Trust assets not subject to arbitration award where award is not against co-trustees.
Alan and Wei-Jen Harrison created and were the initial trustees of the Harrison Children’s Trust for the benefit of their two children, Kim and Lynn. The trust owned the majority interest in an apartment complex called the Continental. The minority interest in the Continental was owned by a limited partnership for which Wei-Jen was the general partner. After her divorce from Alan, Wei-Jen entered into a contract with Portico Management Group, LLC, for the sale of the Continental. Alan, as co-trustee of the trust, refused to sign the deed and closing documents for the sale.
Portico brought suit against the co-trustees and the general partner of the limited partnership for breach of contract and to compel arbitration. The motion to compel arbitration was granted and, in 2007, the arbitrator issued a final award in favor of Portico based on breach of contract due to Alan’s refusal to sign the closing documents. The arbitration award specifically noted that the co-trustees were not personally liable and thus the award for damages was against the trust and the limited partnership. Portico petitioned the Superior Court of Sacramento County to confirm the arbitration award and judgment was entered against the limited partnership and the trust itself, without reference to the co-trustees. The court confirmed the arbitration award.
Portico sued to enforce the judgment against the trust. The co-trustees opposed the suit because no judgment was entered against the co-trustees and the trust was not an entity capable of holding title to property. The court held that Portico was not entitled to enforce the judgment against the trust because the arbitrator erred by naming the trust as the judgment debtor, and that decision was not subject to judicial review and could not be corrected. Portico appealed.
On appeal, the California Court of Appeals affirmed the trial court on the grounds that: (1) a trust itself cannot sue or be sued; (2) in contrast to corporations, which the law frequently treats as persons, a trust is not a person but rather a fiduciary relationship with respect to property; (3) any claim based on a contract entered into by a trustee, in the trustee’s fiduciary capacity, must by asserted against the trustee in such fiduciary capacity; (4) because the trust itself did not hold title to any property, the judgment confirming the arbitration award against the trust is unenforceable against trust property; and (5) the judgment should have been against the co-trustees because they held legal title to the property.
The court emphasized that Portico should have applied to the arbitrator to correct the award or petitioned the court to correct the arbitration award. Instead, Portico sued for confirmation of the award. Having accepted and confirmed the arbitration award against the trust without attempting to have the award revised to name the trustees as the proper parties, Portico is bound by the unenforceable arbitration award.