Integrated Global Concepts, Inc v. J2 Global, Inc et al

Filing 83

ORDER by Judge Whyte denying 67 Motion to Strike; denying 68 Motion to Consolidate. (rmwlc2, COURT STAFF) (Filed on 10/15/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

SAN JOSE DIVISION
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INTEGRATED GLOBAL CONCEPTS, INC.,
Plaintiff,

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Case No. C-12-03434-RMW
ORDER DENYING MOTION TO
STRIKE JURY TRIAL DEMAND AND
DENYING MOTION TO
CONSOLIDATE

v.
j2 GLOBAL, INC. and ADVANCED
MESSAGING TECHNOLOGIES, INC.,
Defendants.

[Re Docket Nos. 67, 68]

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Defendants j2 Global, Inc. and Advanced Messaging Technologies, Inc. (collectively “j2”)

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move to strike plaintiff Integrated Global Concepts, Inc.’s (“IGC”) demand for a jury trial in the

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subject action in which IGC seeks damages for the alleged breach of a covenant not to sue in an

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agreement containing a jury trial waiver. The issue before the court is whether California law,

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which prohibits pre-dispute jury waivers, should govern when the agreement at issue contains a jury

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waiver, which, if applied, would result in the loss of the right to a jury. For the reasons explained

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below, the court finds California law applies and denies j2’s motion to strike.

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ORDER
Case No. C-12-03434-RMW
SW / AAB

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I. BACKGROUND

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IGC filed a complaint on July 2, 2012 against j2 for allegedly breaching a covenant not to

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sue by bringing patent infringement claims against IGC in the Central District of California.

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Compl. ¶¶ 87-99, Dkt. No. 1. IGC bases its claims on an “Agreement of Understanding,” which the

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parties had previously entered and which contains a covenant not to sue. Id. ¶¶ 1, 24; Agreement ¶¶

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4-7, Dkt. No. 67-1, Ex. A. The Agreement also contains a jury trial waiver and a California choice

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of law provision. Agreement ¶¶ 27.7-27.8.
On April 1, 2013, IGC filed a jury demand and on April 12, 2013, j2 answered IGC’s

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complaint, filed counterclaims for patent infringement, and demanded a trial “by jury of all issues

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United States District Court
For the Northern District of California

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so triable.” Dkt. Nos. 42, 43. On May 3, 2013, IGC filed its answer to j2’s counterclaims and set

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forth its own set of counterclaims, and demanded a jury trial for all counts set forth in plaintiff’s

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complaint and counterclaims. Pl.’s Answer, Dkt. No. 45. j2 now moves to strike IGC’s demand for

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a jury trial on the issues related to the alleged breach of the covenant not to sue. See Def.’s Mot.,

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Dkt. No. 67.
The court previously instructed the parties to prepare a proposed discovery plan leading up

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to an evidentiary hearing (trial) to resolve the scope of the covenant not to sue. This order also

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bifurcated the contract interpretation issue from the issue of the amount of damages causally related

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to the alleged breach. IGC now moves to re-consolidate the contract issues. See Pl.’s Mot. Dkt. No.

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68.

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II. ANALYSIS

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A. Motion to Strike

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A party generally has a right to a jury trial. U.S. Const. amend. VII; Cal. Const. art. I § 16.

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Under federal law, parties may contractually waive their right to a jury trial if they do so knowingly

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and voluntarily. See Applied Elastomerics, Inc. v. Z-Man Fishing Products, Inc., 521 F. Supp. 2d

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1031, 1044 (N.D. Cal. 2007). Under California law, however, a contractual pre-dispute jury trial

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waiver is invalid. See Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944, 961 (2005). As a

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general principle, courts “must indulge every reasonable presumption against the waiver of the jury

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trial.” United States v. Nordbrock, 941 F.2d 947, 950 (9th Cir. 1991).
ORDER
Case No. C-12-03434-RMW
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Generally, in diversity actions, federal law governs the right to a jury trial in federal court.

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See Simler v. Conner, 372 U.S. 221, 221–22 (1963) (holding federal law governed whether an

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action was legal or equitable and thus whether there was a right to a jury trial). In the subject

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Agreement of Understanding, the parties contractually agreed to waive a jury trial and that the

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Agreement “shall be governed by and construed in accordance with the internal laws of the State of

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California.” Agreement ¶ 27.7. Thus, the question before the court is whether to apply federal law

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or California law to the jury waiver in the parties’ Agreement. If federal law applies, the jury

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waiver is likely valid, 1 but if California law applies it is not.

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Many courts (and j2) cite the Supreme Court’s broad language in Simler that “the right to a

United States District Court
For the Northern District of California

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jury trial in the federal courts is to be determined as a matter of federal law in diversity as well as

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other actions” and thus apply federal law to contractual jury waivers. 372 U.S. at 222; see, e.g.,

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Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 188 (2d Cir. 2007) (“When asserted

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in federal court, the right to a jury trial is governed by federal law,” but “a contractual waiver is

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enforceable if it is made knowingly, intentionally, and voluntarily.”); Med. Air Tech. Corp. v.

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Marwan Inv., Inc., 303 F.3d 11, 18 (1st Cir. 2002) (“In a diversity jurisdiction suit, the enforcement

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of a jury waiver is a question of federal, not state, law.”); K.M.C. Co., Inc. v. Irving Trust Co., 757

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F.2d 752, 755 (6th Cir. 1985) (“the question of right to jury trial is governed by federal and not state

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law” and “parties to a contract may by prior written agreement waive the right to jury trial”); see

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also Leasing Serv. Corp. v. Crane, 804 F.2d 828, 832 (4th Cir. 1986) (“the seventh amendment right

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is of course a fundamental one, but it is one that can be knowingly and intentionally waived by

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contract.”) .

