While the rules for compelling or avoiding arbitration are clearly defined for a variety of civil practice areas, the scope of alternative dispute resolution is much less clear in probate law. Is an arbitration clause enforceable in a trust? That question is front and center in Hal Rachal Jr. v. John W. Reitz, a case of first impression argued Nov 7. before the Texas Supreme Court.
“It’s not only a case of first impression, but trust professors everywhere are watching it because it’s the first one anywhere,” says Chad Baruch, a Rowlett solo who represents Reitz, who is the trust beneficiary and the respondent at the high court.
Reitz sued Rachal in probate court to have him removed as trustee, but Rachal moved to compel arbitration under the terms of the trust, according to Rachal’s petition for review by the high court.
The Texas Supreme Court must decide whether an arbitration clause in a trust is an enforceable agreement to arbitrate claims between the trustee and the beneﬁciary under the Texas General Arbitration Act.
In Rachal, a Dallas probate court answered “no” to that question. A majority of the en banc 5th Court of Appeals of Dallas affirmed that decision last year, ruling, “Arbitration is a creature of contract law. However, this type of trust is not a contract. . . . Accordingly, the arbitration provision in the trust document at issue in this case is not enforceable as an agreement to arbitrate.”
Rachal has appealed the case to the high court because he wants the case heard in arbitration, notes his petition for review.
Rachal’s lawyer, B. Prater Monning III, a partner in Wills Points’ Wynne & Wynne, did not return a call seeking comment. But in his petition for review, Rachal argues that general arbitration act validates arbitration agreements.
Reitz argues in his response that the act does not validate arbitration agreements and the 5th Court’s decision should stand.
“If the court rules against us, you’re going to see a proliferation of these arbitration clauses in trust instruments,” Baruch says. “I think there has been an assumption that they’re not enforceable, so people aren’t using them as much.”
--- John Council