Supreme Court Update: The Arc of Litigation Bends Towards Arbitration

In July 2011, the Dallas Court of Appeals ruled — in a rare en banc opinion — that an arbitration clause contained in a testamentary trust could not be enforced because there was no contract with the trust’s beneficiary to arbitrate his claims. Rachal v. Reitz, 347 S.W.3d 305 (Tex App.-Dallas 2011). This morning, the Texas Supreme Court reversed that decision, holding that the beneficiary was bound to arbitrate his claims against the trustee due to the doctrine of direct benefits estoppel. In brief, that doctrine means that if the plaintiff accepts the benefits of the trust, he also has to accept the arbitration clause contained in the trust. In reaching that decision, the Supreme Court noted that the Texas Arbitration Act requires an “agreement” to enforce arbitration, not a “contract” with the claimant. Such an agreement could be satisfied through direct benefits estoppel, as the beneficiary failed to disclaim his interest in the trust, thereby accepting both its benefits and its burdens.

Rachal v. Reitz, No. 11-0708