Schoneberger v. Oelze

• Decision Date: 31 August 2004
• Docket Number: No. 1 CA-CV 03-0490.,1 CA-CV 03-0490.
• Citation: 208 Ariz. 591,96 P.3d 1078
• Parties: Isabelle SCHONEBERGER, a single woman, Plaintiff-Appellee, v. J. Phillip OELZE, Sr.; Bert J. Schoneberger and Linda Schoneberger, husband and wife; Anastasia Diane Michas, Defendants-Appellants. Valerie Schoneberger, a single woman, Plaintiff-Appellee, v. J. Phillip Oelze, Sr.; Bert J. Schoneberger and Linda Schoneberger, husband and wife; Anastasia Diane Michas, Defendants-Appellants.
• Court: Arizona Court of Appeals

96 P.3d 1078

208 Ariz. 591

Isabelle SCHONEBERGER, a single woman, Plaintiff-Appellee, v. J. Phillip OELZE, Sr.; Bert J. Schoneberger and Linda Schoneberger, husband and wife; Anastasia Diane Michas, Defendants-Appellants.

Valerie Schoneberger, a single woman, Plaintiff-Appellee, v. J. Phillip Oelze, Sr.; Bert J. Schoneberger and Linda Schoneberger, husband and wife; Anastasia Diane Michas, Defendants-Appellants.

No. -0490.

Court of Appeals of Arizona. Division 1, Department E.

August 31, 2004.

David W. Eagle, Phoenix, for Defendants-Appellants.

Karp, Heurlin & Weiss, P.C., by Brian A. Laird, Tucson, for Plaintiff-Appellee.

OPINION

NORRIS, Acting P.J.

¶ 1 Arizona has enacted legislation validating and enforcing provisions in "written contracts" requiring arbitration of future controversies. See Arizona Revised Statutes ("A.R.S.") section 12-1501 (2003).¹ The issue presented in this appeal is whether an arbitration provision in an instrument establishing an irrevocable inter vivos trust may be enforced against trust beneficiaries who sued the trustors and trustees. We hold the trust beneficiaries are not required to arbitrate their claims because such a trust is not a "written contract" requiring arbitration.

FACTS AND RELEVANT PROCEEDINGS²

¶ 2 Plaintiffs Isabelle and Valerie are the daughters of defendant Bert J. Schoneberger ("Bert"). On or about January 1, 1991, Bert and his wife, defendant Linda Schoneberger ("Linda") created three irrevocable inter vivos trusts: the Schoneberger Trust, the Isabelle Schoneberger Trust ("Isabelle Trust"), and the Valerie Schoneberger Trust ("Valerie Trust"). At the time the Trusts were created, Isabelle and Valerie were eleven and ten years old respectively. Each daughter was the sole beneficiary of her namesake trust and both were beneficiaries of the Schoneberger Trust along with their step-sister Adrienne Lundgren.³ Defendant J. Phillip Oelze, Sr. was the sole trustee of the Isabelle Trust and the Valerie Trust and a co-trustee with Defendant Anastasia Diane Michas of the Schoneberger Trust.

¶ 3 Each Trust document contained an arbitration provision. The provisions were identical, and provided as follows:

Any dispute arising in connection with this Trust, including disputes between Trustee and any beneficiary or among Co-Trustees, shall be settled by the negotiation, mediation and arbitration provisions of that certain LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) entered into by the parties prior to, concurrently with or subsequent to the execution of this Trust. In the event that the parties have not entered into a LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes), then disputes in connection with this Trust shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Any decision rendered either in accordance with the LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) or the rules of the American Arbitration Association shall be binding upon the parties as if the decision had been rendered by a court having proper jurisdiction.

¶ 4 The "LawForms Integrity Agreement for a Family" (the "Integrity Agreement"), referenced in the arbitration clauses, was signed by Bert, Linda and Oelze, but not by Michas. It sets out in minute detail dispute resolution procedures. These procedures were ordered in "progressive stages of increasing complexity and involvement," beginning with a "Stage One-Notice of Discomfort" and ending with a "Stage Six-Arbitration."

¶ 5 In 2002, Isabelle and Valerie filed separate, but similar, lawsuits against Bert, Linda, Oelze and Michas. Asserting claims of breach of trust, conversion and fraudulent concealment, Valerie and Isabelle accused the defendants of mismanaging and dissipating trust assets. Among other relief, each daughter demanded an accounting.

¶ 6 Defendants answered the complaints, denied the allegations of wrongdoing and alleged that Valerie's and Isabelle's claims were subject to mandatory arbitration. After the two cases were consolidated, defendants filed a motion to dismiss that was in substance a motion to compel arbitration under A.R.S. § 12-1501. Section 12-1501 provides:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.

