| Is mutual assent manifested by actions other than signed contracts? | Reitz did not sign a contract; assent is lacking. | Reitz's acceptance of benefits and litigation to enforce terms show assent. | Yes; assent can be shown by accepting benefits and litigating under the trust. |
Key Cases Cited
- In re Kellogg Brown & Root, Inc., 166 S.W.3d 732 (Tex. 2005) (direct benefits estoppel applies to enforce arbitration where non-signatory benefits from contract)
- Weekley Homes, L.P. v. in, 180 S.W.3d 127 (Tex. 2005) (direct benefits estoppel binds nonparties who seek substantial benefits from contract)
- FirstMerit Bank, N.A. v. Alvarezes (de los Santos v. Alvarez), 52 S.W.3d 749 (Tex. 2001) (assent to contract terms may be shown by signing or by actions on contract)
- In re U.S. Home Corp., 236 S.W.3d 761 (Tex. 2007) (promissory estoppel-like reasoning in arbitration context)
- Meyer v. WMCO-GP, LLC, 211 S.W.3d 302 (Tex. 2006) (de novo review of arbitration agreement enforceability; scope in favor of arbitration)
- TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011) (statutory interpretation of agreement to arbitrate; broad view of agreement)