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Court Affirmed Arbitration Decision Because Multiple Documents Regarding The Resignation And Appointment Of A Trustee Constituted One Large Transaction

In Ruff v. Ruff, a beneficiary of a trust sued a former trustee, and that dispute was sent to arbitration. No. 05-18-00326-CV, 2020 Tex. App. LEXIS 6344 (Tex. App.—Dallas August 11, 2020, no pet. history). After the arbitration ruled for the beneficiary, awarding her over $49 million, the former trustee appealed arguing that the dispute should not have been sent to arbitration.

The court of appeals affirmed the arbitration award. It stated that “it is well-established that one document containing an arbitration clause is sufficient to require arbitration of claims arising under other documents—if they are part of one transaction.” The court then described the transaction in having three trustees resign and the appointment of a successor trustee:

Here, the Frost Release was part of a larger transaction whereby the prior trustees (Mark, Kelly, and Tracy) resigned and Frost was appointed to replace them. As Mike described to the trial court, this transaction involved an interrelated seven-step process: Mark, Kelly, and Tracy resign as trustees; the resigning trustees ask the Trust protectors to appoint a new trustee; the beneficiaries (including Mike) each waive the thirty-day notice of the trustees’ resignations; the Trust protectors appoint Frost as trustee; Suzann accepts Frost as trustee and executes the Frost Release; each beneficiary, including Mike, signs a release and indemnity agreement; and Frost accepts the trustee position. Each document executed in each step was part of the same transaction and each one was necessary for the transaction to be completed. Consequently, they are construed as a single, unified agreement.

Id. The court then held that the beneficiary’s claims against the former trustee were subsumed in this larger transaction that contained an arbitration clause:

Significantly, each of the Frost transition documents (including the Frost Release and the releases signed by Mike, Tracy, Kelly, and Mark) ratify the FSA. And each of the releases contain an identical arbitration clause. Although Suzann, Mike, Kelly, Tracy, Mark and Frost all signed separate documents, each was for the single purpose of effecting Kelly, Tracy, and Mark’s resignations as co-trustees and Frost’s appointment as successor trustee. When parties include an arbitration clause in one document that is an essential part of the overall transaction, courts presume that they intended the arbitration clause to reach all aspects of the transactions governed by other contemporaneously executed agreements that are part of the same transaction. The single transaction here concerns the issues Mike sought to arbitrate, including the validity and enforceability of the Trust, the FSA’s release, and the acknowledgement and appointment of Frost as successor trustee. And as later discussed, those issues necessarily relate to and are intertwined with Suzann’s counterclaims. Therefore, in this context, Mike’s status as a non-signatory to the specific Frost Release is not dispositive. His March 1, 2010, release, and all the other documents comprising that single transaction, include an arbitration clause in which the parties agree to submit their disputes to arbitration. Mike is a party to that agreement.

Id. The court also held that the claims fell within the scope of the arbitration clause: “In light of the clause’s expansive, inclusive language, we cannot conclude that Suzann’s tort claims are not within its broad scope. Indeed, Mike’s breach of fiduciary duties and related torts are inextricably enmeshed and factually intertwined with the very agreement he claims releases him from liability. Suzann’s claims cannot be made without reference to that contract.” Id. The court also held against the former trustee on the theories of third-party beneficiary and direct-benefits estoppel.

© 2020 Winstead PC.National Law Review, Volume X, Number 266
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About this Author

David Johnson Financial Litigator Winstead Law Firm

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the Texas Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. 

David's financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class...

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