Wade Harvey, Ex Rel. Alexis Breanna Gladden v. Cumberland Trust And Investment Company, E2015-00941-SC-R11-CV

Background

Alexis Breanne Gladden (minor) received trust funds from medical-malpractice settlements; the Alexis Breanne Gladden Irrevocable Trust (Trust) was created and a corporate trustee (Cumberland) was appointed.
Cumberland (trustee) executed a Pathways Client Agreement with Wunderlich Securities, which contained a prominent predispute FINRA arbitration clause. Albert Alexander served as the Trust’s financial advisor and signed the agreement.
Alexis (through guardian Wade Harvey) sued Cumberland, Alexander, and Wunderlich alleging depletion/mismanagement of trust assets, breaches of fiduciary duty, negligence, fraud, and related claims. Wunderlich/Alexander moved to compel arbitration under the Client Agreement.
Trial court compelled arbitration; the Court of Appeals reversed, holding the Trust Instrument only authorized arbitration of existing claims, not unknown future disputes. The Tennessee Supreme Court granted review.
The Supreme Court held: (1) the Tennessee Uniform Trust Code (TUTC) grants trustees broad power including the power to enter predispute arbitration agreements unless the trust instrument forbids it; (2) the Trust Instrument here granted broad settlement/arbitration powers and did not prohibit predispute arbitration; (3) a beneficiary who seeks to enforce the underlying contract may be bound by its arbitration clause under third‑party‑beneficiary principles; and (4) remanded for the trial court to determine which claims, if any, seek to enforce the Client Agreement and thus are arbitrable.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a trustee can bind a beneficiary to a predispute arbitration agreement by signing an investment account agreement	Trustee lacks authority to waive beneficiary jury/trial rights; Trust Instrument only allows arbitration of claims after they arise; predispute arbitration breaches fiduciary duty	TUTC grants broad trustee powers; Trust Instrument does not prohibit predispute arbitration; such agreements are ubiquitous and permissible	Trustee had authority under TUTC and the Trust Instrument to enter the predispute arbitration agreement
Whether signing the arbitration clause was a per se breach of fiduciary duty	Entering predispute arbitration waives future rights and is a fiduciary breach as a matter of law	Execution is not per se breach; prudence may require use of financial institutions that require arbitration; FAA policy favors arbitration	Not a per se fiduciary breach; trustee may sign predispute arbitration absent specific facts showing breach
Whether the minor beneficiary is bound by the arbitration clause though she did not sign	Minor’s contracts are voidable; beneficiary cannot be bound without consent	Third-party‑beneficiary/estoppel principles bind a nonsigning beneficiary who seeks benefits of the contract	Minor can be bound to arbitrate to the extent her claims seek to enforce the Client Agreement; minor status does not automatically bar enforcement (state statute preempted by FAA)
Scope: which claims must be arbitrated	All claims should remain in court because beneficiary is not signatory	Claims that seek to enforce the Client Agreement must be arbitrated; other claims may proceed in court	Remand: trial court must decide which of Plaintiff’s claims seek to enforce the Client Agreement and therefore are arbitrable; cannot wholesale refer unrelated claims to arbitration

Key Cases Cited

Benton v. Vanderbilt Univ., 137 S.W.3d 614 (Tenn. 2004) (third‑party beneficiary who seeks to enforce a contract is bound by its arbitration clause)
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (FAA embodies a liberal federal policy favoring arbitration)
AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643 (U.S. 1986) (parties must agree to arbitrate; arbitrability gateway for courts)
Concepcion v. AT&T Mobility LLC, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that single out arbitration agreements for disfavored treatment)
Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477 (U.S. 1989) (predispute arbitration of securities claims enforceable)
Taylor v. Mayo, 110 U.S. 330 (U.S. 1884) (trustee is not an agent of the beneficiary; trustee contracts bind trustee, not beneficiary)