Burgess v. Johnson ( 2020 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT November 4, 2020
_________________________________
Christopher M. Wolpert
Clerk of Court
VICTORIA ANN BURGESS;
ELIZABETH F. JOHNSON; CLARK
WALKER JOHNSON; MAYNARD
GARDNER MOODY, personal
representative of the estate of Patricia
Johnson Perry, deceased,
No. 19-5098
Plaintiffs - Appellees, (D.C. No. 4:19-CV-00232-GKF-JFJ)
(N.D. Okla.)
v.
HOWARD MITCHELL JOHNSON,
Defendant - Appellant.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before HARTZ, PHILLIPS, and CARSON, Circuit Judges.
_________________________________
Defendant Howard Johnson is the sole trustee (the Trustee) of a trust created under
Oklahoma law by Dr. E. O. Johnson in 1974. Plaintiffs Victoria Burgess, Elizabeth
Johnson, Clark Johnson, and Maynard Moody (as personal representative of the estate of
Patricia Johnson Perry) are beneficiaries of the trust. In May 2019 Plaintiffs sued the
*
After examining the briefs and appellate record, this panel has determined unanimously
that oral argument would not materially assist in the determination of this appeal. See
Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted
without oral argument. This order and judgment is not binding precedent, except under
the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir.
R. 32.1.
Trustee in the United States District Court for the Northern District of Oklahoma,
alleging that he had breached his fiduciary duties by wrongfully taking trust assets and
spending trust money. In response the Trustee moved the court to stay the proceedings
and compel arbitration under §§ 3 and 4 of the Federal Arbitration Act (FAA), 9 U.S.C.
§§ 1–16. He argued that a provision (the Arbitration Provision) of the declaration of
trust, as amended (the Trust Declaration), constitutes an arbitration agreement that
entitles him to compel arbitration under the FAA. Defendants responded that the
Arbitration Provision does not give the Trustee authority to compel arbitration and that
the FAA does not apply in any event because the Arbitration Provision is not a “contract
evidencing a transaction involving commerce” as required by § 2 of the FAA. 9 U.S.C.
§ 2. The district court denied relief.
The Trustee appeals. We have jurisdiction under the FAA, see 9 U.S.C. § 16
(“An appeal may be taken from . . . an order . . . refusing a stay of any action under
section 3 of this title . . . [or] denying a petition under section 4 of this title to order
arbitration to proceed.”), and affirm. We hold that the Arbitration Provision does not
empower the Trustee to compel arbitration in disputes with beneficiaries. We therefore
need not address Plaintiffs’ arguments regarding the applicability of the FAA to the
Arbitration Provision or the Trustee’s arguments that Plaintiffs are bound by the
provision even though they are not signatories to the Trust Declaration. In particular,
there is no need for us to grant the Trustee’s request that we certify to the Oklahoma
Supreme Court the question whether Plaintiffs would be bound to the Arbitration
Provision under a theory of equitable estoppel or otherwise.
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I. DISCUSSION
“We review a district court’s denial of a motion to compel arbitration de novo . . .
[and] apply the same legal standard as the district court.” Beltran v. AuPairCare, Inc.,
907 F.3d 1240, 1251 (10th Cir. 2018). “Before granting a stay of litigation pending
arbitration, a . . . court must determine that an agreement to arbitrate exists.” Avedon
Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997). This is because “arbitration
is a matter of contract and a party cannot be required to submit to arbitration any dispute
which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 83 (2002) (internal quotation marks omitted); see also Avedon, 126 F.3d at 1287
(“The existence of an agreement to arbitrate is a threshold matter which must be
established before the FAA can be invoked.”).
“[T]o determine whether a party has agreed to arbitrate a dispute, we apply
ordinary state-law principles that govern the formation of contracts.” Jacks v. CMH
Homes, Inc., 856 F.3d 1301, 1304 (10th Cir. 2017) (internal quotation marks omitted).
