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III Trust Arbitration as a Matter of National Law, 9 Donative Trusts and the United States Federal Arbitration Act

David Horton

From: Arbitration of Trust Disputes: Issues in National and International Law

Edited By: SI Strong, Tony Molloy (Consultant Editor)

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Arbitrability — Arbitral agreements — Arbitral tribunals — Arbitrators

(p. 203) Donative Trusts and the United States Federal Arbitration Act

I.  Introduction

9.01  In the United States, every reported case grappling with the validity of an arbitration clause in a donative trust1 shares the assumption that state law governs.2 The same is true of the vast majority of scholarship on the topic.3 Conversely, this chapter argues (p. 204) that the Federal Arbitration Act (FAA)4 applies to some trust arbitration provisions. The discussion then explores the consequences that flow from this conclusion.5

9.02  To make the analysis concrete, consider Diggs v Lingo, a Tennessee decision from 2014.6 A farmer named Leon Henderson executed a revocable living trust, naming his friend David Lingo as successor trustee and dividing his estate among Lingo, Ernest Diggs, Barbara Roberts, and four charities.7 The instrument contained a clause entitled ‘Resolution of Conflict’ stating:

Any controversy between the Trustee or Trustees and any other Trustee or Trustees, or between any other parties to this Trust, including Beneficiaries, involving the construction or application of any of the terms, provisions, or conditions of this Trust shall, on the written request of either or any disagreeing party served on the other or others, be submitted to arbitration … [under] the commercial arbitration rules of the American Arbitration Association….8

9.03  After Henderson died, Lingo allegedly abused his power by selling the trust’s real property to himself and his wife, Denise, for a fraction of its appraised value. Diggs and Roberts sued Lingo and Denise for breach of fiduciary duty. In response, Lingo sought to compel arbitration.

9.04  The Chancery Court denied Lingo’s motion for several reasons.9 For one, the court noted that Denise, who held an interest in the land, was a necessary party to the dispute but a stranger to the trust. Although Denise had volunteered to arbitrate, the beneficiaries had rejected this offer, meaning that she was not subject to an agreement to bypass the judicial system. In turn, mandating arbitration of Diggs’s and Roberts’s claims against Lingo while allowing their suit against Denise to unfold in court would create the risk of inconsistent rulings. Moreover, the arbitration clause in Henderson’s trust did not comply with a state law mandating that arbitration clauses in ‘contracts relating to farm property, structures or goods … shall be additionally signed or initialed by the parties’.10 Because no party had authenticated Henderson’s arbitration provision in this manner, it was invalid.11

(p. 205) 9.05  Although the FAA never surfaced in the parties’ briefs or the court’s opinion, it most likely applied. Certainly, the FAA’s centrepiece, section 2, seems only to govern arbitration provisions in contracts that involve interstate commerce.12 Yet the US Supreme Court has read section 2 broadly and has interpreted the FAA to stretch to the full extent of Congress’s Commerce Clause power.13 Thus, Henderson’s trust, which included bequests to various entities outside of Tennessee, such as the Louisiana State University Animal Science Center and the Eastern Band of the Cherokee Nation,14 probably featured the requisite nexus to interstate commerce. Furthermore, rather than insisting that an arbitration clause appear in a binding contract, the Court has merely asked whether the parties have agreed to arbitrate.15 Diggs, Roberts, and Lingo formed the requisite consensual relationship. By accepting distributions or fiduciaries’ fees from Henderson’s trust, they manifested their assent to the terms of that trust, including the arbitration clause.

9.06  The outcome would have been dramatically different under the FAA. First, the FAA requires courts to compel arbitration despite ‘the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement’.16 Indeed, under the vigorous federal policy in favour of arbitration, ‘piecemeal resolution, although unfortunate, is unavoidable and necessary’.17 Thus, Denise’s status as a non-beneficiary would not have exempted Diggs and Roberts from the extrajudicial forum. Second, Diggs and Roberts probably would not have been able to refuse Denise’s offer to arbitrate in a case governed by the FAA because parties to an arbitration clause are ‘estopped from avoiding arbitration with a non-signatory “when the issues the nonsignatory is seeking to resolve … are intertwined with the [underlying] agreement”’.18 Accordingly, Diggs’s and Roberts’s lack of assent to arbitrate their claims against Denise would have been irrelevant because they were complaining about the administration of the very instrument that contained the arbitration provision. Third, the FAA prohibits (p. 206) states from ‘singling out arbitration provisions for suspect status’ by encumbering agreements to arbitrate with requirements that are ‘not applicable to contracts generally’.19 The Tennessee ‘separate signing’ statute is a textbook example of an impermissible attempt to regulate arbitration. Because the FAA would sweep the state law aside, the arbitration provision in Henderson’s trust would have been enforceable.

9.07  In fact, in the topsy-turvy world of the FAA, the Chancery Court might not have even possessed jurisdiction over the matters it decided. As noted earlier, Henderson expressly adopted arbitration rules developed by the American Arbitration Association (AAA) for commercial cases.20 The AAA rules give arbitrators—not judges—the exclusive right to resolve ‘any objections with respect to the existence, scope or validity of the arbitration agreement’.21 Although the law is still evolving, most courts hold that a party’s selection of a particular dispute resolution institution’s internal standards incorporates them by reference into an agreement to arbitrate.22 Accordingly, Henderson’s trust could have been construed to contain a ‘delegation clause’ which passes the torch to the arbitrator to decide every major issue pertaining to the proceeding.

9.08  The rest of this chapter elaborates on these topics. The chapter begins by comparing the evolution of contractual arbitration under the FAA to trust arbitration under state law. It then moves on to explain why these parallel developments are on a collision course. Specifically, the chapter argues that some arbitration provisions in trusts trigger section 2 of the FAA because they arise from contract-like instruments that affect commerce and because the parties’ conduct gives rise to an implicit agreement to arbitrate. Finally, the chapter pays special attention to two thorny problems that are likely to emerge in trust arbitration under the FAA: how to handle the in rem nature of some trust matters and the role of delegation clauses in trusts.

II.  Contractual Arbitration under the FAA

9.09  In the seventeenth and eighteenth centuries, it was next to impossible to obtain specific performance of an agreement to arbitrate a future controversy. Arbitration provisions were seen as illicitly ‘ousting’ the courts’ jurisdiction.23 Likewise, under contract law’s revocability doctrine, a party could withdraw its assent to arbitrate (p. 207) at any time before the arbitrator ruled, sending the dispute back into the judicial sphere.24

9.10  In 1925, Congress passed the FAA to eradicate these anti-arbitration principles and place arbitration clauses ‘upon the same footing as other contracts’.25 The statute accomplishes this goal through section 2, which makes arbitration clauses specifically enforceable as a matter of federal law by stating:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, … or an agreement in writing to submit to arbitration an existing controversy … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.26

9.11  Despite the radical nature of the FAA, the statute’s immediate impact was muted for several reasons. First, the overwhelming consensus was that the statute arose from Congress’s Article III powers and thus applied exclusively in federal court.27 Accordingly, state judges and lawmakers felt free to adopt anti-arbitration measures that echoed the ouster and revocability doctrines.28 Similarly, courts exempted federal statutory claims from the FAA under a federal common law rule known as the non-arbitrability doctrine.29 Courts also exempted public law claims from the statute, citing arbitration’s lay judges, abridged procedures, and narrow appellate rights.30

9.12  But in the last half of the twentieth century, the Supreme Court reversed course. Announcing that the FAA expresses ‘a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary’,31 the Court began to expand the statute’s ambit. Three aspects of this jurisprudence are particularly relevant for my purposes. The first is the separability doctrine.32 Separability allocates power between courts and arbitrators, and proceeds from the legal fiction that every contract that features an arbitration clause is, in fact, two agreements: the larger ‘container’ contract and the arbitration clause, which is its own freestanding contract.33 This bifurcated approach becomes relevant when a party seeks to invalidate all or part of an agreement that contains an arbitration (p. 208) clause. If the party’s legal theory focuses on the arbitration clause specifically—for instance, by asserting that the provision is unconscionable—then a judge resolves the matter.34 But if the claim merely targets the container contract under standard contract defences such as fraud, duress, or mistake, then the sanctity of the independent agreement to arbitrate is unaffected and the dispute is sent to arbitration.35

9.13  Second, despite strong historical evidence to the contrary, the Court held that Congress intended the FAA to apply in state court and override contrary state law.36 Although the contours of FAA pre-emption have always been somewhat ambiguous, the touchstone is section 2’s ‘savings clause’, which declares that judges can refuse to enforce arbitration provisions ‘upon such grounds as exist at law or in equity for the revocation of any contract’.37 According to the Court, this passage means that only ‘generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements’.38 As a result, the FAA eclipses state statutes such as a Montana law that requires drafters to give conspicuous notice on the first page of a contract that it contains an arbitration clause39 and California legislation nullifying arbitration provisions in franchise40 or wage disputes.41 These are not state rules that govern all contracts; rather, they ‘singl[e] out arbitration provisions for suspect status’ and derive ‘meaning precisely from the fact that a contract to arbitrate is at issue’.42

9.14  Third, the Court disavowed the non-arbitrability doctrine. In a parade of cases including Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, Inc.,43 Shearson/Am. Express, Inc. v McMahon,44 Rodriguez de Quijas v Shearson/Am. Express, Inc.,45 and Gilmer v Interstate/Johnson Lane Corp.,46 the Court compelled arbitration of asserted violations of federal securities, antitrust, and anti-discrimination statutes. The Court reasoned that arbitration had blossomed into litigation’s peer, stating that:

[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, (p. 209) rather than a judicial, forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.47

Thus, the Court made clear that it would no longer be persuaded by ‘generalized attacks’ that cast ‘arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants’.

