Handoush v. Lease Fin. Grp., LLC

Decision Date31 October 2019
Docket NumberA150863
Citation41 Cal.App.5th 729,254 Cal.Rptr.3d 461
CourtCalifornia Court of Appeals Court of Appeals
Parties Zeaad HANDOUSH, Plaintiff and Appellant, v. LEASE FINANCE GROUP, LLC, Defendant and Respondent.

Law Offices of Ian Booth Kelley and Ian Booth Kelley, San Francisco, for Plaintiff and Appellant.

Daniel B. Harris, San Francisco, for Defendant and Respondent.

Wick, J.* Plaintiff Zeaad Handoush appeals from an order granting defendant Lease Finance Group, LLC’s (LFG) motion to dismiss based upon a forum selection clause in the parties’ lease agreement. The clause designates the State and County of New York as the forum for any dispute between the parties and designates New York law as governing all disputes. It also includes a jury trial waiver. Handoush argues the trial court erred because enforcing the forum selection clause and related choice of law clause deprives him of his substantive right to a jury trial, which is unwaivable at the predispute stage under California law. We reverse.

BACKGROUND

On January 21, 2016, Handoush, the owner of Whelan’s Cigar Store, sued LFG alleging LFG defrauded Handoush regarding a lease agreement for credit card processing equipment between Handoush and LFG, as assignee of Americorp Leasing, LLC.1 The complaint alleges causes of action for fraud, rescission, injunctive relief and violation of Business and Professions Code section 17200. Attached to the complaint is the lease agreement, which states in relevant part: "GOVERNING LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL; LIMITATION OF ACTION. You and we agree that our acceptance and execution of the Lease at our executive office in the City and State of New York shall be the final act necessary for the formation of this Lease. This Lease, and any and all actions, proceedings, and matters in dispute between you and us, whether arising from or relating to the Lease itself, or arising from alleged extra-contractual facts prior to, during, or subsequent to the Lease (all collectively referred to hereafter as a "Dispute"), shall be governed by the laws of the State of New York, without regard to the conflict of law, rules or principles thereof. All Disputes shall be instituted and prosecuted exclusively in the federal or state courts located in the State and County of New York notwithstanding that other courts may have jurisdiction over the parties and the subject matter. YOU AND WE WAIVE, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY DISPUTE...."

On November 11, 2016, LFG moved to dismiss the complaint under Code of Civil Procedure section 410.30, subdivision (a), based upon the forum selection clause in the lease agreement. Handoush’s opposition argued that he was unaware of the forum selection clause, and he submitted an unsigned declaration in support of his argument. He also argued the clause is unenforceable because it would deprive him of his substantive right to a jury trial. According to Handoush, because the forum selection clause also purports to deprive him of the right to a jury trial, the burden is shifted to LFG to show that litigating in the contractually designated forum will not diminish Handoush’s substantive rights afforded under California law. Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 32 Cal.Rptr.3d 5, 116 P.3d 479 ( Grafton ), forbids predispute jury trial waivers, whereas under New York law such waivers are enforceable. Handoush argued that LFG failed to meet its burden to demonstrate that enforcing the forum selection clause will not diminish Handoush’s substantive rights. LFG’s reply brief below did not address Handoush’s burden shifting or substantive rights arguments. Instead it argued that forum selection clauses are presumptively valid and that Handoush’s declaration is irrelevant.

On January 10, 2017, the court affirmed its tentative ruling and issued an order granting LFG’s motion to dismiss. The court found that Handoush did not meet his heavy burden of demonstrating that the forum selection clause is unreasonable. The court noted Handoush’s declaration in opposition to the motion is unsigned and concluded Handoush submitted no admissible evidence in opposition. The court rejected Handoush’s argument that the burden shifts to LFG to demonstrate that the forum selection clause will not diminish his substantive rights under California law, finding that such burden shifting only applies where a plaintiff’s claim involves unwaivable rights created by California statutes. In addition, the court states "the right to trial by jury is not unwaivable" under Code of Civil Procedure section 631. Finally, the order states, "Plaintiffs argue that California law forbids predispute waiver of the right to a jury trial, unlike New York law, citing Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 962, 32 Cal.Rptr.3d 5, 116 P.3d 479. Although that is true, nothing in the Grafton case precludes parties from entering [into] a predispute agreement that New York law applies to their dispute." (Italics added.)

