Groth Family Limited Partnership v. TD (2011)

MEMORANDUM OF DECISION ON DEFENDANT'S MOTION TO STRIKE FROM JURY DOCKET

The defendant, TD Bank, N.A., has moved to strike the plaintiffs' claim to the jury docket on the grounds that the plaintiffs have waived any alleged right they may have to a jury trial in the underlying Security Agreements to the Mortgage, Note and Guaranties.

Factual and Procedural Background

In the complaint in this action the plaintiffs, Groth Family Limited Partnership (“GFLP”), Estate of James A. Groth, James D. Groth, Kelly J. Groth, the Groth 1990 Irrevocable Trust, the James A. Groth 1992 Irrevocable Life Insurance Trust, Festivals, Inc., and Mountainside Corp., allege that the defendant engaged in various actionable conduct with respect to its proceedings on a note, mortgage, guaranty agreements, and UCC–1 security agreements.   The mortgage in question secured a note from Groth LP in the amount of $3,000,000 and from Mountainside Corp. in the amount of $250,000.   As additional security, for these notes Mountainside Corp. and Groth LP executed separate Security Agreements granting a security interest in all personal property owned by the entities.   Those Security Agreements contained the following express waivers:

23.  Waiver of Jury Trial.   THE COMPANY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE, OR ENFORCEMENT OF ANY SUCH RIGHTS OR OBLIGATIONS.   Except as prohibited by law, the Company waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages.   The Company (I) certifies that neither the Lender nor any representative, agent or attorney of the Lender had represented, expressly or otherwise, that the Lender would not, in the event of litigation seek to enforce the foregoing waivers or other waivers contained in this Agreement and (ii) acknowledges that, in entering into the Credit Agreement the Lender is relying upon, among other things, the waiver and certifications contained in this § 23.

The Security Agreement makes reference to the entire loan transaction:

WHEREAS, the Company [Groth Family Limited Partnership] has entered into a loan transaction including the execution of a Promissory Note dated as of the 21st of March 2002 (as amended an in effect from time to time, such loan documents being hereinafter referred to as the “Credit Agreement”) ․

On March 21, 2002, each of the plaintiffs who did not sign a Security Agreement signed a Guaranty Agreement in which they stated:

1.  Payment and Performance.   Guarantor does hereby fully guarantee to Lender that Borrower shall make due and punctual payment of the principal of the Note and the interest thereon, when due and payable, whether on any installment payment date or at the stated or accelerated maturity, and all other sums and charges which may at any time be due and payable under the Note or Mortgage and any and all indebtedness, advances, debts, obligations, and liabilities of Borrower heretofore, now, or hereafter made, incurred, or created, whether voluntary or involuntary and however, arising, absolute or contingent, liquidated or unliquidated, determined or undetermined whether or not such indebtedness is from time to time reduced or extinguished and thereafter increased or incurred or whether Borrower may be liable individually or jointly with others;  and that Borrower shall duty and punctually perform all of its other obligations, covenants and conditions contained in the Note and Mortgage.

On the same date as the Security Agreement, Note, Mortgage, Guaranties and all other documents were signed, March 21, 2002, the plaintiffs signed a Borrower's and Guarantor's Affidavit in which they warranted and agreed as follows:

1.  Validity of Loan Documents.   The Promissory Note in the amount of $3,000,000, the Open–End Mortgage Deed and Security Agreement (the “Mortgage Deed”), securing the Promissory Note, the Assignment of Leases, Rents, Income and Profits, the Security Agreement, the UCC–1 Financing Statements, (the Hazardous Substance Certificate, and this Borrower's and Guarantor's Affidavit, all of which were executed by Borrower, and deliver to Lender on this date, together with certain Guaranty Agreements executed and delivered to Lender By Mountainside Corporation, James A. Groth 1992 Irrevocable Trust, The Groth 1990 Irrevocable Life Insurance Trust, Festivals, Inc., James A Groth, Kelly J. Groth, and James D. Groth (which documents are hereinafter collectively referred to as the “Loan Documents”), are in all respects valid and binding in accordance with their terms and have been duly executed and delivered to Borrower and the Guarantors and the Mortgage Deed, the Security Agreement and the Financing Statements grant to Lender and constitute a direct, valid and enforceable first lien security title and security interest in and to the Premises and the personal property described in said documents.

Emphasis added.

James A. Groth was an officer and owner of Mountainside and Festivals, Inc. and a partner in Groth LP. These three entities were related family businesses.   Kelly Groth and James D. Groth, daughter and son of James A. Groth, were officers and owners of Mountainside and Festivals and partners in Groth LP. The two family trusts were established for the benefit of family members, including Kelly and James D. Groth.

Discussion of Law and Ruling

Under the law of Connecticut a contractual jury trial waiver is enforceable.   L & R Realty v. Connecticut National Bank, 246 Conn. 1, 8, 715 A.2d 748 (1998).   In L & R Realty the Court upheld the trial court's granting of a motion to strike the jury claim, stating:

We conclude that a commercial contractual jury trial waiver provision such as the one at issue in this case is prima facie evidence that the party bound thereby intentionally has waived its constitutional right to a trial by jury.   When the party seeking to avoid the waiver fails to allege and to come forward with evidence of a lack of intent to be bound by the waiver provision, the trial court need not conduct an evidentiary hearing to determine its validity.

L & R Realty v. Connecticut National Bank, 246 Conn. 1, 8, 715 A.2d 748 (1998).

