In Skeels v. Suder, a departing shareholder of a law firm sued regarding the firm’s decision to redeem his shares for no consideration. No. 21-1014, 2023 Tex. LEXIS 578 (Tex. June 23, 2023). Partners of a law firm entered into a shareholder agreement that allowed certain individuals to take action. The resolution stated:

Notwithstanding the number of shareholders, or the number of shares issued to any shareholder, Walker Friedman, Jonathan Suder and Michael Cooke, collectively, have been entitled, and shall continue to be entitled, to take affirmative action on behalf of the Firm, and veto any vote or action taken by or on behalf of the Firm, and/or by any other shareholder, whether individually, or collectively.

Id. (emphasis added). The firm’s governing documents did not address redemption, and after the firm terminated a shareholder’s employment, he did not agree to the founders’ proposed redemption terms. The founders then purported to redeem his shares at no cost, arguing that a resolution generally authorizing the founders “to take affirmative action on behalf of the Firm” unambiguously encompasses redemption. The trial court ruled for the lawfirm and rejected the departing shareholder’s claim regarding the redemption.

The majority of the court of appeals affirmed that under the various documents, it had the right to do so: “The plain language of the Resolution—a shareholder agreement—broadly allowed Friedman, Suder, and Cooke as the Firm’s governing authority to take affirmative action on behalf of the Firm; thus, the trial court did not err by finding that the Resolution governed the redemption of Skeels’s shares on the terms dictated by the Firm’s governing authority.”

The Texas Supreme Court reversed. The court noted that the Texas Organizations Code provides that corporate shares are personal property, but a professional corporation may redeem them if the redemption price and other terms are (1) “agreed to between the board of directors” and either “the shareholder” or his “personal representative,” (2) “specified in the governing documents” or “an applicable agreement,” or (3) determined according to a statutorily authorized “shareholders’ agreement.” Id.

The Texas Supreme Court held that:

[M]odifying “affirmative action” with “on behalf of the Firm,” the resolution authorized the founders to take action the firm could take, but it did not constitute the departing shareholder’s agreement that the founders may set redemption terms of their own accord on his behalf. Nor does the resolution itself “specif[y]” any redemption terms. And because the firm was not authorized—by statute, governing document, or shareholders’ agreement—to set the redemption terms without the departing shareholder’s agreement, the resolution did not independently authorize the founders to unilaterally determine those terms.


In Eho360 LLC v. Opalich, an employer sued its former employee for breaching fiduciary duties and other related claims regarding the former employee setting up a competing business. No. 3:21-CV-0724-B, 2023 U.S. Dist. LEXIS 45076 (N.D. Tex. March 17, 2023). The employee filed a motion for summary judgment, which the district court denied. The court stated the law in Texas as follows:

Under Texas law, “[t]he elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must result in injury to the plaintiff or benefit to the defendant.” A fiduciary duty generally entails “fair dealing and good faith” and “integrity and fidelity.” When a fiduciary relationship exists between an employer and an employee, an employee “has a duty to act primarily for the benefit of the employer in matters connected with his [employment].” But, “an employer’s right to demand and receive loyalty must be tempered by society’s legitimate interest in encouraging competition.” Under Texas law, “[a]n at-will employee may properly plan to go into competition with his employer and may take active steps to do so while still employed.” And a fiduciary relationship “does not preclude the fiduciary from making preparations for a future competing business venture; nor do such preparations necessarily constitute a breach of fiduciary duties.” However, the Texas Supreme Court has imposed limitations on an employee’s right to prepare to compete with his employer. “[An employee] may not appropriate his employer’s trade secrets . . . . He may not solicit his employer’s customers while still working for his employer . . ., and he may not carry away certain information, such as lists of customers. . . . Of course, such a person may not act for his future interests at the expense of his employer by using the employer’s funds or employees for personal gain or by a course of conduct designed to hurt the employer.” And while “[f]iduciary duties generally terminate at the end of an employment relationship,” some duties survive the termination of employment. One such duty “forbids an employee from using confidential or proprietary information acquired during the relationship in a manner adverse to his employer.” “Although this duty does not bar use of general knowledge, skill, and experience, it prevents the former employee’s use of confidential information or trade secrets acquired during the course of employment.”

Id. (internal citations omitted).

