Bazazzadegan v. Vernon

2019 Ark. App. 496

588 S.W.3d 796

Julia BAZAZZADEGAN; Cannon Holdings, LLC; Ozark Mountain Publishing, Inc.; and Quantum Healing Hypnosis Academy, LLC, Appellants

v.Nancy VERNON, Individually and as Cotrustee of the Dolores E. Cannon Living Trust and on Behalf of Cannon Holdings, LLC, Appellees

No. CV-18-989

Court of Appeals of Arkansas, DIVISION IV.

Opinion Delivered October 30, 2019

James, House, Downing & Lueken, P.A., by: Matthew R. House, Little Rock, for appellants.

Conner & Winters, LLP, Fayetteville, by: G. Alan Wooten and Michael D. Sutton, for appellees.

BRANDON J. HARRISON, Judge

In 2018, Nancy Vernon, a successor cotrustee and beneficiary of the Dolores E. Cannon Living Trust, sued her sister Julia Bazazzadegan, who is also a successor cotrustee and a beneficiary of the trust. Nancy alleged that Julia (1) committed a breach of trust as cotrustee, (2) breached her fiduciary duties as a corporate officer, and (3) misappropriated funds and unjustly enriched herself so that Nancy was entitled to a constructive trust.¹ Julia moved the circuit court to order the dispute to mediation or arbitration, arguing that the settlor (the sisters' mother) intended that course. This interlocutory appeal, which we review de novo and presents an issue of first impression, asks whether the circuit court erred when it denied Julia's motion to compel mediation or arbitration. Ark. R. App. P.–Civ. 2(a)(12) (2019); Gibbons v. Anderson , 2019 Ark. App. 193, 575 S.W.3d 144.

I. The Trust's Alternative-Dispute-Resolution Provisions

The Dolores E. Cannon Living Trust was created on 4 April 2014, and Dolores Cannon was the settlor and sole trustee before she died. When Dolores died her daughters Nancy Vernon and Julia Bazazzadegan became successor cotrustees pursuant to section 3.03 of the trust. Each daughter accepted the role. The trust contains three provisions that discuss alternative-dispute resolution (ADR). They are the focus of this appeal.

• Article Twelve outlines the trustees' powers. In particular, Section 12.24 states,

My Trustee may settle any claims and demands in favor of or against the trust by compromise, adjustment, arbitration or other means. My Trustee may release or abandon any claim in favor of the trust.

• Article Eleven governs trust administration. In particular, Section 11.04 states,

Section 11.04 No Court Proceeding

My Trustee shall administer this trust with efficiency, with attention to the provisions of this trust, and with freedom from judicial intervention. If my Trustee or another interested party institutes a legal proceeding, the court will acquire jurisdiction only to the extent necessary for that proceeding. Any proceeding to seek instructions or a court determination may only be initiated in the court with original jurisdiction over matters relating to the construction and administration of trusts. Seeking instructions or a court determination is not to be construed as subjecting this trust to the court's continuing jurisdiction.

I request that any questions or disputes that arise during the administration of this trust be resolved by mediation and, if necessary, arbitration in accordance with the Uniform Arbitration Act. Each interested party involved in the dispute, including any Trustee involved, may select an arbiter and, if necessary to establish a majority decision, these arbiters may select an additional arbiter. The decision of a majority of the arbiters selected will control with respect to the matter.

The third section of the trust that directly relates to the ADR issue is Section 11.14. It provides that cotrustees must agree unanimously on an action unless the trust provides otherwise. Absent unanimous agreement between cotrustees, the settlor expressly "request[ed] that the matter be settled by mediation and then by arbitration, if necessary[.]" Note that Sections 11.14 and 11.04 impose an order of preference regarding two identified dispute-resolution methods—mediation first, arbitration second.

If my Trustees are unable to agree on a matter for which they have joint powers, I request that the matter be settled by mediation and then by arbitration , if necessary, in accordance with the Uniform Arbitration Act. Each of my Trustees may select an arbiter and these arbiters may select an additional arbiter, if necessary, to establish a majority decision. The decision of a majority of the arbiters will control with respect to the matter.

(Emphasis added.)

II. To Litigate or Not to Litigate?—That is the Question

Julia wants this lawsuit sent to mediation or arbitration because it falls within Section 11.04's term that "any questions or disputes that arise during the administration of this trust" must be "resolved by mediation and, if necessary, arbitration in accordance with the Uniform Arbitration Act." She therefore asks that we reverse the circuit court's decision to deny her motion to compel mediation or arbitration and remand with instructions to either dismiss or stay the suit while the parties mediate or, if necessary, arbitrate. Her reasons include some public-policy arguments favoring these ADR options.

