Silc et al v. Crossetti
Filing
44
MEMORANDUM Opinion and Order Signed by the Honorable Jeffrey Cole on 7/29/2013:Mailed notice(jms, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHER DISTRICT OF ILLINOIS
EASTERN DIVISION
JENNIFER T. SILC, an individual,
JENNIFER T. SILC, D.D.S., M.S., LTD,
and Illinois corporation, and
WOODFIELD SURGICAL CENTER,
LLC, an Illinois limited liability
company,
Plaintiffs
v.
HENRY W. CROSSETTI,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 13 C 1306
Magistrate Judge Jeffrey Cole
MEMORANDUM OPINION AND ORDER
Previously, the defendant moved to strike the plaintiffs’ jury demand. The motion was
premised on the explicit waiver provisions of the right to trial by jury in a series of promissory notes
and a guaranty executed by the plaintiffs. See infra at 5, n.4. However, the plaintiffs’ claims were
based, not on those documents, but on the parties’ Stock and Membership Interest Agreement, (“the
Agreement”), which contained a broad arbitration clause that provided that “[a]ny controversy or
claim arising out of or relating to any provision of this Agreement shall be settled by arbitration, in
accordance with the Commercial Arbitration Rules of the American Arbitration Association . . . .”
(Agreement, § 14).
The defendant’s reply brief did address the question of waiver stemming from the arbitration
clause, but as the ruling on the motion explained, that was too late. See Dexia Credit Local v.
Rogan, 629 F.3d 612, 625 (7th Cir. 2010). Although the defendant’s motion was denied, he was
given the option of filing a new motion, addressing the effect of the arbitration clause on the
plaintiffs’ right to trial by jury. The “Supplemental Motion to Strike Jury Demand” again refers to
the express jury waivers in the series of promissory notes and guaranty, but now rightly focuses on
the Agreement’s arbitration clause.
An arbitration clause in a contract constitutes a deliberate selection by the parties of an
alternative method of dispute resolution that involves neither courts nor juries. See Janiga v. Questar
Capital Corp., 615 F.3d 735, 743 (7th Cir. 2010); Carter v. SSC Odin Operating Co., LLC, 237 Ill.2d
30, 50, 927 N.E.2d 1207, 1220 (2010). Since the Seventh Amendment right to trial by jury is
incident to and predicated upon the right to a federal judicial forum, an arbitration provision waives
the right to resolve a dispute through litigation in a judicial forum and implicitly and necessarily
waives the parties’ right to a jury trial. See Ernst & Young LLP v. Baker O'Neal Holdings, Inc., 304
F.3d 753, 756 (7th Cir. 2002); Geldermann, Inc. v. Commodity Futures Trading Comm'n , 836 F.2d
310, 324 (7th Cir. 1987)(in light of the arbitration clause, “Geldermann is not entitled to an Article
III forum [and therefore] the Seventh Amendment is not implicated.”).1
As we shall see, a critical question in this case – indeed the threshold inquiry – is whether
there has been a waiver by the parties of the right to arbitrate, for the implicit waiver of the right to
trial by jury, being an indivisible component of the agreement to arbitrate, obviously cannot remain
operative of its own force if the parties forgo arbitration by proceeding in a judicial rather than an
arbitral forum. Phrased differently, one cannot waive arbitration and leave the implied jury waiver
intact since the latter does not exist without the former.
1
Arbitration is, at bottom, “another form of jury waiver”. IFC Credit Corp. v. United Business &
Indus. Federal Credit Union, 512 F.3d 989, 992 (7th Cir. 2008). See also Robert Bosch Corp. v. ASC, Inc.,
195 Fed.Appx. 503, 507 (6th Cir. 2006)(“The loss of a right to a civil jury is trial is a ‘fairly obvious
consequence’ of failing to object to an arbitration clause”); Belom v. National Futures Ass'n, 284 F.3d 795,
799 (7th Cir. 2002); Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir.
1995); Ciago v. Ameriquest Mtg. Co., 295 F.Supp 2d 324,331 (S.D.N.Y. 2003);Marsh v. First USA Bank,
N.A., 103 F.Supp.2d 909, 921-922 (N.D.Tex. 2000).
2
Waiver of the contractual right to arbitrate can be express or implied. Courts “must examine
the totality of the circumstances and ‘determine whether based on all the circumstances, the [party
against whom the waiver is to be enforced] has acted inconsistently with the right to arbitrate.’”
