Thursday, February 16, 2017

Nedlloyd Eats Jury Trial Waiver

Rincon Realty LLC v. CP II Rincon Towers, Inc., No. A138463 (Jan. 31, 2017)

In a very large real estate deal involving a luxury building in SF
s rapidly developing Rincon Hill hood, the contract picks New York law as broadly as a contract can express an intent to do that. It also contains a jury trial waiver. It does, not, however, lay a mandatory venue in NY. (Or at least the parties never argued it did.) And that is a fatal fact.

Because Plaintiff sued in S.F. Superior. Which is in the State of California. Which really does not like jury trial waivers that have not been endorsed by the Legislature. Of course, a choice of law analysis needs to occur before we get there. But if you have any familiarity with the way choice of law works in the Bear Flag Republic, you likely know how it ends already.

Under the California Supreme Courts decision in Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459 (1992), when the a contractual choice of law is disputed, California courts purportedly apply the analysis from § 187 of the Restatement (Second) of Conflicts of laws. The test first asks if either: (1) the chosen state has a substantial relationship to the parties or the transaction or (2) there is some other reasonable basis for the choice. If both are no, the contract doesnt control. If either is yes, the analysis then moves to step two, which asks if the chosen law is contrary to some fundamental principal of California law. If thats no, the chosen law controls. But if yes, the third question is if Californias interest in applying its fundamental policy is materially greater than the chose state. Again, if no, chosen law applies. But if yes, the court will decline to enforce the choice of the law of a different jurisdiction that is contrary to California's fundamental policy.

Sorry if that was an inscrutable ball of conditional logic. For those of you prepping for the bar, the flow chart looks like this:

But for those of you who are in practice, the practical analysis is easier, because if the difference in law is meaningful enough to fight over, the chart usually looks more like this:

And thats basically what happens here. 

New York law will enforce a jury waiver. But unless there is a statute authorizing a waiver (like for arbitration or judicial reference proceedings or for post-dispute in court waivers) California law wont. See Grafton Partners v. Superior Court, 36 Cal. 4th 944, 950 (2005). Indeed, the inviolate nature of the jury right is set out in Article I, § 19 of the state constitution. So its fundamental. Totally.

Which brings us to the materially greater interest analysis. The trial court reasoned that the parties to the deal were big boys and that New York commercial law had a significant interest in holding them to their bargain, even if the building was in San Francisco. 

But the Court of Appeal disagrees. The jury trial right doesnt have a statutory waiver by big boys exception. And as Grafton explained, courts arent in any place to make one up. That some of the plaintiffs arent Californians doesnt change that analysis because the right protects California litigants, not just California citizens. The jury right is just so important here that almost no out-of-state interest in protecting a waiver is going to get over it.

Which means that the judgment needs to be reversed. Notably, in the face of some earlier cases that suggest otherwise, the court holds that a denial of a jury right is so structural that proof of prejudice isnt required. 

But only as to the legal claims that are implicated. Theres never a right to a jury on equitable claims. And given Californias rule that the better practice is to try legal claims first, theres no good argument that reversal on the equitable claim was required so that any jury findings could carry though to the equitable part of the case.* Nor is there any reason to credit speculation that, had the jury demand not been stricken, plaintiff would have dumped its equitable claims to go straight to a jury. The fact that it might have dropped the claims doesnt merit a reversal to retry them. Indeed, the court recognizes in a footnote that, on remand, the trial court could find that the facts the trial court found on the equitable issues could result in summary judgment on the remanded legal claims.

Reversed in part.

*The court doesnt seem to appreciate the irony that California’s jury right is so strong that it can be unwavable, but on the other hand it can be rendered basically meaningless because a court’s factual findings on equitable claims tried first will be preclusive of issues that the party has a fundamental right to be tried to a jury. Indeed, the U.S. Supreme Court has held that this equity-first approach violates the Seventh Amendment. But the Seventh Amendment has never been held to be incorporated against the states. Yet federal procedural law is generally fine with a full blown jury waiver.     

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