Thursday, March 13, 2014

A Family Affair Stays in Open Court

McArthur v. McArthur, No. A137133 (D1d5 Mar. 11, 2014)

A beneficiary of a trust sued her sister, the trustee, for breach of fiduciary duty. The beneficiary claimed that the sister/trustee (who was also a beneficiary), engaged in self-dealing and undue influence when she convinced the settlor—their mother—to amend the trust agreement by affording more benefits, and naming the sister as a co-trustee. At the same time, the trust was amended to include a requirement that any disputes be arbitrated before some Christian dispute resolution outfit. Sister-trustee moved to compel arbitration, but the court denied the motion. The court of appeal affirms. 


Beneficiaries are not signatories to trust agreements, so they generally can’t be compelled to arbitrate. And—after noting a dearth of California authority on the issue and surveying out-of-state cases—the court holds that none of the doctrines that are used to compel non-signatories to arbitrate apply. The most closely applicable one is—perhaps erroneously called—equitable estoppel, which applies when the non-party accepts the benefits from or tries to enforce the agreement containing the arbitration clause. That doesn’t work here, because the whole point of the beneficiary’s case is that the amendment that contained the arbitration clause is entirely invalid because of the sister/trustee’s wrongdoing. So there’s no “fast and loose” issue, where the beneficiary is standing on part of an agreement, while disavowing an arbitration obligation contained in the same deal. Nor do other doctrines, such as those based on delegated consent or third party beneficiary theories, apply.

Affirmed.

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