Ernst & Young LLP, 304 F.3d at 756. (brackets in original). See also Kawasaki Heavy Industries,
Ltd. v. Bombardier Recreational Products, Inc., 660 F.3d 988, 994 (7th Cir. 2011). The question is
whether that party did “all [he] could reasonably have been expected to do to make the earliest
feasible determination of whether to proceed judicially or by arbitration.” Cabinetree of Wisconsin,
Inc., 50 F.3d at 391. The plaintiffs have presumptively waived the right to arbitration by filing and
prosecuting the case in a federal judicial forum. Grumhaus v. Comerica Securities, Inc. 223 F.3d
648, 650 (7th Cir.2000).2 And so too, it would appear, has Dr. Crossetti, who has done nothing to
effectuate arbitration during the five months that the case has been pending in this court.
Not only has he not invoked the arbitration clause and sought to compel arbitration, he has
vigorously pursued the litigation by filing a counterclaim for declaratory judgment, two motions to
2
In Cabinetree, the court said: “
We have said that invoking judicial process is presumptive waiver. For it is easy to
imagine situations—they have arisen in previous cases—in which such invocation
does not signify an intention to proceed in a court to the exclusion of arbitration.
There might be doubts about arbitrability, and fear that should the doubts be resolved
adversely the statute of limitations might have run. Some issues might be arbitrable,
and others not. The shape of the case might so alter as a result of unexpected
developments during discovery or otherwise that it might become obvious that the
party should be relieved from its waiver and arbitration allowed to proceed. We need
not try to be exhaustive. It is enough to hold that while normally the decision to
proceed in a judicial forum is a waiver of arbitration, a variety of circumstances may
make the case abnormal, and then the district court should find no waiver or should
permit a previous waiver to be rescinded.
50 F.3d at 390-391 (Emphasis in original)(citations omitted).
3
strike the plaintiffs’ jury demand, a protective order, and a confidentiality order. He has also
consented to the jurisdiction of a magistrate judge, thereby allowing me to “conduct any and all
further proceedings in this case, including trial, and order the entry of a final judgment.” [Dkt. #22].
Taken as a whole, the defendant’s actions appear to be inconsistent with an intent to arbitrate. See
Kawasaki Heavy Industries, Ltd., 660 F.3d at 994; Armstrong v. LaSalle Bank Nat. Ass'n, 552 F.3d
613, 616 (7th Cir. 2009).3
If a plaintiff waives the right to arbitrate by proceeding in a judicial forum, that waiver
obviously and necessarily ends the implicit waiver of the right to trial by jury. The same is true of
a defendant who chooses to proceed in the judicial forum chosen by our hypothetical plaintiff
instead of seeking to compel arbitration. In that context, there is no tension between either the
plaintiff or defendant making a demand for a jury trial. But what if our hypothetical defendant – like
the defendant in this case – insists that even though both parties have chosen to proceed in a judicial
forum, the implied waiver of the right to trial by jury inherent in arbitration still binds the plaintiff?
Extended discussion is not needed to show that not only would it be illogical, but exceedingly
inequitable to allow the defendant to insist that an indivisible component of the arbitration
agreement that he, himself, has waived nonetheless continues to be operative against the plaintiff
(who has not made a jury demand in the federal forum).4
Finally, there is the defendant’s central argument that when one looks to the intent of the
contracting parties at the time of the Agreement (as well as to the notes and guaranty), it is
3
The defendant has not conceded that he has waived arbitration. Should he seek arbitration, there will
be time enough to definitively decide the question of his apparent waiver.
4
Under Rule 39(b), Federal Rules of Civil Procedure, issues on which a jury trial are not properly
demanded are to be tried by the court.
4
immediately apparent that any controversies between the parties arising out of the various
undertakings and agreements not be resolved by a jury. Consequently, the argument goes, the
plaintiffs’ jury demand on the claims under the Agreement must be stricken to effectuate that
overarching intent. While Dr. Crossetti is right that in interpreting any contract a court must look
to the parties’ objective intent as shown by the contract’s language, Gore v. Alltel Communications,
LLC, 666 F.3d 1027, 1033 (7th Cir.2012); Board of Directors of Plum Creek Condominium Ass'n
v. Lorman, 2013 WL 3820864, 4 (1st Dist.2013), his conclusion about the parties’ intent in this case
is mistaken.
