The Wisconsin Constitution guarantees the right to jury trial, even for civil litigants. Art. I, § 5. It also expressly provides for the waiver of that right “in the manner prescribed by law.” Id. In Parsons v. Associated Banc-Corp., No. 2014AP2581, slip op. (Wis. Ct. App. May 10, 2016), the Wisconsin Court of Appeals illuminated, for the first time, the contours of that right and the considerations relevant to the issue of waiver in civil litigation.
Parsons arises from a residential development project gone awry. The allegations are alarming and complex. For our purposes, a quick overview will suffice. Taft Parsons, Jr. and his wife, Carol, sought to convert a block of dilapidated houses in their Milwaukee neighborhood into new townhouses. They hired a general contractor, who helped them arrange financing through State Financial Bank. Months after the financing was approved, the bank’s loan officer, Aaron Moeser, demanded Mr. Parsons sign a packet of forms without fully reviewing them or consulting an attorney.
Taken together, the forms in the packet authorized the bank—rather than the Parsons—to approve disbursements from the construction loan and imposed a mortgage on the Parsons’ home to secure the $774,000 construction loan. For several years, Moeser approved—over Mr. Parsons’ objections—payments to the contractor, though no construction work was completed. In 2005, the bank terminated the construction loan. The Parsons were stuck with the bill for the portion of the construction loan that had been paid out. When they couldn’t pay, the bank sought to foreclose on the Parsons’ home.
In 2011, the Parsons filed suit against Associated Bank, which had acquired State Financial Bank. The suit alleged that Moeser, in coordination with the general contractor and another individual, had engaged in a pattern of illegal racketeering activity and that the bank had been negligent in hiring, training, and supervising Moeser. The Parsons demanded a jury trial.
Three years into the litigation, at the third pretrial conference, the bank raised an objection and subsequently filed a motion to strike the jury demand. As a basis, the bank pointed to the promissory note Mr. Parsons had signed at Moeser’s insistence, which included a provision stating that the Parsons “voluntarily, knowingly, irrevocably, and unconditionally waive[d] any right to have a jury participate in resolving any dispute (whether based upon contract, tort, or otherwise) between or among the borrower and the lender arising out of or in any way related to this document, any other related document, or any relationship between the borrower and the lender.” Id., ¶8.
The circuit court granted the bank’s motion. The court of appeals authorized an immediate appeal and, in its decision issued this week, held that the Parsons are entitled to a jury trial in their suit against the bank. The court of appeals decision contains three major holdings.
First, a party’s right to choose whether facts will be determined by a jury or a judge can be waived or forfeited if not timely invoked. The court noted that “our constitution, by its plain language, permits the waiver of even a constitutionally guaranteed right to a jury trial in a civil case.” Id., ¶16. The court appeared to acknowledge that a party’s right to a bench trial rather than a jury trial—as where the parties have agreed to such a procedure—is just as fundamental as the right to a jury trial. See id., ¶21. But that right is also just as waivable. Wis. Stat. §805.01 sets out the procedure for demanding a trial by jury or to the court and provides that failure to follow that procedure “constitutes a waiver.” The court of appeals deemed it undisputed that “the Parsons properly asserted their right to a jury trial.” Id., ¶18. But, the court held, under §805.01, the bank had an obligation to raise the waiver issue and assert its right to a bench trial at or before the first scheduling conference. Id., ¶19. The bank’s three-year delay in objecting “was a forfeiture of any right the bank may have had to a court trial.” Id., ¶22. Moreover, the bank’s failure to object to the Parsons’ jury demand for three years prejudiced the Parsons and estopped the bank from changing its position and claiming, years later, an entitlement to a bench trial.
Second, contractual provisions waiving the right to a jury trial in advance of litigation are unenforceable unless both parties had actual knowledge of the meaning and import of the agreement. The court of appeals noted that “whether the right to a jury trial may be contractually waived prelitigation” has not been addressed by Wisconsin courts. Id., ¶24. In the absence of direct precedent, the court of appeals analogized to two cases. Brunton v. Nuvell Credit Corp., 2010 WI 50, held that a party could contractually waive venue in a consumer credit case. But the party seeking to enforce the contractual waiver had to show that: “(1) the opposing party had actual knowledge of the place of proper venue; (2) the opposing party had actual knowledge of the right to dismissal of an improperly venued action; and (3) the opposing party intentionally relinquished those rights.” Parsons, ¶28 (citing Brunton, ¶¶36-37). The court of appeals deemed the Brunton test applicable in the context of a waiver of jury trial. To help translate Brunton’s actual-knowledge requirements to the jury-waiver context, the court pointed to factors enumerated in Whirlpool Financial Corp. v. Sevaux, 866 F. Supp. 1102, 1105 (N.D. Ill. 1994), as “reasonable, though not exclusive, measures of whether a waiver [of the right to a jury trial] was in fact knowingly and voluntarily made.” Parsons, ¶31. The Whirlpool factors include the extent of negotiations over the waiver provision, the conspicuousness of the provision, the parties’ relative bargaining power, and whether the waiving party had the opportunity to consult counsel in advance of agreeing to the waiver. See id., ¶26. The court of appeals pointedly assessed the record as lacking proof that Mr. Parsons had actual knowledge of the content and import of the waiver provision contained in the promissory note.
Finally, a waiver of the right to a jury trial may be unconscionable, which renders it unenforceable, regardless of the parties’ actual knowledge. “‘Unconscionabiity has often been described as the absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party.’” Id., ¶33 (quoting Wisconsin Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶32). The court of appeals found the waiver at issue procedurally unconscionable, despite Mr. Parsons’ age, education, intelligence, and business acumen, because those factors “made no difference to the situation” as a result of “threats from Moeser to pull the construction loan and leave the Parsons with tremendous debt and nothing to show for it.” Id., ¶35. And the court found the waiver—which “literally renders meaningless the Parsons’ constitutionally and statutorily protected right to a civil jury trial”— substantively unconscionable because “[t]he bank gave up nothing of value” in return. Id., ¶¶37-38. Because the bank was the more powerful party and it alone benefited from the waiver, the court of appeals held the waiver unenforceable. This ruling renders unnecessary any further factual development in the circuit court about whether the parties had actual knowledge of the waiver and its consequences.
These three holdings in the Parsons decision provide significant guidance for parties considering or confronting waivers of the right to a jury trial. Parsons makes clear that a contractual waiver of the right to a jury trial does not excuse compliance with the procedural requirements of Wis. Stat. §805.01. It assigns a heavy burden to a party seeking to enforce such a waiver. And it shows that, where the parties had unequal bargaining power, waivers of the right to a jury trial may be viewed skeptically—and even struck down—by the courts. Any party that wishes to include a waiver of the right to a jury trial in a contract should review Parsons carefully to formulate that provision—and document the negotiation process—in ways that could prove useful should the provision ever be litigated.