III.  Trust Arbitration under State Law

9.15  In sharp contrast to the FAA’s expansive treatment of arbitration clauses in contracts, the status of arbitration provisions in estate plans has never been clear. This section describes this long-standing disparity.

9.16  Although the ouster and revocability doctrines held sway in the field of contractual arbitration during the late nineteenth and early twentieth centuries, courts were less concerned about arbitration clauses in wills.49 The tradition of testamentary freedom in the United States meant that judges were accustomed to allowing owners to leave their possessions as they wished. For instance, courts usually upheld conditional bequests allowing beneficiaries to inherit only if they marry particular individuals or achieve prescribed goals.50 Likewise, most jurisdictions enforced no-contest clauses disinheriting anyone who filed litigation relating to the decedent’s property.51 To some judges, a mandate that beneficiaries arbitrate claims seemed no different than these standard estate planning techniques. For example, in the 1886 case of Moore v Harper, the West Virginia Supreme Court honoured an arbitration provision in a will, reasoning that ‘[t]he testator has full dominion over his property with the absolute right … to do with and dispose of it in any manner or to whomever his will or caprice may suggest.’52

9.17  But after Congress passed the FAA, something curious happened: judges became increasingly hostile to testamentary arbitration. Some noted a tension between certain probate matters and arbitration. For example, issues relating to the validity (p. 210) of a testamentary instrument are in rem: rather than merely settling in personam rights of individuals, the judgment attaches to the decedent’s property and is ‘good against the world’.53 As a result, probate courts generally cannot hold hearings unless the petitioner has published notice or attempted to inform all affected parties of the proceeding.54 Some judges held that these time-consuming, formal requirements were inconsistent with the streamlined nature of private dispute resolution and refused to compel arbitration of incapacity and undue influence claims.55 Others held that the state legislature had given probate courts exclusive jurisdiction over estate-related issues—a rationale that is indistinguishable from the ouster doctrine.56

9.18  Finally, well into the second half of the twentieth century, some courts invoked the then-moribund non-arbitrability doctrine. For instance, in In re Fellman57—decided after key US Supreme Court cases on arbitrability, including Mitsubishi Motors,58 McMahon,59 Rodriguez de Quijas,60 and Gilmer61—a Pennsylvania appellate court refused to send an incapacity claim to the private tribunal, reasoning that arbitration was inferior to litigation and stating:

the factfinding process in arbitration usually is not equivalent to judicial factfinding. The record of the arbitration proceedings is not as complete; the usual rules of evidence do not apply; and rights and procedures common to civil trials, such as discovery, compulsory process, cross-examination, and testimony under oath, are often severely limited or unavailable. And as this [c]ourt has recognized, [a]rbitrators have no obligation to the court to give their reasons for an award.62

(p. 211) 9.19  Then, starting in the mid-2000s, courts began to cite a different reason to annul trust arbitration clauses. Appellate panels in Arizona, California, the District of Columbia, and Texas began to interpret their state arbitration statutes to only apply to ‘contracts’, holding that:

[a]rbitration rests on an exchange of promises. Parties to a contract may decide to exchange promises to substitute an arbitral for a judicial forum … In contrast, a trust does not rest on an exchange of promises. A trust merely requires a trustor to transfer a beneficial interest in property to a trustee who, under the trust instrument … holds that interest for the beneficiary. The undertaking between trustor and trustee does not stem from the premise of mutual assent to an exchange of promises and is not properly characterized as contractual.63

However, three of these cases have since been vacated or overruled, a development that only adds to the uncertainty in this area of law.

9.20  In sum, there has long been confusion about whether trust arbitration clauses are valid. But as discussed in the following paragraphs, most of these jurisdiction-specific authorities are beside the point. Many trust arbitration provisions need not satisfy the rigours of state law because they fall under the FAA.

IV.  The FAA and Trusts

9.21  On its face, the FAA applies to contracts that affect interstate and international commerce and that contain a written arbitration provision that complies with standard principles of contract law. However, as this section demonstrates, the statute really only requires some kind of underlying consensual relationship—even if it is not a full-fledged contract—that impacts interstate commerce and gives rise to an agreement to arbitrate. Notably, some trust arbitration clauses satisfy these elements.

(p. 212) 9.22  Section 2 of the FAA governs arbitration clauses in contracts ‘evidencing a transaction involving [interstate] commerce’65 and thus is coextensive with Congress’s sweeping authority under the Commerce Clause of the US Constitution.66 For instance, in Citizens Bank v Alafabco, the US Supreme Court held that the FAA applied to an arbitration clause in a loan restructuring agreement between an Alabama bank and an Alabama construction firm.67 The Court explained that federal lawmakers may regulate intrinsically mercantile activity, such as banking.68 In addition, the Court noted that the construction company had secured the loan with assets that were made from out-of-state materials and used the proceeds for projects in North Carolina and Tennessee.

9.23  After Citizen’s Bank, Commerce Clause-based challenges to the FAA have mostly failed. From nursing home admission contracts69 to wholly intrastate employment agreements,70 even seemingly insular deals have demonstrated a nexus to interstate commerce. Admittedly, there is one exception. Even in cases involving out-of-state purchasers, courts have generally held that section 2 does not encompass sales of residential real estate.71 As a Kentucky district court explained, land contracts are inherently parochial, stating:

Contracts strictly for the sale of residential real estate focus entirely on a commodity—the land—which is firmly planted in one particular state. The citizenship of immediate parties (the buyer and the seller) or their movements to or from that state are incidental to the real estate transaction. Those movements are not part of the transaction itself. All of the legal relationships concerning the land are bound by state law principles.72

Nevertheless, outside of this one particular context, most judges find a sufficient connection to interstate commerce when the ‘parties are located in different (p. 213) states … and the agreement contemplates the transfer of inventory and money between the[m]’.

9.24  Given this background, there are three possible ways that trusts could demonstrate a link to interstate commerce. First, as with the lending cases, a court might deem the multi-billion dollar business of trust administration to be inherently commercial.74 Such a finding would make the management of settlors’ property ‘a general practice’ that is ‘subject to federal control’ even if there is no proof of an interstate dimension in any given case.75 Second, a settlor who selects a corporate trustee likely brings the instrument within the scope of the Commerce Clause, since assets held by banks and trust companies are ‘constantly moving in and out of interstate commerce’.76 Third, the fact a trustee or a beneficiary resides in a different state could be sufficient to bring the matter within the scope of the FAA. Of course, there would be tension between any such holding and the residential real estate cases. Nevertheless, the ongoing cross-border management and distribution of a settlor’s property arguably features a deeper economic imprint than a one-off sale of land. Thus, at bare minimum, at least some trusts ‘evidence a transaction involving commerce’ under section 2.77

9.25  The next element—that is, the FAA’s multiple references to a ‘contract’—is even more critical. For example, section 2 begins by presumptively validating a ‘written [arbitration] provision in any … contract’.78 How can trusts overcome this threshold textual hurdle?

9.26  The answer is that federal common law does not mandate that an arbitration clause appear in an overarching ‘contract’. As the Supreme Court has explained, section 2 ‘states that a “written provision” “to settle by arbitration a controversy” is “valid, irrevocable, and enforceable” without mention of the validity of the contract in which it is contained’.79 The most prominent example of the way that the Court has jettisoned any requirement that an arbitration clause appear in a ‘contract’ is the separability doctrine. As noted, this rule permits arbitrators to decide challenges to the enforceability of the container contract. If the arbitrator strikes down this macro-agreement, arbitration has taken place even though there never was a contract between the parties. In fact, lower courts have gone further. A district judge in Massachusetts has enforced an arbitration provision in (p. 214) the bylaws of a real estate investment trust.80 The California Supreme Court has compelled arbitration based on a term a developer included in a condominium’s covenants, conditions, and restrictions.81 The Eighth Circuit has upheld an arbitration clause in an employee handbook that expressly stated that it was ‘not intended to constitute a legal contract’.82 Likewise, the Seventh Circuit enforced an agreement to arbitrate in a tariff filed with the Federal Communications Commission, reasoning that the FAA only requires ‘an offer and acceptance that produces a legally binding document’.83 Thus, the federal statute obliterates the sharp distinction that some state courts have drawn between contracts and other instruments.

