In Ali v. Smith, a successor administrator of an estate sued the former executor for breach of fiduciary duties arising from his management of the finances of the estate, converting assets of the estate, and using estate funds. No. 14-18-00003-CV, 2018 Tex. App. LEXIS 5129 (Tex. App.—Houston [14th Dist.] July 10, 2018, no pet. history). The defendant filed a motion to compel arbitration based on an arbitration provision contained in the will. The will provided:

If a dispute arises between or among any of the beneficiaries of my estate, the beneficiaries of a trust created under my Will, the Executor of my estate, or the Trustee of a trust created hereunder, or any combination thereof, such dispute shall be resolved by submitting the dispute to binding arbitration. It is my desire that all disputes between such parties be resolved amicably and without the necessity of litigation.

Id. The trial court denied the motion, and the defendant appealed.

On appeal, the defendant argued that the trial court erred by not enforcing the will’s arbitration clause because the arbitration clause was enforceable under the doctrine of direct-benefits estoppel as the plaintiff had (1) “enforced the will” and brought claims against defendant “for failing to comply with the will” and (2) “received appointee fees.”

The court of appeals held that the party asserting a right to arbitration has to prove a binding arbitration agreement. “Typically, a party manifests its asset by signing an agreement.” The parties agreed that they were not signatories to the will. “But the Texas Supreme Court has ‘found assent by nonsignatories to arbitration provisions when a party has obtained or is seeking substantial benefits under an agreement under the doctrine of direct benefits estoppel.’” Id. (citing Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013)). The court describe direct-benefits estoppel thusly:

This doctrine precludes a plaintiff from seeking to hold a defendant liable based on the terms of an agreement that contains an arbitration provision while simultaneously asserting the provision lacks force because the plaintiff or defendant is a non-signatory. “When a claim depends on the contract’s existence and cannot stand independently—that is, the alleged liability arises solely from the contract or must be determined by reference to it—equity prevents a person from avoiding the arbitration clause that was part of that agreement.” On the other hand, “when the substance of the claim arises from general obligations imposed by state law, including statutes, torts and other common law duties, or federal law, direct-benefits estoppel is not implicated even if the claim refers to or relates to the contract or would not have arisen but for the contract’s existence.” Additionally, a non-signatory may be compelled to arbitrate if they deliberately seek or obtain substantial benefits from the contract by a means other than the lawsuit itself. This analysis focuses on the non-signatory’s “conduct during the performance of the contract.” This doctrine will not apply if the benefits are either insubstantial or indirect.

Id. (internal citations omitted).

The court held that the plaintiff was not seeking any relief under the will, but was seeking relief under Texas statutes and common law and thus direct-benefits estoppel did not apply:

Smith alleges in the petition that Ali (1) “Failed to responsibly handle the finances of the estate”; (2) “Converted assets of the Estate to his own personal use”; and (3) “Used estate funds in violation and dereliction of his fiduciary duties.” Unlike the beneficiary in Rachal who alleged violations of the trust terms, Smith does not allege in the petition that Ali violated any terms of the will. Rather, Smith contends that her claims are based on common law and statutory provisions such as Sections 351.001 and 351.101 of the Estates Code: “The rights, powers, and duties of executors and administrators are governed by common law principles to the extent that those principles do not conflict with the statutes of this state. An executor or administrator of an estate shall take care of estate property as a prudent person would take of that person’s own property . . . .” An executor such as Ali also has a statutory duty to deliver the property of the estate to a successor representative such as Smith. And, Smith alleges in the petition that this action was brought pursuant to Section 361.153, which provides that a successor representative is “entitled to any order or remedy that the court has the power to give to enforce the delivery of the estate property” to the successor representative.

The plain language of the statutes impose duties on both executors and administrators, but executors and administrators are not the same. An executor is named in a will, while an administrator with will annexed is not. The source of the executor’s power to act is the will. The source of an administrator’s power to act is the statutes and the court. Nothing in Smith’s petition indicates that Ali’s liability need be determined by reference to the will, even though he would not have been an executor “but for” the will. The substance of the claims arise from general duties imposed by statutes and the common law. Smith has not alleged that Ali violated any terms of the will, so this theory of direct-benefits estoppel is inapplicable.

Under the second avenue for proving direct-benefits estoppel, Ali contends that Smith has obtained a benefit from the will by collecting “appointee fees” from the estate. Smith contends that she was entitled to the fees by statute, not the will. We agree with Smith. The trial court’s order authorizing Smith to collect appointee fees does not state that Smith collected a benefit under the will. And, the authorizing statute does not make a distinction based on the existence of a will. Because the trial court awarded fees and expenses to Smith without reference to the will, Ali has not shown that Smith deliberately sought or obtained substantial benefits from the will by a means other than the lawsuit.

Id. (internal citations omitted). The court of appeals affirmed the trial court’s order denying the motion to compel arbitration.

There was a dissenting justice who would have reversed the order and compelled the case to arbitration. That justice would hold that both parties agreed to the arbitration clause by accepting an appointment to administer the estate:

It is self-evident that neither Ali nor Smith physically signed Sultan’s will at the time it was executed. However, it can hardly be said that they are strangers to the will. Their acceptance of appointments to serve as executors of the will (and all its provisions) constitutes the assent required to form an enforceable agreement to arbitrate under the Texas Arbitration Act. Texas jurisprudence regarding non-signatories to an arbitration agreement, therefore, should not be applied to this dispute. Because the majority has done so, I respectfully dissent.

Id. (Jamison, J. dissenting). The dissenting justice continued: “Smith agreed to her appointment, which was to carry out Sultan’s clearly expressed intent in his will, including the intention for disputes to be arbitrated. As Smith’s counsel stated in oral argument, ‘[The administrator] does not get to re-write the will.’ Exactly.” Id.

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Photo of David Fowler Johnson David Fowler Johnson

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David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law