Here, the parties agree that Oklahoma provides the relevant law for interpreting the
Arbitration Provision. We accept the Trustee’s view that the provision must be
interpreted as a matter of contract law, even though Plaintiffs contend that a declaration
of trust is not a contract, because we are not sure that rules regarding the interpretation of
trusts would compel a different result and the Trustee loses under his approach in any
event.
Under Oklahoma law, “[t]he language of a contract is to govern its interpretation,
if the language is clear and explicit, and does not involve an absurdity.” Okla. Stat.
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tit. 15, § 154. “The court[] will read the contract language in its plain and ordinary
meaning unless a technical meaning is conveyed” and “will decide, as a matter of law,
whether a contract provision is ambiguous.” Okla. Oncology & Hematology P.C. v. US
Oncology, Inc., 160 P.3d 936, 946 (Okla. 2007). “A court will not create an ambiguity
by using a forced or strained construction, by taking a provision out of context, or by
narrowly focusing on a provision.” Wynn v. Avemco Ins. Co., 963 P.2d 572, 575 (Okla.
1998). The goal is “to give effect to the intention of the parties as ascertained from the
four corners of the contract.” Okla. Oncology, 160 P.3d at 946.
The Arbitration Provision is § II, ¶ (1)(c) of the Trust Declaration. Section II is
entitled “General Provisions Relating to Trusts.” Aplt. App., Vol. 1 at 25. It states in ¶ 1
that the trustees “shall have power to manage and contract with respect to the Trust
estate, in the same manner and to the same extent as Grantor could do had Grantor owned
such Trust estate individually,” and it also grants the trustees certain additional powers
“in their sole discretion,” such as the power to lease any portion of the Trust estate and to
retain property received by the trustees “without regard to diversification.” Id. The
Arbitration Provision, ¶ 1(c), conveys to the trustees the power “[t]o compromise,
contest, submit to arbitration or settle all claims by or against, and all obligations of, the
Trust estate or the Trustees[.]” Id. (emphasis added). The Trustee argues that this allows
him to compel trust beneficiaries to arbitrate their dispute with him. We disagree.
We see no ambiguity in the Arbitration Provision. As one of a number of
provisions of the Trust Declaration conveying power to the trustees, it simply provides
them with a range of options in seeking to resolve a dispute involving the Trust. The
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trustees need not concede every claim against the trust or litigate every dispute through a
court verdict. They may decide to “compromise, contest, submit to arbitration or settle”
any claim. But, contrary to the Trustee’s view, they may not compel an adversary to do
any of those things.
The language of the Arbitration Provision is adopted from Okla. Stat. tit. 60,
§ 175.24(A)(5), which provides that, absent “contrary or limiting provisions in the trust
agreement or a subsequent order or decree of a court of competent jurisdiction,” a trustee
may “compromise, contest, arbitrate, or settle any and all claims of or against the trust
estate or the trustee as such.” Interpreting virtually identical language in a Texas statute,
the Texas Court of Appeals said that the provision “merely provide[s] a full range of
powers to a trustee that would allow the trustee to fully represent the interests of the
trust.” Casillas v. Cano, 79 S.W.3d 587, 589 (Tex. App. 2002). This language cannot
reasonably be read as granting the trustees any power over other parties in disputes
concerning the trust, nor could it. If a person injured on trust real estate brought a tort
action against the Trust, the Trust Declaration could not compel him to arbitrate the
dispute, see Howsam, 537 U.S. at 83 (“[A] party cannot be required to submit to
arbitration any dispute which [she or] he has not agreed so to submit.” (internal quotation
marks omitted)), any more than it could compel him to compromise or settle the claim.
By conveying the power to submit a claim to arbitration in the same sentence that it
conveys the power to compromise or settle the claim, the Arbitration Provision implies
that the powers are parallel, and that they concern the authority of the trustees to deal
with other parties, not to dominate them.
