Jury Trial Waiver — Enforceability Factors — Who Bears the Burden of Proving That the Waiver Was Knowing, Voluntary and Intelligent? Circuit Split

Travelers Cas. & Sur. Co. of Am. v. Highland P’ship, Inc., 2013 U.S. Dist. LEXIS 32798 (S.D. Cal. Mar. 8, 2013):

There are two related causes of action currently pending before the Court, both of which are set for trial beginning the week of April 15, 2013. (Doc. No. 124.) The first cause of action concerns breach of an Indemnity Agreement entered into by and between Plaintiff Travelers Casualty and Surety Company of America ("Travelers" or "Plaintiff")  [*3] and Defendants Highland Partnership, Inc. ("Highland Partnership"), Bay Boulevard, LLC ("Bay Boulevard"), Highland Home Builders, Inc. ("Highland Home Builders"), Highland Productions I, LLC ("Highland Productions"), Ian Murray Gill, Gail Stoorza Gill, John David Gardner, Carolyn Marie Gardner, and the Gill Family Trust (collectively, "Defendants"). 1 The second cause of action concerns breach of a subcontract entered into by and between San Diego Steel Holdings Group, Inc. ("San Diego Steel" or "Third-Party Defendant") and Highland Partnership ("Highland Partnership" or Third-Party Plaintiff") (the "Third-Party Claim"). (Doc. No. 124.)

1   On November 26, 2012, the Court granted in part and denied in part Travelers' motion for summary judgment. (Doc. No. 111.) Accordingly, the only issue left to be litigated by and between Travelers and Defendants is what portion of the $2,153,676 in attorneys' fees, costs, and expenses (spent in litigating/defending claims against the bonds) was reasonable and thus recoverable from Defendants. (Id.)

Although there is no dispute that the Third-Party Claim will be tried before a jury, Travelers and Defendants disagree as to whether the reasonableness of  [*4] Travelers' attorneys' fees, costs, and expenses--the only claim left to be tried between Travelers and Defendants--should be determined by a jury or by the Court. (Doc. No. 123 at 1.) After insufficient briefing on this very issue, (Doc. Nos. 125, 126), the Court ordered supplemental briefing, (Doc. No. 127). Specifically, the Court requested Travelers and Defendants to address whether the jury trial waiver was knowingly, voluntary, and intelligent, and therefore enforceable under federal law.2 (Doc. No. 127.) Travelers filed its supplemental brief on February 22, 2012, (Doc. No. 129), and Defendants responded on March 1, 2012, (Doc. No. 130).

2   The Court previously determined that the enforceability of the jury trial waiver was governed by federal law rather than state law because the instant action is proceeding in a federal forum. See Simler v. Conner, 372 U.S. 221, 221-22, 83 S. Ct. 609, 9 L. Ed. 2d 691 (1963) (finding that the right to a jury trial in federal court is usually governed by federal law). Neither Travelers nor Defendants contest the Court's choice of law determination. (Doc. No. 129 at 2:2-4; Doc. No. 130 at 3:4-7.)

BACKGROUND

In April 2006, Defendants Ian Murray Gill, John David Gardner, Gail Stoorza-Gill,  [*5] and Carolyn Marie Gardner executed a General Agreement of Indemnity (the "Indemnity Agreement" or "Agreement"). (Doc. No. 22, Ex. A.) ***

In August 2007, Highland Productions and Highland Home Builders each signed separate Indemnitor Riders (the "Rider"), thereby agreeing to the terms and conditions of the Indemnity Agreement. (Doc. No. 22, Ex. B at 2, 4.) ***)

The Indemnity Agreement, which was signed by all Defendants, contains the following jury trial waiver: "Jury Waiver: Indemnitors hereby waive and covenant that they will not assert any right to trial by jury in respect to any legal proceeding arising out of this Agreement." (Doc. No. 22, Ex. A at 3.) (emphasis in original). Travelers now moves to enforce this provision, contending Defendants waived their right to a jury trial. (Doc. Nos. 125, 129.) Defendants oppose the motion, arguing that Travelers has not met its burden to show that the jury trial waiver was knowing, voluntary, and intelligent, and thus enforceable under federal law. (Doc. Nos. 126, 130.)

LEGAL STANDARD

The Seventh Amendment 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, 9 L. Ed. 2d 691 (1963); see also Leasing Serv. Corp. v. Crane, 804 F.2d 828, 832 (4th Cir. 1986). Under federal law, there is a strong presumption against the waiver of this fundamental right. United States v. Cal. Mobile Home Park Mgmt. Co., 107 F.3d 1374, 1378 (9th Cir. 1997) (holding that courts "must indulge every reasonable presumption against the waiver of the jury trial"). A jury trial waiver, however, is enforceable when it is made knowingly, voluntarily, and intelligently. See Phoenix Leasing. v. Sure Broad., 843 F. Supp. 1379, 1384 (D. Nev. 1994)  [*8] (citing Standard Wire & Cable Co. v. AmeriTrust Corp., 697 F. Supp. 368, 375 (C.D. Cal. 1988)); see also Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 188 (2d Cir. 2007); K.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 756 (6th Cir. 1985); Leasing Serv., 804 F.2d at 832; Okura & Co. v. Careau Group, 783 F. Supp. 482, 488 (C.D. Cal. 1991). The factors consistently used by federal courts to determine whether a waiver was knowing, voluntary, 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. See Phoenix Leasing, 843 F. Supp. at 1384 (quoting Hydramar, Inc. v. Gen. Dynamics Corp., 1989 U.S. Dist. LEXIS 15784, 1989 WL 159267, at *3 (E.D. Pa. Dec. 29, 1989)); see also Leasing Serv., 804 F.2d at 833 (applying these same factors).

There is a split among the circuits regarding which party has the burden of proving these factors. Compare Irving Trust, 757 F.2d at 758 (placing the burden on the party opposing the waiver) with Leasing Serv., 804 F.2d at 832-33  [*9] (placing the burden on the party seeking to enforce the waiver). Nonetheless, because placing the burden of proof on the party seeking to enforce the waiver is most in keeping with the strong presumption against waiver of this fundamental Seventh Amendment right, the Court finds Travelers bears the burden to show that the jury trial waiver included within the Indemnity Agreement was knowing, voluntary, and intelligent.

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