ZEAAD HANDOUSH, Plaintiff and Appellant, v. LEASE FINANCE GROUP, LLC, Defendant and Respondent.
A150863 (Alameda County Super. Ct. No. RG16800919)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION THREE
Filed 10/31/19
CERTIFIED FOR PUBLICATION
BACKGROUND
On January 21, 2016, Handoush, the owner of Whelan’s Cigar Store, sued LFG alleging LFG defrauded Handoush regarding a lease agreement for credit card processing equipment between Handoush and LFG, as assignee of Americorp Leasing, LLC.1 The complaint alleges causes of action for fraud, rescission, injunctive relief and violation of
On November 11, 2016, LFG moved to dismiss the complaint under
On February 28, 2017, Handoush filed a timely notice of appeal.
DISCUSSION
“There is a split of authority regarding the appropriate standard of review on whether a forum selection clause should be enforced through a motion to dismiss for forum non conveniens.” (Quanta Computer Inc. v. Japan Communications Inc. (2018) 21 Cal.App.5th 438, 446.) “The majority of cases apply the abuse of discretion standard, not the substantial evidence standard.” (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 214, fn. 6.) We do not resolve this dispute here because the trial court erroneously granted LFG’s motion under either standard.
“California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable. [Citation.] This favorable treatment is attributed to our law’s devotion to the concept of one’s free right to contract, and flows from the important practical effect such contractual rights have on commerce generally.” (America Online, Inc. v. Superior Court (2001) 90
A mandatory forum selection clause such as the one at issue here is generally given effect unless enforcement would be unreasonable or unfair, and the party opposing enforcement of the clause ordinarily bears the burden of proving why it should not be enforced.2 (Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147 (Verdugo).) However, the burden is “reversed when the claims at issue are based on unwaivable rights created by California statutes [in which case] the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually designated forum ‘will not diminish in any way the substantive rights afforded . . . under California law.’ ” (Ibid., quoting Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995) 32 Cal.App.4th 1511, 1522 (Wimsatt).)
Handoush argues that the forum selection clause impacts his substantive rights under California law because it includes a predispute waiver of the right to a jury trial and such a right is unwaivable, even voluntarily, under California law. Accordingly, he argues the court erred in failing to place the burden on LFG to prove litigating in New York will not result in a diminution of his substantive rights under California law. LFG argues that Handoush’s case against LFG does not involve claims based on unwaivable rights under a statutory scheme such as those at issue in Verdugo, AOL, and Wimsatt, and therefore the burden should not shift to LFG. Although Handoush’s claims are not based on a statutory scheme,3 we find that enforcing the forum selection clause here would be
contrary to California’s fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers.
A. Burden of Proof
In Wimsatt the court reversed an order dismissing a lawsuit alleging violations of California’s Franchise Investment Law (
AOL applied the same reasoning when it affirmed the denial of a motion to dismiss a lawsuit alleging claims under the Consumers Legal Remedies Act (
More recently, in Verdugo, the court reversed an order dismissing a lawsuit alleging wage and hour violations under the
B. Enforcement of Forum Selection Clause Violates Fundamental California Policy Protecting Jury Trial Rights
As we have stated, Handoush’s claims are not based upon a statutory scheme which includes an antiwaiver provision like the claims at issue in Wimsatt, AOL, and Verdugo. However, Handoush’s complaint includes a demand for a jury trial, which Handoush correctly argues is unwaivable in predispute contracts under California law. (Grafton, supra, 36 Cal.4th 944.)
LFG correctly argues that the issue in Grafton is the enforceability of a predispute jury trial waiver in a case brought in California under California law in which the proper forum was not in dispute. Nonetheless, Grafton instructs that because the right to jury trial in California is a fundamental right that may only be waived as prescribed by the Legislature, courts cannot enforce predispute agreements to waive a jury trial. (Grafton, supra, 36 Cal.4th at pp. 953, 956; see Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2017) 8 Cal.App.5th 1, 13–14 (Rincon) [applying Grafton analysis to choice of law question and finding that application of New York law to permit enforcement of the predispute contractual jury waivers would be contrary to fundamental California policy].)
