MSCI 2007-IQ16 Retail 9654, LLC v. Dragul

Filing 18

ORDER GRANTING PLAINTIFF'S MOTION TO STRIKE DEFENDANT'S JURY DEMAND (Doc. 10 ). Signed by Judge Timothy S. Black on 7/8/2014. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

MSCI 2007-IQ16 RETAIL 9654, LLC,
Plaintiff,

Case No. 1:14-cv-287

vs.
Judge Timothy S. Black
GARY J. DRAGUL
Defendant.
ORDER GRANTING
PLAINTIFF’S MOTION TO STRIKE DEFENDANT’S JURY DEMAND (Doc. 10)
This civil action is before the court on Plaintiff’s motion to strike Defendant’s jury
demand (Doc. 10) and the parties’ responsive memoranda (Docs. 15, 17).
I.

BACKGROUND FACTS AND PROCEDURAL POSTURE

This is a dispute regarding a defaulted loan. The Royal Bank of Canada (“RBC”)
loaned Defendant Gary J. Dragul $12,900,000.00 for multiple pieces of property,
collectively known as Prospect Square. (Doc. 5 at ¶¶ 4, 5). The loan was secured by a
Promissory Note (“Note”). (Id. at ¶ 4). To secure the obligations under the Note,
Prospect Square executed and delivered a Mortgage Agreement to RBC. (Id. at ¶ 8).
Defendant also executed a Limited Guaranty (“Guarantee”) to induce RBC to make the
loan. (Id. at ¶ 13). The Guarantee provided that, among other things, Defendant agreed
to waive his right to trial by jury in any action or proceeding in connection with the
Guarantee. (Id., Ex. A at 4). Ultimately, the Note was assigned to Plaintiff MSCI 2007IQ16 RETAIL 9654, LLC. (Id. at ¶ 5).

Defendant defaulted on the terms of the Note by failing to make timely payments
and by failing to pay real estate taxes. (Doc. 5 at ¶ 6). Accordingly, Plaintiff accelerated
the maturity of the Note and demanded payment in full of all outstanding amounts. (Id.)
Defendant has not made any payments to date. Accordingly, Plaintiff brought this action,
seeking reimbursement for the real estate taxes, the principal sum, interest fees, and late
fees, totaling $18,768,462.69, as well as interest that has accrued since January 30, 2014.
(Id. at ¶ 7). In its answer, Defendant demanded a jury trial. (Doc. 9 at ¶ 6). Plaintiff
moves to strike the jury demand based on a jury waiver in the Guarantee. (Doc. 10).
II.

STANDARD OF REVIEW

The right to trial by jury is protected by the Seventh Amendment of the United
States Constitution. However, “[i]t is clear that the parties to a contract may by prior
written agreement waive the right to trial by jury.” K.M.C. Co. v. Irving Trust Co., 757
F.2d 752, 755 (6th Cir. 1985).
When a contract contains an express jury waiver provision, the party objecting to
that provision has the burden of proving that its consent to the waiver was not knowing
and voluntary. Id. at 758. The waiver may only be stricken if the party’s consent was
induced by fraudulent misrepresentation. Id. Indeed, an express contractual jury waiver
requires a finding that the jury waiver itself was procured through fraud. Id. at 757. In
such circumstances, if the waiver was in fact predicated upon a misrepresentation, the
jury waiver is not considered “knowing and voluntary” and is unenforceable. Id.

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III.

ANALYSIS

Defendant alleges that the jury waiver provision in the Guarantee was fraudulently
induced. (Doc. 15 at 3). Defendant submitted affidavit testimony alleging that RBC
misrepresented its “fund and hold” commitment and its representation that it would not
transfer, assign, or sell the lending obligation. (Id.) Defendant maintains that he relied
upon RBC’s misrepresentations, and, but for the misrepresentations, he would not have
agreed to waive his right to a jury trial. (Id.)
Courts routinely uphold jury waiver provisions where there is no claim that fraud
procured the jury waiver itself. Unless the jury waiver provision was a point of
contention and negotiation which induced the other party’s consent, the jury waiver
provision is valid. Baumgardner v. Bimbo Food Bakeries Distrib., Inc., 697 F. Supp. 2d
801, 819 (N.D. Ohio 2010) (“where ‘tort claims arise out of and relate to the contract and
the negotiations which led to the contract, it is altogether appropriate to apply the
contractual jury waiver clause’”).
For example, in Chesterfield Exch., LLC v. Sportsman’s Warehouse, Inc., 528 F.
Supp. 2d 710, 711 (E.D. Mich. 2007), Chesterfield, the owner of a new retail plaza,
solicited an agreement from Sportsman’s to lease retail space at the plaza, representing
that an existing Wal-Mart would expand to a Super Wal-Mart and that a Sam’s Club
would also occupy space at the plaza. Id. Later, Chesterfield informed Sportsman’s that
a Sam’s Club would not be built and the Wal-Mart store would not expand. Id.
Sportsman’s alleged that Chesterfield knew both of these facts before it executed the
lease. Id. Sportsman’s then notified Chesterfield of its intention not to perform under the
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lease, and Chesterfield sued. Id. at 712. Sportsman’s counterclaimed, alleging fraud and
demanding a jury trial. Id. Chesterfield moved to strike the jury demand pursuant to the
waiver provision. Id. The court held that “[a]lthough such a waiver may be attacked on
the ground of fraud, the fraud allegation must be well-founded and state that the inclusion
of that particular clause in the contract was the product of fraud or coercion.” Id.
(emphasis in original). 1
Here, similarly, Defendant fails to argue that it relied on fraudulent allegations
pertaining to the jury waiver provision. Even assuming that RBC “misrepresented its
‘fund and hold commitment’ and that it would not transfer, assign, or sell the lending
obligation” (Doc. 15, at 3), such statements are irrelevant to the validity or negotiation of
the jury waiver. Therefore, Defendant’s allegations of fraudulent inducement relating to
the contract as a whole are insufficient to invalidate the jury waiver.
IV.

CONCLUSION

Accordingly, Plaintiff’s motion to strike Defendant’s jury demand (Doc. 10) is
GRANTED.
IT IS SO ORDERED.

Date: 7/8/14

/s/ Timothy S. Black
Timothy S. Black
United States District Judge

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See also Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.2d 171, 188 (2d Cir. 2007) (“We
join the Tenth Circuit [Telum] in holding that unless a party alleges that its agreement to waive
its right to a jury trial was itself induced by fraud, the party’s contractual waiver is enforceable
vis-a-vis an allegation of fraudulent inducement relating to the contract as a whole.”).
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