McArthur v. McArthur

• Decision Date: 11 March 2014
• Docket Number: A137133
• Parties: Pamela MCARTHUR, Plaintiff and Respondent, v. Kristi MCARTHUR, as Trustee, etc., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

224 Cal.App.4th 651

168 Cal.Rptr.3d 785

Pamela MCARTHUR, Plaintiff and Respondent,

v.Kristi MCARTHUR, as Trustee, etc., Defendant and Appellant.

A137133

Court of Appeal, First District, Division 5, California.

Filed March 11, 2014

Rehearing Denied April 1, 2014

Review Denied June 25, 2014

Brillant Law Firm, Walnut Creek, David J. Brillant, Erica L. Shepard ; Vaught & Boutris, Oakland, and Jon R. Vaught, for Plaintiff and Respondent.

Bergquist, Wood, McIntosh & Seto and Steven N.H. Wood, Walnut Creek, for Defendant and Appellant.

Bruiniers, J.

In 2001, Frances E. McArthur created an inter vivos trust naming her three daughters—Deborah Tamisia, Kristi (Jensen) McArthur and Pamela McArthur—as coequal beneficiaries.¹ Frances amended the trust instrument in 2011, allocating a greater portion of the trust property to Kristi and adding a provision requiring arbitration of disputes. After Frances's death, Pamela sued Kristi, alleging financial elder abuse and claiming the 2011 amendment was invalid due to Kristi's undue influence and Frances's lack of testamentary capacity. Kristi moved to compel arbitration of Pamela's claims under the terms of the 2011 trust amendment. The trial court denied the motion because Pamela was not a signatory to the arbitration agreement. We affirm.

I. BACKGROUND

In 2001, Frances created the Frances E. McArthur 2001 Living Trust, and provided that upon her death the trust estate would be divided equally among her three daughters or their issue. In January 2011, the trust was amended to provide that, upon Frances's death, the trust estate would instead be distributed in accordance with a schedule of specific bequests with Kristi receiving the remainder. The amended trust document (2011 Trust) designated Kristi as a cotrustee and added a "Christian Dispute Resolution" provision that required mediation and if necessary arbitration of "any claim or dispute arising from or related to the Trust as amended."²

Frances died on August 12, 2011. In January 2012, Pamela filed a petition and action contesting the 2011 Trust, seeking removal of the trustee (Kristi), and suing for damages based on financial elder abuse. The pleading alleged that Kristi exercised undue influence over Frances when the 2011 Trust was executed, that Frances lacked testamentary capacity when she executed the amendment, and that Kristi committed financial elder abuse by wrongfully taking property from Frances "by way of donative transfer and testamentary bequests." Pamela sought a declaration that the 2011 Trust was void, compensatory and punitive damages, replacement of Kristi as trustee, and an order disqualifying Kristi as a trust beneficiary pursuant to Probate Code section 259.³

Kristi filed a verified "Response and Objections" supported by multiple exhibits. She described a long history of Deborah's and Pamela's hostility toward her and mistreatment of Frances, which purportedly explained Frances's revision of her estate plan in January 2011. Kristi and the attorney who drafted the 2011 Trust averred that Frances was mentally lucid when she executed the amendment and clearly communicated her testamentary wishes. In June 2011, Frances reportedly met one-on-one with the attorney and confirmed her estate plan with a certificate of independent review.

Kristi moved to compel arbitration of Pamela's claims pursuant to the arbitration provision in the 2011 Trust. The trial court issued a tentative decision, without receiving opposition briefing from Pamela, denying the motion because "[t]here is no evidence that the beneficiaries gave either their consent or consideration to the arbitration clause in order to achieve the status of beneficiary. Thus there is no binding agreement between the parties compelling arbitration." Kristi then filed a "Reply" to the tentative decision, citing Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513, 105 Cal.Rptr.3d 585 ( Suh ) (nonsignatories to an arbitration agreement may be bound by the agreement by equitable estoppel or on a third party beneficiary contract theory) and Estate of Bodger (1955) 130 Cal.App.2d 416, 424–425, 279 P.2d 61 (a trust is a third party beneficiary contract). On the eve of the hearing, Pamela filed an opposition brief citing Schoneberger v. Oelze (App.2004) 208 Ariz. 591, 96 P.3d 1078 ( Schoneberger ),⁴ which held that arbitration clauses contained in trust instruments are generally not enforceable against nonsignatory beneficiaries.

