Schmitz v. MERRILL LYNCH, PIERCE, FENNER
405 Ill. App. 3d 240
| Ill. App. Ct. | 2010Background
- Plaintiffs are beneficiaries under the Marvin F. Huth Revocable Trust; trustees were Marvin Huth and Shirley Huth.
- The Trust deposited over $2.364 million with Merrill Lynch via James Maher.
- After Marvin Huth's death in 2004 and Patricia Bartsokas-Huth becoming trustee, allegations arose of substantial withdrawals depleting the Trust by Patricia.
- The first amended complaint (Oct 26, 2009) asserts breach of fiduciary duty and professional negligence against Merrill Lynch and Maher for unauthorized withdrawals.
- Three trust/agency documents (First CRA undated, Second CRA June 21, 2001, Third CRA June 8, 2004) include arbitration clauses.
- Circuit court denied the motion to dismiss and compel arbitration on Mar. 5, 2010; order lacked findings; defendants timely appealed Apr. 1, 2010.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs are bound by arbitration clauses in the CRAs | No contractual relation binds them; trustees act independently. | Arbitration clauses bind all who signed or agreed to terms; beneficiaries are bound. | No; plaintiffs have no contractual relationship and cannot be compelled to arbitrate. |
| Whether trustees can bind beneficiaries to arbitration | Trustees act as principals; beneficiaries are not liable for contracts signed by trustees. | Trustees, in managing the Trust, can bind beneficiaries to agreements under the CRAs. | No; beneficiaries were not acting through or as agents in signing the CRAs. |
| Whether plaintiffs are third-party beneficiaries of the CRAs | No express provision shows intention to benefit plaintiffs directly. | CRAs bind all signatories; beneficiaries should be encompassed. | No; no express provision or intent to benefit plaintiffs; not third-party beneficiaries. |
Key Cases Cited
- Kessler, Merci, & Lochner, Inc. v. Pioneer Bank & Trust Co., 101 Ill.App.3d 502 (1981) (trustee as agent; beneficiaries liable only if they retain control)
- Barkhausen v. Continental Illinois National Bank & Trust Co. of Chicago, 3 Ill.2d 254 (1954) (trustee may bind others only if acting as agent)
- Merchants National Bank of Aurora v. Frazier, 329 Ill.App.3d 191 (1946) (trustee personally liable on contracts absent limitation)
- Wheeling Trust & Savings Bank v. Tremco Inc., 153 Ill.App.3d 136 (1987) (express intent required to create third-party beneficiary)
- Hollingshead v. A.G. Edwards & Sons, Inc., 396 Ill.App.3d 1095 (2009) (motion to compel arbitration standard when decided on documents)