9.27  Instead, section 2 simply requires an agreement to arbitrate. On this crucial issue, ‘a party’s acceptance may be implied in fact’.84 Thus, one way that a person or entity can assent to settle disputes outside of the court system is by exploiting their rights under an instrument that contains an arbitration clause. For instance, the doctrine of direct benefits estoppel bars a litigant from receiving money or property under a document and yet disavowing its arbitration provision.85 Courts have invoked this rule against beneficiaries asserting claims arising out of a decedent’s pension, health plan, or retirement account, reasoning that the arbitration clause governs not just the original signatory, but her ‘intended successors’.86 As the California Court of Appeals put it, ‘[d]ecedents are able to bind their heirs through wills and other testamentary dispositions so the concept is not new or illogical.’87

9.28  Likewise, in some contexts, parties acquiesce to a trust’s arbitration clause. Trustees are a particularly easy case. In many cases, the settlor agrees to pay a fee in return for the trustee’s promise to manage the corpus as instructed. Because the settlor dictates the terms and the trustee can either accept or decline them, courts and scholars have observed for over a century that their ‘relationship is … (p. 215) contractual’.88 An arbitration clause is no less consensual than the other provisions that govern the trustee’s rights and duties.

9.29  Similarly, some beneficiaries also agree to arbitrate. State law generally gives individuals several months to disclaim their bequests.89 As a result, the beneficiaries cannot be bound to the terms of an estate plan involuntarily. When someone chooses to inherit under a trust, she also accepts the other provisions of the instrument, such as what it says about how property is to be held, invested, and distributed. There is no reason to treat an arbitration clause differently.

9.30  But not every beneficiary falls within this paradigm. The critical question is whether a person has accepted benefits under the trust or is trying to exercise an entitlement that exists only because of the instrument. For instance, suppose a settlor, S, executes a trust that contains an arbitration clause and leaves one-third of her property to her son, X, one-third to her daughter, Y, and one-third to a friend, Z. X files a petition alleging that the bequest to Y is invalid on the grounds of incapacity and undue influence. Although X is seeking to overturn part of the estate plan, he is also simultaneously trying to enforce part of it. If he knocks out the gift to Y, he increases his bounty under the trust. As a result, X should be seen as tacitly agreeing to the trust’s provisions, including the language about arbitration. Conversely, if X alleges that the entire trust is unenforceable, then he has not acquiesced to the settlor’s scheme. Thus, he should be free to pursue his claim in court.

9.31  Two recent opinions dealing with state arbitration statutes implicitly support this view. In Rachal v Reitz, the settlor, Andrew Francis Reitz, hired attorney Hal Rachal, Jr, to create a trust.90 Rachal drafted an instrument that named himself as successor trustee, divided Andrew’s estate among Andrew’s sons, James and John, and included an arbitration clause. After Andrew died, John sued Rachal for allegedly looting the trust and fdailing to provide an accounting. The Texas Supreme Court first explained that ‘a beneficiary who attempts to enforce rights that would not exist without the trust manifests her assent to the trust’s arbitration clause’.91 Accordingly, the court seized on the fact that John’s claims sought to vindicate, rather than overturn, the instrument, stating that:

[h]ere, [John] both sought the benefits granted to him under the trust and sued to enforce the provisions of the trust. On the death of the settlor, [John] did not disclaim an interest in the trust, and his suit directly seeks actual damages for any (p. 216) amounts inappropriately taken from the trust…. In accepting the benefits of the trust and suing to enforce its terms against the trustee so as to recover damages, [John]’s conduct indicated acceptance of the terms and validity of the trust.92

9.32  McArthur v McArthur, a California appellate decision from 2014, represents the flip side of this coin.93 The settlor executed a trust in 2001 that split her estate equally among her daughters, Deborah, Kristi, and Pamela. A decade later, the settlor amended her trust to increase Kristi’s share and add an arbitration clause. Pamela then sued, contending that the 2011 amendment was invalid due to incapacity and Kristi’s undue influence. In response, Kristi sought to compel arbitration. The trial court denied the motion and the appellate panel affirmed. As the reviewing court explained, the case boiled down to one vital point: because Pamela was attempting to nullify the 2011 amendment—the only document that contained an arbitration provision—she did not agree to arbitrate.94 Thus, like Rachal and unlike the spate of state court cases from the 2000s, McArthur did not rest on the formalistic divide between trusts and contracts. Indeed, as the court recognized, the pivotal issue is whether there is an agreement to arbitrate—an approach that would make the FAA applicable to any arbitration clause in a trust that involved interstate commerce.

9.33  However, courts seeking to apply federal legislation face a final obstacle: section 2’s savings clause. Because that component of the statute only permits courts to strike down agreements to arbitrate ‘upon grounds as exist at law or in equity for the revocation of any contract’,95 it creates problems in the trust setting. Recall the cast of characters from Rachal: Andrew was the settlor, and John, a beneficiary, accused the drafting attorney and successor trustee, Rachal, of severe breaches of fiduciary duty.96 Suppose John had conceded that he had assented to the arbitration provision by trying to enforce his rights under the trust, but asserted that any such agreement lacked consideration. On the one hand, to be legally sufficient, consideration merely requires an exchange of legal detriments.97 Each party must promise to do (p. 217) something (or not do something) in return for the other party making a reciprocal pledge.98 One could plausibly argue that the arbitration provision satisfied this criterion, since the relevant parties surrendered their freedom of action: Andrew by leaving part of his estate to John, and John by relinquishing his ability to access the judicial system. On the other hand, we typically think of bequests as donative and thus devoid of consideration.99 Moreover, to conclude that the agreement to arbitrate is backed by consideration is to find that it is an industrial-strength contract. That would seem to eradicate the traditional boundary between conditional gifts and binding agreements.100

9.34  Likewise, the savings clause might actually prevent judges from invalidating arbitration provisions in trusts under well-established probate principles. Imagine a variation on Rachal in which Rachal had not simply drafted a standard arbitration clause but prohibited the arbitrator from awarding punitive damages. Some states view provisions that exculpate a trustee from liability with suspicion, particularly when the trustee also doubles as the drafting attorney.101 Yet because this strand of trust law is not a ‘generally applicable contract defense[]’,102 it might be incapable of invalidating a damages waiver in cases involving an arbitration clause. These results suggest that it would be unwise to try to force the square peg of trusts into the round hole of the FAA.

9.35  Nevertheless, these are probably not insurmountable barriers. First, it is possible to conclude that agreements to arbitrate possess their own consideration without collapsing the distinction between trusts and contracts completely since the separability doctrine already conceptualizes arbitration provisions as sovereign agreements.103 Although other trust terms—such as no-contest clauses and conditional bequests—also seem to involve a quid pro quo and thus demonstrate an element of consideration, they lack the pedigree of the separability doctrine. Thus, the doctrinal infrastructure exists to treat testamentary arbitration clauses as sui generis.

(p. 218) 9.36  Second, although trust and contract law are not coterminous, they do overlap. For instance, they share the defences of incapacity, undue influence, mistake, and duress.104 And although a court might not be able to overcome a one-sided arbitration clause under trust principles, the contract defence of unconscionability should be sufficient to invalidate such a provision.105 In fact, several courts that have extended the FAA to non-contracts—specifically, corporate by-laws and condominium covenants—have also entertained unconscionability challenges.106 Accordingly, even without protective trust principles, beneficiaries would have weapons to combat overreaching by the drafters.

9.37  To conclude, the FAA applies if there is an agreement to arbitrate that springs from a contract-like relationship that affects interstate commerce. Some trusts meet both prongs of this test, although applying the statute raises new questions. The next section considers two particularly vexing problems: the in rem status of some trust litigation and the use of delegation clauses.

In rem Arbitration

9.38  Over the years, a number of concerns have been enunciated with respect to the arbitration of claims that exist in rem. Some of these issues may be exacerbated by recent cases from the US Supreme Court concerning class arbitration.107 Nevertheless, the problems posed by in rem arbitration can be solved.