The intent of the parties in agreeing to arbitration in the Agreement – and that is the
operative document – was that in the event of any dispute arising out of the Agreement, the parties
would forego a judicial forum and have the case resolved pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. Unlike the expansive, express, jury waivers in the
guaranty and notes ( which did not contain an arbitration clause and thus envisioned a judicial forum
for disputes arising out of those undertakings),5 the Agreement’s implicit jury waiver depended on
an arbitration occurring. The Agreement contained not a hint that the right to a jury trial would be
unavailable (i.e. waived) if a dispute proceeded in an Article III forum. Yet, under the defendant’s
construction of the Agreement, that is precisely what would occur even though that result would
5
The waivers in the notes provide: “DEBTOR HEREBY WAIVES HER [or ITS] RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY LEGAL PROCEEDING PERTAINING
TO THIS NOTE.” (Defendant’s Motion, ¶3)(Uppercase in original). The waiver in the Guaranty
– with Dr. Silc as guarantor and Dr. Crossetti as lender – covered “ANY DISPUTE (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
GUARANTOR ARISING OUT OF OR IN ANY WAY RELATED TO THIS GUARANTY, THE
NOTE, OR ANY RELATIONSHIP BETWEEN THE LENDER AND THE GUARANTOR. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE LENDER TO PROVIDE THE
FINANCING HEREIN AND IN THE NOTE.” (Capitalization and parentheses in original).
5
plainly contravene basic contract principles and the Supreme Court’s repeated admonition that
arbitration is a matter of contract, and “courts must ‘rigorously enforce’ arbitration agreements
according to their terms.” American Exp. Co. v. Italian Colors Restaurant, _U.S._, 133 S.Ct. 2304,
2309 (2013); AT&T Mobility LLC v. Conception, _ U.S. _, 131 S.Ct. 1740, 1742 (2011). Accord,
Gore v. Alltel Communications, LLC, 666 F.3d 1027 (7th Cir. 2012).
The defendant’s brief cites not a single case supportive of its argument. Although not cited
by either side, there are cases that have considered the question raised here and have concluded that
a motion to strike a jury demand following a waiver of arbitration must be denied. In Nat'l Iranian
Oil Co. v. Ashland Oil, Inc., 716 F.Supp. 268 (S.D.Miss. 1989), the court said:
It is clear that the implicit waiver of trial by jury in an agreement to
arbitrate constitutes a waiver of the entire litigation process in the
judicial system; if a dispute nevertheless ends up in the courts, it
stands to reason that the litigation is to proceed without an attempt on
the court's part to somehow mimic arbitration. In such cases, the full
judicial process, including any right to a jury trial which may have
existed, becomes available to the parties. To hold otherwise could
lead to such illogical consequences as the denial of the discovery
process in litigation between parties that had agreed to but are
precluded from arbitrating their dispute. Ashland cannot be held to
have waived its right to a jury as to NIOC's claims against it since the
relinquishment of that right was intended only when the parties
expected that there would in fact be arbitration.
Id. at 270 (Emphasis supplied).
World Wide Communications, Inc. v. Rozar, 1998 WL 386413 (S.D.N.Y. 1998) expressly
endorsed Ashland Oil’s reasoning:
We similarly find that to allow [plaintiff, World Wide]
Communications' attempt to “mimic arbitration” by precluding the
jury from considering the counterclaims would be an illogical
consequence where Communications has waived enforcement of the
arbitration clause and where Communications' claims are, in fact,
being litigated in court and are about to be tried to a jury. Indeed,
6
Communications' argument that after it sued in federal court, fully
availed itself of judicial procedures (not normally available in
arbitration), and waived any application to enforce the arbitration
agreement, we should enforce the arbitration clause to deny
[defendant] Networks its jury trial right is indefensible.
1998 WL 386413, 3 (Parenthesis in original).
In sum, if Dr. Crossetti wanted to avoid a jury trial on the plaintiffs’ claims, he was required
to have invoked the arbitration provision in the Agreement and to have moved to compel arbitration.
But he chose not to do so and instead opted to proceed in an Article III forum. He is bound by that
“litigation decision,” with all its attendant consequences. World Wide Communications, 1998 WL
386413, 2. Cf., Crowe ex. rel. Crowe v. Zeigler Coal Co., 646 F.3d 435, 444 (7th Cir. 2011); Abbott
Laboratories v. Takeda Pharmaceutical Co. Ltd, 476 F.3d 421 (7th Cir. 2007); Lynch, Inc. v.
SamataMason Inc. , 279 F.3d 487, 490-492 (7th Cir. 2002); United States v. Upton, 24 Fed.Appx.
564, 565 (7th Cir. 2001).
CONCLUSION
The defendant’s Supplemental Motion To Strike The Plaintiffs’ Jury Demand [Dkt. #37] is
DENIED.
ENTERED:____________________________________
UNITED STATES MAGISTRATE JUDGE
DATE: 7/29/13
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?