On February 28, 2017, Handoush filed a timely notice of appeal.

DISCUSSION

"There is a split of authority regarding the appropriate standard of review on whether a forum selection clause should be enforced through a motion to dismiss for forum non conveniens." ( Quanta Computer Inc. v. Japan Communications Inc. (2018) 21 Cal.App.5th 438, 446, 230 Cal.Rptr.3d 334.) "The majority of cases apply the abuse of discretion standard, not the substantial evidence standard." ( Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 214, fn. 6, 243 Cal.Rptr.3d 668.) We do not resolve this dispute here because the trial court erroneously granted LFG’s motion under either standard.

"California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable. [Citation.] This favorable treatment is attributed to our law’s devotion to the concept of one’s free right to contract, and flows from the important practical effect such contractual rights have on commerce generally." ( America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11, 108 Cal.Rptr.2d 699 ( AOL ).) But "California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state’s public policy." ( Id. at p. 12, 108 Cal.Rptr.2d 699.)

A mandatory forum selection clause such as the one at issue here is generally given effect unless enforcement would be unreasonable or unfair, and the party opposing enforcement of the clause ordinarily bears the burden of proving why it should not be enforced.2 ( Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147, 187 Cal.Rptr.3d 613 ( Verdugo ).) However, the burden is "reversed when the claims at issue are based on unwaivable rights created by California statutes [in which case] the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually designated forum ‘will not diminish in any way the substantive rights afforded ... under California law.’ " ( Ibid. , quoting Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995) 32 Cal.App.4th 1511, 1522, 38 Cal.Rptr.2d 612 ( Wimsatt ).)

Handoush argues that the forum selection clause impacts his substantive rights under California law because it includes a predispute waiver of the right to a jury trial and such a right is unwaivable, even voluntarily, under California law. Accordingly, he argues the court erred in failing to place the burden on LFG to prove litigating in New York will not result in a diminution of his substantive rights under California law. LFG argues that Handoush’s case against LFG does not involve claims based on unwaivable rights under a statutory scheme such as those at issue in Verdugo , AOL , and Wimsatt , and therefore the burden should not shift to LFG. Although Handoush’s claims are not based on a statutory scheme,3 we find that enforcing the forum selection clause here would be contrary to California’s fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers.

A. Burden of Proof

In Wimsatt the court reversed an order dismissing a lawsuit alleging violations of California’s Franchise Investment Law ( Corp. Code, § 31000 et seq. ), finding that the defendant bore the burden to show litigation in the selected forum will not diminish the plaintiff’s substantive rights. ( Wimsatt , supra , 32 Cal.App.4th at pp. 1522, 1524, 38 Cal.Rptr.2d 612.) "One of the most important protections California offers its franchise citizens is an antiwaiver statute which voids any provision in a franchise agreement which waives any of the other protections afforded by the Franchise Investment Law. [Citation.] A forum selection clause, however, carries the potential to contravene this statute by placing litigation in a forum in which there is no guaranty that California’s franchise laws will be applied to a franchisee’s claims.... If a forum selection clause places in-state franchisees in an out-of-state forum which uses some balancing test (or equivalent) to determine that the law of the out-of-state forum should be used in place of California’s, then a forum selection clause in a franchise agreement will have effectively circumvented California’s antiwaiver statute.... [¶] ... [¶] Given California’s inability to guarantee application of its Franchise Investment Law in the contract forum, its courts must necessarily do the next best thing. In determining the ‘validity and enforceability’ of forum selection provisions in franchise agreements, its courts must put the burden on the franchisor to show that litigation in the contract forum will not diminish in any way the substantive rights afforded California franchisees under California law." ( Id. at pp. 1520–1522, fn., 38 Cal.Rptr.2d 612 omitted.)

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