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On the other hand, courts tend to apply state law to jury waivers when state law is more

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protective of the right to a jury than federal law. See Fin. Tech. Partners L.P. v. FNX Ltd., 2009

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WL 464762, at *1–2 (N.D. Cal. Feb. 24, 2009) (applying California law to hold a jury waiver

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unenforceable in a contract with a California choice-of-law provision); Odom v. Fred’s Stores of

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Tennessee, Inc., 2013 WL 83023 (M.D. Ga. Jan. 7, 2013) (applying Georgia law to void contractual

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jury waiver); GE Commercial Fin. Bus., 621 F. Supp. 2d 1305, 1307 (M.D. Ga. 2009) (striking jury

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The court would still have to determine that the waiver was knowingly and voluntarily executed.

ORDER
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demands based upon pre-dispute contractual waiver where Florida law applied, but finding jury

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waivers unenforceable where contracts were governed by Georgia law). Although Illinois allows

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contractual waiver of jury trials, the Seventh Circuit still found that state law governed jury trial

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waivers because there is no federal law of contracts. IFC Credit Corp. v. United Bus. & Indus. Fed.

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Credit Union, 512 F.3d 989, 992 (7th Cir. 2008) (Easterbrook, J.) (“[t]here is no general federal law

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of contracts after Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); if ‘federal

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law’ did control, the best it could do would be to use state law as the rule of decision.”).

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Nearly all states, except Georgia and California, allow contractual waiver of jury trials. See
GE Commercial Fin. Bus., 621 F. Supp. 2d at 1308; Grafton Partners L.P. v. Superior Court, 36

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United States District Court
For the Northern District of California

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Cal. 4th 944, 968 (2005) (Chin, J. concurring). The application of federal law to contractual jury

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waivers in most states protects the right to a jury trial because federal law requires that the waiver be

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knowing and voluntary. GE Commercial Fin. Bus., 621 F. Supp. 2d at 1308-09. However, the

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application of federal law to a contractual jury waiver where California law would otherwise apply

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would restrict the right to a jury trial because federal law is less protective than California law. Id.

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In GE Commercial, the court reasoned that because state law, at minimum, had to meet the federal

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constitutional requirement for jury waiver, courts should apply the federal standard where the state

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standard was lower. Id. But, a finding that the same federal constitutional requirement also requires

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that federal law be applied where state law is more protective would require finding the Constitution

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protected the forfeiture of a jury trial. Id. at 1309.

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In Financial Technology Partners, the only California case to directly address this issue, the

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court declined to enforce a jury trial waiver because it found that the reason underlying Simler’s

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holding that federal law applied to determine jury trials was based upon a public policy preference

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for jury trials, which did not apply where state law was more protective. Fin. Tech. Partners, 2009

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WL 464762, at *2; see Simler, 372 U.S. at 222 (“federal policy favoring jury trials is of historic and

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continuing strength.”); but see Telum, Inc. v. E.F. Hutton Credit Corp. 859 F.2d 835, 837 (10th Cir.

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1988) (“Agreements waiving the right to trial by jury are neither illegal nor contrary to public

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policy”). The court in Financial Technology Partners also reasoned that its ruling did not

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undermine uniformity in enforcing the Seventh Amendment—another concern in Simler—because
ORDER
Case No. C-12-03434-RMW
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it was merely enforcing California law and the California constitution. Fin. Tech. Partners, 2009

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WL 464762, at *2; see Simler, 372 U.S. at 222 (“Only through a holding that the jury trial right is to

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be determined according to federal law can the uniformity in its exercise which is demanded by the

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Seventh Amendment be achieved.”). The court concluded that because courts “must indulge every

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reasonable presumption against the waiver of the jury trial” it should honor the parties’ choice of

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law provision and hold the jury waiver unenforceable. Fin. Tech. Partners, 2009 WL 464762, at *2

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(quoting Nordbrock, 941 F.2d at 950); see also Odom 2013 WL 83023, at *2 (concluding, when

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confronted with the same issue that “when faced with an ambiguous situation without clear

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precedent, it is preferable to favor the preservation of rights as opposed to the extinction of rights.”).

United States District Court
For the Northern District of California

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j2 only cites one California case, Applied Elastomerics, where the court clearly found that

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California law applied to the contract, but still applied federal law to the contractual jury waiver.

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521 F. Supp. 2d at 1035, 1044. However, in Applied Elastomerics the conflict between the choice

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of law provision and the jury waiver was apparently not raised.

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Although the law is not clear and j2 makes a reasonable argument in support of enforcing the

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jury waiver contained in the parties’ Agreement of Understanding, the court finds the reasoning of

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Financial Technology Partners more persuasive. Therefore, the court applies California law to the

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contractual jury waiver. Because California law does not allow pre-dispute jury waivers, the court

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denies j2’s motion to strike.

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B. Motion to Consolidate

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The court previously bifurcated this case by ordering a limited evidentiary hearing (i.e. trial)

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on the issue of the scope of the covenant not to sue contained in the Agreement of Understanding

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based upon its belief that bifurcation could potentially expedite the resolution of the case and avoid

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the practical difficulties and potential jury confusion that could result from trying the contract

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interpretation issue with the damages issue. The court has not changed its view, and, therefore,

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denies the motion to re-consolidate.

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ORDER
Case No. C-12-03434-RMW
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III. ORDER

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For the foregoing reasons the court DENIES j2’s motion to strike IGC’s request for a jury
trial and DENIES IGC’s motion to consolidate.

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Dated: October 15, 2013
_________________________________
Ronald M. Whyte
United States District Judge

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United States District Court
For the Northern District of California

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ORDER
Case No. C-12-03434-RMW
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