After the hearing on Kristi's motion to compel arbitration, the California Supreme Court decided Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 145 Cal.Rptr.3d 514, 282 P.3d 1217 ( Pinnacle ), which permitted enforcement of an arbitration provision in a condominium development's recorded declaration of covenants, conditions and restrictions. ( Id. at pp. 231–232, 145 Cal.Rptr.3d 514, 282 P.3d 1217.) Kristi filed a supplemental brief addressing the new decision and the trial court heard further oral argument. The court then issued a September 26, 2012 written order denying the motion: "The doctrine of delegated authority to consent articulated in Pinnacle is inapplicable to the case of a trust.... Instead, [Kristi] argued there was ‘implied in fact’ consent. No facts were presented to support such a claim, and this Court does not find that Pinnacle went that far in its decision. [¶] ... [¶] Because there was no evidence that the beneficiaries of this Trust gave either their consent to or consideration for the arbitration provision in order to become beneficiaries, the motion to compel arbitration must be denied." The court denied Kristi's motion for reconsideration.

II. DISCUSSION

"A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract." ( Code Civ. Proc., § 1281.) A party seeking to compel arbitration of a dispute "bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. [Citation.] Where ... the evidence is not in conflict, we review the trial court's denial of arbitration de novo. [Citation.]" ( Pinnacle, supra, 55 Cal.4th at p. 236, 145 Cal.Rptr.3d 514, 282 P.3d 1217.)

There are circumstances in which nonsignatories to an agreement containing an arbitration clause can be compelled to arbitrate under that agreement. ( Suh, supra, 181 Cal.App.4th at p. 1513, 105 Cal.Rptr.3d 585.) Whether an arbitration agreement is operative against a nonsignatory is likewise reviewed de novo. ( Id . at p. 1512, 105 Cal.Rptr.3d 585.)

A. Out-of-state Authority

No published California decision addresses the precise issue before us—whether an arbitration clause in a trust document can bind a beneficiary.⁵ Nor is there a great deal of case law on the subject from other jurisdictions. Two relatively recent out-of-state decisions, however, address the issue and may provide useful guidance. The Arizona Court of Appeal held that, although a trust instrument required arbitration, the beneficiaries were not bound to arbitrate because the trust document was not a "contract" subject to the state's general arbitration statute.⁶ ( Schoneberger, supra, 96 P.3d at p. 1079.) The Texas Supreme Court held, based on the wording of that state's arbitration law, that a trust beneficiary can be bound to arbitrate whether or not the trust document is considered to be a contract. ( Rachal v. Reitz (Tex.2013) 403 S.W.3d 840, 842 ( Rachal ).)

Schoneberger arose from a suit by two beneficiaries of irrevocable inter vivos trusts against the settlors and trustees, alleging mismanagement and dissipation of trust assets. ( Schoneberger, supra, 96 P.3d at pp. 1079–1080.) As we have noted, the court held an arbitration provision in the trust documents was unenforceable under the Arizona general arbitration statute, which applied (with respect to predispute arbitration agreements) to "a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties." ( Ariz.Rev.Stat. § 12–1501, italics added; see Schoneberger, at pp. 1079, 1082.) The court found the statutory language determinative: "Consistent with the wording of [ Arizona Revised Statutes section] 12–1501, Arizona courts have recognized that the fundamental prerequisite to arbitration is the existence of an actual agreement or contract to arbitrate. [Citations.]" ( Schoneberger, at p. 1082.) The court further noted that under Arizona law, "an inter vivos trust is not a contract," and that it had previously "discussed the distinctions between a trust and a contract. We explained that a beneficiary of a trust receives a beneficial interest in trust property while the beneficiary of a contract gains a personal claim against the promissor. Moreover, a fiduciary relationship exists between a trustee and a trust beneficiary while no such relationship generally exists between parties to a contract. [Citation.] Drawing on the Restatement (Second) of Trusts (1959), we further noted: "... The creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract. [Citation.]" ( Schoneberger, at pp. 1082–1083.) Since the arbitration provision was contained in a trust, it was not enforceable against the nonsignatory beneficiaries under then applicable state law, regardless of the settlor's intent or the trustee's consent to arbitration.⁷ ( Id. at pp. 1083–1084.)

The Texas Supreme Court reached a different conclusion based on statutory language and trust beneficiary conduct in a case where an irrevocable inter vivos trust beneficiary sued the trustee for misappropriation of trust assets. ( Rachal, supra, 403 S.W.3d at p. 842.) The court held that an arbitration provision in the trust was enforceable against the beneficiary...