9.39  The traditional unease about arbitrating in rem cases has faded from view. In the early twentieth century, judges were deeply concerned about the fact that in rem decisions are ‘binding on the whole world’ and include parties who never learn about—much less participate in—the arbitration.108 That seemed fundamentally at odds with the fundamental concept of arbitration as a consensual proceeding. Thus, as the California Supreme Court proclaimed in 1900 while refusing to order a will contest to arbitration, ‘[a] few individuals, claiming to be the heirs, cannot by stipulation, determine such [a] controversy.’109 Modern judges, however, have expressed fewer concerns. For instance, in 2009, a Michigan appellate court had (p. 219) no qualms about an arbitrator deciding undue influence and incapacity allegations, noting that ‘all interested parties agreed to submit their dispute to binding arbitration’.110 In fact, as far as this author is aware, the in rem objection has not appeared in the case law for roughly half a century.111

9.40  But the US Supreme Court’s class arbitration jurisprudence may have changed the analysis. In 2011, the Court decided the watershed pre-emption case of AT&T Mobility LLC v Concepcion.112 Without getting too deep into the details, Concepcion presented the question of whether the FAA allowed judges to find class arbitration waivers—terms that require plaintiffs to arbitrate on an individual, rather than an aggregate, basis—to be unconscionable.113 The Court held that the federal statute precluded any such ruling.114 Central to this conclusion was the Justices’ belief that ‘class arbitration’ is a contradiction in terms. Unlike conventional two-party arbitration, class arbitration must be designed with absent parties in mind, and therefore includes laborious and expensive notice schemes that make ‘[c]onfidentiality … more difficult’, and ‘sacrifice[] the principal advantage of arbitration—its informality.’115 In a similar, albeit less dramatic vein, in 2013’s Oxford Health Plans LLC v Sutter, Justice Alito’s concurrence, which Justice Thomas joined, expressed grave reservations about the efficacy of class arbitration.116 According to Justice Alito, absent class members would not be bound by an arbitrator’s resolution of the case because there is ‘no reason to think that [they] … ever agreed to class arbitration’.117 Thus, the Court has hinted that cases that require intricate procedures or run the risk of excluding many interested stakeholders may not be arbitrable.

9.41  There are striking parallels between this reasoning and the traditional resistance to arbitrating in rem disputes. To be sure, this friction is more pronounced in intestacies and will administrations, where personal representatives must take elaborate measures to keep heirs and creditors informed,118 yet at least in some jurisdictions, trustees occasionally must comply with similar mandates, bringing the streamlined arbitral machine to a screeching halt.119 Moreover, as with class arbitration, there is no guarantee that absent parties have consented to the arbitrator’s ruling. (p. 220) These gaps in the preclusive effect of arbitral awards would have to be filled with satellite litigation, making trust arbitration an exercise in futility.

9.42  Ultimately, though, one doubts that there is more than mere smoke here. In the first instance, the Supreme Court’s class arbitration opinions are unique. One need not be a legal realist to see these decisions as the by-product of the conservative Justices’ loathing of the class mechanism. In fact, Concepcion’s insistence that ‘[a]rbitration is poorly suited to the higher stakes of class litigation’ might as well have been taken from the pages of one of the now-overruled non-arbitrability cases from the middle of the twentieth century.120 This singular, gloomy view of arbitration is unlikely to spill over into different contexts.

9.43  In addition, because of the comparatively narrow domain of trust arbitration, few cases with absent parties will ever make it to private tribunals. As this author has argued previously, arbitration clauses only apply to individuals who have taken advantage of the trust. Accordingly, it is difficult to conjure up scenarios in which some interested parties are before the arbitrator but others are not.121 For instance, suppose a settlor leaves her property to two of her five children, and one of these beneficiaries alleges that the trustee has breached her fiduciary duties. The outcome of this arbitration could not affect the three disinherited children, who have no stake in the management of property that does not belong to them. Moreover, claims that do have the potential to affect absent parties are unlikely to end up in arbitration. For instance, a challenge to the validity of a trust instrument could affect the rights of any disinherited child. But these very individuals have never taken any action that could be perceived as consenting to the arbitration clause in the trust. Thus, they would be entitled to bring their lawsuit in court. As a practical matter, then, the absent party problem may be more apparent than real.

Delegation Clauses

9.44  Recently, courts in contractual arbitration cases have struggled with ‘delegation clauses’ which entrust the arbitrator—not a court—with determining the scope and validity of the arbitration provision. This section addresses how delegation clauses should work in the trust arena.

9.45  The point of departure for understanding delegation clauses is the separability doctrine. That curious feature of federal common law emanates from section 4 of the FAA, which outlines how courts should evaluate motions to compel arbitration, stating:

(p. 221) upon being satisfied that the making of the agreement for arbitration … is not in issue, … the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement …. If the making of the arbitration agreement … be in issue, the court shall proceed summarily to the trial thereof.122

9.46  In the seminal case of Prima Paint Corp v Flood & Conklin Manufacturing Co, the US Supreme Court held that the words ‘arbitration agreement’ meant the arbitration clause itself, rather than the container contract.123 As a result, if a lawsuit specifically seeks to invalidate the arbitration provision, the petitioner has made an ‘issue’ of ‘the making of the arbitration agreement’, and a judge—not an arbitrator—presides.124 Conversely, if a party merely argues that the container contract is invalid under a defence such as fraud, duress, or mistake, the matter goes to arbitration.125

9.47  However, this dichotomy is subject to an important caveat. Some claims can upend both the container contract and the arbitration clause. Most importantly, under what will here be called the ‘formation exception’ to the separability doctrine, a party who never actually manifested assent to the container contract should be entitled to pursue her allegations in a judicial forum.126 Even though her complaint targets the container contract, the gravamen of the claim is that the petitioner never agreed to anything, including the freestanding arbitration clause.127

9.48  When viewed against this backdrop, some separability issues in trust cases will be relatively straightforward. If a trustee or beneficiary argues that the arbitration provision itself is the product of fraud, duress, mistake, or is unconscionable, the party has placed ‘the making of the arbitration agreement … in issue’ and therefore brings the dispute within the jurisdiction of the courts.128 But judges may also sometimes entertain legal theories that are not aimed squarely at the arbitration clause. Recall the facts from McArthur, in which Pamela, a beneficiary, brought incapacity and undue influence claims against a 2011 trust amendment that contained an arbitration clause.129 Although Pamela’s lawsuit challenged the container instrument—not the arbitration provision—it nevertheless would have fallen within the formation exception to the separability doctrine because there (p. 222) is no basis for deeming Pamela to have agreed to the 2011 amendment. To the contrary, she actively sought to resist its terms. And when a party asserts that she has never actually manifested assent to the document that contains an arbitration clause, a court—rather than an arbitrator—should wield authority.

9.49  Delegation clauses compound the complexity in this intricate doctrinal niche. They capitalize on the fact that separability is a default rule: the parties can rearrange section 4’s division of dominion between courts and arbitrators if they desire. The first glimmer of this phenomenon occurred in First Options v Kaplan.130 Manuel Kaplan owned a company called MKI Investments, Inc. Manuel, his wife, Carol, and MKI entered into a series of contracts with First Options of Chicago, Inc. One of these agreements contained an arbitration clause, and it was between First Options and MKI. When a dispute arose, First Options sought to arbitrate not only against MKI but also against Manuel and Carol Kaplan in their individual capacities. Although MKI complied, the Kaplans objected to the arbitrator’s assertion of power over them, noting that they had never signed a contract that contained an arbitration provision. First Options replied that the Kaplans had tacitly agreed to arbitrate the issue of whether they had agreed to arbitrate the merits by filing briefs within the arbitral forum.

9.50  The Supreme Court concurred with First Options that parties can agree to arbitrate ‘arbitrability’: that is, parties can ask the arbitrator to decide matters that section 4 of the FAA assigns to judges. The Court explained that the parties’ intent was paramount and that there was no reason to restrict the varieties of issues that they could to submit to arbitration. However, the Court also created a heavy presumption against finding any such arrangement, declaring that it would take ‘clear and unmistakable evidence’ to overcome the statute’s apportionment of power between judges and arbitrators.131 First Options’ proof on this issue fell well short of the mark. Indeed, the Kaplans had only appeared before the arbitrator to argue that they had never agreed to arbitrate at all.132

9.51  Nevertheless, First Options opened the door for drafters to use delegation clauses that meet the ‘clear and unmistakable’ standard by expressly assigning to arbitrators controversies that judges would normally decide. The Court considered such a provision in 2010 in Rent-A-Center, West, Inc v Jackson.133 Antonio Jackson, an employee of the automobile leasing giant, signed an arbitration agreement that included a delegation clause that gave the arbitrator the ‘exclusive authority to resolve … any claim that all or any part of this [a]greement is void or voidable’.134 Later, Jackson sued for race discrimination. In the district court, he argued that (p. 223) the arbitration provision was unconscionable when applied to the merits of his civil rights claims because it required him to pay half of the arbitrator’s fees and limited his discovery rights.135 The Supreme Court first held that the delegation provision unambiguously entrusted challenges to the arbitration agreement to the arbitrator, thus fulfilling the mandate from First Options.136

