Thursday, April 27, 2017
S.C. Declines to Review Contractual Jury Waiver Issue
By KENNETH OFGANG, Staff Writer
The state Supreme Court yesterday left standing a First District Court of Appeal ruling upholding California’s ban on contractual jury trial waivers.
The justices, at their weekly conference in San Francisco, voted 6-0 to deny review in Rincon EV Realty LLC v. CPIII Rincon Towers, Inc. (2017) 8 Cal.App.5th 1. Justice Ming Chin was recused.
The First District’s Div. Four held in the case that California public policy precludes enforcement of predispute contractual waivers of jury trial, even when the contract contains an otherwise valid choice-of-law clause in which the parties have agreed to be governed by the laws of a state that enforces such waivers.
The ruling partially reversed a San Francisco Superior Court judgment and reinstated damages claims by several entities controlled by New York real estate investor Richard D. Cohen against Carmel Partners, Inc. and others. The claims arise from a 2010 foreclosure sale at which a Carmel affiliate acquired ownership of the 320-unit Rincon Towers apartment complex, now Carmel Rincon Luxury Apartments.
The Cohen entities had purchased the property in 2007 for $143 million, financed in part by borrowing $110 million from the commercial real estate lending arm of Bear Stearns. The terms required payment in full within two years, except that the borrowers were given the right to a one-year extension if they met certain conditions.
Bear Stearns collapsed during the 2008 financial crisis, and most of its assets were acquired by JPMorgan Chase.
The Rincon loan, however, was one of a number that Chase did not want, and that were acquired by Maiden Lane Trust. Maiden Lane was set up by the Federal Reserve Bank of New York as part of its facilitation of the Chase acquisition of Bear Stearns.
The Cohen entities made no payments on the Rincon loan. They attempted to exercise their putative right to an extension, but Maiden Lane insisted that the conditions for doing so had not been met.
Subsequent negotiations between the parties were fruitless, and Maiden Lane put the loan up for auction. Carmel Partners affiliate CP III Rincon Towers, Inc. acquired the loan and eventually purchased the property at foreclosure with a $73 million credit bid.
The Cohen entities filed suit against CP III, Carmel Partners, Maiden Lane, and others, and recorded a lis pendens. They sought damages for breach of contract, fraud, slander of title, and trade secret misappropriation, along with setting aside of the foreclosure, restitution under the Unfair Competition Law, and an accounting.
They demanded a jury trial on the legal causes of action, but Superior Court Judge Marla Miller struck their demand. She ruled that New York law, which the parties said in the loan agreement was to govern in the event of any dispute, generally enforces such waivers, even though California law does not.
Rejecting the argument that California public policy should prevail over the choice-of-law clause, the judge noted that all of the parties to the loan agreement were based in New York, and that the only California parties to the litigation—the Carmel entities—were opposed to a jury trial.
She ultimately ruled for the defendants on all causes of action.
But Justice Jon Streeter, writing for the Court of Appeal, said Miller misapplied Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, which requires a balancing of states’ interests to resolve conflict-of-laws issues.
“In our view, the relevant ‘interest’ of California for purposes of the Nedlloyd analysis is not solely an interest in whether this dispute is resolved by a jury trial,” he wrote. “Instead, California has an interest in enforcing its policy that only the Legislature can determine the permissible methods for waiving the right to jury trial when parties submit their civil disputes to a court in this state for resolution.”
Streeter noted that the California Constitution refers to civil jury trial as “an inviolate right,” which may only be waived “as prescribed by statute.” And he cited Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, which held that predispute contractual waivers of jury trial are unenforceable under Code of Civil Procedure §631.
Under that statute, a jury waiver must be made in open court, or in a writing filed with the court, or be inferred from failure to request a jury or to appear for trial, or to pay jury fees. While most U.S. jurisdictions have found contractual waivers to be enforceable, only the Legislature can adopt that rule in California, the Grafton court said.
California’s interest in enforcing “a fundamental right for all litigants,” Streeter said, took precedence over New York’s interest in protecting the commercial expectations of persons who enter into contracts in that state.
In other action, the high court unanimously denied a request by the Coalition for Clean Air that it depublish an opinion of the First District’s Div. Three, in a case paving the way for construction of the new Golden State Warriors arena in San Francisco.
The Court of Appeal held last November in Mission Bay Alliance v. Office of Community Investment and Infrastructure (2016) Cal.App.5th 160, that the city conducted an adequate environmental review of the project.
Area property owners and members of the UC San Francisco community claimed the project would have overwhelming negative impacts on traffic and air quality, and would impede access to the UC medical facilities nearby. The review and litigation were conducted on an expedited basis, under a statute permitting the governor to expedite administrative and judicial proceedings regarding similar projects, and the high court denied review earlier this year.
The high court’s order denying the petitioners’ request for a stay and allowing the Court of Appeal decision to stand came down on Jan. 17, the same day as the groundbreaking for the project, known as Chase Center. The Warriors, who have played in Oakland since 1971, are set to return to San Francisco in the fall of 2019.
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