(emphasis added).⁴

¶ 7 The defendants asserted the arbitration clauses in the Trust documents constituted "provisions in a written contract" requiring arbitration, and although Valerie and Isabelle were not signatories to the Trusts or the Integrity Agreement, they were nevertheless obligated to arbitrate as "third-party beneficiaries." Alternatively, they contended Valerie and Isabelle were equitably estopped from objecting to arbitration as they were affirmatively seeking benefits under the Trusts.

¶ 8 Valerie and Isabelle opposed defendants' motion to compel arbitration. They argued the arbitration provisions were unenforceable because the Trusts were not contractual agreements. They also asserted that, as non-signatories to the Trust documents, they had never agreed to arbitrate their claims against the defendants.

¶ 9 The trial court denied the defendants' motion and held that Valerie and Isabelle were not bound by the arbitration provisions of the Trusts. The court ruled that arbitration is "contractual by nature" and that the nature of Valerie's and Isabelle's relationship with the defendants was not contractual "as the creation of a trust is concerned with a conveyance of the beneficial interest in the trust property."

¶ 10 This appeal followed.

DISCUSSION

¶ 11 Defendants argue here, as they did in the trial court, that the Trusts were written contracts subject to A.R.S. § 12-1501, and the only "real question" we must resolve is whether the "absence of the signature [sic] of [Valerie and Isabelle] permits them to escape enforcement of the arbitration provisions contained in the Trust agreement[s]." They answer this question with a vigorous "no," contending Valerie and Isabelle are bound by the arbitration provisions in the Trusts as third-party beneficiaries, or alternatively, are equitably estopped from avoiding arbitration.⁵

¶ 12 Whether A.R.S. § 12-1501 applies in this situation and entitles the defendants to arbitration presents a question of law. Thus, our review is de novo. Bennett v. Appaloosa Horse Club, 201 Ariz. 372, 375, ¶ 11, 35 P.3d 426, 429 (App.2001) (enforceability of forum selection clause subject to de novo review).

¶ 13 In support of their third-party beneficiary argument, defendants assert Valerie and Isabelle cannot demand benefits under the Trusts without accepting all of their terms. In making this argument, defendants rely on this Court's decision in Jeanes v. Arrow Insurance Company, 16 Ariz.App. 589, 494 P.2d 1334 (1972). There, we held that a passenger, who was a third-party beneficiary of an insured's automobile liability policy, was bound by the arbitration provision in the policy even though she was not a party to the policy and had never personally agreed to submit to arbitration. We explained:

The rights involved here were created by that contract [the policy], and in order to accept benefits under that contract she must accept and abide by the terms of the contract.

Id. at 592, 494 P.2d at 1337.

¶ 14 Conceptually similar to their third-party beneficiary argument is defendants' equitable estoppel argument.⁶ In the arbitration context, a nonsignatory to an agreement requiring arbitration may be estopped, that is, barred, from avoiding arbitration if that party is claiming or has received direct benefits from the contract. See generally Int'l Paper Co., 206 F.3d at 418 (nonsignatory may not claim benefits from a contract and simultaneously avoid its burdens); Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir.1999)(party will be estopped from denying obligation to arbitrate when it receives direct benefits from contract containing arbitration clause).

¶ 15 Thus, according to the defendants, whether pegged under a third-party beneficiary or equitable estoppel theory, the end result is the same—Valerie and Isabelle are obligated to arbitrate their claims. Defendants argue:

[Valerie and Isabelle] now claim entitlement to money and benefits arising out of the Trust[s] allegedly misappropriated by Appellees ....

[Valerie and Isabelle] are bound to the terms of the Trust[s] by equitable estoppel even though they are non-signatories. Stated simply, [Valerie and Isabelle] as ... third-party [beneficiaries] cannot pick and choose between paragraphs of the Trust agreement and seek to claim benefits under one paragraph and ignore the express arbitration requirements of a second paragraph.

¶ 16 Under either theory, however, defendants face a fundamental problem that defeats their demand for arbitration: section 12-1501 required defendants to prove the existence of "a provision in a written contract to submit to arbitration." (emphasis added). They failed to make this showing because, as a matter of law, the trusts at issue here were not contracts.

¶ 17 Arbitration is a creature of contract law. AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); DuPont de Nemours and Co., 269 F.3d at 195. This is clear from the very wording of our arbitration statute. It requires arbitration when there is a "written agreement to submit any existing controversy to arbitration" or when there is a "provision in a written contract to submit to arbitration any controversy thereafter arising . . . ." Consistent with the wording of A.R.S. § 12-1501, ...