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Paulette D. Diaz v. Marie L. Bukey

May 10, 2011

PAULETTE D. DIAZ, PLAINTIFF AND RESPONDENT,
v.
MARIE L. BUKEY, AS TRUSTEE, ETC., DEFENDANT AND APPELLANT.



Martin J. Tangemen, Judge Superior Court County of San Luis Obispo (Super. Ct. No. PR90337A)

The opinion of the court was delivered by: Perren, J.

CERTIFIED FOR PUBLICATION

(San Luis Obispo County)

The beneficiary of a trust petitions to remove her sister as trustee of their parents' trust. The trustee responds by seeking to compel arbitration of their dispute as provided by the trust documents. Though the sisters are beneficiaries of the trust, neither was party to any agreement that such disputes would be resolved by arbitration. Here we hold that the beneficiary of a trust who did not agree to arbitrate disputes arising under the trust may not be compelled to do so.

Marie L. Bukey appeals from an order denying her motion to compel arbitration of a petition seeking to remove her as trustee of the Diaz Family Trust and for an accounting pursuant to Probate Code section 17200. We affirm.

Statement of Facts and Procedural History

In 1995, Daniel and Marie Diaz established the Diaz Family Trust (Trust). On November 1, 2004, appellant Marie L. Bukey was appointed successor trustee of the Trust. Bukey and respondent Paulette D. Diaz (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, inter alia, 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. On May 13, 2009, the trial court issued its order overruling the demurrer and denying the petition to compel arbitration. The trial court reasoned that Diaz, as a beneficiary, was not contractually bound to submit disputes with the trustee concerning administration of the Trust to arbitration. The court stated, "The moving party has not met the burden establishing a contract binding the beneficiary to participate in arbitration. . . . There is nothing in this ruling that prevents the parties from entering into a[n] agreement to arbitrate the above dispute."

On appeal, Bukey asserts the trial court erred because the arbitration provision in the Trust is binding on Diaz as a beneficiary of the Trust under a third party beneficiary or equitable estoppel theory.*fn1

DISCUSSION

Standard of Review

Whether an arbitration provision applies to a controversy is a question of law which we review de novo. (Alan v. Superior Court ...


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