Opinion
CIVIL ACTION NO. 01-1507, SECTION "N".
May 29, 2003.
ORDER AND REASONS
Before the Court are the following motions: (1) Motion to Strike Plaintiffs' Jury Trial Demands Pursuant to Rule 39(a)(2), filed by UBS Warburg, LLC and UBS AG, successor by merger to Union Bank of Switzerland (collectively, "UBS"); and (2) CMS' Motion to Strike Jury Demand as to Third-Party Complaint Against CMS or, Alternatively, for Jury Trial as to All Claims. For the reasons that follow, UBS' motion is GRANTED. CMS' motion is DENIED.
I. BACKGROUND
The Stock Purchase Agreements and Pledge Agreements entered into between UBS and each plaintiff, respectively, contained waivers of the right to trial by jury. These waivers provide in pertinent part:
SECTION 9.02. Governing Law; Severability; Submission to Jurisdiction; Waiver of Jury Trial.
* * *
(d) Each party waives, to the fullest extent permitted by applicable law, any right he or it may have to a trial by jury in respect of any suit, action or proceeding relating to this Agreement or the Pledge Agreement. Each party certifies (i) that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of any such suit, action or proceeding and (ii) acknowledges that he or it and the other party have entered into this Agreement and the Pledge Agreement, as applicable, in reliance on, among other things, the mutual waivers and certifications in this Section . . .See Stock Purchase Agreement § 9.02(d) (Rec.Doc. 36, Stmt. of Uncontested Facts, Exh. A); see also Pledge Agreement § 10(g) (Rec.Doc. 36, Stmt. of Uncontested Facts, Exh. B).
II. LAW AND ANALYSIS
Both UBS and CMS seek to strike plaintiffs' jury demand based upon the contractual jury waiver provisions described above. UBS seeks to strike plaintiffs' jury demand for the additional reason that, even absent the waiver provisions, plaintiffs have no right to a jury trial on their claims against UBS, which are exclusively equitable in nature and which seek only equitable remedies. CMS argues that the contractual waiver provisions should be construed to include plaintiffs' claims against CMS even though CMS is not a party to either the Stock Purchase Agreement or the Pledge Agreement. CMS argues alternatively that if the waiver is not extended to claims against CMS, then all claims should be tried to a jury, including CMS' crossclaim against UBS.
A. Did the Plaintiffs Knowingly and Voluntarily Waive Their Right to Have a Jury Decide Their Claims Against UBS?
Although a person may waive his or her right to a jury in a civil case, such a waiver must be made "`voluntarily' and `knowingly' based on the facts of the case." Westside-Marrero Jeep Eagle, Inc. v. Chrysler Corp., Inc., 56 F. Supp.2d 694, 706 (E.D. La. 1999) (quoting D. H. Overmyer Co. Inc., of Ohio v. Frick Co., 405 U.S. 174, 185-86 (1972)).
"`[T]he right of jury trial is fundamental.'" Jenning v. McCormick, 154 F.3d 542, 545 (5th Cir. 1998) (quoting Aetna Ins. Co. v. Kennedy, 301 U.S. 389, 393 (1937)). It is "too important . . . for courts to find a knowing and Voluntary relinquishment of the right in a doubtful situation." Id. at 545. Therefore, "`courts [must] indulge every reasonable presumption against waiver.'" Id. (quoting Aetna, 301 U.S. at 393).
Plaintiffs do not dispute that the language of the waivers here encompasses all of their claims against UBS that remain pending. Rather, they argue that the waivers should not be enforced because they were not made knowingly and voluntarily. Courts look to several factors to determine whether a waiver has been made knowingly and voluntarily: "(1) whether the terms of the contact were negotiable, (2) the conspicuousness of the jury waiver provision, (3) the relative bargaining power of the parties, (4) whether [the waiving party] was represented by counsel, and (5) [the waiving party's] business acumen." Pellerin Const., Inc. v. Witco Corp., 2001 WL 258056, *1 (E.D. La. 2001); see also Westside-Marrero, 56 F. Supp.2d at 707. Both plaintiffs and UBS agree that these are the relevant factors.
Plaintiffs also suggest, without any citation to authority, that the Court should decline to enforce the waivers because plaintiffs have asserted fraud with respect to aspects of the contracts wholly unrelated to the jury waiver provision. The Court has been unable to locate any authority that would support such a ruling. Moreover, the Court agrees with the case law holding to the contrary. See Telum, Inc. v. E.F. Hutton Credit Corp., 859 F.2d 835, 837-38 (10th Cir. 1988) (allegations of fraud in the inducement going to the contract generally do not affect the waiver's validity without proof that the jury waiver provision was itself fraudulently induced), cert. denied, 490 U.S. 1021 (1989).
