Amended James Leibe Watson Trust.

• Decision Date: 28 April 2011
• Docket Number: No. 1 CA-CV 10-0432,1 CA-CV 10-0432
• Parties: In Re the Matter of the: AMENDED JAMES LEIBE WATSON TRUST. LISA HULL, as Parent and Natural Guardian for CARTER WATSON, Petitioner/Plaintiff Appellee, v. VINTON PHILIP WATSON, individually and as trustee; VICTOR JERRY CROSETTI, JR., individually and as trustee; TOBY SWANSON, individually and as trustee, Respondents/Defendants/ Appellants.
• Court: Arizona Court of Appeals

In Re the Matter of the AMENDED JAMES LEIBE WATSON TRUST LISA HULL, as Parent and Natural Guardian for CARTER WATSON, Petitioner/Plaintiff Appellee, v. VINTON PHILIP WATSON, individually and as trustee VICTOR JERRY CROSETTI, JR., individually and as trustee; TOBY SWANSON, individually and as trustee Respondents/Defendants/ Appellants.

No. 1 CA-CV 10-0432

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT A

Dated: April 28, 2011

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication-Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. PB2009-002628

The Honorable Barbara A. Hamner, Commissioner

REVERSED AND REMANDED

Bryan Cave LLP

By William W. Pearson

Jacob A. Maskovich

Catharine M. Lockard

Attorneys for Respondents/Defendants/Appellants

Phoenix

Lewis and Roca LLP

By George L. Paul

Attorneys for Petitioner/Plaintiff/Appellee

Phoenix

WINTHROP, Judge

¶1 Vinton Philip Watson, Victor Jerry Crosetti, Jr., and Toby Swanson (collectively "Appellants") appeal the court's ruling denying their motion to compel arbitration and dismiss the action. Appellants argue that the alternative dispute resolution procedure set forth in a prior settlement agreement between the instant parties required the court to dismiss the claims of Lisa Hull as parent and guardian of Carter Watson ("Appellee") and to compel arbitration. Appellants also argue that the testimony of attorney Stephen Griffith should have been precluded by the parol evidence rule. For the following reasons, we reverse and remand with instructions.

FACTS AND PROCEDURAL BACKGROUND

¶2 The James Liebe Watson Trust ("the original trust") was created in 2002. The beneficiaries of this trust, generally, were Watson's wife Diana E. Watson, his two children, Jove and Georgia Watson, and their descendants.¹ In the subsequent years, two separate lawsuits were brought against the trustees of the original trust; one in Oregon and the other in Hawaii. As a result of the lawsuits, all of the parties in the instant dispute (with the exception of a later appointed trustee, Toby Swanson) entered a settlement agreement on December 2, 2008 ("the Settlement Agreement").²

¶3 As part of the Settlement Agreement, all parties agreed to execute a "Trust Modification Agreement" which created the Amended James Liebe Watson Trust ("the Amended Trust"). Additionally, all the parties further agreed to: 1) create new subtrusts under the Amended Trust, 2) realign the beneficiaries within each subtrust, 3) stipulate to a dismissal of the pending actions in Oregon and Hawaii, and 4) release all other parties and trustees from "all" claims they had or may have had before the execution of the Settlement Agreement. The Settlement Agreement created two marital subtrusts: the "GST-Exempt Marital Trust" ("Marital Trust 1") established for the benefit of Georgia Watson and her descendants, with Diana Watson actingas trustee, and the Non-Exempt Marital subtrust ("Marital Trust 2"), established for the benefit of Jove Watson and his descendants, with Appellants acting as trustees. The Settlement Agreement determined how each marital trust was to be funded and also mandated that Appellants, as trustees of Marital Trust 2, execute a promissory note in the amount of $900,000.00 in favor of the trustee of Marital Trust 1. Another family trust ("the Son's Exempt Trust") was also created for the benefit of Jove Watson and his descendants, with Appellants as the trustees. The Son's Exempt Trust was to consist of the Brookside Bell Professional Plaza ("Brookside Bell") property located in Arizona, funds in the Brookside Bell custodial account, and cash in an amount equal to the cash surrender value of a specified insurance policy as valued on the "Settlement Closing Date."

¶4 The global agreement between the parties consisted of "[t]his Settlement Agreement with Exhibits A-L." The Trust Modification Agreement was one of the attached exhibits and was also referenced in the body of the Settlement Agreement. The Amended Trust was an exhibit attached to the Trust Modification Agreement. The Settlement Agreement also set forth how each newly established trust was to be managed, provided for the division of any remaining property from the estate of James Liebe Watson, and determined who was responsible for assumingany tax liabilities as a result of the Settlement Agreement. The Settlement Agreement also contained the following provision:

[The Settlement Agreement] shall be interpreted according to the law of Oregon. The Trust and Modification Agreement shall be governed by the law of Arizona. If there is any dispute related in any way to the subject matter of [the Settlement Agreement], the exclusive venue for resolution of the dispute shall be Maricopa County, Arizona.

