Phoenix Leasing Inc. v. Sure Broadcasting, Inc., CV-N-91-185-ECR.

• Decision Date: 13 January 1994
• Docket Number: No. CV-N-91-185-ECR.,CV-N-91-185-ECR.
• Citation: 843 F. Supp. 1379
• Parties: PHOENIX LEASING INC., a California Corporation, Plaintiff, v. SURE BROADCASTING, INC., a Delaware corporation, Defendant. And Related Counterclaim.
• Court: U.S. District Court — District of Nevada

843 F. Supp. 1379

PHOENIX LEASING INC., a California Corporation, Plaintiff, v. SURE BROADCASTING, INC., a Delaware corporation, Defendant And Related Counterclaim.

No. CV-N-91-185-ECR.

United States District Court, D. Nevada.

January 13, 1994.

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Vargas & Bartlett, Reno, NV, Frandzel & Share, San Francisco, CA, for plaintiff.

Sure Broadcasting, Inc., Quogue, NY, for defendant.

ORDER

EDWARD C. REED, Jr., District Judge.

On April 22, 1991, Plaintiff, a commercial lender, properly filed a Complaint (Doc. # 1) against Defendant, borrower, in this court, on the basis of diversity of citizenship. On May 31, 1991, Defendant filed an Answer and Jury Demand (Doc. # 4). On the same date, Defendant filed a Compulsory Counterclaim and Jury Demand (Doc. # 5) against Plaintiff.

On June 20, 1991, Plaintiff filed a Motion (Doc. # 12) to Strike Jury Demand. Plaintiff asserts that Defendant/Counterclaimant waived its rights to a jury trial in relation to any action brought on or with respect to various loan documents which the parties executed through a contractual waiver appearing in the loan agreement.

On July 8, 1991, Defendant/Counterclaimant (hereinafter, Defendant) filed (Doc. # 18) a Memorandum of Points and Authorities in Opposition to Plaintiff's Motion to Strike Jury Demand. Plaintiff filed a reply (Doc. # 21) on July 18, 1991.

Before this court could reach a decision on the motion to strike, Defendant became involved in bankruptcy proceedings. Pursuant to 11 U.S.C. § 362(a)(1), said proceedings stayed this court's jurisdiction to render a decision on the merits to the extent such a decision might have been adverse to Defendant.

We felt free however to consider the motion to strike as it related to the non-debtor counterclaimants, Lundborg, Northern One, Community Cable and Merlin Communications which were not the subject of the concurrent bankruptcy proceedings. (Doc. # 33). On October 10, 1991 we denied Plaintiff's motion to strike the jury demand made by these non-debtor counterclaimants. (Doc. # 33). The motion was stayed as to Defendant and the remaining Counterclaimants, Cable One CATV and Merlin Cable Partners. (Doc. # 33).

Pursuant to our minute order, entered June 25, 1993 (Doc. # 94), we struck all Counterclaimants other than Defendant/Counterclaimant Sure Broadcasting from the counterclaim. Therefore, we need consider only Sure Broadcasting's Counterclaims in this order.

Pursuant to the same minute order, we struck Defendant/Counterclaimant Sure Broadcasting's counterclaims alleging interference with corporate governance, contractual breach of the covenant of good faith and fair dealing, abuse of process, and seeking declaratory relief. In a subsequent minute order entered June 28, 1993 (Doc. # 95) we also struck Defendant's counterclaims based on fraud. Therefore we need not consider these counterclaims in this order. The only counterclaims left to consider are those alleging breach of contract (second claim), negligence (third claim), and breach of the statutorily imposed duty of good faith and fair dealing (fourth claim). All other claims have been dismissed.

Until recently this court was unable to proceed on this motion. Now, however, all bankruptcy proceedings have terminated and pursuant to our minute order of December 29, 1993 (Doc. # 135) we proceed to consider and decide Plaintiff's motion to strike jury demand as to Defendant/Counterclaimant Sure Broadcasting.

INTRODUCTION

Pursuant to the loan documents between Phoenix Leasing and Sure Broadcasting, Sure Broadcasting, agreed to waive its rights to a jury trial. In the loan agreement, the waiver is printed in capital letters and is the last paragraph, appearing directly above the signature line.

The procedural positions of Sure Broadcasting as Defendant and as Counterclaimant are slightly different. In its answer to Plaintiff's complaint, Defendant Sure Broadcasting demanded a jury trial. Sure Broadcasting also filed a compulsory counterclaim and separately demanded a jury trial as to the issues raised in the counterclaims.

The jury trial waiver states:

THE BORROWER, TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTE, ANY SECURITY DOCUMENTS OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION HEREWITH. Borrower has been advised by counsel in connection with execution and delivery of this Agreements and the other loan documents related to this transaction.