9.52  The Supreme Court then viewed delegation provisions through the prism of the separability doctrine. The Justices reasoned that just as arbitration clauses are autonomous agreements within larger container contracts, delegation clauses are (1) an agreement to arbitrate the validity of the arbitration clause (2) within an agreement to arbitrate the merits of the dispute (3) within the container contract.137 This meant that Jackson had missed the proverbial boat by arguing that the arbitration clause (as opposed to the delegation provision) was unconscionable. Just as he could not escape arbitration by contending that the container contract was invalid, he could not escape the delegation clause by attacking the agreement to arbitrate the merits of his case. Although a court could have probed whether the delegation clause itself was unconscionable, Jackson had made no such argument. Thus, he needed to arbitrate his argument that the arbitration clause was unconscionable.138

9.53  This expansion of arbitral autonomy has the potential to wreak havoc in the trust context. Three separate issues will be discussed here. First, there is a colourable argument that delegation clauses in trusts do not satisfy the ‘clear and unmistakable’ rule. After all, First Options held that the Kaplans’ participation in the arbitration was not enough to reveal that they had agreed to arbitrate the question of whether they were covered by the arbitration clause in the contract between First Options and MKI. Likewise, trust arbitration also hinges on how the parties behave. Unlike the parties to a contract, most trustees and beneficiaries never sign a document that contains an arbitration or delegation clause; rather, they manifest assent through their actions. Perhaps conduct alone can never be ‘clear and unmistakable’ evidence of the parties’ intent to allow the arbitrator to decide whether the arbitration clause is valid.

9.54  Ultimately, this approach is not persuasive. In First Options, no contract expressly allowed the arbitrator to decide whether the Kaplans fell within the scope of the arbitration clause in the First Options/MKI agreement. Accordingly, First Options’ claim that the Kaplans had agreed to arbitrate the issue of whether they had agreed to arbitrate the merits was a stretch: it would have been extraordinary if the Court had found an implied agreement to arbitrate based on nothing more than the Kaplans’ vociferous objections to proceeding in the extrajudicial tribunal. The dynamic in trust arbitration is different. If a settlor includes a delegation clause, she provides the key variable that was missing in First Options: a writing that empowers (p. 224) the arbitrator to hear matters that traditionally are the prerogative of courts. The beneficiaries either accept the terms of the trust, including the delegation clause, or they do not. But the fact that the trust beneficiaries express their agreement through ex post conduct rather than an ex ante signature is irrelevant. Absent unusual circumstances, assent is assent—clearly and unmistakably.

9.55  A second issue relates to the use of what will here be called ‘ghost’ delegation clauses. Contracts occasionally incorporate a particular dispute resolution provider’s rules by reference. Some of these arbitral institutions (including the AAA, Judicial Arbitration and Mediation Services, Inc. (JAMS), and the International Chamber of Commerce (ICC)) allow an arbitrator to ‘rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement’.139 In matters involving sophisticated parties, courts have uniformly found that opting into one of these entities’ internal rules is sufficient to satisfy the First Options ‘clear and unmistakable’ rule.140 But judges have differed over whether the same result flows from adhesion contracts. A few have reasoned that because consumers and employees do not read or understand the fine print of a contract, merely mentioning a specific arbitration administrator does not meet the standard necessary to create a delegation clause.141

9.56  Some trust arbitration provisions also contain ghost delegation clauses. For instance, in Diggs v Lingo, mentioned previously, the settlor specified that arbitration should occur under the AAA Commercial Rules, which allow arbitrators to define the ambit and decide the enforceability of the arbitration provision.142 Notably, the AAA’s newly promulgated rules for wills and trust arbitration contain precisely the same tenet.143 Thus, any testamentary instrument that incorporates either of these rule (p. 225) sets contains a ghost delegation clause. Should courts defer to these phantom terms (as is the case in negotiated deals between peers) or be sceptical of them (as is the case with adhesion contracts)?

9.57  One interpretation is that trusts are more like transactions between sophisticated parties than they are like boilerplate relationships. For one, being named as a trust beneficiary is a relatively unusual occurrence as compared to acting as a consumer or employee. Thus, beneficiaries are more likely to read and maybe even scrutinize trust arbitration clauses. In addition, beneficiaries have several months to decide whether to accept or disclaim a gift.144 That is a far more leisurely timeline than the spur-of-the-moment decisions that often give rise to adhesion contracts. At least in the abstract, then, ghost delegation clauses may be less troubling in trusts than they are in consumer and employment contracts.

9.58  Third and finally, significant concerns have arisen about allowing arbitrators to determine whether a dispute falls within the scope of an arbitration clause. Douglas v Regions Bank is illustrative.145 Shirley Douglas opened an account with Union Planters Bank in 2002 and signed an arbitration clause that featured a delegation provision. A year later, she closed her account. Union then merged with Region’s Bank. In 2007, Douglas settled a personal injury claim for US$500,000, which her attorney deposited into his own Region’s account and then embezzled. When Douglas sued Regions for failing to prevent the theft, the bank cited the delegation clause in Douglas’s 2002 contract with Union. The bank argued that the arbitrator should decide whether Douglas’s claim—which was not related to her long-defunct account with Union—should be arbitrated. The Fifth Circuit disagreed, reasoning that courts should be able to reject ‘wholly groundless’ assertions that a delegation clause covers a particular claim, stating:

[t]he mere existence of a delegation provision in the checking account’s arbitration agreement, however, cannot possibly bind Douglas to arbitrate gateway questions of arbitrability in all future disputes with the other party, no matter their origin. Suppose the driver who injured Douglas was an employee of Regions who was conducting bank business. Douglas would not have to arbitrate the underlying tort, which is unrelated to her checking account and its accompanying contract, just because she happens to have a contract with Regions on a completely different matter ….If it were otherwise, then every case involving an arbitration agreement with a delegation provision must, with no exceptions, be submitted for such gateway arbitration; no matter how untenable the argument (p. 226) that there is some connection between the dispute and the agreement, an arbitrator must decide first.146

9.59  Not everyone on the appellate panel was persuaded. Dissenting Judge Dennis chastised the majority for ignoring the spirit of the FAA.147

9.60  Trust arbitration under the FAA compounds the confusion relating to questions of scope. Suppose a settlor permits the arbitrator to define the boundaries of the agreement to arbitrate. A beneficiary then seeks to invalidate the entire trust. Should a court honour the plain language of the delegation clause and permit the arbitrator to decide whether the beneficiary has agreed to arbitrate the merits of her petition? Or, as in Douglas, should a court retain jurisdiction if it determines that the assertion of arbitral authority is ‘wholly groundless’? Or is there some other path out of this maze?

9.61  The best solution, in this author’s view, revolves around the formation exception to the separability doctrine. As described earlier, a party who contends that he or she never agreed to an instrument that includes an arbitration provision should be entitled to pursue that theory in court. Similarly, a beneficiary who attempts to strike down a trust instrument that contains a delegation clause has no business being sent to arbitration. In Douglas, the plaintiff had assented to something (ie an arbitration provision with a delegation clause when she opened her Union account) and therefore the question was how far this agreement extended. Conversely, the hypothetical beneficiary who wishes to nullify the entire trust has not agreed to a single term in the instrument: not its dispositive provisions, not its investment instructions, and certainly not its language allowing arbitrators to decide who has agreed to arbitrate. Even Rent-A-Center acknowledged that courts should preside over a party’s argument that a delegation clause is unconscionable.148 The same should hold true when a trust beneficiary contends that she never actually agreed to an instrument that contains the delegation clause in the first place.

V.  Conclusion

9.62  The debate over arbitration clauses in trusts has been confined to state law. This chapter has argued that some such provisions fall within the FAA. Indeed, they (p. 227) involve interstate commerce, arise from contract-like relationships, and generate agreements to arbitrate. In addition, although this development may raise new questions about the arbitration of in rem claims or the scope of delegation clauses, the answers can be derived from existing law. It is only a matter of time before some attentive litigant or court brings trust arbitration under the FAA’s broad umbrella.


1  In the context of this chapter, the term ‘donative’ trust means an instrument used for estate planning, rather than commercial purposes. For an excellent discussion of arbitration provisions in all species of trusts, see SI Strong, ‘Arbitration of Trust Law Disputes: Two Bodies of Law Collide’ (2012) 45 Vanderbilt Journal of Transnational Law 1157.

