Handoush v. Lease Finance Group, LLC, No. A150863 (Cal. Ct. App. Oct. 31, 2019) [click for opinion]
Plaintiff Zeaad Handoush brought several claims in California state court against Defendant Lease Finance Group, LLC ("LFG") arising from the parties' lease agreement, including for fraud, rescission, injunctive relief, and violations of California's Business and Professions Code. Handoush demanded a jury trial on these claims.
The lease agreement, however, contained a mandatory forum selection clause identifying New York as the exclusive forum for the parties' disputes. The agreement also contained a pre-dispute jury trial waiver and a choice of law provision selecting New York as the appropriate law to govern all disputes. LFG sought to dismiss the complaint on the basis of the forum selection clause. The trial court agreed and dismissed the action.
On appeal, the First Appellate District Court for California reversed, holding that enforcing the forum selection clause would be contrary to California's fundamental public policy protecting the jury trial right and prohibiting courts from enforcing pre-dispute jury trial waivers. The court reasoned that, although California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable, California courts will refuse to defer to the selected forum if doing so would substantially diminish the substantive rights of California residents in a way that violates California's public policy. The court added that, although ordinarily the party opposing enforcement of the clause bears the burden of proving why it should not be enforced, the burden is reversed when the claims at issue are based on unwaivable rights created by California statutes. In the latter instance, the party seeking to enforce the forum selection clause bears the burden of showing that litigating the claims in the contractually designated forum will not diminish in any way the substantive rights afforded under California law.
The court observed that, under the California Constitution and Section 631 of the Civil Code of Procedure, the right to a jury trial may not be contractually waived if done pre-dispute. The court, likewise, reasoned that this unwaivable right was substantive in nature. Accordingly, LFG had the burden of establishing that litigation in New York would not diminish in any way Handoush's substantive rights under California law. The court reasoned that, because New York permits pre-dispute jury trial waivers, and California law does not, enforcing the forum selection clause has the potential to operate as a waiver of a right that the California legislature and its highest court have declared unwaivable. The court concluded that LFG had failed to meet its burden in the lower court, and accordingly, reversed the order dismissing Handoush's suit.