Commercial Litigation and Arbitration

Contractual Jury Waivers — Effectiveness — Factors; Federal vs. State Standard — Who Bears Burden of Proving Waiver Was Knowing and Voluntary? — Circuit Split

Contractual Jury Waivers — Effectiveness — Factors — Who Bears Burden of Proving Waiver Was Knowing and Voluntary? — Circuit Split

Smith v. Bank of Haw., 2018 U.S. Dist. LEXIS 37648 (D. Haw. Mar. 7, 2018):

B. Motion to Strike Demand for Jury Trial

"The Seventh Amendment guarantees the right to a jury trial '[i]n Suits at common law[.]'" Palmer v. Valdez, 560 F.3d 965, 968 (9th Cir. 2009) (quoting U.S. Const. amend. VII). "Like other constitutional rights, the right to a jury trial in civil suits can be waived." Id. (citations omitted). But courts "'indulge every reasonable presumption against waiver' of the jury trial right." Lutz v.Glendale Union High Sch., 403 F.3d 1061, 1064 (9th Cir. 2005) (quoting Aetna Ins. Co. v. Kennedy ex rel. Bogash, 301 U.S. 389, 393 (1937)).

Under federal law, pre-dispute contractual waivers of a jury trial right are permitted "as long as the parties waived their rights knowingly and voluntarily." In re Cty. of Orange, 784 F.3d 520, 526 (9th Cir. 2015) (citing Nat'lEquip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d Cir. 1977)); see also Palmer, 560 F.3d at 968 ("A valid waiver in a civil trial 'must be made knowingly and voluntarily based on the facts of the case.'") (citing Tracinda Corp. v.DaimlerChrysler AG, 502 F.3d 212, 222 (3d Cir. 2007) (other citation omitted)); K.M.C. Co. v. Irving Tr. Co., 757 F.2d 752, 756 (6th Cir. 1985) ("Those cases in which the validity of a contractual waiver of jury trial has been in issue have overwhelmingly applied the knowing and voluntary standard.") (citations omitted).8

8   If a federal court is sitting in diversity, state law principles of waiver can apply if they are "more protective than federal law of the jury trial right." In re Cty. of Orange, 784 F.3d at 524 (holding that "Erie [R. Co. v. Tompkins, 304 U.S. 64 (1938)]'s federalism principle requires federal courts sitting in diversity to import, as the federal rule, state law governing jury trial waivers where . . . state law is even more protective than federal law of the jury trial right"). Plaintiff appears to rely on this distinction in pointing out that Hawaii law may be "more protective than [*28]  federal law" regarding the right to a jury trial. Opp'n at 7, ECF No. 74. But Plaintiff cites no authority indicating that the rule would apply to supplemental claims where, as here, the action is otherwise brought under 28 U.S.C. § 1331. In any event, the court does not rely on Hawaii principles in denying Defendant's Motion to Strike.

In determining whether a contractual jury waiver was [*27]  "knowing and voluntary," courts apply the following types of factors:

(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.

Parris v. Wyndham Vacation Resorts, Inc., 2013 WL 1296231, at *1 (D. Haw. Mar. 28, 2013) (quoting Phoenix Leasing Inc. v. Sure Broadcasting, Inc., 843 F. Supp. 1379, 1384 (D. Nev. 1994)). Federal courts across the country consistently use these types of factors "to determine whether a waiver was knowing, voluntary, and intelligent." Breham v. Asset Acceptance, LLC, 2010 WL 1735147, at *1 (D. Ariz. Apr. 28, 2010). See, e.g., Nat'l Equip. Rental, 565 F.2d at 258 (considering conspicuousness, negotiability, and gross inequality in bargaining power); Miller v.Sun Capital Partners, Inc., 2016 WL 4941989, at *5 (D. Del. Sept. 15, 2016) ("A contractual waiver is knowing and voluntary when the facts of the case show that '(1) there was no gross disparity in bargaining power between the parties; (2) the parties are sophisticated business entities; (3) the parties had an opportunity to negotiate the contract terms; and (4) the waiver provision was conspicuous.'") (quoting First Union Nat'l Bank v. United States, 164 F. Supp. 2d 660, 663 (E.D. Pa. 2001)).