Plaintiffs argue that the first factor weighs against enforcement of the waiver because the waiver provisions themselves were not discussed or negotiated. The Court disagrees. The first factor is concerned with whether the terms of the contract were negotiable, not whether they were in fact negotiated. That a contract's terms were not negotiated "is no indication that the terms were not negotiable." Westside-Marrero, 56 F. Supp.2d at 708. Nothing in the circumstances here undercuts a finding of voluntariness.
The second factor likewise weighs in favor of enforcing the waivers. Plaintiffs argue that the waivers should be deemed inconspicuous because no one specifically directed the plaintiffs' attention to them. However, the conspicuousness inquiry is directed to whether the waiver clause is set forth in adequately conspicuous lettering, as opposed to being "buried deep in the contract." Id.; see also Pellerin, 2001 WL 258056 at *2. Here, the waiver clauses are written in clear, definite terms and highlighted in standard-sized, bold-face print. In both the Stock Purchase Agreement and the Pledge Agreement, the waiver clause is contained in an independent section. Moreover, the waiver in the Stock Purchase Agreement is contained in a section with an italicized caption stating "Waiver of Jury Trial", which caption likewise appears in the table of contents at page ii. In the Pledge Agreement, the waiver clause is only about twelve lines above the pledgor's signature line. "Even if the plaintiffs or their counsel declined to read the contract in its entirety, all the plaintiffs had to do to recognize that they were waiving their right to a jury was to skim the paragraphs immediately above their signatures." Westside-Marrero, 56 F. Supp.2d at 708. The bold-face print "ensured that even a cursory glance at the documents would indicate that the section concerning the jury trial waiver was the most important section in the document." Id.
With regard to the third factor, plaintiffs argue that they had less than equal bargaining power vis à vis UBS, which is a large financial situation. "To invalidate a waiver provision, however, the bargaining differential must be the kind of `extreme bargaining disadvantage' or `gross disparity in bargaining position' that occurs only in certain exceptional situations." Westside-Marrero, 56 F. Supp.2d at 708 (quoting Phoenix Leasing Inc. v. Sure Broadcasting, Inc., 843 F. Supp. 1379, 1385 (D. Nev. 1994), aff'd, 89 F.3d 846 (9th Cir. 1996)); see also Pellerin, 2001 WL 258056 at *2. Here, plaintiffs argue that they felt pressure to accept the documents offered by UBS, but "they have produced no evidence that they could not have gone elsewhere [to invest their wealth] had they found [UBS]'s terms oppressive." Westside-Marrero, 56 F. Supp.2d at 709. There is no evidence here of the type of necessitous conditions required to vitiate voluntariness. Thus, the third factor weighs in favor of enforcing the waiver.
With regard to the fourth factor, plaintiffs concede that counsel was retained for them, but state that their attorney had few discussions with them and did not engage in meaningful negotiations regarding the contract terms. While such facts might lessen the probative value of the fourth factor, it does not weigh in favor of invalidating the waiver. See Pellerin, 2001 WL 258056 at *2 ("The Court does not find the fourth factor to be as probative as the other factors. While Pellerin was represented by counsel at the time of contracting, that counsel did not review this contract."); Westside-Marrero, 56 F. Supp.2d at 709 ("In cases where a party is represented by counsel but the attorney chooses not to review a contract, courts have held that the `representation' factor is satisfied and upheld waiver of the right to a jury trial. . . . Because it appears that no lawyer actually read the contracts, however, the court does not find this factor as probative as the others in determining that waiver occurred.").
The final factor is whether the waiving "parties are sophisticated enough to have comprehended the import of the language contained in the waiver clause." Westside-Marrero, 56 F. Supp.2d at 709; see also Pellerin, 2001 WL 258056 at *2. Plaintiffs argue that, although they are successful travel agents, they are not sophisticated investors. There is no evidence, however, that plaintiffs were not sophisticated enough to comprehend that they were waiving their right to have a jury decide any disputes with UBS over the contract. Like the fourth factor, this factor is neutral and does not weigh in favor of invalidating the waiver — at least with regard to plaintiffs' claims against UBS. The waiver language here was conspicuous and written in language that plainly conveyed — even to an unsophisticated investor reading without the help of an attorney — that the parties to the Stock Purchase Agreement and Pledge Agreement were mutually waiving their rights to trial by jury in any dispute between them regarding the Agreements.
As discussed infra, the fourth and fifth factors do weigh in plaintiffs' favor in considering whether plaintiffs knowingly waived their right to a jury trial in disputes with persons who were not parties to the Agreements.