2  See eg In re Fellman, 604 A2d 263 (Pa Super Ct 1992); Schoneberger v Oelze, 96 P3d 1078 (Ariz Ct App 2004), superseded by statute, Ariz Rev Stat Ann s 14-10205, as recognized in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011); In re Calomiris, 894 A2d 408, 408 (DC Ct App 2006); Diaz v Bukey, 125 Cal Rptr 3d 610, 615 (Cal Ct App 2011), review granted and opinion superseded by Diaz v Bukey, 257 P3d 1129 (Cal 2011), and case transferred by Diaz v Bukey, 287 P3d 67 (Cal 2011); Rachal v Reitz, 403 SW3d 840, 849 (Tex 2013); McArthur v McArthur, 168 Cal Rptr 3d 785 (Cal Ct App 2014); Diggs v Lingo, 2014 WL 7431466 (Tenn Ct App 2014). For more on the judicial development of trust arbitration in the United States, see Mary F Radford, ‘Trust Arbitration in United States Courts’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 8.01–8.69; Strong (n 1) 1157–248.

3  See eg Jonathan G Blattmachr, ‘Reducing Estate and Trust Litigation Through Disclosure, In Terrorem Clauses, Mediation and Arbitration’ (2008) 9 Cardozo Journal of Conflict Resolution 237; Michael P Bruyere and Meghan D Marino, ‘Mandatory Arbitration Provisions: A Powerful Tool To Prevent Contentious and Costly Trust Litigation, but Are They Enforceable?’ (2007) 42 Real Property, Probate and Trust Journal 351; Erin Katzen, ‘Arbitration Clauses in Wills and Trusts: Defining the Parameters for Mandatory Arbitration of Wills and Trusts’ (2011) 24 Quinnipiac Probate Law Journal 118; Stephen Wills Murphy, ‘Enforceable Arbitration Clauses in Wills and Trusts: A Critique’ (2011) 26 Ohio State Journal of Dispute Resolution 627; Blaine Covington Janin, Comment, ‘The Validity of Arbitration Provisions in Trust Instruments’ (1997) 55 California Law Review 521. One notable exception is E Gary Spitko, ‘Gone but Not Conforming: Protecting the Abhorrent Testator from Majoritarian Cultural Norms Through Minority-Culture Arbitration’ (1999) 49 Case Western Reserve Law Review 275 (assuming that the FAA applies to arbitration clauses in testamentary instruments, but not discussing the issue in depth).

4  9 USC ss 1-307.

5  By doing so, the author has attempted to update his previous analysis in David Horton, ‘The Federal Arbitration Act and Testamentary Instruments’ (2012) 90 North Carolina Law Review 1027.

6  2014 WL 7431466, *1 (Tenn Ct App 2014).

7  ibid.

8  ibid *2.

9  ibid *3.

10  Tenn Code Ann s 29-5-302.

11  Diggs, 2014 WL 7431466, *3. The Chancery Court also cited a third reason to ignore the arbitration provision. Henderson’s trust provided that ‘[t]he parties to [the] arbitration shall each appoint one person to hear and determine the dispute and, if they are unable to agree, then the two persons so chosen shall select a third impartial arbitrator whose decision shall be final and conclusive upon both parties.’ ibid *2. The chancellor held that this language was fatally ambiguous when applied to a dispute with more than two parties. ibid *3 (‘It is not appropriate for the Court to essentially create a workable arbitration procedure when the settlor failed to do so himself.’). The Tennessee Court of Appeals affirmed on only the first ground, finding it unnecessary to address the effect of the ‘separate signing’ statute or the arbitration provision’s vagueness. ibid *4 (reasoning that ‘parallel proceedings would not be practical and could lead to inconsistent results’).

12  9 USC s 2.

13  Citizens Bank v Alafabco, Inc, 539 US 52, 56 (2003).

14  Brief of Appellee Tennessee Attorney General, Diggs v Lingo, 2014 WL 4407798, *3 (Tenn Ct App 2014).

15  Horton (n 5) 1056–60.

16  Moses H Cone Meml Hosp v Mercury Const Corp, 460 US 1, 20 (1983).

17  Aerotel, Ltd v RSL Commcn, Ltd, 99 F Supp 2d 368, 374 (SDNY 2000).

18  Choctaw Generation Ltd Pship v Am Home Assur Co, 271 F3d 403, 404 (2d Cir 2001) (quoting Smith/Enron Cogeneration Ltd Partnership, Inc v Smith Cogeneration Int’l, Inc, 198 F3d 88, 98 (2d Cir 1999)).

19  Doctor’s Associates, Inc v Casarotto, 517 US 681, 682 (1996).

20  Diggs v Lingo, No W2014–00525–COA–R3–CV, 2014 WL 7431466, *2 (Tenn App Dec 30, 2014).

21  American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 7(a), <www.adr.org>.

22  See eg Oracle America, Inc v Myriad Group AG, 724 F3d 1069, 1075 (9th Cir 2013).

23  See eg Kill v Hollister (1746) 95 Eng Rep 532 (KB) 532.

24  See eg Vynior’s Case (1609) 77 Eng Rep 597 (KB) 599.

25  HR Rep No 68-96, at 2 (1924).

26  9 USC s 2.

27  The legislative history of the FAA declares that the statute ‘relate[s] to the procedure in the [f]ederal courts’ and ‘is no infringement upon the right of each [s]tate’. Arbitration of Interstate Commercial Disputes: Joint Hearings on S 1005 and HR 646 Before the Subcommittees of the Committees on the Judiciary, 68th Congress 37 (1924).

28  See eg Utah Code Ann s 78-31-1 (making pre-dispute arbitration clauses unenforceable).

29  David Horton, ‘Arbitration and Inalienability: A Critique of the Vindication of Rights Doctrine’ (2012) 60 University of Kansas Law Review 723.

30  See eg McDonald v City of West Branch, 466 US 284, 292 (1984) (reasoning that arbitration ‘cannot provide an adequate substitute for a judicial proceeding’).

31  Moses H Cone Memorial Hospital v Mercury Construction Corp, 460 US 1, 24 (1983).

32  Prima Paint Corp v Flood & Conklin Manufacturing Co, 388 US 395 (1967).

33  ibid 402–04.

34  ibid 403–04.

35  ibid.

36  Southland Corp v Keating, 465 US 1, 16 (1984). But see Allied-Bruce Terminix Cos v Dobson, 513 US 265, 284 (1995) (Scalia, J, dissenting); ibid 286 (Thomas, J, dissenting); Southland, 465 US at 22–23 (O’Connor, J, dissenting).

37  9 USC s 2.

38  Doctor’s Associates, Inc v Casarotto, 517 US 681, 686-87 (1996).

39  ibid 687.

40  Southland, 465 US at 11.

41  Perry v Thomas, 482 US 483, 491 (1987).

42  ibid 491–92.

43  473 US 614 (1985) (allowing arbitrators to hear cases arising under federal antitrust statutes).

44  482 US 220 (1987) (allowing arbitrators to hear cases arising under federal securities fraud and civil racketeering statutes).

45  490 US 477 (1989) (extending arbitral authority over federal securities fraud cases).

46  500 US 20 (1991) (allowing arbitrators to hear cases arising under federal antidiscrimination statutes).

47  Mitsubishi, 473 US at 68.

48  Gilmer, 500 US at 30. See also CompuCredit Corp v Greenwood, 132 SCt 665, 669-70 (2012).

49  These cases invariably involved wills because they preceded the ‘non-probate revolution’ of the late twentieth century, which made trusts a staple of estate planning. See eg John H Langbein, ‘The Non-Probate Revolution and the Future of the Law of Succession’ (1984) 97 Harvard Law Review 1108.

50  See eg Turner v Evans, 106 A 617, 619 (Md 1919) (noting ‘[t]he settled principle which recognizes the right to attach to the disposition of property a condition in restraint of a particular marriage’).

51  See eg Rudd v Searles, 160 NE 882, 885 (Mass 1928) (observing that most states enforce no-contest clauses unless ‘the contest has been undertaken with probable cause and was justifiable in all the circumstance[s]’).

52  27 W Va 362, 374 (W Va 1886). Similarly, testators often give their executors broad discretion to hold, sell, invest, manage, and distribute their property. Some took the additional step of allowing the executor to interpret the will or resolve other forms of conflict. Courts upheld these clauses subject to an implied limitation that the executor exercise her discretion ‘fairly and in good faith’. American Board of Commissioners of Foreign Missions v Ferry, 15 F 696, 700 (WD Mich 1883). See also Pray v Belt, 26 US (1 Pet) 670, 680 (1828); Wait v Huntington, 40 Conn 9, 11 (Conn 1873).

53  Davis v Blevins, 31 SE 826, 827 (NC 1898).

54  See eg Cal Prob Code s 8121.

55  See eg In re Meredith’s Estate, 266 NW 351, 356 (Mich 1936); In re Will of Jacobovitz, 295 NYS2d 527, 531 (Sur Ct Nassau Cnty 1968). Before the FAA, courts had been divided on this issue. Compare Carpenter v Bailey, 60 P 162, 163 (Cal 1900) (refusing to compel arbitration of a will contest because ‘[t]he matter of the probate of a will is a proceeding in rem’ and thus ‘[a] few individuals, claiming to be the heirs, cannot by stipulation determine such controversy’) with In re Johnson, 127 NW 133, 137 (Neb 1910) (enforcing post-dispute agreement to arbitrate will contest).