Nancy holds the opposite position: the lawsuit in circuit court should not be mediated or arbitrated because the plain language of Section 11.04 permits a trustee to file a traditional lawsuit or pursue the mediation or arbitration route. Section 11.04 anticipates—if not authorizes—litigation, so the circuit court's denial of Julia's motion was not reversible error. Nancy contends that the general legal principles favoring an ADR option do not defeat Arkansas's settled position that a party cannot be compelled to arbitrate or mediate when he or she has not agreed to do so. Nancy says the Arkansas Supreme Court specifically addressed this issue in Asset Acceptance, LLC v. Newby , 2014 Ark. 280, 437 S.W.3d 119, and refused to compel arbitration because one of the legal elements of an enforceable contract (mutual assent) was missing.

Julia is correct that Arkansas's public policy favors enforcing ADR clauses. See David Newbern, John J. Watkins & D.P. Marshall Jr., 2 Arkansas Civil Practice & Procedure § 14:14 (5th ed. May 2019 update) ("As a matter of public policy, Arkansas strongly favors arbitration as a less expensive and more expeditious alternative to litigation and a useful mechanism for relieving congested court dockets.") (collecting cases); Robert B. Moberly & Judith Kilpatrick, Introduction: The Arkansas Law Review Symposium on Alternative Dispute Resolution , 54 Ark. L. Rev. 161, 167 (2001) ("Some disputes require technical expertise for their resolution and, because judges are necessarily generalists, the courts may be less appropriate for some controversies."). The Arkansas Uniform Trust Code does not, however, directly address whether an ADR provision in a trust is enforceable in this case's context. The Trust Code clearly permits parties to arbitrate claims. In fact, it arguably encourages them to do so unless there is an express provision to the contrary. See Ark. Code Ann. § 28-73-111 (Repl. 2012) (allowing binding nonjudicial settlement agreement for any matter involving a trust); Ark. Code Ann. § 28-73-816(23) (trustee has power to resolve dispute over trust administration "by mediation, arbitration, or other procedure for alternative-dispute resolution"); Ark. Code Ann. §§ 28-73-815, -816(23) & -105 (Repl. 2012) (Trust Code is a set of default terms that may apply in the absence of express trust term). That the Cannon Trust's express terms give cotrustees Nancy and Julia the power to settle any disputes or claims by mediation or arbitration is consistent with the default provisions in the Trust Code. Compare Section 12.24 with Ark. Code Ann. § 28-73-816(23). The issue is whether the cotrustees and beneficiaries must mediate or arbitrate their dispute.

A. Mandatory or Permissive?

Trusts are written legal instruments that we construe using the same legal principles that apply when resolving disputes over contracts or wills, for example. See Murphy v. Morris , 200 Ark. 932, 141 S.W.2d 518 (1940) ; Gibbons v. Anderson , 2019 Ark. App. 193, 575 S.W.3d 144. The primary objective is to carry out the settlor's intent unless doing so is contrary to the law for some reason. Covenant Presbytery v. First Baptist Church , 2016 Ark. 138, 489 S.W.3d 153. If a trust expressly states the settlor's intentions, then we stop and carry them out. Canons of construction are appropriately applied only when the document is reasonably susceptible to more than one interpretation. When determining the settlor's intentions, we consider every part of the trust. Id. A results-oriented, cherry-picking approach, in other words, is a bad thing.

With these governing legal principles in hand, we turn to whether the Cannon Trust dispute must be sent to some ADR option. To put the bottom-line up front, we hold that the settlor of the Cannon Trust expressly intended that courts exercise a limited role when resolving trust disputes. The first paragraph in Section 11.04 does not answer whether the trust mandates, or merely suggests, an ADR approach. Recall that Section 11.04 states: "If my Trustee or another interested party institutes a legal proceeding, the court will acquire jurisdiction only to the extent necessary for that proceeding." This assertion in some sense merely reflects a fact of jurisdictional law in Arkansas. Circuit courts have jurisdiction over trust disputes. Ark. Const. amend. 80, § 6 (A) (establishing circuit courts "as the trial courts of original jurisdiction of all justiciable matters not otherwise assigned pursuant to this Constitution"). But the first paragraph in Section 11.04 is also wholly consistent with the role that circuit courts have under Arkansas's Arbitration Act. See Ark. Code Ann. § 16-108-211 (the circuit court may appoint arbitrators); Ark. Code Ann. § 16-108-207 (circuit court may issue orders compelling or staying arbitration); Ark. Code Ann. §§ 16-108-223 & -224 (...