The court held that the evidence created a fact issue as to whether the defendants, who were executives, used confidential information from their former employer to set up their new competing business. This was true even though the defendants had no restrictions on competition. Further, regarding damages, the court held that even though the plaintiff did not lose any business, the evidence showed that the defendants benefited from their fiduciary breaches, which is sufficient to sustain a breach of fiduciary duty. Based on this evidence the court denied the summary judgment motion as to both defendants.

In In re Sanchez, a plaintiff filed suit against a defendant for (1) conspiracy; (2) fraud and conspiracy to commit fraud; (3) aiding and abetting/conspiracy; (4) breach of fiduciary duty; and (5) Texas Theft Liability Act Violation related to the property. No. 14-23-00169-CV, 2023 Tex. App. LEXIS 1746 (Tex. App.—Houston [14th Dist.] March 17, 2023, original proceeding). The plaintiff obtained a temporary restraining order regarding real property and it expired. The plaintiff then sought and obtained a second temporary restraining order. The defendant opposed both, and filed a mandamus action regarding the second restraining order. The court of appeals explained:

Rule 680 provides in relevant part: “[E]very temporary restraining order granted without notice . . . shall expire by its terms within such time after signing, not to exceed fourteen days, as the court fixes, unless within the time so fixed the order, for good cause shown, is extended for a like period or unless the party against whom the order is directed consents that it may be extended for a longer period. The reasons for the extension shall be entered of record. No more than one extension may be granted unless subsequent extensions are unopposed.” Id. The Texas Supreme Court has held that “Rule 680 governs an extension of a temporary restraining order, whether issued with or without notice, and permits but one extension for no longer than fourteen days unless the restrained party agrees to a longer extension.” In re Tex. Nat. Res. Conservation Comm’n, 85 S.W.3d 201, 204-05 (Tex. 2002) (orig. proceeding). The short duration allowed by Rule 680 is “a critical safeguard against the harm occasioned by a restraint on conduct that has yet to be subject to a truly adversarial proceeding.” Id. at 206-07. Mandamus is available for temporary restraining orders that violate the time limitations of Rule 680. Id. at 207.

Id. Based on this authority, the court held that the trial court abused its discretion in entering the second temporary restraining order and granted mandamus relief:

Although Judge Thornton’s order signed March 9, 2023 is not styled as a second temporary restraining order, it is undisputed that the effect on the parties is the same. “The supreme court has interpreted the requirements of Rule 680 in such a way as to not permit a party to continually request temporary restraining orders without requiring the party to meet the more stringent requirements of obtaining a temporary injunction.” In re 2500 W. Loop, Inc., No. 14-18-00770-CV, 2018 WL 4523935, at *3 (Tex. App.—Houston [14th Dist.] Sept. 21, 2018) (orig. proceeding). The March 9, 2023 order granting a second TRO does not comply with the requirements of Rule 680. Judge Thornton’s issuance of the March 9, 2023 TRO was an abuse of the ancillary judge’s discretion.


David F. Johnson will address the complex issues surrounding a trustee’s duty to disclose and will compare Texas law and the Uniform Trust Code on this topic. He will address disclosure requirements under trust documents and their ability to limit or expand common-law disclosure requirements, silent trusts, statutory duties to disclose, statutory duties to prepare an accounting and recent proposed legislation concerning same, the common-law duty to disclose in Texas, methods to avoid claims based on non-disclosure, and ramifications for violating the duty to disclose.

Click here for PowerPoint: A Trustees Duties to Disclose

In Mittelsted v. Meriwether, the decedent changed his will and beneficiary designations on bank accounts to leave everything to his half-brother. No. 14-21-00755-CV, 2023 Tex. App. LEXIS 1020 (Tex. App.—Houston February 16, 2023, no pet. history). The decedent’s sisters challenged these transactions for mental incompetence, and the jury found for the sisters. The half-brother appealed.

The court first affirmed the trial court’s admission of certain testimony of an expert medical witness. Although the court did not allow the witness to opine on mental capacity and undue influence, the court did allow the witness to testify about specific conditions. The expert opined:

Dr. Adhia reviewed records and affidavits in addition to interviewing several individuals. The records reviewed included medical records from Jack’s primary care doctor and the medical examiner’s report from Jack’s autopsy. Dr. Adhia explained that, according to those records, Jack had suffered at least one stroke (although his family told Dr. Adhia that Jack had likely had two strokes), had generalized anxiety disorder, and had hypertension. Jack also suffered from chronic alcoholism—which was identified as contributing to his death—and was sedentary and disabled. Jack did not regularly seek medical care and often failed to take prescribed medications, choosing to self-medicate by drinking alcohol instead.

