231 A.3d 891
Pa. Super. Ct.2020Background
- Settlor Joseph B. Atkinson Jr. created trusts in 1995; Edward Fackenthal (Trustee) managed the Brady Trust; beneficiary is Carolyn Atkinson Brady.
- In March 2002 Trustee opened a First Union CAP Account for the Brady Trust, signed an account application acknowledging receipt of and agreeing to the CAP Account Agreement and incorporated General Account Agreement; both contained pre-dispute arbitration clauses covering brokerage disputes.
- First Union became Wells Fargo; William J. Michetti was the financial advisor for the Brady Trust brokerage account through 2017.
- In August 2018 Brady (beneficiary) filed objections and a petition to join Wells Fargo and Michetti in Orphans’ Court alleging mismanagement and excessive fees relating to the Brady Trust brokerage account.
- Appellants moved to compel arbitration; the Orphans’ Court overruled their preliminary objections (while stating it might “reconsider” arbitration later) and Appellants appealed.
- The Superior Court held that (1) the Trustee validly agreed to arbitration that covers the claims and (2) Pennsylvania statutes providing for jurisdiction over agents who accept delegation do not bar enforcement of arbitration; it reversed and remanded with instructions to compel arbitration.
Issues
| Issue | Plaintiff's Argument (Brady) | Defendant's Argument (Wells Fargo/Michetti) | Held |
|---|---|---|---|
| 1. Did Trustee enter a valid arbitration agreement binding the Brady Trust? | Trustee didn’t validly assent to an arbitration clause that binds the trust or claims should be brought in Orphans’ Court. | Trustee signed the CAP Account application agreeing to be bound by the CAP and incorporated General Account Agreement containing arbitration. | Held: Yes — Trustee’s signed application and incorporation-by-reference made a valid arbitration agreement binding the trust. |
| 2. Can beneficiary Brady avoid arbitration because she did not sign the account agreements? | Brady, as beneficiary and non-signatory, is not bound and can pursue claims in Orphans’ Court. | The Trust (via Trustee) is the account owner; beneficiary’s rights are subject to contract terms Trustee adopted, including arbitration. | Held: No — beneficiary’s claims against account-related parties fall within the Trustee’s contractual arbitration obligations. |
| 3. Do 20 Pa.C.S. §§ 7206(d) and 7777(d) (jurisdiction over delegates) bar arbitration and require Orphans’ Court resolution? | These statutes create Orphans’ Court jurisdiction over agents and implicitly require claims be litigated in court, not arbitrated. | Statutes only confer jurisdiction and do not prohibit arbitration; arbitration is permitted by trust powers and preempted rules favor arbitration. | Held: Statutes do not bar arbitration; enforcement of arbitration agreements is governed by the Federal Arbitration Act and Pennsylvania law favoring arbitration. |
| 4. Was the Orphans’ Court order overruling preliminary objections and denying arbitration appealable? | The Court merely deferred arbitration and order was not final/appealable. | Order overruled preliminary objections seeking arbitration and is interlocutory but appealable as of right. | Held: Appealable — order explicitly overruled preliminary objections compelling litigation and thus is appealable. |
Key Cases Cited
- Marmet Health Care Center, Inc. v. Brown, 565 U.S. 530 (2012) (Federal policy strongly favors enforcement of arbitration agreements)
- Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983) (federal policy favoring arbitration; courts must enforce valid arbitration agreements)
- Taylor v. Extendicare Health Facilities, Inc., 147 A.3d 490 (Pa. 2016) (FAA preemption over state laws that prohibit arbitration)
- Century Indemnity Co. v. Certain Underwriters at Lloyd’s, London, 584 F.3d 513 (3d Cir. 2009) (contract incorporation by reference can bind non-signatories to arbitration clauses)
- Southwestern Energy Production Co. v. Forest Resources, LLC, 83 A.3d 177 (Pa. Super. 2013) (terms in separately referenced documents are part of the contract)
- Gaffer Insurance Co., Ltd. v. Discover Reinsurance Co., 936 A.2d 1109 (Pa. Super. 2007) (jurisdictional consent language is consistent with arbitration and can provide forum to enforce arbitration)
- Provenzano v. Ohio Valley General Hospital, 121 A.3d 1085 (Pa. Super. 2015) (orders overruling arbitration preliminary objections are interlocutory but appealable)