Every brokerage firm in the country requires all disputes to be arbitrated, by the brokerage agreement. But what happens when only the trustee, not the beneficiaries, sign the brokerage agreement? Can the beneficiaries be forced into arbitration?
The case of Paquin v. Campbell, 5D22-2859 (5th DCA 2024) holds no, trust beneficiaries who did not sign the brokerage agreement cannot be forced into arbitration against the brokerage firm.
When is Arbitration Required?
Arbitration is required when three elements are present: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived, based on the Florida Supreme Court case of Seifert v. U.S. Home Corp., 750 So.2d 633, (Fla. 1999).
If someone did not sign the arbitration agreement, can they still be bound to arbitrate? Yes. Non-signatories may be bound to arbitration agreements under theories of (1) incorporation by reference; (2) assumption; (3) agency; (4) veil piercing/alter ego; and (5) estoppel.
In the context of beneficiaries of a trust being required to arbitrate under the a brokerage agreement signed by the trustee, the Paquin decision analyzed only the estoppel theory as potentially applying.
Can Estoppel Compel a Beneficiary of a Trust to Arbitrate?
A beneficiary of a trust can be forced to arbitrate only if the beneficiary is relying on or has received benefits from the brokerage agreement. As explained in Paquin:
Equitable estoppel binds a non-signatory to a contract to arbitration in two situations. First, if a nonsignatory sues a signatory to a contract for breach of contract, the nonsignatory is estopped from denying the arbitration clause in the contract.”
Appellants cannot be compelled to arbitrate under this rule because they did not sue Appellees for breach or enforcement of the contracts containing the arbitration provisions; they sued in tort for negligence and tortious interference with an inheritance, based on common law elements and actions independent of the contracts.”
Second, a nonsignatory to a contract will be estopped from denying an arbitration provision in the contract when the nonsignatory has directly benefitted from the contract.”
In contrast, indirect benefits from a contract, which are insufficient to compel a nonsignatory to arbitrate, are those “where the nonsignatory exploits the contractual relation[ship] of parties to an agreement, but does not exploit (and thereby assume) the agreement itself.”
Appellants cannot be compelled to arbitrate under “direct benefits” estoppel because they have not directly benefitted, and do not seek to directly benefit, from the contracts containing the arbitration provisions. To the extent that Appellants rely on the relationship between Appellees and McLeod to allege negligence or interference with an expectancy, such reliance is insufficient to compel arbitration under equitable estoppel.
So the lesson from Paquin is clear: if a beneficiary of a trust wants to sue the brokerage firm, do not sue based on breach of contract. Sue based on tort and other non-contractual theories.