41 Cal.App.5th 729
Cal. Ct. App.2019Background
- Plaintiff Zeaad Handoush (owner of Whelan’s Cigar Store) sued Lease Finance Group, LLC (LFG) alleging fraud, rescission, injunctive relief and UCL violations arising from a lease for payment-processing equipment. The lease contained a mandatory forum-selection clause designating New York courts and New York law, and a predispute jury-trial waiver.
- LFG moved to dismiss under Cal. Code Civ. Proc. § 410.30(a) based on the forum-selection clause; the trial court granted dismissal, finding Handoush failed to rebut the clause and concluding the jury right was not unwaivable under § 631.
- Handoush argued enforcement would deprive him of his California constitutional right to a jury trial (predispute waivers unenforceable under Grafton Partners v. Superior Court) and thus the burden should shift to LFG to show litigation in New York would not diminish California substantive rights.
- The trial court rejected burden-shifting and enforced the clause; Handoush appealed.
- The Court of Appeal reversed, holding enforcement of the forum-selection clause (which includes a predispute jury waiver) could contravene California public policy protecting the inviolate jury right, and thus LFG bore the burden to show no diminution of California rights; LFG failed to satisfy that burden.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a forum-selection clause that includes a predispute jury-trial waiver may be enforced in California | Handoush: Predispute jury waivers are unenforceable in California (Grafton); enforcing the clause would deprive him of an unwaivable right | LFG: Forum-selection clauses are presumptively valid; the jury-waiver issue should be for the contract forum (New York) | Court: Enforcement would potentially contravene California public policy; clause not enforced because LFG failed to show no diminution of California rights |
| Who bears the burden when enforcement may impair unwaivable California rights | Handoush: Burden shifts to defendant to prove the chosen forum will not diminish California substantive rights | LFG: Burden should remain on plaintiff to show clause unreasonable; Handoush’s claims are not statutory | Court: Burden shifts to defendant where enforcing clause may impair fundamental, unwaivable California rights (analogous to Wimsatt/Verdugo) |
| Is the right to a jury trial substantive or procedural for this purpose | Handoush: The jury right is substantive and protected by the California Constitution | LFG: Characterized issue as procedural/choice-of-forum, better decided by New York | Court: Even if characterized procedural, the rule is ‘‘intimately bound up’’ with California’s substantive policy protecting jury trials; treated as a substantive interest for burden-shifting |
| Whether plaintiff was entitled to a jury on pleaded claims | LFG: Plaintiff not entitled to a jury because some claims are equitable or legally insufficient | Handoush: Pleaded fraud claim and demanded jury; sufficiency not litigated below | Court: Declined to decide entitlement on the merits; the jury-demand suffices to raise the right for the burden-shifting analysis |
Key Cases Cited
- Grafton Partners v. Superior Court, 36 Cal.4th 944 (Cal. 2005) (California Supreme Court: predispute jury-trial waivers are unenforceable under state law)
- Wimsatt v. Beverly Hills Weight etc. Internat., 32 Cal.App.4th 1511 (Cal. Ct. App. 1995) (forum-selection clause in franchise context: defendant must show chosen forum will not diminish California statutory rights)
- America Online, Inc. v. Superior Court, 90 Cal.App.4th 1 (Cal. Ct. App. 2001) (forum-selection clauses unenforceable where enforcement would substantially diminish California residents’ rights or violate public policy)
- Verdugo v. Alliantgroup, L.P., 237 Cal.App.4th 141 (Cal. Ct. App. 2015) (defendant must show foreign forum provides equal or greater protection of unwaivable California rights or will apply California law)
- In re County of Orange, 784 F.3d 520 (9th Cir. 2015) (state rule invalidating predispute jury waivers is sufficiently bound up with state substantive policy to govern in federal diversity cases)
- Rincon EV Realty LLC v. CP III Rincon Towers, Inc., 8 Cal.App.5th 1 (Cal. Ct. App. 2017) (choice-of-law analysis on enforceability of predispute jury waivers; discussed whether California rights "travel" to chosen forum)