We are increasingly seeing more agreements between fiduciaries and clients that contain mandatory arbitration provisions.  Typically the agreements are signed by an “authorized representative” of the fiduciary and personally by the client.  But should other persons within the fiduciary’s organization also be signing on to the arbitration provision? 

Although not a fiduciary litigation case, the United States Court of Appeals for the Fifth Circuit decided in DK Joint Venture 1 v. Weyand that a corporation’s CEO and CFO – who were not signatories to their corporation’s arbitration agreements – were not bound to the arbitration agreement simply by virtue of being agents of the corporation.

This decision has some applicability for arbitration agreements between fiduciaries and clients.  Who should sign an arbitration agreement depends on what you’re trying to accomplish with it.

A plaintiff suing a fiduciary may, for example, name a trust officer or portfolio manger as an individual defendant in a lawsuit alleging breach of fiduciary duty.  Under the the decision in DK Joint Venture 1, that trust officer or portfolio manager may not be bound by the mandatory arbitration agreement unless he or she actually signed it.

Therefore, if a corporate fiduciary wants to make sure that a mandatory arbitration provision applies to all its agents involved in a relationship, the safest bet is to have those agents sign on to the arbitration agreement.  If the trust officer, for example, changes over the course of the relationship – as it often does – have the succeeding trust officer sign on to the arbitration provision (but be sure that the original agreement permits subsequent trust officers or other agents to sign on).

If, however, the fiduciary wants to avoid having specific agents locked into arbitration, then it may want an “authorized representative” without any connection to the underlying client relationship to sign the agreement on behalf of the fiduciary.

Now, whether a mandatory arbitration provision is even permissible or advisable in a fiduciary relationship is an issue for another day . . . .