Wade Harvey, Ex Rel. Alexis Breanna Gladden v. Cumberland Trust And Investment Company, 532 S.W.3d 243

Background

Alexis Breanne Gladden (minor) was the sole beneficiary of an irrevocable trust funded by medical-malpractice settlement proceeds; trustees changed over time and trust assets were later alleged to have been depleted.
In 2009 Cumberland Trust (as Trustee) executed a Pathways Client Agreement with Wunderlich Securities that expressly contained a predispute FINRA arbitration clause; the Trustee and the financial advisor signed the agreement (the beneficiary did not).
In 2012 Alexis’s guardian (Wade Harvey) sued Wunderlich, the financial advisor, and the Trustee alleging negligent management, breach of fiduciary duty, misappropriation, and related claims arising from depletion of the trust corpus.
Wunderlich and the financial advisor moved to compel arbitration under the Client Agreement; the trial court granted the motion and stayed proceedings; the Court of Appeals reversed, holding the Trustee lacked authority to bind the beneficiary to arbitration of future, unasserted claims.
The Tennessee Supreme Court granted permission to review whether a trustee may bind a beneficiary to a predispute arbitration clause by signing an account agreement and, if so, whether the beneficiary here is bound.

Issues

Issue	Plaintiff's Argument (Harvey)	Defendant's Argument (Wunderlich/Alexander)	Held
Whether the Tennessee Uniform Trust Code permits a trustee to enter predispute arbitration agreements	Trustee may only exercise powers expressly granted; Trust only authorizes settling existing claims; predispute arbitration waives jury rights and would breach fiduciary duty	UTC grants trustees broad transactional powers; absent an express prohibition in the trust instrument, trustee may enter predispute arbitration agreements	Trustee authority: Held that the Tennessee UTC grants trustees power to enter predispute arbitration agreements and the Trust Instrument here does not prohibit doing so; trustee had authority to sign the Client Agreement
Whether the Trust Instrument authorized the trustee to agree to arbitration of future/unknown claims	"Claims" in trust refers only to existing claims; "any and all claims" does not cover unasserted future disputes	Trust grants broad powers (contracts, settlement by arbitration) and the phrase "any and all" is broad enough to encompass future claims; practical need to contract with financial institutions implies power to accept standard arbitration clauses	Trust construction: Held the Trust Instrument, read as a whole, authorized the trustee to enter into predispute arbitration; Court rejects the Court of Appeals’ narrow reading of "claim"
Whether a trustee’s execution of a predispute arbitration clause is a per se breach of fiduciary duty	Execution is a per se breach because it waives beneficiaries’ future jury rights without case-specific consideration	Not per se breach; in modern trust management arbitration clauses are common and may be consistent with the prudent investor standard; fiduciary duty is fact-specific	Fiduciary duty: Held no per se breach; trustee may contractually agree to arbitration absent particular facts showing breach
Whether the non-signatory beneficiary is bound to arbitrate claims in this suit	Beneficiary is not bound because trustee is not the beneficiary’s agent and plaintiff sues for tort/fiduciary wrongs, not to enforce the account contract	Under third-party beneficiary/estoppel principles a beneficiary who seeks to enforce benefits of the account agreement must accept its burdens, including arbitration	Third-party binding: Held that a nonsignatory beneficiary may be compelled to arbitrate to the extent the beneficiary’s claims seek to enforce the contract containing the arbitration clause (per Benton). The court remanded to determine which claims (if any) seek to enforce the Client Agreement

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 liberal federal policy favoring arbitration)
AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (U.S. 1986) (arbitrability gateway disputes are for courts unless parties clearly agreed otherwise)
Rodriguez de Quijas v. Shearson/Am. Exp., Inc., 490 U.S. 477 (U.S. 1989) (Securities Act claims may be subject to predispute arbitration)
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (state rules targeting arbitration provisions are preempted if they conflict with FAA)
PaineWebber Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996) (broad arbitration-language can encompass disputes over scope and arbitrability)