Rachal v. Reitz

• Decision Date: 23 August 2013
• Docket Number: No. 11–0708.,11–0708.
• Parties: Hal RACHAL, Jr., Petitioner, v. John W. REITZ, Respondent.
• Court: Texas Supreme Court

403 S.W.3d 840

56 Tex. Sup. Ct. J. 530

Hal RACHAL, Jr., Petitioner,

v.John W. REITZ, Respondent.

No. 11–0708.

Supreme Court of Texas.

Argued Nov. 7, 2012.

Delivered May 3, 2013.

Rehearing Denied Aug. 23, 2013.

B. Prater Monning III, Catherine A. Brandt, Wynne & Wynne LLP, Wills Point, TX, for Petitioner.

Cariann Abramson, Casey Lee Blair, Paul R. Leake, Paul R. Leake & Associates, Forney, TX, Charles (Chad) E. Baruch, The Law Office of Chad Baruch, Rowlett, TX, Jordan O.S. Holt, Dallas, TX, for Respondent.

Justice GUZMAN delivered the opinion of the Court.

Federal and state policies favor arbitration for its efficient method of resolving disputes, and arbitration has become a mainstay of the dispute resolution process.¹ Today we determine whether these policies render an arbitration provision contained in an inter vivos trust enforceable against the trust beneficiaries. The trust here contained a provision requiring all disputes regarding the trust and the trustee to proceed to arbitration. When a trust beneficiary sued the trustee, the trustee moved to compel arbitration. The trial court denied the motion. The court of appeals, sitting en banc, affirmed, concluding that the provision could not be enforced under the Texas Arbitration Act (TAA) because there was no agreement to arbitrate trust disputes.² We conclude that the arbitration provision contained in the trust at issue is enforceable against the beneficiary for two reasons. First, the settlor determines the conditions attached to her gifts, and we enforce trust restrictions on the basis of the settlor's intent. The settlor's intent here was to arbitrate any disputes over the trust. Second, the TAA requires enforcement of written agreements to arbitrate, and an agreement requires mutual assent, which we have previously concluded may be manifested through the doctrine of direct benefits estoppel. Thus, the beneficiary's acceptance of the benefits of the trust and suit to enforce its terms constituted the assent required to form an enforceable agreement to arbitrate under the TAA. We reverse the judgment of the court of appeals and remand to the trial court to enter an order consistent with this opinion.

I. Background

Andrew Francis Reitz established the A.F. Reitz Trust in 2000, naming his sons, James and John, as sole beneficiaries and himself as trustee. The trust was revocable during Andrew's lifetime and irrevocable after his death. Upon Andrew's death, Hal Rachal, Jr., the attorney who drafted the trust, became the successor trustee.

In 2009, John Reitz sued Rachal individually and as successor trustee, alleging that Rachal had misappropriated trust assets and failed to provide an accounting to the beneficiaries as required by law. Reitz sought a temporary injunction, Rachal's removal as trustee, and damages.

Rachal generally denied the allegations and later moved to compel arbitration of the dispute under the TAA, relying on the trust's arbitration provision. That provision states:

Arbitration. Despite anything herein to the contrary, I intend that as to any dispute of any kind involving this Trust or any of the parties or persons concerned herewith (e.g., beneficiaries, Trustees), arbitration as provided herein shall be the sole and exclusive remedy, and no legal proceedings shall be allowed or given effect except as they may relate to enforcing or implementing such arbitration in accordance herewith. Judgment on any arbitration award pursuant hereto shall be binding and enforceable on all said parties.

The trust further provided that “[t]his agreement shall extend to and be binding upon the Grantor, Trustees, and beneficiaries hereto and on their respective heirs, executors, administrators, legal representatives, and successors.”

The trial court denied Rachal's motion to compel and Rachal filed this interlocutory appeal. SeeTex. Civ. Prac. & Rem.Code § 171.098(a)(1) (authorizing interlocutory appeal for orders denying applications to compel arbitration). A divided court of appeals, sitting en banc, affirmed the trial court's order. 347 S.W.3d 305, 312. The court of appeals held that a binding arbitration provision must be the product of an enforceable contract between the parties, reasoning that such a contract does not exist in the trust context, in part because there is no consideration and in part because the trust beneficiaries have not consented to such a provision. Id. at 308, 310–11. The court further concluded that because there is no contractual agreement to arbitrate in this context, it is for the Legislature, rather than the courts, to decide “whether and to what extent the settlor of this type of a trust should have the power to bind the beneficiaries of the trust to arbitrate.” Id. at 311–12.