56  See eg Meredith’s Estate, 266 NW at 357 (‘No stipulation … can oust the jurisdiction of the probate court, permit the probate judge to abdicate his jurisdiction and power, or delegate it to a third person.’); Jacobovitz, 295 NYS2d at 530-31 (‘[T]he legislature has imposed such requirements as to who may make a will and its proper execution that, even without objections to probate, the court has the duty to exercise its judicial conscience before admitting the instrument to probate.’). It is unclear whether Meredith’s Estate remains good law. Compare In re Nestorovski Estate, 769 NW2d 720, 732 (Mich Ct App 2009) (submitting will contest to arbitration).

57  604 A2d 263 (Pa Super Ct 1992).

58  473 US 614 (1985).

59  482 US 220 (1987).

60  490 US 477 (1989).

61  500 US 20 (1991).

62  Fellman, 604 A2d at 267.

63  Schoneberger v Oelze, 96 P3d 1078, 1082 (Ariz Ct App 2004), superseded by statute, Ariz Rev Stat Ann s 14-10205, as recognized in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011). See also In re Calomiris, 894 A2d 408, 408 (DC Ct App 2006) (‘[I]n the present case the arbitration clause is not contained in a written agreement or a contract.’); Diaz v Bukey, 125 Cal Rptr 3d 610, 615 (Cal Ct App 2011) (‘[T]here is no evidence that the beneficiaries gave either their consent or consideration to achieve the status of beneficiary.’), review granted and opinion superseded by Diaz v Bukey, 257 P3d 1129 (Cal 2011), and case transferred by Diaz v Bukey, 287 P3d 67 (Cal 2011); Rachal v Reitz, 347 SW3d 305, 311 (Tex Ct App 2011) (en banc) (‘[T]his type of trust is not a contract.’), reversed by Rachal v Reitz, 403 SW3d 840, 849 (Tex 2013). But see In re Nestorovski Estate, 769 NW2d 720, 732 (Mich Ct App 2009) (submitting will contest to arbitration).

64  See Ariz Rev Stat Ann s14-10205 (superseding Schoneberger and stating that ‘[a] trust instrument may provide mandatory, exclusive and reasonable procedures to resolve issues between the trustee and interested persons or among interested persons with regard to the administration or distribution of the trust’); Diaz, 257 P3d at 1129 (vacating the court of appeals’ decision); Rachal, 403 SW3d at 849 (reversing the appellate panel).

65  9 USC s 2.

66  US Const, art I, s 8, cl 3 (giving Congress the power ‘to regulate commerce with foreign nations, and among the several states, and with the Indian tribes’).

67  539 US 52 (2003) (per curiam).

68  See ibid 56–57 (stating ‘were there any residual doubt about the magnitude of the impact on interstate commerce caused by the particular economic transactions in which the parties were engaged, that doubt would dissipate upon consideration of the “general practice” those transactions represent’).

69  See eg THI of New Mexico at Hobbs Center, LLC v Spradlin, 893 F Supp 2d 1172, 1184 (D NM 2012); Brookdale Sr Living Inc v Stacy, 27 F Supp 3d 776, 792 (ED Ky 2014).

70  See eg Sutcliffe v Mercy Clinics, Inc, 856 NW2d 382 (Iowa Ct App 2014) (finding that section 2 of the FAA applied to an employment agreement ‘formed in Iowa, between parties in Iowa’ and in which the employee ‘was to provide professional medical services in Iowa’).

71  See eg Cecala v Moore, 982 F Supp 609, 612 (ND Ill 1997) (concluding that the FAA did not govern even though the parties hailed from different states); SI V, LLC v FMC Corp, 223 F Supp 2d 1059, 1062 (ND Cal 2002) (‘An agreement to sell real property between an in-state buyer and an out-of-state seller does not involve interstate commerce as defined in the FAA.’); Saneii v Robards, 289 F Supp 2d 855, 859 (WD Ky 2003) (‘a residential real estate contract, even one involving parties of different states, does not involve interstate commerce’); Bradley v Brentwood Homes, Inc, 730 SE2d 312, 317 (SC 2012) (finding that the FAA did not apply despite the buyer’s procuring of financing from out of state and use of a national warranty company).

72  Saneii, 289 F Supp2d at 858–59.

73  Barker v Golf USA, Inc, 154 F3d 788, 790-91 (8th Cir 1998). See also Jenkins v Atelier Homes, Inc, 62 So3d 504, 510 (Ala 2010) (finding that the FAA applied where ‘[c]ertain goods, funds, and documents crossed state lines’).

74  See eg Robert H Sitkoff and Max M Schanzenbach, ‘Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes’ (2005) 115 Yale Law Journal 356.

75  Citizens Bank v Alafabco, Inc, 539 US 52, 56-57 (2003) (quotation omitted).

76  United States v Spinello, 265 F3d 150, 157 (3d Cir 2001).

77  9 USC s 2.

78  ibid.

79  Rent-A-Center, West, Inc v Jackson, 561 US 63, 70 (2010).

80  See Delaware County Employees Retirement Fund v Portnoy, 2014 WL 1271528, *11 (D Mass 2014). The relationship between the FAA and arbitration provisions in corporate bylaws and charters has been a hot scholarly topic lately. See eg Claudia H Allen, ‘Bylaws Mandating Arbitration of Stockholder Disputes?’ (2015) 39 Delaware Journal of Corporate Law 751; Ann M Lipton, ‘Manufactured Consent: The Problem of Arbitration Clauses in Corporate Bylaws and Charters’ (2016) 104 Geo Law Journal 583.

81  Pinnacle Museum Tower Assn v Pinnacle Mkt Dev (US), LLC, 282 P3d 1217, 1231 (Cal 2012).

82  Patterson v Tenet Healthcare, Inc, 113 F3d 832, 835 (8th Cir 1997).

83  Metro East Center for Conditioning & Health v Qwest Communications, 294 F3d 924, 926 (7th Cir 2002).

84  Pinnacle, 282 P3d at 1224.

85  See eg Damon v StrucSure Home Warranty, LLC, 338 P3d 123, 128 (NM 2014) (‘If [p]laintiffs wished to exempt themselves from the arbitration clause, they could have chosen not to claim and enforce any of the rights under the warranty. However, once Plaintiffs voluntarily sought to embrace and invoke the benefits created by the warranty, they could not avoid the arbitration provision in the warranty.’); Pershing, LLC v Bevis, 606 Fed Appx 754 (5th Cir 2015).

86  Jansen v Salomon Smith Barney, Inc, 776 A2d 816, 821 (NJ App Div 2001).

87  Herbert v Superior Court, 215 Cal Rptr 477, 481 (Cal Ct App 1985).

88  Robert H Sitkoff, ‘An Agency Costs Theory of Trust Law’ (2004) 89 Cornell Law Review 621, 643. See also In re Estate of Bodger, 279 P2d 61, 67 (Cal Ct App 1955) (‘A declaration of trust constitutes a contract between the trustor and the trustee for the benefit of a third party.’); FW Maitland, Equity: A Course of Lectures 28 (John Brunyate rev ed, Cambridge University Press 1936) (noting ‘a trust generally has its origin in something that we can not but call an agreement’); John H Langbein, ‘The Contractarian Basis of the Law of Trusts’ (1995) 105 Yale Law Journal 625, 671 (arguing that ‘[t]rusts are deals’ because they feature ‘the bedrock elements of contractarian[ism] …, namely, consensual formation and consensual terms’).

89  See eg Restatement (Second) of Trusts (1959) s 36(c).

90  403 SW3d 840, 842 (Tex 2013).

91  ibid 847.

92  ibid. Admittedly, Rachal is not directly on point. The case arose under the Texas Arbitration Act (TAA), which declares that a ‘written agreement to arbitrate is valid and enforceable’ except for ‘ground[s] that exist[] at law or in equity for the revocation of a contract’. ibid 844–45 (quoting Tex Civ Prac and Rem Code s 171.001(a)). The court relied heavily on this textual nuance, stating:

[t]he Legislature specifically chose to enforce ‘agreements’ to arbitrate. It knew how to enforce only ‘contracts;’ it selected that term to specify the grounds for revoking an agreement to arbitrate. The language of the TAA indicates legislative intent to enforce arbitration provisions in agreements. If the Legislature intended to only enforce arbitration provisions within a contract, it could have said so.

ibid 845. Of course, section 2 of the FAA refers to ‘contract[s]’, not ‘agreements’. 9 USC s 2. Nevertheless, as noted earlier, federal common law does not rigidly adhere to this dichotomy.

