Ali v. Smith, 554 S.W.3d 755 (Tex. App.—Houston [14th Dist.] 2018, no pet.).
Testator’s will contained a provision requiring
arbitration of all disputes which read as follows:
If a dispute arises between
or among any of the beneficiaries of my estate, the beneficiaries of a
trust created under my Will, the Executor of my estate, or the Trustee
of a trust created hereunder, or any combination thereof, such dispute
shall be resolved by submitting the dispute to binding arbitration. It
is my desire that all disputes between such parties be resolved amicably
and without the necessity of litigation.
Successor Administrator sued Former Executor for
several alleged breaches of fiduciary duty. Former Executor moved to
compel arbitration. The trial court denied the motion and Former
Executor appealed.
The appellate court affirmed. The court recognized
that the Texas Supreme Court in Rachal v. Reitz, 403 S.W.3d 840
(Tex. 2013), enforced an arbitration clause in a trust against the
beneficiaries because although they did not affirmatively consent to the
clause, they were deemed to do so on based on the theory of
direct-benefits estoppel. The court rejected the argument that Successor
Administrator’s actions of attempting to enforce the will by suing him
for breach of duty and accepting payment of attorney fees triggered
direct-benefits estoppel. The court explained that Successor
Administrator’s claims are not based on allegations that Former Executor
violated the terms of the will. Instead, the breach of fiduciary duty
claims against Former Executor were derived from statutes and common
law, irrespective of the will itself. In addition, Successor
Administrator’s entitlement to fees is based on Texas Estates Code
§ 352.051, not the will.
A dissenting judge would enforce the arbitration
provision believing that by accepting the appointment as a personal
representative of the estate, each party should be deemed to have
assented to the arbitration provision. This result would also be
consistent with Testator’s intent that all disputes be resolved without
litigation.
Moral: The enforcement of a mandatory
arbitration clause in a will is problematic.