While California law holds predispute jury trial waivers are unenforceable, it is undisputed that under New York law there is no similar prohibition. (See Grafton, supra, 36 Cal.4th at p. 962.) Handoush argues that enforcing the forum selection clause here will result in an impermissible predispute waiver of his right to a jury trial, which is an unwaivable right under California law. LFG argues that Wimsatt, AOL, and Verdugo are distinguishable because Handoush’s claims are not statutory. Although Handoush’s claims against LFG are not based on a statutory scheme that includes an antiwaiver provision, he has demanded a jury trial, the right to which is inviolate under the California Constitution, and which may only be waived by the methods enumerated by the Legislature. (
Handoush asserts, without citation, that his jury trial right is substantive. LFG does not address whether the jury trial right raised by Handoush is procedural, rather than substantive. Because Wimsatt, AOL, and Verdugo apply burden shifting in order to protect substantive rights under California law, we consider whether Handoush’s asserted right to a jury trial, which is not waivable at the predispute stage under California law, is a substantive or procedural right.
Whether the right to a jury trial in a civil case is a substantive or a procedural right is an open question. (Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2018) ¶ 2:291; Cloud v. Market Street Ry. Co. (1946) 74 Cal.App.2d 92, 102 [“The question whether to demand a jury trial or waive one and try the case to the court is one of trial tactics and procedure only, and the waiving of a jury trial does not in any sense affect the substantial rights of a party“]; Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 412 (conc. opn. of Bird, C. J.) [“the ultimate determination to waive a right as fundamental and ‘substantial’ as the right to a jury trial should rest with the client.“].)
In In re County of Orange (9th Cir. 2015) 784 F.3d 520, the Ninth Circuit considered whether a court sitting in diversity should apply federal or state law to determine the enforceability of a jury trial waiver clause. The court analyzed this Erie doctrine4 question and stated, “A substantive rule is one that creates rights or obligations, or ‘is bound up with [state-created] rights and obligations in such a way that its application in the federal court is required.’ [Citation.] A procedural rule, by contrast, defines ‘a form and mode of enforcing’ the substantive right or obligation. [Citation.] Although helpful, these definitions have their limits: ‘[T]here is no bright line distinguishing substance from procedure, [and] the meanings of these terms shade into one another by degrees and vary from context to context.’ [Citation.]” (Id. at p. 527.)
The Ninth Circuit held, “The law governing jury trial waivers in federal court is federal procedural law. But the federal rule most courts use to evaluate such waivers—the ‘knowing and voluntary’ standard—is a federal constitutional minimum. Its application is not required where, as here, state law is more protective than federal law of the jury trial right. So we are faced with a void in federal law. Rather than expand the constitutional ‘knowing and voluntary’ standard to fill that void, we adopt state law as the federal rule. This means that federal courts sitting in diversity must apply the relevant state law to evaluate the validity of a pre-dispute jury trial waiver when that law is more protective than federal law.” (In re County of Orange, supra, 784 F.3d at pp. 531–532.)
Here, we are not concerned with an Erie question, but we find the Ninth Circuit’s discussion of the substantive nature of the Grafton rule instructive, and we agree that even if this rule is considered procedural, it is ” ‘intimately bound up with the state’s substantive decision making’ ” and it ” ‘serve[s] substantive state policies’ ” of preserving the ” ‘right to a jury trial in the strongest possible terms’ [citation], an interest the California Constitution zealously guards [citation].” (In re County of Orange, supra, 784 F.3d at p. 530.) We hold that because enforcement of the forum selection clause here has the potential to contravene a fundamental California policy of zealously guarding the inviolate right to a jury trial, which is unwaivable by predispute agreements, LFG bears the burden of showing that litigation in New York “will not diminish in any way [Handoush’s] substantive rights . . . under California law.” (Wimsatt, supra, 32 Cal.App.4th at pp. 1520–1522.)
