Waiver of jury trial provision in a loan agreeement did not apply to tortious interference with contractual relations claim despite broad jury trial waiver provision. KLP Enterprises, LLC v. Sassani, 2019 WL 2548135.
By: Kevin Braun (Morgan Lewis)
KLP Enterprises, LLC (“Lender”) moved to strike the demand for jury trial of Thomas J. Sassani ( “Borrower”) in relation to the Borrower’s counterclaims in an action resulting from Borrower’s default under a loan agreement in a proceeding in the United State District Court for the District of Connecticut.
Borrower was an employee of Zozi (the “Company”), a company in which Lender was an investor. Lender had previously entered into loan agreements with the Company while Borrower was employed there. In March 2016, Borrower approached Lender to secure additional financing for the Company, which was having financial troubles. Lender was unwilling to commit to a new financing unless Borrower would provide personal capital to the Company. Borrower did not have cash on hand to invest in the Company, so Lender proposed that it would lend money to Borrower so that Borrower could invest in the Company. Borrower used Company’s counsel to negotiate the loan agreement between Borrower and the Lender (the “Loan Agreement”) and the related documents. The Loan Agreement was secured by Borrower’s ownership rights in the Company and Borrower’s ownership rights in an unrelated venture. The Loan Agreement included a standard waiver of jury trial provision, which read in pertinent part:
“in respect of any litigation based on, or arising out of, under or in connection with [the Loan Agreement], or any agreement contemplated to be executed in connection with this agreement or any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party with respect hereto.”
Borrower was forced out of the Company by a vote of the Board of Directors, and Borrower alleged that this was brought about by board members controlled by the Lender. The Lender initiated proceedings against the Borrower for defaulting on the Loan Agreement. The Borrower brought four counterclaims and filed a motion of demand for jury trial. Borrower argued that the waiver of jury trial was unenforceable, and in the alternative that the counterclaims did not relate to the Loan Agreement. The court found that the waiver of jury trial was enforceable and that three of the four counterclaims fell within the scope of the waiver.
With respect to enforceability, the court was most concerned with the disparity in bargaining power between the parties. The court reasoned that because Borrower himself was not on the brink of financial ruin, although the Company was, and because Borrower had the ability to comment on the documents that the disparity between the parties was not too great to render the waiver unenforceable. The three counterclaims that fell within the scope of the waiver were (1) breach of the covenant of good faith and fair dealing, (2) breach of the Amended Voting Agreement, and (3) violation of the Uniform Commercial Code. The court reasoned that the first counterclaim arose only out of the Loan Agreement and that the rights underlying counterclaims two and three only existed by virtue of actions permitted by the Loan Agreement.
However, the court found that Borrower’s tortious interference with contractual relations counterclaim did not fall within the scope of the waiver of jury trial. This counterclaim alleges that the Lender interfered with Borrower’s employment contract with the Company by causing the Company to fire the Borrower without justification. The Lender argued that the jury trial waiver should apply to this claim through an “improper motive” theory (Borrower’s claim that Lender fired Borrower to trigger an Event of Default under the Loan Agreement). The court found this argument unpersuasive. The court reasoned that at least one of Borrower’s theories of the counterclaim had no logical connection to the Loan Agreement (e.g., Borrower was fired for requesting medical leave under a California law), and therefore, the claim could be read to arise out of the California law, taking the counterclaim outside the scope of the waiver of jury trial provision in the Loan Agreement.
The court granted Lender’s motion to strike Borrower’s demand for jury trial for 3 of Borrower’s counterclaims and denied the motion to strike with respect to the counterclaim for tortious interference with contractual relations.