Considering the circumstances as a whole, the Court finds that plaintiffs knowingly and voluntarily waived any right they had to a jury trial of their claims against UBS in this matter. Consequently, the Court need not decide whether plaintiffs would have a right to trial by jury in absence of the waiver.
B. Did the Plaintiffs Knowingly and Voluntarily Waive Their Right to Have a Jury Decide Their Claims Against CMS
After UBS filed its motion to strike plaintiffs' original jury demand, CMS filed a motion seeking to strike plaintiffs' demand for a jury trial in their claims against CMS. See 3d. Party Compl. at ¶ 53. CMS does not contend that plaintiffs have no Seventh Amendment right to a jury trial on their claims against CMS. Indeed, the Seventh Amendment preserves a right to a jury trial in state law negligence claims and breach of contract claims for damages. See Westside-Marrero, 56 F. Supp.2d at 706; Debellefeuille v. Vastar Offshore, Inc., 139 F. Supp.2d 821, 824 (S.D. Tex. 2001). Rather, CMS' sole basis for its motion is the contractual jury waiver underlying UBS' motion.
Plaintiffs did not sue CMS initially. After UBS filed counterclaims against plaintiffs, plaintiffs filed a third-party complaint against CMS, seeking indemnification on grounds of intentional and negligent misrepresentation, detrimental reliance, breach of fiduciary duty, violations of federal securities laws, as well as violations of various states' blue sky laws. See 3d Party Compl. (Rec.Doc. 14). Plaintiffs also have filed a breach of contract claim against CMS, alleging that CMS caused damage to the plaintiffs by failing to disclose that it was being paid by UBS, providing financial advice under false representations of objectivity, and failing to exercise diligence and good faith in providing financial advise to the plaintiffs. See Supp.3d Party Compl. (Rec.Doc.65).
Even though it is not a party to either the Stock Purchase Agreements or the Pledge Agreements, CMS argues that it is entitled to invoke the waivers because the third-party claims "relate to" these agreements. It is true that certain of plaintiffs' third-party claims are based on alleged false statements by CMS regarding the UBS transaction, allegedly made during conference calls and other conversations that took place before the plaintiffs entered into the transaction. Thus, giving the words "relating to" a broad construction, certain (although not all) of plaintiffs' claims against CMS can be seen as relating to the events surrounding the formation of the agreements. However, jury waivers are to be construed narrowly, not broadly. See, e.g., Paracor Finance, Inc. v. General Elec. Capital Corp., 96 F.3d 1151, 1166 n. 21 (9th Cir. 1996) ("courts generally construe jury waivers narrowly. . . . Thus, we are even more hesitant to extend the protections of the jury waiver clause to a nonsignatory."); Urban Outfitters, Inc. v. 166 Enterprise Corp., 136 F. Supp.2d 273, 275 (S.D.N.Y. 2001) ("Courts are to strictly construe jury waiver clauses, as the right to a jury trial is fundamental and protected by the Seventh Amendment.") Tilden Financial Corp. v. Malerba, Abruzzo, Downes Frankel, 393 N.Y.S.2d 499, 499 (N.Y. Dist. Ct. 1977) ("jury waivers should be strictly construed and are not to be lightly inferred or extended by implication"); see also KEVIN F. O'MALLEY ET AL., FEDERAL JURY PRACTICE INSTRUCTIONS § 1.04 (5th ed. 2002) (contractual agreements to waive a jury trial "are narrowly construed in light of the preference for trial by jury").
Not all of plaintiffs' third-party claims are based on these alleged misrepresentations, however. Plaintiffs also have filed a breach of contract claim against CMS, alleging that CMS caused damage to the plaintiffs by failing to disclose that it was being paid by UBS, by providing financial advice under false representations of objectivity, and by failing to exercise diligence and good faith in providing financial advise to the plaintiffs. See Supp.3d Party Compl. (Rec.Doc.65).
Moreover, the question before the Court is whether the plaintiffs knowingly and voluntarily waived their right to have claims against CMS decided by a jury trial. See discussion supra at pp. 2-6. The factual considerations relevant to this inquiry balance differently than when the question of waiver was limited to plaintiffs' claims against UBS. See Medical Air Technology Corp. v. Marwan Inv., Inc., 303 F.3d 11, 19 (1st Cir. 2002) ("In cases such as this, where the jury waiver was part of a separate contract, signed only by certain parties to the larger transaction, non-signatory parties seeking enforcement of the waiver may have a more difficult task in showing that the waiver was voluntary and knowing."), cert. denied, 123 S.Ct. 893 (2003). The waiver provisions specifically reference the agreements between the plaintiffs and UBS — agreements to which CMS was not a party. Moreover, both waiver clauses explicitly discuss the mutuality of the waivers. CMS did not execute a waiver.