93  168 Cal Rptr 3d 785 (Cal Ct App 2014).

94  See ibid 795 (‘Kristi … has not either expressly or implicitly sought the benefits of a trust instrument containing the disputed arbitration provision.’).

95  9 USC s 2 (emphasis added).

96  Rachal, 403 SW3d at 842.

97  See eg Noohi v Toll Bros, 708 F3d 599, 609 (4th Cir 2013) (noting inadequacy of consideration is a garden-variety ‘ground[] … for the revocation of any contract’).

98  See eg Restatement (Second) of Contracts (1981) s 71.

99  In fact, several of the now-defunct state law cases relied heavily on the fact that ‘a trust does not rest on an exchange of promises’. Schoneberger v Oelze, 96 P3d 1078, 1083 (Ariz Ct App 2004), superseded by statute, Ariz Rev Stat Ann s 14-10205 (2011), as recognized in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011). See also Diaz v Bukey, 125 Cal Rptr 3d 610, 613 (Cal Ct App 2011) (‘The Trust does not meet the statutory definition of a contract because there is no evidence that the beneficiaries gave either their consent or consideration to achieve the status of beneficiary.’), review granted and opinion superseded by Diaz v Bukey, 257 P3d 1129 (Cal 2011), and case transferred by Diaz v Bukey, 287 P3d 67 (Cal 2011).

100  See eg Weavertown Transp Leasing, Inc v Moran, 834 A2d 1169, 1172 (Pa 2003).

101  See eg Uniform Trust Code s 1008(a), <www.uniformlaws.org/Act.aspx?title=Trust%20Code>; Restatement (Second) of Trusts (1959) s 222, cmt d. See also David M English, ‘Arbitration and the Uniform Trust Code’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 6.01–6.14.

102  Doctor’s Associates, Inc v Casarotto, 517 US 681, 686–87 (1996).

103  For instance, some jurisdictions require arbitration clauses to be mutual: they cannot mandate that just one party submits disputes to the private forum. See eg Cheek v United Healthcare of Mid-Atlantic, Inc, 835 A2d 656, 666 (Md 2003).

104  See eg David Horton, ‘Unconscionability in the Law of Trusts’ (2009) 84 Notre Dame Law Review 1675.

105  Unconscionability occurs when a term is both procedurally unconscionable (offered by a powerful drafter on a take-it-or-leave-it-basis and buried in fine print) and substantively unconscionable (overly one-sided). See eg David Horton, ‘Unconscionability Wars’ (2012) 106 Northwestern University Law Review 387.

106  See Pinnacle Museum Tower Assn v Pinnacle Mkt Dev (US), LLC, 282 P3d 1217, 1231-32 (Cal 2012); Delaware County Employees Retirement Fund v Portnoy, 2014 WL 1271528, *14-15 (D Mass 2014).

107  For a useful discussion of how other countries—particularly Germany—have addressed the in rem problem in the context of class arbitration, see SI Strong, Class, Mass, and Collective Arbitration in National and International Law (Oxford University Press 2013) 88–95.

108  Carpenter v Bailey, 60 P 162, 163 (Cal 1900).

109  ibid.

110  In re Nestorovski Estate, 769 NW2d 720, 728 (Mich 2009).

111  Its most recent appearance seems to be in In re Jacobovitz’ Will, 295 NYS2d 527, 530 (Sur Ct Nassau Cnty 1968) (‘The court agrees with the petitioner’s contention that the arbitration as conducted certainly was a denial of the legal rights of the distributees and creditors who were not represented.’).

112  131 S Ct 1740 (2011).

113  ibid 1745.

114  ibid 1747–49.

115  ibid 1751.

116  133 SCt 2064, 2071-72 (2013) (Alito, J, concurring).

117  ibid.

118  See eg David Horton, ‘In Partial Defense of Probate: Evidence from Alameda County, California’ (2015) 103 Georgetown Law Journal 605.

119  ibid.

120  Concepcion, 131 SCt at 1752.

121  Admittedly, though, the settlor would be wise to directly address how to protect the rights of unborn or unascertained individuals in arbitration. SI Strong, ‘Empowering Settlors: How Proper Language Can Increase the Enforceability of a Mandatory Arbitration Provision in a Trust’ (2012) 47 Real Property, Trust and Estate Law Journal 275.

122  9 USC s 4.

123  388 US 395, 404 (1967).

124  ibid 403.

125  ibid 403–04.

126  See eg Howsam v Dean Witter Reynolds, Inc, 537 US 79, 84 (2002) (‘[W]hether the parties are bound by a given arbitration clause [is] … for a court to decide.’); Buckeye Check Cashing, Inc v Cardegna, 546 US 440, 444 n1 (2006) (‘[T]he [container] contract’s validity is different from the issue whether any agreement between the [parties] was ever concluded.’).

127  See eg Alan Scott Rau, ‘Everything You Really Need to Know about ‘Separability’ in Seventeen Simple Propositions’ (2003) 14 American Review of International Arbitration 1.

128  9 USC s 4.

129  McArthur v McArthur, 168 Cal Rptr 3d 785 (Cal Ct App 2014).

130  514 US 938, 942 (1995).

131  ibid 944 (quotation and alterations omitted).

132  ibid 946.

133  561 US 63 (2010).

134  ibid 66.

135  ibid 65–66, 73.

136  ibid 70 n 1.

137  ibid 70–71.

138  ibid 69.

139  See eg American Arbitration Association, Consumer Arbitration Rules, Rule 7(a), <www.adr.org>; JAMS, Comprehensive Arbitration Rules, Rule 11, <www.jamsadr.com>; Apollo Computer, Inc v Berg, 886 F2d 469, 473 (1st Cir 1989) (discussing Article 8.3 of the ICC Rules of Arbitration).

140  See eg Contec Corp v Remote Solution Co, 398 F3d 205, 208 (2d Cir 2005); Terminix Int’l Co v Palmer Ranch LP, 432 F3d 1327, 1332 (11th Cir 2005); Qualcomm Inc v Nokia Corp, 466 F3d 1366, 1373 (Fed Cir 2006); Fallo v High–Tech Inst, 559 F3d 874, 878 (8th Cir 2009); Oracle America, Inc v Myriad Group AG, 724 F3d 1069, 1075 (9th Cir 2013); Petrofac, Inc v DynMcDermott Petroleum Operations Co, 687 F3d 671, 675 (5th Cir 2012).

141  Compare Yahoo! Inc v Iversen, 836 F Supp 2d 1007, 1009 (ND Cal 2011) (treating the incorporated rules as delegation clause) and Bernal v Sw & Pac Specialty Fin, Inc, 2014 WL 1868787, *1 (ND Cal 2014) (same) with Tompkins v 23andMe, Inc, 2014 WL 2903752, *11 (ND Cal 2014) (stating ‘the Court agrees with Plaintiffs that a bare reference to the AAA rules in 23andMe’s online contract does not show that the parties clearly and unmistakably intended to delegate arbitrability’). See also Ajamian v CantorCO2e, LP, 137 Cal Rptr 3d 773, 789 (Cal Ct App 2012) (noting ‘we seriously question how [the incorporation of AAA rules] provides clear and unmistakable evidence that an employer and an employee intended to submit the issue of the unconscionability of the arbitration provision to the arbitrator’).

142  2014 WL 7431466, *2 (Tenn Ct App 2014).

143  American Arbitration Association, Wills and Trusts Arbitration Rules and Mediation Procedures, Rule 7(a), <www.adr.org>. For a rigorous discussion of the AAA’s trust arbitration rules, see E Gary Spitko, ‘A Critique of the American Arbitration Association’s Efforts to Facilitate Arbitration of Internal Trust Disputes’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 3.01–3.63; SI Strong, ‘Institutional Approaches to Trust Arbitration: Comparing the AAA, ACTEC, ICC, and DIS Trust Arbitration Regimes’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 5.01–5.135.

144  See eg In re Estate of Meland, 712 NW2d 1, 3 (SD 2006) (holding that a disclaimer must occur within nine months of the settlor’s death).

145  757 F3d 460 (5th Cir 2014).

146  ibid 462–63. See also Qualcomm Inc v Nokia Corp, 466 F3d 1366, 1371 (Fed Cir 2006) (reasoning that if the parties ‘did clearly and unmistakably intend to delegate the power to decide arbitrability to an arbitrator, then the court should perform a second, more limited inquiry to determine whether the assertion of arbitrability is wholly groundless’); Marriott Ownership Resorts, Inc v Flynn, 2014 WL 7076827, *15 (D Haw 2014) (following Douglas and Qualcomm).

147  Douglas, 757 F3d at 467–68 (Dennis, J, dissenting).

148  Rent-A-Ctr, W, Inc v Jackson, 561 US 63, 72 (2010).