Defendant asserts two arguments demonstrating why these waivers are invalid and should not be enforced. First, they argue that under California state law, Cal.Civ.Code § 1670.5, the jury waiver and indeed the whole loan agreement is unconscionable and should therefore not be enforced. The parties appear to be in agreement that to the extent state substantive law applies, the contracts are to be determined under California law. Secondly, Defendant asserts the right to jury trial is constitutionally guaranteed and the waiver is also invalid as a matter of federal constitutional law.

As a third argument, Defendant asserts that if the waiver is valid, that several of the counterclaims are beyond the scope of the waiver and that Defendant's affirmative defenses are also beyond the scope of the waiver and therefore such counterclaims and affirmative defenses must be determined before a jury.

Plaintiff argues that state law is entirely inapplicable and that the validity of a waiver of a constitutionally guaranteed right, such as the right to jury trial, must be determined under federal law exclusively. Plaintiff further argues that each of the counterclaims is within the scope of the waiver and that Defendant's affirmative defenses cannot be considered as taking Plaintiff's complaint beyond the scope of the waiver and entitling Defendant to a jury trial.

DISCUSSION

A. FEDERAL LAW GOVERNS THE VALIDITY OF A JURY WAIVER

Plaintiff is at least partially correct when it asserts that the validity of contractual waivers of constitutional rights must be determined under federal law. The right to a jury trial in federal court is governed by federal law. Simler v. Conner, 372 U.S. 221, 221-22, 83 S.Ct. 609, 610, 9 L.Ed.2d 691 (1963). Although the right to jury trial in civil cases tried before federal courts is a constitutionally protected right, it may be waived by a contract knowingly and voluntarily executed. Okura & Co. (America), Inc. v. Careau Group, 783 F.Supp. 482, 488 (C.D.Cal.1991) citing Leasing Service Corp. v. Crane, 804 F.2d 828, 832-33 (4th Cir.1986).

As the court in Okura noted, the right to jury trial may be waived merely by failing to demand a jury trial within ten days of filing a pleading. Also, no abstract public policy disfavors or limits contractual waivers of the right to civil jury trial. Okura, 783 F.Supp. at 488 citing Fed.R.Civ.P. 38(b) & (d) and J. Moore, W. Taggart & J. Wicker, Moore's Federal Practice, ¶ 38.46 (2d ed. 1985).

The federal standard for determining the validity of a contractual waiver of the right to jury trial requires us to determine if the waiver was knowing, voluntary and intelligent. Standard Wire & Cable Co. v. AmeriTrust Corp., 697 F.Supp. 368, 375 (C.D.Cal.1988); see also, Okura, 783 F.Supp. at 488-89, citing Leasing Service, 804 F.2d at 832-33 as support for knowing, voluntary and intelligent standard.

The court in Leasing Service, placed the burden on the party seeking enforcement of a prelitigation contractual waiver to prove that consent to the waiver was voluntary and informed. Leasing Service, 804 F.2d at 833. But see, K.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 758 (6th Cir.1985) (placing burden on party seeking to avoid contractual waiver to show consent was not voluntary and knowing). An informal survey indicates the majority of courts having considered this question followed the approach in Leasing Service, and furthermore the district court in Okura, seems to have approved of the approach outlined in Leasing Service. See, Okura, 783 F.Supp. at 488-89.

Some of the factors used to determine whether a waiver was knowing and intelligent include:

(1) whether there was a gross disparity in bargaining power between the parties; (2) the business or professional experience of the party opposing the waiver; (3) whether the opposing party had an opportunity to negotiate contract terms; and (4) whether the clause containing the waiver was inconspicuous.

Hydramar, Inc. v. General Dynamics Corp., No. 85-1788, 1989 WL 159267 (E.D.Pa. December 29, 1989).

We begin with the last factors which appear most easily disposed of and work our way backwards.

The waiver clause was not inconspicuous. The waiver clause was printed in capital letters, whereas most of the other provisions were printed in lower case. In addition, the waiver clause is the only material contractual clause appearing on the signature page and is located directly above the signature line. There is no sense in which the waiver clause is inconspicuous. It is not buried in the fine print.

Defendant had an opportunity to negotiate some terms of the contract. The negotiation and alteration of some terms indicates that Defendant had the opportunity to negotiate the jury waiver provision. See, Plaintiff's Exhibit A, attached to Reply to Opposition (Doc. # 21). Significantly, Defendant does not allege let alone provide any evidence indicating that it objected to the jury waiver provision and was told it was not negotiable. Nothing indicates that Defendant had no opportunity to negotiate this provision, whereas the evidence does indicate Defendant had opportunities to negotiate the contract in general and presumably this provision also.

It is abundantly clear from many different sources that Defendant was not a novice but was in fact experienced, professional and sophisticated in business dealings. Plaintiff's Exhibit B, attached to...