Thus, reading the waiver clauses as a whole, the Court finds it doubtful that any of the plaintiffs could have inferred from them that by entering into the Agreements, he was waiving his right to a jury trial not only in disputes over the agreements themselves, but in any dispute touching upon events surrounding these agreements, even as to claims against persons who were not parties to the Agreements. It is even more unlikely that any of the plaintiffs would have read the contractual language as waiving his right to have a jury decide claims such as those set forth in the Supplemental Third Party Complaint ( e.g., breach of contract claim against CMS for providing financial advice under false representations of objectivity and failing to exercise diligence and good faith in providing financial advise to the plaintiffs). Indeed, construing the waiver language narrowly, the Court does not interpret it as encompassing certain of these latter claims, even when reading it separately from the considerations that must guide the "knowingly" inquiry. Given these doubts, the Court is unable to conclude that plaintiffs knowingly and voluntarily waived their right to a jury trial on their claims against CMS. See Jennings v. McCormick, 154 F.3d 542, 545 (5th Cir. 1998) ("The right to jury trial is too important . . . for courts to find a knowing and voluntary relinquishment of the right in a doubtful situation.").
See, e.g., Paracor, 96 F.3d at n. 21; Urban Outfitters, 136 F. Supp.2d at 275; Tilden, 393 N.Y.S.2d at 499; O'MALLEY ET AL., supra at § 1.04.
The cases cited by CMS do not require a different result. The contractual waiver clause in Leav v. Weitzner, 268 N.Y.S.2d 775 (N.Y.App.Div. 1944), differs dramatically from the one here. Instead of restricting its scope to actions "relating to" the lease agreement itself, the Leav waiver applied to claims "on any matters whatsoever arising out of or in any way connected with [the] lease, the Tenant's use or occupancy of said premises, and/or any claim of injury or damage." Id. at 777. Moreover, the Leav court extended the waiver to non-signatories at least in part because of concerns not present here — namely, that to hold otherwise would have deprived the landlord of her bargained-for contractual right to a non-jury trial. Id. at 778. The facts in Borden, Inc. v. Manhattan Magazine, Inc., 1995 WL 640588 (S.D.N.Y. Oct. 31, 1995), likewise differ from those here in key respects. Borden, Inc. was suing in that case to recover unpaid rents under a sublease, which had been drafted by Borden and contained a jury waiver extending to any action "involving any matter whatsoever arising out of or in any way connected with this lease . . ." Id. at * 1. Unlike plaintiffs here, Bordon did not dispute that each of its claims "arose out of" the Sublease. Moreover, the non-signatory defendants in Borden were corporate successors of the sublessee. Id. C. CMS' Alternative Demand That All Claims Be Tried to a Jury.
CMS argues that, if plaintiffs are found not to have waived their right to a jury on their claims against CMS, then all claims should be tried to a jury, including CMS' cross-claim against UBS. CMS cites not one shred of authority for this proposition, and this Court can find none. The Federal Rules contemplate trials with certain issues tried to a jury and others tried to the judge. See Fed.R.Civ.P. 38 and 39. The plaintiffs have cited numerous examples of such trials, and the federal reporters are replete with many more. The Court can find no basis for denying UBS its contractual right to a non-jury trial on the main demand and counterclaim simply because CMS does not possess a similar right with respect to the third-party claim.
With respect to CMS' cross-claim, the issue is more complicated. UBS argues that CMS has waived its right to a jury on the cross-claim by failing to serve a demand for trial by jury in accordance with Rule 38. See Fed.R.Civ.P. 38. Based on the language of Rule 38, the Court is not convinced that CMS has waived its right to demand a jury trial on its cross-claim. Plaintiffs did not demand a trial by jury "for only some of the issues." Fed.R.Civ.P. 38(c). Rather, they demanded a jury trial "for all claims in this matter." See Rec.Doc. 4 at 167. Thus, arguably CMS was not required to serve a separate jury demand. Id. CMS, however, has not responded at all to UBS' waiver argument. The Court sees no reason to tackle the issue in this posture. If CMS serves a jury demand, UBS no doubt will present the issue to the Court at that time.
III. CONCLUSION
Accordingly, IT IS ORDERED that: (1) UBS' Motion to Strike Plaintiffs' Jury Trial Demands Pursuant to Rule 39(a)(2) is GRANTED; and (2) CMS' Motion to Strike Jury Demand as to Third-Party Complaint Against CMS or, Alternatively, for Jury Trial as to All Claims is DENIED.