In a decision issued on October 31, 2019, the California Court of Appeal held that a lower court erred in enforcing a forum selection clause where it included a pre-dispute waiver of the right to a jury trial, which is unenforceable under California law. The court held that enforcement of the clause selecting a New York forum would 鈥渟ubstantially diminish the rights of California residents in a way that violates our state鈥檚 public policy.鈥�
In (2019), Handdoush sued Lease Finance Group (LFG) alleging fraud, rescission, and violation of . Handdoush had leased credit card processing equipment from LFG.
The lease agreement contained a provision stating the following:
- the lease shall be governed by the laws of the State of New York,
- any disputes shall be litigated in New York, and
- the parties waived their rights to a jury trial.
The forum selection clause was mandatory in that it required the parties to litigate exclusively in the designated forum, New York. While California law prohibits pre-dispute jury trial waivers under (2005) (鈥淕rafton鈥�), New York law allows such waivers and typically enforces them.
The trial court dismissed Handdoush鈥檚 claims based on the reasoning that he did not meet his 鈥渉eavy鈥� burden of demonstrating that the forum selection clause was unreasonable. Further, the trial court stated that 鈥渢he right to trial by jury is not unwaivable鈥� under .
The trial court also rejected Handoush鈥檚 argument that the burden shifted to LFG to demonstrate that the forum selection clause would not diminish Handdoush鈥檚 substantive rights because 鈥渟uch burden only applies where a plaintiff鈥檚 claim involves unwaivable rights created by California statutes.鈥� Thus, the trial court granted LFG鈥檚 motion to dismiss Handdoush鈥檚 claims.
However, the Appellate Court reasoned that because the California Constitution contained a provision that 鈥渢he right to jury trial shall be preserved by the parties inviolate,鈥� the right to a jury trial is a 鈥渃onstitutional鈥� right. The right to a jury trial is both 鈥渇undamental鈥� and 鈥渟acred鈥� pursuant to the holding in Grafton.
The Appellate Court concluded that because Handdoush raised a constitutional right – the right to a jury trial – inviolate under the California Constitution, it is unwaivable at the predispute stage under California law.
Thus, it was the burden of the defendant, LFG, to prove that enforcement of the forum selection clause would not diminish Handdoush鈥檚 substantive rights. Further, LFG failed to show that it would not substantially diminish the rights of California residents in a way that violates California’s public policy.
In conclusion, the Appeals Court held that the trial court erred in enforcing the forum selection clause in favor of a New York forum. The case was remanded for the superior court to enter an order denying LFG鈥檚 motion to dismiss.
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