LFG argues that Handoush mischaracterizes the proceedings below as based upon a choice of law analysis when the only issue decided was enforcement of the forum selection clause. According to LFG, the issue of whether to enforce the jury trial waiver should properly be decided by a New York court. We reject LFG’s argument. Although the issue before the court below was forum selection, case law demonstrates that choice of law is commonly considered together with a forum selection clause. (See AOL, supra, 90 Cal.App.4th at pp. 13–16 [finding that enforcement of the forum selection clause, which is also accompanied by a choice of law provision favoring Virginia, would necessitate waiver of the statutory remedies of the CLRA, in violation of the CLRA’s antiwaiver provision and California public policy]; Hall v. Superior Court (1983) 150 Cal.App.3d 411, 416 [enforceability of forum selection and choice of law clauses is “inextricably bound up” in one another].) Here, enforcing the forum selection clause in favor of New York will put the issue of enforceability of the jury trial waiver contained in the same agreement before a New York court. Because New York permits predispute jury trial waivers, and California law does not, enforcing the forum selection clause has
LFG also relies upon a comment in Rincon, supra, 8 Cal.App.5th 1, in support of its argument that the trial court’s order should be affirmed. In Rincon, the court performed a choice of law analysis to determine whether New York or California law applied to determine the enforceability of jury trial waivers. (Id. at pp. 10–18.) As part of its choice of law analysis, Rincon considered whether California (the forum state) had a materially greater interest than New York (the contractually selected choice of law) in determining the enforceability of jury trial waivers. (Id. at pp. 14–15.) The court found that California, as the forum, had the paramount interest and stated: “Those protected, by definition, are litigants in the California courts. Were the venue changed in this lawsuit to New York—we note that no party ever sought to bring that about—the jury trial right the parties enjoy in our court would not travel with them.” (Id. at p. 18.) LFG argues that here, unlike in Rincon, it successfully changed the forum, and, therefore, any right Handoush might have under California law regarding predispute jury trial waivers does not ” ‘travel with’ him” to New York.
LFG’s argument is unpersuasive. First, Rincon did not address the issue before this court, and therefore it is not authority for whether enforcing a forum selection clause which includes a jury trial waiver is contrary to California’s fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers. (American Federation of Labor v. Unemployment Ins. Appeals Bd. (1996) 13
Finally, LFG asserts that Handoush’s arguments are academic because he is not entitled to a jury trial on any of his claims even under California law. While it may be that Handoush is not entitled to a jury trial for his equitable claims (Rincon EV Realty LLC v. CP III Rincon Towers, Inc., supra, 8 Cal.App.5th at p. 19), he also alleges fraud. LFG argues Handoush does not have a right to a jury trial as to his legal claim for fraud because as a matter of law he cannot establish the elements of fraud given that his complaint admits he entered the lease agreement based upon representations of another store owner, and not based on any representation by LFG. We do not read Handoush’s complaint so narrowly. Furthermore, the legal sufficiency of Handoush’s fraud claim was not challenged below, and we will not find for the first time on appeal that his claim as pleaded fails as a matter of law.
In conclusion, we find the trial court erred in enforcing the forum selection clause in favor of a New York forum where the clause includes a predispute jury trial waiver, which Grafton instructs is unenforceable under California law. LFG failed to show that enforcement of the forum selection clause would not substantially diminish the rights of California residents in a way that violates our state’s public policy. (Verdugo, supra, 237 Cal.App.4th at p. 147.)
The order of dismissal is reversed. The matter is remanded for the superior court to enter a new order denying Lease Finance Group’s motion to dismiss. Handoush shall recover his costs on appeal.
Wick, J.*
WE CONCUR:
Siggins, P. J.
Fujisaki, J.
A150863/Handoush v. Lease Finance Group, LLC
* Judge of the Superior Court of Sonoma County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Trial Court: Superior Court of Alameda County
Trial Judge: Victoria S. Kolakowski, J.
Counsel: Law Offices of Ian Booth Kelley and Ian Booth Kelley for Plaintiff and Appellant.
Daniel B. Harris for Defendant and Respondent.