Based on this information, Dr. Adhia opined that Jack was incapable of performing or had difficulty performing basic and instrumental activities of daily living. He described “basic” activities of daily living as “simple” tasks, like toileting, bathing, and walking. “Instrumental” activities are a “higher form” of daily living, like shopping, taking medications, and using transportation. Jack needed both physical and mental assistance with performing tasks, such as cleaning himself and his house, visiting the bank, purchasing alcohol, or communicating with his attorney. Jack was highly dependent on others, specifically Donovan, due to Jack’s medical conditions, psychiatric conditions, and substance use disorder. Jack’s “excessive alcohol intake” impacted his medical condition and his ability to perform activities of daily living, as evidenced by the fact that Jack “was basically in his bed much of the time.”

Id. The court concluded:

Dr. Adhia’s limited testimony regarding the “perfect storm” created by stroke, medications, and alcoholism, was based on his training and experience as a forensic psychiatrist, as well as on the information contained in the records provided to him. The fact that Dr. Adhia did not review every possible record goes to the weight of his testimony, not its admissibility, and did not render it speculative.

Id. The court also addressed the admission of testimony from a lay witness and held that such was not in error.

The court then addressed the decedent’s capacity to execute a will. The court held:

A testator has testamentary capacity when he has sufficient mental ability to understand that he is making a will, and the general nature and extent of his property. He also must know the natural objects of his bounty, the claims upon them, and have sufficient memory to collect in his mind the elements of the business transacted and hold them long enough to form a reasonable judgment about them. In a will contest, the pivotal issue is whether the testator had testamentary capacity on the day the will was executed. However, evidence of the testator’s state of mind at other times can be used to prove his state of mind on the day the will was executed provided the evidence demonstrates a condition affecting his testamentary capacity was persistent and likely present at the time the will was executed. “Incapacity to make a will . . . is a subtle thing, and must be established to a great extent, at least so far as lay witnesses are concerned, by circumstantial evidence.”

Id. The court reviewed the evidence, including the medical expert’s testimony, and held that there was sufficient evidence to support the jury’s finding of incompetence. The court also held that the jury could have reasonably rejected the testimony of the self-interested half-brother and other witnesses at the will signing (the attorney had not questioned the decedent before signing the will). The court concluded:

Considering all the evidence both in support of and against the finding, the jury reasonably could have found that Jack lacked testamentary capacity on February 12, 2019. Several witnesses testified that Jack began to decline mentally at some point in 2018. By the beginning of 2019, Mike felt that Jack was “slipping away.” According to Dr. Adhia, Jack suffered from heart disease, panic disorder, and chronic alcoholism. His stroke likely led to impaired cognition and Jack was unable to do basic daily tasks without assistance. Donovan admitted that Jack’s symptoms “progressed” over time after the stroke. Several witnesses testified that Jack was not of “sound mind” to make major decisions in 2018 and continuing into 2019. When witnesses spoke to Jack in person or over the phone, it was difficult or impossible to engage Jack, who “looped” in his train of thought or was “flat,” with “no affect.” In short, the evidence supports a finding that Jack developed a persistent condition or conditions affecting his testamentary capacity, which were likely present when the will was executed.

Id. The court also addressed the decedent’s capacity to execute account beneficiary designations:

Documents executed by one who lacks sufficient legal or mental capacity may be avoided. To have mental capacity, the person executing the instrument must have had sufficient mind and memory to understand the nature and effect of his act at the time of the document’s execution. Capacity may be assessed by considering such factors as (1) the person’s outward conduct demonstrating an “inward and causing condition,” (2) preexisting external circumstances tending to produce a special mental condition, and (3) the person’s mental condition before or after the relevant point in time from which her mental capacity or incapacity may be inferred.

Id. The held that the evidence that supported the finding of incapacity to execute a will also supported the finding of incapacity to execute the bank documents. The court also referenced testimony from a witness who testified that the decedent did not remember signing any new bank documents. The court affirmed the trial court’s judgment in favor of the contestant.

