Secured lenders involved in litigation in Indiana may know that loan enforcement lawsuits they file never get set for a jury trial. The recent decision in Pringle v. Garcia, 2009 U.S. Dist. LEXIS 47112 (N.D. Ind. 2009) (.pdf) helps explain why.
Jury trial vs. bench trial. A “jury trial” is a “trial of matter or cause before a jury as opposed to trial before judge.” Black’s Law Dictionary. In Indiana, juries consist of six residents of a particular county who are at least 18 years of age. The right to a trial by jury is protected by the Bill of Rights and Indiana’s state constitution. According to Black’s, a “trial by jury” is “a trial in which the issues of fact are to be determined by the verdict of the jury . . ..”
On the other hand, a “court trial” a/k/a “bench trial” is simply a “trial held before [a] judge sitting without a jury; jury waived trial.” In other words, the trial court judge makes determinations of both law and fact and decides the case on his or her own. From a secured lender’s perspective, the conventional wisdom is that cases involving bench/court trials will conclude more quickly and will be resolved more inexpensively than jury trials.
Motion to strike jury demand. In Pringle, the plaintiff filed a complaint against the defendants seeking money damages (under certain loan documents), replevin, the foreclosure of a security interest and the appointment of a receiver. One of the loan documents was a Guaranty and Collateral Agreement, which included a specific provision entitled “Waiver of Jury Trial” that detailed the parties’ expressed waiver of any right to a trial by jury in legal proceedings to enforce the agreement. The defendants filed an answer to the complaint in which they requested a jury trial. The plaintiffs responded by filing a motion to strike the jury demand, claiming that the defendants waived their right to a jury trial under the Guaranty and Collateral Agreement.
Waiver. Here is what Judge Cherry said about the applicable law:
The Seventh Amendment provides a right to jury trial in any civil suit in which the amount in controversy exceeds twenty dollars. U.S. CONST., Amend. VII. However, a party may contract to waive its right to a jury trial without having to show extra negotiation or evidence of voluntariness beyond what is required to make the rest of the contract legally effective . . .. Indiana courts have, however, upheld numerous contractual provisions that, in one way or another, limit the legal avenues available to a party when such provisions are freely negotiated and not unjust or unreasonable. . . .
The Judge found that there was no indication the defendants were unsophisticated parties or that they did not have the opportunity to read the Guaranty and Collateral Agreement. The jury trial waiver provision was written such that it drew more attention to it than the rest of the contract. Moreover, the provision was mutual as to all parties, and the overall agreement itself appeared to be enforceable. As such, the Court held that the waiver of jury trial clause was valid and enforceable since “the agreement to resolve a dispute in a bench trial is no less valid than the rest of the contract in which the agreement appears . . ..” The point here is that, under Indiana law, the constitutional right to a jury trial can be waived in civil cases by a written agreement.
Equitable vs. legal remedy. Without getting too bogged down in legalese, the Pringle case also explains that certain cases by their very nature will not result in a jury trial. “The right to a jury trial embraces all suits in which legal rights are adjudicated, as opposed to actions where equitable rights alone are at issue and equitable remedies are sought.” If an equitable remedy is at issue, there can be no jury trial, regardless of whether it has been waived by agreement. One example of an equitable remedy would be the foreclosure of a real estate mortgage. In Pringle, Count III of plaintiff’s complaint requested the appointment of a receiver, which is “a remedy that is equitable in nature, and defendants have no right to a jury trial on [such] claim.” One example of a legal remedy would be the money damages sought in an action for breach of a promissory note.
Replevin carved out. Pringle had one interesting result. Count II of the plaintiff’s complaint was for replevin and dealt with the foreclosure of a chattel (non-real estate) mortgage. Click here to learn more about replevin in Indiana. The Court noted that, under Indiana law, an action for replevin was an action at law as opposed to an action in equity. Thus the right to a jury trial applied, and the Court declined to strike the jury demand as to that count. I’m frankly not sure why the waiver clause in the Guaranty and Collateral Agreement did not apply to the replevin count, but my assumption is that the Judge concluded the clause did not clearly and unambiguously apply to the replevin aspect of the case.
If lenders want a jury trial waived as to the entirety of their loan enforcement action, the loan documents should spell out very clearly that the borrowers and guarantors are waiving their right to a jury trial as to any and all loan enforcement-related legal proceedings. Such written contract provisions generally are enforceable in Indiana.
