In In re Est. of Moncrief, certain parties alleged that the decedent was mentally incompetent, was unduly influenced, and was defrauded into executing certain documents that contained arbitration clauses. 699 S.W.3d 315 (Tex. App—Fort Worth 2024, pet. filed). The trial court held that the capacity issues should be resolved by the trial court, and the arbitrations were stayed and the opposing parties were enjoined from pursuing the arbitrations. The court of appeals reversed, holding that those claims should be decided in arbitration.
The court discussed the law regarding challenging arbitration clauses:
If the challenge is to the validity of a broader contract (container contract) but not to the arbitration provision contained within the container contract, then courts must enforce the arbitration agreement and require the arbitrator to decide the validity or scope of the arbitration agreement. However, if a party challenges the scope or validity of an arbitration provision within a container contract, courts generally resolve the issue of whether the parties agreed to arbitrate the controversies. An exception to this rule exists when parties to an agreement agree to arbitrate disputes in accordance with third-party arbitration rules that provide that the arbitrator has the power to determine the arbitrability of any claim. In such a case, the parties are considered to have “clearly and unmistakably” intended to delegate arbitrability issues to the arbitrator.
Id. The court held that the incapacity issues in the case were defensive issues to the entire contact, not just the arbitration clause, and that the arbitrators should determine those issues, not the trial court:
Based on clear precedent from both Texas and Delaware, we hold that the arbitration agreement in the MPA clearly and unmistakably delegated arbitrability to the arbitrator, not the court. Despsite Moncrief Partners’ and CBM’s dismissals from the case when their interventions were struck, Appellants, as facially designated Trustees of Management Trust, were still parties to the MPA arbitration with Moncrief Partners and CBM that was based on an arbitration provision in the MPA.8 Tex’s capacity issues, as defenses to Appellants’ status as rightful Trustees with authority to bring the arbitration claims on behalf of Management Trust, were defenses to MPA (the container contract)—not the arbitration provision—and were for the arbitrator to decide.
Id. The court addressed three different documents and held that the incorporation of AAA rules meant that the arbitrators should determine competence claims.
There was a dissenting justice, who would have held that the mental competence and undue influence claims should be determined by the trial court and not referred to arbitration:
I would affirm the rulings of the statutory probate court in all respects because the mental incapacity of a contracting party is a contract formation defense, not a merits defense, and a question for adjudication by a court, not an issue of arbitrability for an arbitrator. Sousa v. Goldstein Faucett & Prebeg, LLP, No. 14-20-00484-CV, 2022 Tex. App. LEXIS 5277, 2022 WL 2976820, at *5 (Tex. App.—Houston [14th Dist.] July 28, 2022, no pet.) (mem. op.) (“The supreme court has concluded that the issue of mental incapacity is for the court to decide rather than the arbitrator, because it is a formation defense calling into question the very existence of a contract.” (citing In re Morgan Stanley & Co., 293 S.W.3d 182, 189-90 (Tex. 2009) (orig. proceeding)); Sanders v. Sanders, No. 02-08-00201-CV, 2010 Tex. App. LEXIS 8308, 2010 WL 4056196, at *1 (Tex. App.—Fort Worth Oct. 14, 2010, no pet.) (mem. op.) (“Mental incapacity is a common law contract formation defense.”). Moreover, as I observed in Moncrief, the testamentary capacity of the decedent, William Alvin “Tex” Moncrief, Jr., was the subject of litigation in the probate courts and no party has yet argued that “his testamentary capacity is meaningfully different from his capacity to contract during the same time frame.” Moncrief, 672 S.W.3d at 174 n.6. Because the majority’s arbitrability holding deprives the statutory probate court of its exclusive jurisdiction to probate the last will and testament of the decedent—and thereby to adjudicate whether he lacked testamentary capacity or, alternatively, was subject to undue influence at the time of its execution—I would additionally hold that, as a matter of law, the questions of testamentary capacity and undue influence cannot be the subject of arbitration but must always be determined by a court with probate jurisdiction.
Id.
