In re Prudential Ins. Co. of America, 02-0690.

• Decision Date: 02 April 2003
• Docket Number: No. 02-0690.,02-0690.
• Parties: In re The PRUDENTIAL INSURANCE CO. OF AMERICA and Four Partners, L.L.C., d/b/a Prizm Partners, Relators.
• Court: Texas Supreme Court

148 S.W.3d 124

In re The PRUDENTIAL INSURANCE CO. OF AMERICA and Four Partners, L.L.C., d/b/a Prizm Partners, Relators.

No. 02-0690.

Supreme Court of Texas.

Argued April 2, 2003.

Decided September 3, 2004.

Rehearing Denied December 3, 2004.

Gino John Rossini, John A. Mackintosh Jr., G. Luke Ashley and Camille Knight, Thompson & Knight, L.L.P., Dallas, for Relators.

Luke Madole, Russell F. Nelms, Dena Jean Denooyer, Carrington Coleman Sloman & Blumenthal, Dallas, for Respondents.

Justice HECHT delivered the opinion of the Court, in which Justice OWEN, Justice SMITH, Justice WAINWRIGHT, and Justice BRISTER joined.

The parties to a commercial lease agreed to waive trial by jury in any future lawsuit involving the lease, but when the tenant and its guarantors later sued for rescission and damages, they nevertheless demanded a jury trial. The trial court denied the landlord's motion to quash the demand. In this original proceeding, the landlord petitions for mandamus relief directing the trial court to enforce the parties' contractual jury waiver. We conditionally grant relief.

I

Francesco Secchi, a native of Italy, and his wife Jane, a native of England, moved to Dallas in 1981, where they have lived ever since and have become naturalized citizens. The Secchis have been in the restaurant business since 1983, and they (or entities controlled by them) own and operate two Dallas restaurants, Ferrari's and Il Grano. In October 2000, a limited partnership the Secchis controlled, Italian Cowboy Partners, Ltd., leased space in a Dallas shopping center for another restaurant. The lease agreement was the product of six months' active negotiations with the landlord, The Prudential Insurance Co. of America, and its agent, Four Partners L.L.C. doing business as Prizm Partners (collectively, "Prudential"). The Secchis had negotiated at least two other leases over the years, and they and their lawyer successfully insisted on a number of changes in Prudential's proposals. Offers went back and forth, and the agreement went through seven drafts. Francesco, whose formal education extended only to about the eighth grade, did not read the lease but left that to Jane, whose educational background was similar but whose English was better. Jane went over the agreement with their attorney but focused on the economic terms. When the Secchis and Prudential finally reached an understanding, Francesco signed the lease as manager of the partnership's general partner, Secchi, L.L.C. Prudential insisted that the Secchis personally guarantee the lease, and that agreement was also negotiated and changed by the Secchis before they signed it.

The lease contains the following paragraph:

Counterclaim and Jury Trial. In the event that the Landlord commences any summary proceeding or action for nonpayment of rent or other charges provided for in this Lease, Tenant shall not interpose any counterclaim of any nature or description in any such proceeding or action. Tenant and Landlord both waive a trial by jury of any or all issues arising in any action or proceeding between the parties hereto or their successors, under or connected with this Lease, or any of its provisions.

Prudential did not specifically point out this provision to the Secchis, and Jane testified that she never noticed it. She also testified that notwithstanding the clear meaning of the second sentence, she never intended to waive a jury trial in any future litigation. The guaranty agreement does not contain a similar waiver but does state that the Secchis agree to guarantee the tenant's "full and timely performance and observance of all the covenants, terms, conditions, provisions, and agreements" in the lease, and in the event of the tenant's default, to "faithfully perform and fulfill all of such terms, covenants, conditions, provisions, and agreements".

Some nine months after the lease was executed, the Secchis and their limited partnership (collectively, "ICP") sued Prudential in statutory county court, claiming in part that it was impossible to do business on the premises because of a persistent odor of sewage. Prudential counterclaimed for amounts allegedly due under the lease and guaranty. When the trial court notified the parties that a date for non-jury trial had been set, ICP filed a jury demand and paid the jury fee, as required by Rule 216 of the Texas Rules of Civil Procedure.¹ The court then notified the parties that a date for jury trial had been set. Prudential moved to quash the jury demand, based on the waiver in the lease. ICP responded that contractual jury waivers in general, and the waiver in the lease in particular, are unenforceable. Specifically, ICP asserted that:

(1) in general, contractual jury waivers

(a) violate five provisions of the Texas Constitution — article I, sections 13 (open courts),² 15 (right to trial by jury),³ 19 (due course of law),⁴ and 29 (Bill of Rights inviolate),⁵ and article V, section 10 (trial by jury in district courts),⁶ (b) are inconsistent with Rule 216 of the Texas Rules of Civil Procedure (request and fee for jury trial), and

(c) are against the broader public policy expressed in all of those provisions; and

(2) the waiver of jury trial in the lease agreement

(a) was not knowingly and voluntarily made, and was therefore unenforceable, because the provision was inconspicuous and mislabeled, and Prudential had greater bargaining power than the Secchis,

(b) cannot be enforced in an action to rescind the lease agreement, and

(c) does not apply to the Secchis, who only guaranteed the lease.

After a hearing, the court denied the motion in a brief order without explanation.

Prudential petitioned the court of appeals for mandamus relief, which that court denied with a short memorandum opinion, 2002 WL 1608233, explaining only that "the relators have not shown themselves entitled to the relief requested." Prudential then petitioned for relief from this Court, and we agreed to hear argument.⁷ When we learned that the trial judge who denied Prudential's motion to quash had left office, we abated our proceeding to allow the parties to seek reconsideration by the current judge,⁸ as required by Rule 7.2(b) of the Texas Rules of Appellate Procedure.⁹ After a hearing, the judge denied reconsideration, concluding in a lengthy order that contractual jury waivers are against public policy in Texas (ICP's argument (1)(c) above) and that the waiver in this case was unenforceable for all of the reasons urged by ICP (ICP's argument (2) above). The trial court's order was filed with this Court, and we reinstated the case to our active docket.¹⁰

II

As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy.¹¹ ICP argues that a contractual jury waiver does both. We consider each of ICP's arguments, first with respect to all such waivers, and then with respect to the waiver in this case.

A

We need not dwell on ICP's argument that contractual jury waivers violate various provisions of the Texas Constitution, an argument the trial court did not endorse. The five provisions ICP cites guarantee various personal rights — trial by jury,¹² access to the courts,¹³ due course of law,¹⁴ and the Bill of Rights in general.¹⁵ The provisions say nothing about whether and under what conditions such rights can be waived. For the most part, personal rights can be waived, at least under certain conditions.¹⁶ ICP concedes that the right to trial by jury can be waived by failure to comply with the procedures prescribed by Rule 216. Nothing in the constitutional provisions themselves suggests that parties are powerless to waive trial by jury under any other circumstances, before or after suit is filed.

ICP argues that Rule 216 prescribes the only way in which trial by jury can be waived, but it plainly does not. Rule 216 states that "[n]o jury trial shall be had in any civil suit, unless" a timely demand is made and jury fee paid.¹⁷ By the rule's express language, those conditions are prerequisites to a jury trial, not guarantees of one.

ICP's principal argument, and the one accepted by the trial court, is that an agreement to waive trial by jury is contrary to the public policy expressed in the constitutional provisions and Rule 216. This is so, ICP contends, because to allow such waivers gives parties the power to alter the fundamental nature of the civil justice system by private agreement. But parties already have power to agree to important aspects of how prospective disputes will be resolved. They can, with some restrictions, agree that the law of a certain jurisdiction will apply,¹⁸ designate the forum in which future litigation will be conducted,¹⁹ and waive in personam jurisdiction, a requirement of due process.²⁰ Furthermore, parties can agree to opt out of the civil justice system altogether and submit future disputes to arbitration. State and federal law not only permit but favor arbitration agreements.²¹ ICP argues that while it does not offend public policy for parties to agree to a private dispute resolution method like arbitration, an agreement to waive trial by jury is different because it purports to manipulate the prescribed public justice system. We are not persuaded. Public policy that permits parties to waive trial altogether surely does not forbid waiver of trial by jury.

ICP argues that contractual jury waivers are no different from cognovit or confession-of-judgment clauses by which a debtor agrees in the event of default on an obligation to waive notice of suit and to authorize the lender or its designee to confess judgment, which have long been outlawed in Texas.²² In Worsham v. Stevens, we held that a statute passed after such an agreement had been made nevertheless prevented its enforcement, operating not to impair the parties' contract but to deprive the creditor of a remedy previously available.²³ Worsham stands for the unsurprising propositi...