Trust controversy not subject to arbitration

An arbitration clause in a revocable trust agreement cannot be enforced because the trust is best understood as a donative instrument rather than a written contract. Further, the present controversy did not exist when the trust was executed. Finally, plaintiff does not seek an interpretation or enforcement of the trust agreement.

Overview

Plaintiff Kelly is the nephew of defendant Maura Kelly, who executed a power of attorney and a revocable trust in 2014. Plaintiff is the attorney in fact. Ms. Kelly also named plaintiff and defendant Giuliano as co-trustees.

In 2018, Ms. Kelly revoked plaintiff’s power of attorney. She then executed a durable power of attorney, a new medical power of attorney and amended her trust, naming Giuliano and her friend, Thompson, as attorneys in fact and trustees.

Plaintiff filed a multi-count complaint. Several claims were dismissed. Several counts survived relating to breach of fiduciary duties, conspiracy to breach fiduciary duties and conversion. Before the court is defendants’ plea in bar, in which they argue that plaintiff’s remaining claims are subject to an arbitration clause in the trust document.

Defendants rely on the clause’s existence and plaintiff’s consent to the clause as one of the original trustees.

Plaintiff argues that the Virginia Uniform Arbitration Act does not apply because the trust agreement is not a written contract under which he agreed to arbitrate future claims. He notes the trustee agreement is not a contract “but rather a donative instrument, like a will.”

Not binding

Under Code § 8.01-581.01, “‘A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable, and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.’ …

“Because the present controversy was not in existence at the time Ms. Kelly executed the Agreement, it cannot be construed as an agreement to arbitrate the current controversy. …

The Trust Agreement is also not subject to the VUAA because it is not a contract. Contracts typically require both mutual assent and consideration between the parties. … Because a trust agreement, like a will, is the independent act of the settlor, it cannot be considered a contract, and thus, the Agreement is also not subject to the VUAA.”

Further, “Under the Virginia Uniform Trust Code, trustees may ‘resolve a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution[.]’ …

“The arbitrability of Plaintiff’s claims in the present case, tum on this Court’s interpretation of the phrase ‘disputes arising hereunder,’ as written in the Agreement.” After surveying the case law, the court concludes that the phrase “‘disputes arising hereunder’ warrants a narrow interpretation. …

“Because the phrase ‘disputes arising hereunder’ is ambiguous, this Court should first apply the rules of construction and consider the plain meaning of the terms to determine Ms. Kelly’s intent. … According to the plain language, a dispute means ‘a conflict or controversy’ and hereunder means ‘in accordance with this document.’ …

“Thus, applying the plain language, the Agreement clearly requires arbitration of any claim or controversy arising under the Agreement in its entirety.

“Next, because this Court has previously stated that the term ‘arising hereunder’ warrants a narrow application that limits the scope of arbitration to claims seeking either an interpretation of the agreement or to enforce performance of the agreement, this Court must consider whether any of Plaintiff’s claims require interpretation or enforcement of the Agreement.  …

“Count II alleges a breach of fiduciary duty as trustee against Elaine Giuliano. While this requires an analysis of whether Ms. Giuliano breached her duty as trustee, Plaintiff does not seek an interpretation of the Agreement, nor to enforce the Agreement. Similarly, Counts IV and V – Conspiracy to Breach Fiduciary Duty as Trustee and Conspiracy to Breach Fiduciary Duty as Agent – do not allege any ambiguity in the Agreement or ask the Court to interpret or enforce it.

“Count VI, likewise, requests no interpretation or enforcement of the agreement. Because Plaintiff does not seek interpretation or enforcement of the Agreement, none of Plaintiffs claims are arbitrable under the Agreement.”

The plea in bar is denied.

Kelly v. Giuliano, et al., Case No. CL-2020-0007479, Sept. 21, 2020; Fairfax Cir. Ct. (White). Thomas W. Mitchell, Craig S. Brodsky, Patrick J. Kearney, Richard Dezio for the parties. VLW 020-8-104, 6 pp.