The Court in L & R Realty further stated:

The majority of other jurisdictions that have addressed prelitigation contractual jury trial waivers has concluded that such waivers generally are enforceable.   The majority of federal courts has stated that contractual jury trial waivers are enforceable where they were entered into knowingly and voluntarily.   See, e.g., Leasing Service Corp. v. Crane, supra, 804 F.2d 833;  K.M.C. Co. v. Irving Trust, supra, 757 F.2d 758;  National Equipment Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d Cir.1977);  Phoenix Leasing, Inc. v. Sure Broadcasting, Inc., supra, 843 F.Sup. 1385;  see generally annot., 92 A.L.R.Fed. 688 (1989).   These courts are divided as to who bears the burden of proof regarding consent to the waiver.   Compare Leasing Service Corp. v. Crane, supra, 833 (party seeking to enforce waiver bears burden of proving agreement was knowing and voluntary) and National Equipment Rental, Ltd v. Hendrix, supra, 258 (same), with K.M.C. Co. v. Irving Trust, supra, 758 (party seeking to avoid enforcement bears burden of proving that waiver was not knowing and voluntary).   State courts, however, generally treat contractual jury trial waivers as presumptively enforceable.   See, e.g., Gelco Corp. v. Campanile Motor Service, Inc., 677 So.2d 952, 953 (Fla.App.1996) (waiver valid absent showing why it should not have been enforced);  Barclays Bank v. Heady Electric Co., 174 App.Div.2d 963, 964–65, 571 N.Y.S.2d 650 (1991) (noting defendant's failure to “set forth ․ adequate basis to set aside the waivers”);  TS 1 Partnership v. Allred, 877 P.2d 156 (Utah App.1994) (jury trial waivers declared enforceable;  no discussion of requirement that they be knowing and voluntary);  see also Chase Commercial Corp. v. Owen, 32 Mass.App. 248, 254–55, 588 N.E.2d 705 (1992) (noting higher federal standard for enforcement of contractual jury trial waivers);  but see Malan Realty Investors, Inc. v. Harris, 953 S.W.2d 624, 627 (Mo.1997) (applying knowing and voluntary standard).

Id., at 12–14.

Finally, the L & R Realty Court listed the following factors to be used to judge the enforceability of a jury waiver:

(1) the conspicuousness of the waiver clause, including (a) its location relative to the signatures of the parties, (b) whether it was buried in the middle of a lengthy agreement, and (c) whether it was printed in a different typeface or font size than the remainder of the contract;  (2) whether there was a substantial disparity in bargaining power between the parties to the agreement;  (3) whether the party seeking to avoid enforcement was represented by counsel;  (4) whether the opposing party had an opportunity to negotiate the terms of the agreement;  and (5) whether the opposing party had been fraudulently induced into agreeing specifically to the jury trial waiver.

Id., at 15.

The plaintiffs Groth LP and Mountainside executed the Security Agreements, which contained clear conspicuous waivers of a jury.   The waiver in the Security Agreement is in close proximity (two paragraphs above) to the plaintiffs' signatures, in all capital type in contrast to surrounding text and states that it applies to all claims related to the transaction.   The jury waiver is explicitly entitled “Waiver of Jury Trial.”

The Security Agreement specifically references the Mortgage, Note, and overall credit agreement.   All of the loan documents were signed on the same date and, taken together, are part of a single transaction entered into by the related entities and those now seeking a jury trial.

In Chase Commercial Corp. v. Owen, 32 Mass.App.Ct. 248 (1992), cited by the Court in L & R Realty, jury waivers appeared in two loan and security agreements, but not in the guaranty agreements.   The defendants challenging the application of the waiver had signed only the guaranty agreements, with one defendant signing the other agreements in a representative capacity.   The court noted that the guaranty agreement did not incorporate by reference the loan documents containing the jury waiver, but it did reference those documents.   The court held that “if the three documents were in essence part of one transaction, they must be read together to effectuate the intention of the parties.”  Id., at 250.

The L & R Realty Court cited Chase Commercial on the issue of whether the loan documents form a single transaction:

L & R notes that Raymond LeFoll, a general partner of L & R, signed the loan agreement and a guarantee but that only the loan agreement contained a jury trial waiver.   L & R argues therefore that LeFoll is not bound by the waiver.   We disagree.   Where a contractual jury trial waiver is contained in the loan agreement but not in the guarantee agreement, the guarantor may nevertheless be bound by the waiver.   See Chase Commercial Corp. v. Owen, supra, 32 Mass.App. 248 (loan agreement and guarantee part of single transaction);  Franklin National Bank v. Capobianco, 25 App.Div.2d 445, 266 N.Y.S.2d 961 (1966) (jury trial waiver extended to documents executed in connection with loan agreement).   In the present case, the guarantee was entered into as part of the same transaction as the loan agreement.   LeFoll is, therefore, bound by the jury trial waivers regardless of whether the waiver appeared in each of the guarantee agreements.

L & R Realty, 246 Conn. 17, fn. 11.   Emphasis added.

Here, as in Chase Commercial, the loan documents included in the transaction must be read together.   The jury waiver is a term of the overall loan transaction.   Groth LP and Mountainside clearly signed the Security Agreement which contained the jury waiver.   The other plaintiffs signed guaranties of performance of the Note and Mortgage and signed Guarantor's Affidavits in which they specifically acknowledged the validity of the Security Agreements.   Under L & R Realty all of the plaintiffs are bound by the jury waivers contained in the Security Agreement.   The Motion to Strike from the Jury Docket is granted.

By the Court,

Aurigemma, J.

Aurigemma, Julia L., J.