In In re Mittelsted, a trial court held a former executor in contempt for over twenty acts of commingling personal property with estate property and ordered that the executor pay over $200,000 to avoid contempt. No. 14-22-00274-CV, 2023 Tex. App. LEXIS 1014 (Tex. App.—Houston [14th Dist.] February 16, 2023, original proceeding). The executor filed a petition for writ of mandamus. The court of appeals first discussed the fiduciary duties of an executor:

Upon death, a decedent’s estate immediately vests in the devisees, legatees, and heirs at law of the estate, subject to payment of the decedent’s debts. Managing or administering a decedent’s estate is an executor’s core function. Because an executor holds and manages property interests of others, he or she serves as a trustee and is held to the highest standards of conduct. As trustee of an estate’s property, an executor is subject to the fiduciary standards applicable to all trustees. An independent executor owes fiduciary duties not only to the estate but to the estate’s beneficiaries as well. The universe of an executor’s fiduciary obligations includes a duty to exercise reasonable care in the administration of the estate property, and a duty to avoid commingling of estate funds with non-estate assets, including the executor’s personal property.

Id. (internal citations omitted). The court then addressed commingling by a trustee/executor:

Commingling personal assets with trust assets constitutes a breach of trust, and courts have developed certain principles concerning the identification of trust property when commingling occurs. For example, a party alleging that a trustee commingled funds has the initial burden to show that commingling has in fact occurred. When it is shown that a trustee commingled trust property with his own, the trustee then has the burden to distinguish his or her funds from those of the beneficiary, and if the trustee cannot do so, the whole commingled fund or the property purchased with that fund becomes subject to a trust in favor of the beneficiary. This tracing burden belongs to the trustee because it would be inequitable to place the burden on the party asserting the trust when the trustee has wrongfully commingled his own funds with trust funds, especially when the proof necessary to distinguish the funds is peculiarly within the knowledge and possession of the trustee. When a trustee withdraws from an improperly commingled fund, however, the trustee is presumed to have withdrawn or expended his own money first. This is true so long as sufficient funds remain in the commingled account to cover the amount of trust property or to identify that which belongs to the trust.


The court then analyzed the alleged commingling and held that there were several instances of it, but that there were other instances that were not supported. The court held that the contempt order was void:

The court assessed one coercive penalty for all twenty-two contemptuous acts, requiring Donovan to pay $287,457 to purge himself of contempt. “If one punishment is assessed for multiple acts of contempt, and one of those acts is not punishable by contempt, the entire judgment is void.'” Because Donovan’s challenged transfers from his IRA Account and Brokerage Account are not punishable by coercive contempt, we hold that the trial court’s entire civil contempt order is void. Further, because the order does not allocate the $287,457 amount based on separate contemptuous acts and otherwise contains no findings to support a lesser coercive contempt penalty, we are unable to reform the order or sever any valid portion from the remainder.


In In re Estate of Montemayor, a buyer sued a seller regarding five real estate contracts. No. 09-21-00054-CV, 2023 Tex. App. LEXIS 1174 (Tex. App.—Beaumont May 13, 2022, no pet. history). The seller’s executor alleged that the contracts were not enforceable because the seller did not have mental capacity to execute them. The jury found for the buyer, and the seller appealed.

The court of appeals first addressed the standards for mental competence to contract:

Mental incapacity is a common law defense to the formation of a contract. Texas law presumes that a person executing a contract or instrument had sufficient mental capacity at the time of its execution to understand his legal rights. Accordingly, the burden rests on the person seeking to set aside a contract or instrument to show the lack of mental capacity of the contracting party at the time the contract or instrument was made. To establish lack of mental capacity to contract in Texas, the evidence must show that, at the time of contracting, the person could not have “‘appreciated the effect of what [he] was doing and understood the nature and consequences of [his] acts and the business [he] was transacting.'” The proper inquiry is whether the person had capacity on the days he executed the documents at issue. Generally, the question of whether a person, at the time of contracting, knows or understands the nature and consequences of his actions is a question of fact.

Id. The court then reviewed evidence from the buyer that the seller knew what he was doing and acted normally in conversations, evidence from a long-time friend that the seller had complained about the taxes associated with the property and felt the seller was lucid, and evidence that medical records showed that the seller was oriented and had normal cognition during the relevant time period. The court affirmed the jury’s verdict for the buyer.

