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 in a trust enforceable? 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 bene???ciary 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.
Cathy Brandt, an associate with Wills Point’s Wynne & Wynne who represents Rachal, says, “People ought to be able to direct how their money should be handled after they die. And if they want disputes arising out of the distribution of their estates handled in arbitration, that ought to be enforced.”
“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.”