Circuits are split, however, as to who has the burden of proof to establish whether a jury waiver was knowing and voluntary. See, e.g., Parris, 2013 WL 1296231, at *1 ("The Ninth Circuit has not addressed [the burden] issue, and there is a split among circuits regarding which party has the burden of proof.") (citing cases and placing burden on the party seeking enforcement of the waiver). But district courts in the Ninth Circuit appear to "have uniformly placed the burden on the party [*29]  seeking to enforce the waiver[.]" Century 21 Real Estate LLC v. AllProf'l Realty, Inc., 2012 WL 2682761, at *3 (E.D. Cal. July 6, 2012) (citation omitted). The court is likewise convinced - given the constitutional nature of the right at stake - that BOH has the burden here. See Leasing Serv. Corp. v. Crane, 804 F.2d 828, 833 (4th Cir. 1986) (agreeing "with those courts that have held that the party seeking enforcement of the waiver must prove that consent was both voluntary and informed.") (citing Nat'l Equip. Rental, 565 F.2d at 258).

Applying these principles, Plaintiff did not "knowingly and voluntarily" waive his Seventh Amendment right. The record is clear - regardless of which side has the burden - that the waiver or references to it were non-negotiable terms in standard forms (both in the Agreements and in one of the Consumer Signature Cards). See Smith Decl. ¶ 13, ECF No. 74-1. As BOH necessarily concedes (in arguing that Plaintiff could "negotiate" by taking his business elsewhere), the standard jury-waiver term was a take-it-or-leave-it proposition. Def.'s Mem. at 8-9, ECF No. 72-1. In this situation, a "gross disparity in bargaining power" exists between BOH and its individual customers. Plaintiff was not, for example, a business entity negotiating terms of a specific loan agreement,9 or a prospective employee with the ability to negotiate terms of an employment [*30]  agreement.10

9   See, e.g.,Phoenix Leasing, 843 F. Supp. at 1384-85 (upholding a waiver provision in anegotiated loan between a commercial lender and a sophisticated business borrower).

10   See, e.g.,Parris, 2013 WL 1296231, at *2 (enforcing waiver in employment contract with experienced broker, recruited by the employer, with no gross disparity in bargaining power).

Also weighing - but only slightly - in favor of Plaintiff is the relative inconspicuousness of the provision. BOH stresses that the specific waiver in the Agreements was in bold print. Agreement at 17, ECF Nos. 70-6, 70-7. And it was written in plain English.11 But in another respect it was mixed with other boilerplate in a 36-page, single-spaced, non-negotiated form. Although that fact, standing alone, certainly does not render the term unenforceable - terms in the "fine print" of a consumer contract are not invalid just because the consumer does not read them - the term's conspicuousness is a factor that must be considered (along with others) in determining whether Plaintiff "knowingly and voluntarily" waived his constitutional right to a jury trial. It is the fundamental nature of that right that gives pause. See, e.g., Nat'l Equip. Rental, 565 F.2d at 258 (rejecting a jury waiver that was "set deeply and inconspicuously [*31]  in the contract," reasoning that "this printed form provision buried in a multitude of words is too weak an imitation of a genuine agreement to be treated as a waiver of so important a constitutional safeguard[.]") (quoting Nat'l Equip Rental, Ltd. v. Szukhent, 375 U.S. 311, 332-33 (1964) (Black, J., dissenting)); Dreiling v. Peugeot Motors ofAm., Inc., 539 F. Supp. 402, 403 (D. Colo. 1982) ("A constitutional guarantee so fundamental as the right to jury trial cannot be waived unknowingly by mere insertion of a waiver provision on the twentieth page of a twenty-two page standardized form contract.").

11  In this regard, the court gives little weight to Plaintiff's overblown statement that "[d]ue to the size of the type face and the length of the Deposit Agreements, I am unable to identify the jury waiver provision unless it was specifically pointed out to me." Smith Decl. ¶ 9, ECF No. 74-1. During oral argument, counsel for Plaintiff conceded that Smith knows how to read. If he had read the document, he obviously would have identified it. The court, however, accepts Plaintiff's statement as an indication that the waiver provision is inconspicuous because it is part of the fine print on page 17 of a 36-page single-spaced document, and that he didn't understand its meaning.

In short, considering all the relevant factors applied in caselaw, the court [*32]  concludes that Plaintiff did not knowingly and voluntarily waive his Seventh Amendment right to a jury trial. BOH's Motion to Strike Jury Demand is DENIED.

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