Diaz/Bukey–arbitration clause not enforceable against non-settlor beneficiary

Diaz v. Bukey (California Court of Appeal, Second District, 5/10/2011, B225548)

Arbitration clause provision in a trust not enforceable against a non-settlor beneficiary who objects to the clause.

Daniel and Marie Diaz established the Diaz Family Trust. On November 1, 2004, appellant Marie L. Bukey was appointed successor trustee of the Trust. Bukey and respondent Paulette D. Diaz are sisters and beneficiaries of the Trust. The Trust became irrevocable upon the death of the surviving settlor, Marie Diaz, on November 6, 2006.

On May 8, 2009, Diaz’s attorney made a written request that Bukey provide an accounting of the financial activities of the Trust during her tenure as trustee. The accounting Bukey provided was not satisfactory to Diaz. On November 5, 2009, Diaz filed a petition for order removing trustee, appointing successor trustee, and compelling trustee to account and reimburse Trust pursuant to Probate Code section 17200. The petition alleged that Bukey breached her fiduciary duties by failing to provide a proper accounting, failing to distribute the assets of the Trust, and using Trust assets for her personal benefit.

In response, Bukey filed a demurrer and a petition for order compelling arbitration and stay of proceedings. The petition asserted that an arbitration provision contained in the Trust required that Diaz’s claims be settled by binding arbitration.

The arbitration provision states: “Any dispute arising in connection with this Trust, including disputes between Trustee and any beneficiary or among Co-Trustees, shall be settled by the negotiation, mediation and arbitration provisions of that certain LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) entered into by the parties prior to, concurrently with or subsequent to the execution of this Trust. In the event that the parties have not entered into a LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes), then disputes in connection with this Trust shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Any decision rendered either in accordance with the LawForms Integrity Agreement (Uniform Agreement Establishing Procedures for Settling Disputes) or the rules of the American Arbitration Association shall be binding upon the parties as if the decision had been rendered by a court having proper jurisdiction.”

Diaz opposed the demurrer and petition to arbitrate. The trial court issued its order overruling the demurrer and denying the petition to compel arbitration.  Bukey appealed.

On appeal, the Court affirmed that although Diaz was a beneficiary of the trust, Bukey could not enforce the trust’s arbitration clause against Diaz because Diaz objected to arbitration and Diaz was not a signatory to the arbitration clause.

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David Tate, Esq., San Francisco, http://davidtate.us.

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