Update: Arbitration Provision in Trust Enforceable

In Rachal v. Reitz, No. 11-0708, 2013 WL 1859249 (Tex. May 3, 2013), the Texas Supreme Court determined whether an arbitration provision contained in an inter vivos trust was enforceable against the trust beneficiaries. The trust contained a provision requiring all disputes regarding the trust and the trustee to proceed to arbitration. When a trust beneficiary sued the trustee alleging that the trustee violated the terms of the trust, the trustee moved to compel arbitration. The trial court denied the motion; the appellate court affirmed. The Supreme Court of Texas held the arbitration provision was enforceable against the beneficiary for two reasons.

First, the trust settlor determines the conditions attached to her gifts, and courts must enforce trust restrictions on the basis of the settlor’s intent. The settlor’s intent in the Rachal trust was to arbitrate any disputes over the trust. Because the arbitration language was unambiguous, the court was required to enforce the settlor’s intent and compel arbitration if the arbitration provision was valid and the underlying dispute was within the provision’s scope.

Second, mutual assent to an agreement to arbitrate may be manifested through the doctrine of direct benefits estoppel. The doctrine estops a non-signatory to an agreement from accepting benefits under the agreement while simultaneously attempting to avoid the agreement’s burdens. A formal written contract is not required for the doctrine to apply. Thus, the beneficiary’s acceptance of the benefits of the trust and suit to enforce its terms constituted the assent required to form an enforceable agreement to arbitrate. Further, the beneficiary’s claims that the trustee violated the terms of the trust fell within the scope of the arbitration provision. Therefore, the trial court erred by not compelling arbitration because the arbitration provision was valid and the underlying dispute was within the provision’s scope.

Supreme Court of Texas to Issue Decision on Spoliation of Evidence

The Surpreme Court of Texas heard argument in September 2012, in Brookshire Bros., Ltd. v. Aldridge, No. 12-08-00368-CV, 2010 WL 2982902 (Tex. App.—Tyler July 30, 2010, pet. granted) (mem. op.). The issues presented involve whether the trial court erred by admitting evidence of spoliation and including a spoliation instruction in the jury charge of a slip-and-fall case.

 

Aldridge slipped and fell on a liquid substance at a Brookshire Brothers store. He notified Brookshire Brothers of the incident immediately after it happened, but the full extent of his injuries did not appear until days later. Aldridge returned to the store and informed Brookshire Brothers of his increased pain. The company documented the incident and Aldridge’s injuries. During this time, Brookshire Brothers also preserved a short segment of a surveillance video recording of the day in question, but later allowed the remainder to be recorded over by the recording system. The preserved segment, which was less than eight minutes in length, showed Aldridge entering the store, falling, and leaving. But it did not include portions of the original recording that could have shown the source of the substance on the floor, additional employees that may have seen the substance, or the amount of effort necessary to clean the substance from the floor.

 

Aldridge eventually sued Brookshire Brothers for premises liability. The trial court admitted evidence relating to the destruction of the video recording. The trial court also charged the jury with a spoliation instruction. The jury reached a verdict in favor of Aldridge and the trial court rendered judgment on the verdict.

 

Before any failure to produce material evidence may be viewed as discovery abuse, the opposing party must establish that the nonproducing party had a duty to preserve the evidence in question. There must be a sufficient foundational showing that the party who destroyed the evidence had notice both of the potential claim and of the evidence’s potential relevance thereto.

 

The Tyler Court of Appeals found Brookshire Brothers had a duty to preserve the unpreserved portions of the recording because it had control of the entire video recording, Aldridge had notified Brookshire Brothers of his injury, and Aldridge had requested to see a portion of the video recording from the day in question.

 

Brookshire Brothers’ failure to preserve the recording prejudiced Aldridge because the video would have been some evidence of when the spill occurred, the length of time that the spill remained, and the cleanup efforts and any immediate investigation, both demonstrating the size of the spill. Thus, the trial court did not abuse its discretion by admitting spoliation evidence.

 

By saving a small portion of video and allowing the remainder to be destroyed, Brookshire Brothers engaged in the “intentional spoliation of evidence relevant to a case.” Therefore, the Tyler Court of Appeals found the trial court did not abuse its “broad discretion” by charging the jury with the spoliation instruction.

 

- Michael H. Bernick, Haley & Olson, P.C.

 

Texas Supreme Court Rules Franchise Tax is Constitutional

On October 19, 2012, the Texas Supreme Court held that the Texas franchise tax does not violate the Texas Constitution. 

Nestle USA and two Texas-based companies, Switchplace, LLC and NSMBA Relators, sued the State of Texas arguing the Texas franchise tax is unconstitutional.  The franchise tax charges one-half of one percent to wholesalers, but a full one percent to businesses engaged in manufacturing — even if all manufacturing activities are out-of-state. The petitioners claimed this distinction violated the Texas Constitution's requirement that taxes be levied in an "equal and uniform" manner. 

The Texas Supreme Court held that the legislature must have discretion in structuring tax laws. “This is especially true when the object of the tax—occupations or the privilege of doing business in the state—is not easily or exactly valued.”  The Texas Supreme Court concluded that the legislature's structuring of the franchise tax is reasonably related to its object and, as such, the “petitioners’ challenges are without merit.”

Justice Willett and Justice Lehrmann issued a dissenting opinion, asserting that the court lacks exclusive original mandamus jurisdiction in taxpayers’ constitutional challenges and that the court stretched mandamus jurisprudence beyond its constitutional limits.