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The Trustee concedes that the language of § 175.24 is “permissive.” Aplt. Br.
at 21. But he points out that the Trust Declaration grants the trustees the power to
exercise their authority in “their sole discretion,” Aplt. App., Vol. 1 at 25, and contends
that this additional language makes all the difference. But we fail to see how the sole-
discretion language changes our conclusion. To say that the trustees “shall have power in
their sole discretion” to submit a dispute to arbitration is to say that they cannot be
prohibited from exercising discretion by any provision of the Trust Declaration or default
provisions of state trust law. See In re XTO Energy Inc., 471 S.W.3d 126, 131 (Tex.
App. 2015) (describing discretionary powers as those that “a trustee may decide whether
or not to exercise” without “interfere[nce] [from a court] except to prevent an abuse of
discretion”). That is, to grant the trustees sole discretion is to say that no one can tell
them whether to decide to arbitrate, etc. It does not mean that the trustees have absolute
power to make others do their bidding.
The Trustee has not cited us, nor are we aware of, any precedent for construing
similar language as conveying a power to compel arbitration. It may make sense for a
trust declaration to include a provision requiring arbitration of all disputes between the
trustees and the beneficiaries. But it would strain judicial imagination to construe the
language of the Arbitration Provision as such a provision. It would make no sense to
bury such a mandatory provision in a sentence that applies to all the trust’s disputes,
including ones with third parties who could hardly be bound by the Trust Declaration,
and encompasses compromise and settlement, as well as arbitration. We therefore reject
the Trustee’s contention that the language of the Trust Declaration permits the trustees to
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compel arbitration. See Okla. Stat. tit. 15, § 159 (“A contract must receive such an
interpretation as will make it lawful, operative, definite, reasonable and capable of being
carried into effect, if it can be done without violating the intention of the parties.”).
Finally, the Trustee contends that the “United States Supreme Court has already
ruled that a permissive arbitration clause is a mandatory arbitration clause.” Aplt. Br.
at 23 (emphasis omitted). In support of this proposition he cites Allis-Chalmers Corp. v.
Lueck, 471 U.S. 202 (1985); Vaca v. Sipes, 386 U.S. 171, 184 n.9 (1967); and Republic
Steel Corp. v. Maddox, 379 U.S. 650 (1965). But those cases stand for only a narrow
(but very important) proposition of law in the particular context of collective-bargaining
agreements between employers and labor unions, where the availability of compulsory
arbitration has long been considered essential for labor peace. See United Steelworkers of
Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 578 (1960) (“In the commercial case,
arbitration is the substitute for litigation. Here arbitration is the substitute for industrial
strife.”). When construing such contracts the Supreme Court has declared that courts
should not construe language as providing an exemption from compulsory arbitration
unless there is no other reasonable interpretation. See Allis-Chalmers, 471 U.S. at 204
n.1 (“The use of [a] permissive ‘may’ [in a collective-bargaining agreement] is not
sufficient to overcome the presumption that parties are not free to avoid the contract’s
arbitration procedures.”); see also Republic Steel, 379 U.S. at 657–58 (the general rule
against allowing employees to sidestep a contractually agreed grievance scheme “would
not of course preclude [the employee’s] court suit if the parties to the collective
bargaining agreement expressly agreed that arbitration was not the exclusive remedy”).
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We can think of absolutely no reason to apply to a trust dispute the special rules
governing collective bargaining.
Thus, we hold that the Arbitration Provision only allows the Trustee to agree to
resolve disputes through arbitration and does not empower him to compel others—even
trust beneficiaries—to submit their disputes to arbitration. The Trustee cannot invoke the
Arbitration Provision to compel Plaintiffs to arbitrate this dispute.
II. CONCLUSION
We AFFIRM the district court’s order denying the motions to stay the court
proceedings and to compel arbitration, and we DENY the motion to certify.
Entered for the Court
Harris L Hartz
Circuit Judge
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