Monday, January 23, 2012

Dallas Court of Appeals Goes Against Arbitration Trend

Over the past few years, Texas courts have been busily encouraging parties to avoid litigation in favor of binding arbitration. Enforcement of arbitration clauses against parties who did not enter into a written agreement is sometimes possible. In some contexts, arbitration has also been required of third parties who were the “intended beneficiaries” of another party’s contract.

But in Rachal v. Reitz, 347 S.W.3d 305 (Tex. App.—Dallas 2011, pet. filed), the Dallas appellate court found that a clause in the settlor’s trust instrument requiring arbitration of disputes between the trustee and the beneficiaries was not enforceable. The panel of judges took the position that the trust’s beneficiaries were not parties to the trust instrument; as a result, they had not agreed to waive their right to litigation and could not be required to arbitrate their claims.

The case has been submitted for review by the Texas Supreme Court. Stay tuned for future updates.

Article by Cynthia W. Veidt, Attorney