David F. Johnson presented to the Tarrant County Probate Bar Association on May 4, 2023, on the topic of “Trust Issues in Divorce Proceedings.” This program discussed some of the many trust issues that arise in divorce proceedings, including trust basics, voiding trusts due to fraud/constructive fraud/breach of fiduciary duty, characterization of trust assets and distributions, ethics involved in estate planning for married couples, trust construction issues, standing issues involved in raising trust claims, co-trustee management issues, and Trust Code provisions that address divorced parties. The presentation is attached.

Click here for PowerPoint: Trust Issues in Divorce Proceedings

David F. Johnson participated in a panel presentation entitled “The Baby-Boomer Generation & The Largest Succession of Wealth in History: The New Frontier in Asset Recovery?” for the Offshore Alert Miami Conference on April 24, 2023, in Miami, Florida, with Martin Kenney, Dr. Alexander Stein, and Rodrigo Callejas. The presentation discussed the incredible wealth owned by the baby-boomer generation, the transfer of that wealth, family dynamics associated with that transfer, and undue influence and mental competence issues. The panel also discussed the challenges facing the victims of high-value elder abuse; dishonest breach of trust by a family member against siblings or children; and developing a practice in this area. David focused on the legal standards for undue influence and mental incompetence and the types of evidence associated with those claims. The PowerPoint presentation from the course is attached.

Click here for PowerPoint: The Baby-Boomer Generation & The Largest Succession of Wealth in History: The New Frontier in Asset Recovery

The Texas Supreme Court held that arbitration clauses in trust documents may be enforced regarding claims by beneficiaries against trustees. In Rachal v. Reitz, a beneficiary sued a trustee for failing to provide an accounting and otherwise breaching fiduciary duties. 403 S.W.3d 840 (Tex. 2013). The trustee filed a motion to compel arbitration of those claims due to an arbitration provision in the trust instrument. After the trial court denied that motion, the trustee appealed. The Texas Supreme Court reversed the court of appeals and held that the arbitration clause was enforceable. Id. The Court did so for two primary reasons: 1) the settlor determines the conditions attached to her gifts, which should be enforced on the basis of the settlor’s intent; and 2) the issue of mutual assent can be satisfied by the theory of direct-benefits estoppel, so that a beneficiary’s acceptance of the benefits of a trust constitutes the assent required to form an enforceable agreement to arbitrate. See id. The court of appeals had held that there was no mutual asset as the beneficiary and trustee did not sign the trust document. The Texas Supreme Court resolved the issue of mutual assent by looking to the theory of direct-benefits estoppel. Because the plaintiff had accepted the benefits of the trust for years and affirmatively sued to enforce certain provisions of the trust, the Court held that the plaintiff had accepted the benefits of the trust such that it indicated the plaintiff’s assent to the arbitration agreement. The Court ordered the trial court to grant the trustee’s motion to compel arbitration.

One Texas court of appeals has rejected the enforcement of an arbitration clause in a will where the court determined that direct-benefits estoppel did not apply. 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. 554 S.W.3d 755 (Tex. App.—Houston [14th Dist.] 2018, no pet.). 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.” Id. 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)). Under the facts of the case, 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. This result would likely have been very different if the arbitrator (and not the court) had the right to decide the issue of direct-benefits estoppel.

Issues often arise in trust and estate disputes whether the arbitration agreement is enforceable due to scope issues (construction vs. administration) or enforceability issues (mental competence/undue influence). The initial fight is whether the trial court or the arbitrator should determine these threshold issues. Generally, a plaintiff can assert in court that his or her claims fall outside of the scope of the dispute resolution clause. Lost Maples Gen. Store, LLC v. Ascentium Capital, LLC, No. 14-18-00215-CV, 2019 Tex. App. LEXIS 3549, 2019 WL 1966671 (Tex. App.—Houston [14th Dist.] May 2, 2019, no pet.) (party argued that claims fell outside of scope of contractual jury waiver). Courts may require a party to submit a dispute to arbitration only if the party has agreed to do so. Seven Hills Commer., LLC v. Mirabal Custom Homes, Inc., 442 S.W.3d 706, 714 (Tex. App.—Dallas 2014, pet. denied). A party seeking to compel arbitration must establish a valid arbitration agreement exists and that the claims asserted are within the scope of the agreement. Id. at 715. So, the general rule is that a court (and not the arbitrator) determines whether a dispute falls within the scope of an arbitration clause or whether the clause is enforceable.

