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CALIFORNIA CORPORATE & SECURITIES LAW

Court Of Appeal Voids Jury Trial Waiver Notwithstanding New York Choice of Law

A New York state of mind, but California dreaming

A sophisticated lender and borrower negotiate a loan agreement in New York, the lender disburses the loan proceeds in New York, and both parties agree that New York law governs.  This choice-of-law is memorialized in bold face type and capital letters in the loan agreement.  In addition, the borrower expressly waived any claim that California law, or the law of any state other than New York, governs the parties’ agreements.  The loan agreement and a cash management agreement also include a waiver of the right to trial by jury.  Assuming that pre-dispute contractual jury trial waivers are generally enforceable, is the borrower entitled to a jury trial on its non-equitable claims against the lender?  According to an opinion issued this week by the California Court of Appeal, the answer is “yes”.

In Rincon EV Realty LLC v. CP III Rincon Towers,  (Jan. 31, 2017), Superior Court Judge Marla Miller had rejected the plaintiffs’ demand for a jury trial.  The Court of Appeal, applying Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (1992), found that the choice of New York law is not enforceable, and the validity of the jury trial waivers is governed by California law.  Writing for the Court of Appeal, Justice Jon B. Streeter concluded that California has a fundamental policy concerning contractual waivers of the right to a jury trial.  This right is expressed in Article I, Section 16 of the California Constitution.  Justice Streeter also leaned heavily on the California Supreme Court’s holding in Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005) that it is for the legislature, not private parties, to determine whether pre-dispute jury trial waivers will be enforceable.  Disagreeing with Judge Miller, the Court of Appeal found that “California, as the forum state, has a materially greater interest than New York in determining the enforceability of the jury waivers at issue here, and under California law, the waivers are not enforceable.”

The collateral in this case was located in California and the plaintiff sued the defendants in California.  In determining that relative interests, the Court of Appeal emphasized that California is the forum state.  I have previously posed the question of whether a choice of forum bylaw might be challenged as an invalid pre-dispute jury trial waiver.  See Forum Selection Bylaws – Why A California Court May Not Follow Delaware.  Stay tuned.

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