¶5 The Settlement Agreement also contained a detailed procedure for alternative dispute resolution ("ADR"). The Settlement Agreement set forth the following purpose for the inclusion of an ADR procedure:

The Parties recognize that differences may arise among or between them at any time and from time to time. In an effort to resolve these disputes quickly and keep the costs associated with the resolution of disputes to a minimum, the Parties agree [to the following ADR procedure].

(Emphasis added). The ADR procedure states that if:

any Party or Parties [] objects to any action or inaction by another Party or Parties... [the non-objecting party] shall have the right to cure any such Objections within 60 days ("Cure Period") following delivery of the Objection Notice.

(Emphasis added). If the objections are not cured within sixty days, the ADR procedure requires the parties to engage in mandatory mediation, and if that should fail, to engage inmandatory arbitration. The Settlement Agreement then provides that "[a]ll Objections and any other disputes relating to this [Settlement Agreement] ("Claims") shall be arbitrated according to the provisions of the Federal Arbitration Act and applicable Oregon law." (Emphasis added). Any arbitration proceedings are to be held in Oregon. Finally, the Settlement Agreement provides:

Each Party voluntarily and knowingly waives any and all of its rights to have any Claims heard or adjudicated in any type of forum other than arbitration... Examples of Claims which must be resolved through arbitration rather than a court proceeding include... for breach of fiduciary duty, demands for accountings or information, and requests for instructions by fiduciaries.

The Settlement Agreement was expressly intended to be the final and complete expression of agreement between all parties regarding the subject matter set forth therein.

¶6 The Amended Trust makes no mention whatsoever of the Settlement Agreement or of any ADR procedure. The Amended Trust also provides that it is governed by Arizona law.

¶7 On December 30, 2009, Appellee filed a complaint against Appellants. Appellee requested: removal of Appellants as trustees of Son's Exempt Trust (Count I); a finding of breach of fiduciary duties by Appellants for threatening to "sell" Brookside Bell to Marital Trust 2 in exchange for theforgiveness of a debt owed to it (Count II); creation of a constructive trust for Appellee's benefit in which any potential proceeds from the threatened sale of the Brookside Bell property would be placed (Count III); modification of the Amended Trust (Count IV); and issuance of declaratory relief (Count V). Appellants filed myriad responses, one of which was a motion to dismiss the complaint and to compel arbitration as required by the Settlement Agreement.

¶8 The court issued a stay precluding Appellants from completing the proposed Brookside Bell transaction, and then held a hearing on February 12, 2010. Over Appellants' objection, Stephen Griffith-Jove Watson's attorney during the negotiation of the Settlement Agreement-testified that the ADR procedure in the Settlement Agreement was limited and only applied to claims arising from the Settlement Agreement itself and not to any claims arising from the Amended Trust. In contrast, Appellant Vinton Watson, a party to the Settlement Agreement, testified that the ADR procedure in the Settlement Agreement was designed to apply to all future claims arising out of the Settlement Agreement and Amended Trust.

¶9 The court ultimately found that the ADR procedure did not apply to claims arising from the Amended Trust and deniedAppellants' motion to dismiss and compel arbitration. The order was signed on June 14, 2010. Appellants timely appealed.

¶10 We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(B) (2003).

DISCUSSION

¶11 On appeal, Appellants argue that the ADR procedure applies to the claims at bar, and that the court erred in not granting their motion to dismiss the complaint and compel arbitration. Alternatively, Appellants contend that, at the very least, Counts I and V of Appellee's complaint are subject to the Settlement Agreement's ADR procedure and that all other court proceedings should be stayed throughout the pendency of the resulting arbitration. Appellants also argue that the Settlement Agreement is a completely integrated agreement, and therefore, under the parol evidence rule, the court erred in allowing the testimony of Stephen Griffith.

¶12 We review decisions concerning the validity and scope of an arbitration clause de novo. See First Investors Corp. v. Am. Capital Fin. Serv., Inc., 823 F.2d 307, 309 (9th Cir. 1987); accord ELM Ret. Ctr., LP v. Callaway, 226 Ariz. 287, 290, ¶ 15, 246 P.3d 938, 941 (App. 2010). We also recognize that both federal and state public policies weigh heavily in favor of enforcing arbitration agreements. See Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc., 165 Ariz. 25, 29-30, 795 P.2d...