However, Texas courts enforce express provisions in arbitration agreements that refer or delegate enforceability and scope issues to the arbitrators. See Darling Homes of Tex., LLC v. Khoury, No. 01-20-00395-CV, 2021 Tex. App. LEXIS 3756, 2021 WL 1918772, at *8 (Tex. App.—Houston [1st Dist.] May 13, 2021, no pet.); Dow Roofing Sys., LLC v. Great Comm’n Baptist Church, No. 02-16-00395-CV, 2017 Tex. App. LEXIS 7370, 2017 WL 3298264, at *3 (Tex. App.—Fort Worth Aug. 3, 2017, pet. denied) (mem. op.) (stating that parties can agree to arbitrate questions concerning validity of arbitration agreement, including asserted defense that arbitration agreement is unconscionable). As the Texas Supreme Court held:

Whether parties have agreed to arbitrate is a gateway matter ordinarily committed to the trial court and controlled by state law governing ‘the validity, revocability, and enforceability of contracts generally.’ Parties can, however, agree to arbitrate arbitrability. Arbitration is a matter of contract, and that which the parties agree must be arbitrated shall be arbitrated.

Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 631 (Tex. 2018). So, if the parties contract to have the arbitrator decide threshold issues, courts will generally enforce that delegation.

One issue that has split the courts of appeals is whether the incorporation of the AAA Rules, without any other express delegation language, effectuates a delegation of threshold issues to the arbitrator. That issue has now been resolved. The Texas Supreme Court recently held that issues concerning the enforceability and scope of an arbitration clause should be compelled to arbitration due to the incorporation of AAA Rules. In TotalEnergies E&P USA, Inc., v. MP Gulf of Mexico, LLC, two oil and gas operators had a dispute arising out of the costs of certain systems in the production of minerals in the gulf of Mexico. No. 21-0028, 2023 Tex. LEXIS 315 (Tex. April 14, 2023). MP Gulf of Mexico and Total E&P owned an oil-and-gas processing system that serviced leases in the Gulf of Mexico. The parties signed two contracts to govern the system, the System Operating Agreement and the Cost Sharing Agreement. The dispute began when MP Gulf demanded that Total E&P pay certain costs incurred under the Cost Sharing Agreement. Total E&P refused and sued for a declaration construing that agreement. MP Gulf, however, initiated an arbitration proceeding before the AAA based on a provision in the System Operating Agreement stating that “any dispute or controversy aris[ing] between the Parties out of this Agreement . . . shall be submitted to arbitration . . . in accordance with the rules of the AAA.” MP Gulf argued that this provision, which incorporated the AAA Rules, required the AAA arbitrator to decide whether the parties agreed to submit their controversy to arbitration.  The trial court granted Total E&P’s motion to stay the arbitration. The court of appeals reversed, holding that by agreeing to arbitrate before the AAA and in accordance with its rules, the parties delegated the arbitrability issue to the arbitrator. The Texas Supreme Court affirmed the court of appeals.

The Court agreed with the majority of other courts that an agreement to arbitrate under the AAA means that the parties agreed to delegate issues of arbitrability: “We agree with the vast majority of courts that, as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator must decide whether the parties’ disputes must be resolved through arbitration.” Id. at *18-19. The Court explained: “By this language, the parties incorporated the AAA rules into their arbitration agreement, and thus the rules are binding, at least absent any conflict between the two. As a result, the AAA rules are ‘part of’ the parties’ agreement as if they were set forth within the agreement itself.” Id. at *19.

And although parties can contractually limit their delegation of arbitrability to only certain claims, the Court concluded that the agreements did not do so here. The delegation provision incorporated the AAA Rules, and nothing in that provision or in those rules limited the scope of the delegation. The Court held:

[W]e conclude that any limitation contained within these parties’ arbitration agreement does not affect the agreement’s clear and unmistakable delegation of arbitrability issues to the arbitrator. Although we agree that parties can contractually limit their delegation of arbitrability issues to only certain claims and controversies, we do not agree that the arbitration clause contained within the System Operating Agreement accomplishes that result.

Id. at * 25. The Court rejected the position that a trial court had to determine carve-outs and limitations “because it ignores the severability rule and conflates the parties’ agreement to arbitrate disputes with their agreement to delegate arbitrability issues to the arbitrator.” Id. at *28. The Court held:

[U]nder the severability rule, not only is the broader contract (the System Operating Agreement) severable from the provision within it requiring arbitration of claims arising out of that Agreement (article 16.16), but that arbitration provision is in turn severable from the provision within it that delegates arbitrability issues to the arbitrators (the provision incorporating the AAA rules). So we must carefully distinguish between the parties’ disputes over (1) the scope of the arbitration provision (what it includes and carves out) and (2) the delegation provision (who decides the scope of the arbitration provision).