The four dissenting Justices reasoned that further legislation is not necessarily required because a trust can be “a written agreement to arbitrate” within the meaning of the TAA even without the signatures of the beneficiaries and successor trustee. 347 S.W.3d at 312–13 (Murphy, J., dissenting) (quoting Tex. Civ. Prac. & Rem.Code § 171.001(a)). The dissent notes that the TAA does not require a formal contract to arbitrate but only a written agreement, a broader term that includes legal contracts but also less formal agreements. Id. The dissent concludes that, because the Legislature chose the broader term “agreement” in the TAA, rulings in other jurisdictions that arbitration provisions in trusts are unenforceable are inapplicable to arbitration provisions under the TAA. Id. at 313–14. We granted the trustee's petition to decide whether an arbitration provision under the TAA in an inter vivos trust is enforceable against trust beneficiaries.³

II. Discussion

A. Standard of Review

Rachal moved to compel arbitration under the TAA, which provides that a “written agreement to arbitrate” is enforceable if it provides for arbitration of either an existing controversy or one that arises “between the parties after the date of the agreement.” Tex. Civ. Prac. & Rem.Code § 171.001(a). As a threshold matter, a party seeking to compel arbitration must establish the existence of a valid arbitration agreement and the existence of a dispute within the scope of the agreement. Meyer v. WMCO–GP, LLC, 211 S.W.3d 302, 305 (Tex.2006).

We review de novo whether an arbitration agreement is enforceable. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex.2009). When reviewing a denial of a motion to compel arbitration, we defer to the trial court's factual determinations that are supported by evidence but review the trial court's legal determinations de novo. Id.

This case also requires us to construe a statute. Our primary goal in construing a statute is to give effect to the Legislature's intent. Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 452 (Tex.2012); TGS–NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex.2011). We defer to the plain meaning of a statute as the best indication of the Legislature's intent unless a different meaning is apparent from the context of the statute or the plain meaning would yield absurd results. Molinet v. Kimbrell, 356 S.W.3d 407, 411 (Tex.2011). Moreover, we determine legislative intent from the entire act, not merely from isolated portions. Ruttiger, 381 S.W.3d at 454;TGS–NOPEC, 340 S.W.3d at 439.

B. Trusts and the TAA

Rachal echoes the dissenting justices' view that the TAA does not require a formal contract but rather only an agreement to arbitrate future disputes. Reitz argues that even if the TAA requires only an agreement to arbitrate—as opposed to a formal contract—the trust instrument here does not meet that less exacting standard because it lacks mutual assent and unity in thought between its parties. We agree with Rachal.

1. Settlor's Intent

Generally, Texas courts endeavor to enforce trusts according to the settlor's intent, which we divine from the four corners of unambiguous trusts. Frost Nat'l Bank of San Antonio v. Newton, 554 S.W.2d 149, 153 (Tex.1977); see also Huffman v. Huffman, 161 Tex. 267, 339 S.W.2d 885, 888 (1960) (“Assuming that there is a valid will to be construed, it is the place of the court to find the meaning of such will, and not under guise of construction or under general powers of equity to assume to correct or redraft the will in which testator has expressed his intentions.” (quotation marks omitted)). We enforce the settlor's intent as expressed in an unambiguous trust over the objections of beneficiaries that disagree with a trust's terms. Newton, 554 S.W.2d at 153. For example, in Newton, a trust provided for a portion of the trust to be distributed for the education of certain student beneficiary relatives, with excess income paid during the life of the trust to other relatives who would receive the ultimate distribution when the trust terminated. Id. at 151–52. The trust provided that the trustee could terminate the trust if the income was insufficient. Id. at 151. When the student beneficiaries completed their education, the ultimate beneficiaries argued the trust should be terminated because its primary purpose had been accomplished. Id. at 153. But we noted the additional purpose of the trust was the payment of excess income to those ultimate beneficiaries and refused to distinguish between the two purposes as primary or secondary because it would require venturing beyond the settlor's intent in the express language of the trust. Id. at 154. Accordingly, we enforced the trust with the restriction that the settlor intended: that the trust only terminate when the income was insufficient. Id.; see also Moore v. Smith, 443 S.W.2d 552, 555–56 (Tex.1969) (assessing settlor's intent by examining the four corners of the trust).

Here, the settlor unequivocally stated his requirement that all disputes be arbitrated. He specified that, “[d]espite anything herein to the contrary,” arbitration would be “the sole and exclusive remedy” for “any dispute of any kind involving...