Waiving The Right To a Trial by Jury in Contracts; How Enforceable Is It?

Simple facts, and very common. Landlord and tenant signed a lease that included an agreement to waive trial by jury in any future lawsuit involving the lease. The tenant and its guarantors later sued for rescission and damages, and demanded a jury trial. If they won at trial, the lease would have been “undone,” as though it never had been signed in the first place. But if they lost, the lease, and its waiver of the right to a jury trial, would be effective. You can’t try the case first, to see which way it goes, and then go back in time, to the inception of the case, to apply that decision to the issue of whether the jury trial waiver is effective. So how do you deal with the “which comes first-the chicken or the egg” situation like this?

Here we have a fairly straightforward case. Francesco Secchi, a native of Italy, and his wife Jane, a native of England, moved to Dallas in 1981. They are now naturalized citizens of our great country. In 1983, they got into the restaurant business, operating two Dallas restaurants, Ferrari’s and IL Grano.

In October of 2000, via a limited partnership they controlled through its limited liability company general partner, the Secchi’s leased space in a Dallas shopping center for another restaurant. Their new landlord was Prudential Insurance Company. The Secchis had apparently able legal counsel in the negotiation of this lease. As is fairly common, the lease waived their right to a trial by jury “of any or all issues arising in any action or proceeding between the parties hereto or their successors, under or connected with” the lease.

About nine months after signing the lease, the Secchis and their limited partnership sued Prudential claiming, in part, that it was impossible to do business on the premises because of a persistent odor of sewage. The last thing you want to smell with your pasta–or any type of food for that matter–is sewage. Prudential played hardball and filed a counterclaim for all monies due under the lease and personal guaranties.

Now let’s take a side trip right here. Apparently the Secchis had some good advice on asset protection. They used separate limited partnerships for each separate business, and they had one limited liability company as the general partner for each of those limited partnerships. One never knows when an unexpected liability may come from. Surely, the Secchis did some evaluation of the proposed new space. But it was only AFTER they signed the lease that the problem developed. Granted, they had signed personal guarantees of this lease, but with a correctly structured estate, this threat can be minimized, fear of the lessee reduced.

This sort of business structure/asset protection planning helps the most to prevent damage from non-negotiated liabilities, instances where, for some reason, a personal judgment is obtained against individual business owners. And you must design and implement the plan before any threat is made or lawsuit filed. Times must be peaceful. To be “Yogi Berra-ish” about it, “if you haven’t done it, that’s why you need it.”

And now, back to the story. The trial court set the case for trial. Then the Secchis filed a demand for a jury trial, and paid the jury trial fee. Prudential was not about to give them a jury trial, so it filed a motion to quash the jury demand (“Dear Judge, please throw it out”), based on the jury trial waiver in the lease.

The Secchis claimed that they were fraudulently induced to sign the lease, and that the entire lease should be voided. What happens when the document that includes the waiver of jury trial provision is challenged as having never been effective? Does the jury trial waiver apply to determine that issue?

Here’s what the Texas Supreme Court said on how to determine that issue:

Any provision relating to the resolution of future disputes, included as part of a larger agreement, would rarely be enforced if the provision could be avoided by a general allegation of fraud directed at the entire agreement. The purpose of such provisions–to control resolution of future disputes–would be almost entirely defeated if the assertion of fraud common to such disputes were enough to bar enforcement. [Specific clauses] should be enforced, even if they are part of an agreement alleged to have been fraudulently induced, as long as the specific clauses were not themselves the product of fraud or coercion…We agree that the rule should be the same for all similar dispute resolution agreements.

Thus concluded the Texas Supreme Court that a parties’ contractual jury waiver is enforceable unless that clause itself is specifically attacked for fraud or some other similar basis.

This opinion also addresses the larger issue of whether contractual waivers of jury trials are enforceable, and concluded after a fairly decent detailed analysis that these waivers are enforceable so long as they are voluntary, knowing, and the party doing the waiving is intelligent, with full awareness of the legal consequences. That’s a pretty easy test to pass if the waiver is in writing, and the person signed it. Under Texas law, you are presumed to have read and understood what you signed.

And so, if your real estate contract, lease, etc., includes a jury trial waiver, you can rest assured that, absent some pretty remarkable circumstances, no jury is going to hear any case relating to that document (assuming the Court correctly follows the law). Make sure this is the result you want before agreeing to a jury trial waiver.

More importantly, make sure to structure your business operations in a manner that lessens the effect of litigation in the first place. If you’re having to worry about a jury trial, you may have bigger problems. The right business structure, one that includes concepts of asset protection, will minimize your concerns as you fight your battles in the business world.

In re The Prudential Ins. Co. of America and Four Partners, LLC, d/b/a Prizm Partners, Relators, Case No. 02-0690, September 3, 2004

Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
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