In the case of Rachal v. Reitz, 2011 WL 2937442, Case No. 05-09-01422-CV, July 22, 2011, the Settlor of a trust provided in the trust document for mandatory arbitration of any disputes involving the trust. A beneficiary sued the trustee and the trustee moved to compel arbitration under the arbitration provision in the trust instrument. The trial court refused to compel arbitration and that decision was upheld on appeal to the Dallas Court of Appeals.
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. It is for the Texas Legislature to decide whether and to what extent the settlor of this type of a trust should have the power to bind the beneficiaries of the trust to arbitrate any future dispute arising from the trust. We conclude that, on this record, the trial court could have denied the motion to compel and to stay because Rachal did not establish the existence of an agreement to arbitrate pursuant to the TAA.
– Court of Appeals of Texas, Dallas
The Court held that (1) arbitration is a matter of contract; and (2) the trust was not a contract but was a transfer of property. Therefore, the beneficiary of the trust (who did not enter into any contract) was not required to submit to arbitration his claims against the trustee. This appears to be a case of first impression in Texas.
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