Trust Disputes- Mandatory Mediation

Take-Away: A California appeals court held earlier this month that named parties in a trust dispute who refused to participate in court ordered mediation forfeited their claimed interest in the trust. This seems to be a departure from prior law which has held that a trust is not a contract voluntarily entered into by the beneficiaries, making mandatory arbitration and mediation of trust disputes inapplicable.

Background: Traditionally, mediation offers parties to Will and Trust litigation a vehicle by which they can create a successful resolution to a complex dispute, with solutions often well-beyond what a probate judge could otherwise decide. Key to the success of mediation is the fact that it is a voluntary process, which leaves the parties to the dispute in control of the resolution of their own dispute, i.e. self-determination. Mediation affords the parties to the dispute a meaningful opportunity to engage in creative settlement negotiations on their own terms.

Court decisions over the years focus on the importance of mediation, or arbitration, as a process that is voluntary. Which is why courts often ignore provisions in a Will or Trust that seeks to compel the beneficiaries of the Will or Trust to participate in mediation or arbitration if a dispute among beneficiaries arise. Unlike a contract where the parties negotiate its terms, including their willingness to submit any dispute between or among them to binding arbitration, the beneficiaries of a Will or Trust do not voluntarily agree to those alternate dispute resolution terms if they contained in a Will or Trust.

With these principles that have been around for decades, it is surprising then to learn of a recent case from California where a court held that the failure to participate in court ordered mediation resulted in the beneficiaries forfeiting their interests in the decedent’s Trust.

Court Decision:  Breslin v. Breslin, No. B301382 (California Court of Appeals, April 5, 2021)

Facts:  The Trustee of the decedent’s trust petitioned the probate court to determine who were the trust beneficiaries. The Trustee served its petition the beneficiaries of the Trust and on 24 charities identified in the Trust as potential beneficiaries. The probate judge ordered mediation among all interested parties, including both intestate heirs and the 24 charities. One of the charities sent a notice to everyone with an interest in the trust, including the other charities. The notice warned that “non-participating persons or parties who receive notice…may be bound by the terms of any agreement reached at mediation.” Only 5 of the 24 charities participated in the mediation. The nonparticipating charities had small individual charitable bequests, yet in the aggregate those gifts were substantial. Those charities that did participate reached a settlement where specific amounts were awarded to various parties, and also excluded some of the nonparaticipating charities. The Trustee then petitioned the probate court to affirm the settlement. The non-attending charities then objected to the Trustee’s petition.

Probate Judge: The probate judge overruled the charities’ objection because “they neither file a response to the trustee’s petition to determine the beneficiaries nor appeared at the mediation. The charities then appealed to the California Court of Appeals, claiming that their due process rights to an evidentiary hearing were violated and that they had not voluntarily agreed to participate in the mediation.

Appeals Court: The Court sustained the probate judge’s ruling, summarizing the case as follows:

• “The trustee of a decedent’s trust petitioned the probate court to determine who were the trust beneficiaries. The potential beneficiaries received notice of the petition. The probate court ordered the matter to mediation. The same potential beneficiaries received notice of the mediation, but some did not participate. The participating parties reached a settlement that excluded the nonparticipating parties as beneficiaries. The probate court approved the settlement. The nonparticipating parties appeal. We affirm. A party receiving notice under the circumstances here, who fails to participate in court-ordered mediation, is bound by the result.”
• By failing to participate in the mediation, the charities waived any right that they might otherwise have to object to the settlement, in effect forfeiting their interest in the Trust.
• “The ..parties complain they were denied an evidentiary hearing, i.e. a trial. But the probate court has the power to establish the procedure. It made participation in the mediation a prerequisite to an evidentiary hearing. By failing to participate in the mediation, the parties waived their right to an evidentiary hearing. It follows that the parties were not entitled to a determination of factual issues, and they cannot raise such issues for the first time on appeal.
• To reach this conclusion the Court relied on a statute that concerns the probate court’s power when hearing a trust dispute, that statute providing: “The court in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by the petition, including appointment of a temporary trustee to administer the trust in whole or in part .The probate court has the power to order the parties into mediation.” However, the statute relied upon by the Court does not go on as say that the probate judge may rule that a party’s failure participate in the court-ordered mediation precludes them from receiving anything from the trust.
• Note that objecting to the settlement agreement that cut the charities out of any bequest was of no benefit to those charities, because the probate court did not even consider their objection

Conclusion: The Breslin decision suggests that a probate court may both compel mediation on the penalty of forfeiting a right to a trial, and forfeit any bequest from the Trust if a party does not participate in the mediation. This seems like a pretty broad interpretation of a probate court’s power to control litigation, while it seems to overlook the importance of voluntariness and self-determination behind mediation as an effective dispute resolution tool. Who is to say that what is now binding precedent in California may soon make its way east to the Midwest and Michigan, where parties are already encouraged to mediate their disputes.