Here, the delegation provision is the clause that incorporates the AAA rules, and nothing in that provision or in those rules limits the scope of the delegation. Total E&P contends that the arbitration clause limits the scope of the delegation by limiting the claims that must be arbitrated to those “arising out of” the Agreement. But under the severability rule, our conclusion that the delegation provision (the incorporation of the AAA rules) clearly and unmistakably delegates arbitrability issues to the arbitrator requires that we enforce that provision as written and allow the arbitrator to decide the scope of the arbitration provision… We thus conclude that the fact that the parties’ arbitration agreement may cover only some disputes while carving out others does not affect the fact that the delegation agreement clearly and unmistakably requires the arbitrator to decide whether the present disputes must be resolved through arbitration.

Id. at *38-30. So, as between signatories to a contract, the incorporation of AAA Rules does effectuate a delegation of threshold issues to the arbitrator.

The Court, however, previously held in Jody James Farms that an arbitration agreement’s incorporation of the AAA Rules did not clearly and unmistakably demonstrate an agreement to delegate arbitrability of claims against a non-signatory to the arbitrator because parties “cannot be forced to arbitrate absent a binding agreement to do so.” 547 S.W.3d at 632. The Court stated:

While such deference may be the consequence of incorporating the AAA rules in disputes between signatories to an arbitration agreement, to the text of the note which we need not decide, the analysis is necessarily different when a dispute arises between a party to the arbitration agreement and a non-signatory. As to that matter, Texas courts differ about whether an arbitration agreement’s mere incorporation of the AAA rules shows clear intent to arbitrate arbitrability. We hold it does not. Even when the party resisting arbitration is a signatory to an arbitration agreement, questions related to the existence of an arbitration agreement with a non-signatory are for the court, not the arbitrator.

The involvement of a non-signatory is an important distinction because a party cannot be forced to arbitrate absent a binding agreement to do so. The question is not whether Jody James agreed to arbitrate with someone, but whether a binding arbitration agreement exists between Jody James and the Agency. What might seem like a chicken-and-egg problem is resolved by application of the presumption favoring a judicial determination. A contract that is silent on a matter cannot speak to that matter with unmistakable clarity, so an agreement silent about arbitrating claims against non-signatories does not unmistakably mandate arbitration of arbitrability in such cases.

Id. So, there appears to be a dichotomy at this time on the incorporation of AAA Rules. Such incorporation is effective as against signatories to a contract to delegate threshold issues to the arbitrator, but are not effective as against non-signatories.

Courts in other jurisdictions have since reached the opposite result of Jody James Farms in cases involving non-signatories. See, e.g., Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842, 845 (6th Cir. 2020); Wiggins v. Warren Averett, LLC, 307 So. 3d 519, 523 (Ala. 2020). The Court in TotalEnergies noted this disagreement, but stated: “Because MP Gulf and Total E&P are both signatories to the agreements at issue, neither party asks us to reconsider that holding here.” 2023 Tex. LEXIS 315, n. 10. Was the Court asking parties in the future to ask for it to reconsider Jody James Farms?

To enforce an arbitration clause, the party wanting arbitration must generally prove in court the existence of an arbitration agreement and that the claims asserted fall within the scope of the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). Accordingly, the Jody James Farms case will impact how arbitration clauses in trusts or wills are litigated. Those clauses may contain an incorporation of the AAA Rules. If such an incorporation was effective to send arbitrability issues to arbitration, then the arbitrator may be the correct party to determine whether claims fell within the scope, whether a trustee waived the right to arbitrate, whether the settlor was mentally competent to execute the trust document or will, etc. Arbitrators are generally inclined to keep claims and parties in arbitration where courts may be more unbiased on those issues. So, where the beneficiary or trustee does not sign the trust/will, the court will determine these issues and not the arbitrator. This may greatly impact the enforceability of arbitration clauses in trusts and wills. If the Texas Supreme Court revisits Jody James Farms, and the rule in TotalEnergies becomes the law for both signatures and non-signatories, then the incorporation of the AAA Rules will delegate to the arbitrator these important threshold issues.