The guardian of an incapacitated person's estate may bind the estate to arbitrate its claims without violating the Arkansas Code or offending the public policy of the state, according to the Arkansas Supreme Court.

In Carmody v. Raymond James Financial Services, Inc., No. 07-909, 2008 WL 886141 (Ark. Apr. 3, 2008), Betts invested funds from Coan's Estate as guardian of the person and the estate. Betts invested the funds with Raymond James, executing a new account contract that contained an arbitration agreement. When Coan died, Carmody and Savers, along with Betts, were appointed co-administrators of Coan's Estate.

Later, Coan's Estate filed suit against Raymond James, alleging that the Estate's funds were improperly commingled with funds from another estate. Raymond James responded through a motion to stay litigation and compel arbitration. The trial court entered an order granting the motion, declining to hold that the arbitration agreement violated the Arkansas Code or the public policy of the state.

First, the Estate argued that, as guardian of the person of Coan, Betts did not have the legal authority to bind the Estate's property through the new account contract. The Court held that Ark. Code § 28-65-301(a)(3) did not limit Betts's authority under the circumstances because Betts was guardian of both the person and the estate when the contract was executed.

Second, the Estate contended that Betts had no authority to bind the Estate to arbitrate its claims against Raymond James because arbitration agreements are essentially decisions to "[c]onsent to a settlement or compromise of any claim by or against [an] incapacitated person or his or her estate" that are prohibited by law without "receiving express court approval." See Ark. Code § 28-65-302(a)(1)(G).

The Court declined to characterize an arbitration agreement as a settlement or compromise as the term was contemplated in § 28-605-302(a)(1)(G). The Court agreed with the trial court's holding that the arbitration agreement was part of an act - the opening of a new investment account - that was approved by the probate court and was therefore within the guardian's inherent authority. Furthermore, the Court found that Betts could not have entered into a compromise or settlement agreement at the time of contracting, since the parties' dispute was still pending and not resolved in any manner.

Finally, the Court declined the Estate's invitation to hold that contracts binding an incapacitated person to arbitrate his or her claims without court approval would somehow violate public policy. The Court noted that arbitration was strongly favored in Arkansas as a matter of public policy and changes to such policy was a matter for the Arkansas General Assembly, not its courts. "[I]f the legislature had intended to prohibit a guardian, on behalf of the estate, from entering a contract containing an arbitration agreement," said the Court, "it would have expressly done so, but it did not."