Trust Arbitration Before Texas Supreme Court

The Texas Supreme Court heard oral argument on November 7th in a case that could have implications on trust litigation. In Hal Rachal Jr. v John W. Reitz, the high court will decide whether an arbitration clause in a trust instrument is enforceable to require arbitration of claims between a trustee and a beneficiary under the Texas General Arbitration Act.

John Reitz sued Hal Rachel in probate court to have Rachel removed as trustee. However, Rachel moved to compel arbitration of the case because the trust instrument contained a provision requiring arbitration of any disputes. A Dallas probate court ruled that that the arbitration requirement was not enforceable, a decision upheld by the 5th Court of Appeals of Dallas. According to the appellate court, “Arbitration is a creature of contract law. However, this type of trust is not a contract.” The ruling also stated, “the arbitration provision in the trust document at issue in this case is not enforceable as an agreement to arbitrate.”

The Supreme Court agreed to review the appellate court’s decision. Rachel argues in his petition to the Supreme Court that the Texas General Arbitration Act validates arbitration agreements such as the one at issue in the case. Reitz responded that the Act does not make an arbitration provision in a trust instrument enforceable.

“The court’s decision in this case may have an impact upon the practice of trust law and trust litigation,” said Jed Williams, shareholder at Hornberger Fuller & Garza Incorporated. “If the Supreme Court holds that the arbitration provision is enforceable, it is likely that these types of arbitration clauses in trusts will become more commonplace.”

The court is expected to issue a ruling in this case of first impression next year.