Neither the Virginia Uniform Arbitration Act nor the Federal Arbitration Act compel arbitration of the parties’ trust dispute.
Both statutes provide for arbitration of contracts. A trust is not a contract. Moreover, a trust beneficiary is not a party to an arbitration agreement.
As a result, a provision in the FAA that requires arbitration, if there is a written agreement to do so, does not apply.
An irrevocable inter vivos trust created by Strother Anderson divided the trust into three shares for Boyle, his daughter, his son, John, and to the children of his third child, Jerry.
The trust has an arbitration clause, which provides that “‘[a]ny dispute that is not amicably resolved, by mediation or otherwise, shall be resolved by arbitration.’”
After Strother died, Boyle became both the trustee and a trust beneficiary. Linda Anderson, Strother’s widow, alleged that Boyle breached her trustee duties. Linda sought to either remove Boyle as trustee or obtain an order to require her to comply with the trust’s terms.
Boyle moved to compel arbitration. Linda argued that the trust was not a contract and that she had not agreed to resolve the dispute through arbitration.
The circuit court denied Boyle’s motion to compel arbitration. “Boyle filed an interlocutory appeal under Code § 8.01-581.016, which authorizes an appeal from an order ‘denying an application to compel arbitration made under § 8.01-581.02.’”
VUAA not applicable
“Boyle contends that a trust is a contract or agreement, and therefore it falls within the provisions of the VUAA. Linda contests this reading of the statute. …
“The VUAA establishes a public policy in favor of arbitration. … Textually, … the VUAA applies to both a ‘written agreement to submit any existing controversy to arbitration’ and to ‘a provision in a written contract to submit’ a controversy to arbitration. …
“We conclude that a trust does not qualify as a contract or agreement. Trusts are generally conceived as donative instruments.
“The Second Restatement of Trusts, carrying forward the language of the first Restatement of 1935, states that ‘[t]he creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract.’ …
“Beyond this longstanding conception of trusts, contracts and trusts differ in how they are formed. ‘The existence of the contract depends on actual acceptance of an offer. It is founded on mutual assent. A trust is in the nature of a conveyance of an equitable interest, and its formation is not dependent on the beneficiary’s knowledge or acquiescence.’ …
“Additionally, trusts differ from contracts in that ‘[n]o consideration is required for the creation of a trust. … In fact, most trusts are created by gratuitous transfer.’ … A beneficiary’s action against a trustee is properly brought as a claim for breach of fiduciary duty rather than as a breach of contract. …
“[O]wnership of property in a trust differs from ownership of property in a contract. ‘One of the major distinguishing characteristics of a trust is divided ownership of property, the trustee usually having legal title and the beneficiary having equitable title.’ …
“This stands in contrast to the law of contracts, where ‘this element of division of property interest is entirely lacking.’”
“Assuming without deciding that a trustee’s obligations might constitute an ‘agreement’ under the VUAA, the beneficiary of a trust is not a party to a ‘written agreement to submit any existing controversy to arbitration agreement.’
“If the beneficiary has not agreed to submit the case to arbitration, there is no ‘agreement’ and the VUAA does not compel arbitration for a suit brought by the beneficiary of the trust.”
Trusts and FAA
Boyle also relies on the federal FAA to support her argument for arbitration.
“The United States Supreme Court has not addressed the question before us, i.e., whether an arbitration clause in a trust is enforceable under the FAA.
“We perceive nothing in that Court’s precedent – and we acknowledge that the Court has given the FAA a very broad reading – that compels us to depart from the statute’s plain language to reach a conclusion that the FAA applies to an arbitration clause in a trust.
“The FAA by its plain terms applies to contracts. A trust is not a contract. In the absence of contrary binding precedent, and under a straightforward textual interpretation of this statute, we conclude that the FAA does not apply to the arbitration clause at issue here.”
“We conclude that a trust is neither a contract nor an agreement that can be enforced against a beneficiary, and consequently, neither the VUAA nor the FAA compel arbitration.
“Whether an arbitration clause in a trust can be enforced on some basis other than the VUAA or the FAA is not a question before us, and we express no opinion on the point.”
Affirmed and remanded.
Boyle, et al. v. Anderson, Record No. 210382 (McCullough) April 14, 2022. From the Fairfax County Circuit Court (White). Yama A. Shansab (Ferguson Walton & Shansab, on briefs), for appellant. Cloyd Allen Smith (George O. Peterson; Law Office of George O. Peterson, on brief), for appellee. VLW 022-6-022, 8 pp.