In my alert of April 3, 2014 I reported on the decision in McArthur v. McArthur (2014) 224 Cal.App.4th 651, holding that beneficiaries who have not expressly or implicitly sought the benefits of a trust cannot be compelled to arbitrate pursuant to an arbitration provision in the trust instrument. Review of the decision was sought in the California Supreme Court. After extending its time to grant or deny the application, the Supreme Court denied review on June 25, 2014, so McArthur remains good law.
Still to come: Can beneficiaries who have accepted the benefits of the Trust be required to arbitrate? As is pointed out in the MacArthur decision, the Texas Supreme Court has answered the question affirmatively: “A beneficiary who attempts to enforce rights that would not exist without the trust manifests her assent to the trust’s arbitration clause.” Rachal v. Reitz (Tex.2013) 403 S.W.3d 840, 847). The California Supreme Court’s apparent dilemma about whether to review the McArthur case could be telling. Its remand of an earlier decision holding an arbitration agreement in a trust to be unenforceable (Diaz v. Bukey – see my Alert dated December 13, 2012) was based on the Court’s decision in Pinnacle Museum Tower Association v. Pinnacle Market Development (2012) 55 Cal.4th 223. That decision enforced an arbitration agreement against members of a condominium association, in large part because the statutory scheme relating to homeowners’ associations provides “various protections to help ensure that condominium purchasers know what they are buying into.” 55 Cal.4th at 238. So, it could be argued, a beneficiary has the option of buying into a trust with an arbitration provision, or not buying in – a dilemma familiar to beneficiaries of instruments with a no-contest clause.
We shall see.