Impact Mechanical v. Walsh Const. et al

JURY WAIVER: Defendant failed to overcome presumption against waiver, failed to prove knowing waiver by buried unilateral provision, motion to strike jury demand denied… Molloy.

Impact Mechanical sued to collect $900,000 for work on Rainbow Dam. Walsh Const. counterclaimed against Impact and its associated company IMI Technology. Walsh, PPL Montana, and Travelers Casualty & Surety (“Walsh”) move to strike Impact’s jury demand. They seek to enforce a provision in the subcontractor agreement providing that Impact — and only Impact — “waives its right to a trial by jury in any and all disputes or claims arising out of or in relation to this Agreement.” Impact argues that it did not knowingly & voluntarily agree to the waiver buried in Walsh’s form contract. Walsh project manager Lucas Lowney and Impact VP Jeff Kueffner testified at the evidentiary hearing to their negotiations.

The 7th Amendment guarantees the right to a jury “in Suits at common law, where the value in controversy shall exceed twenty dollars.” That portends a fundamental right guarded by a presumption against waiver. A waiver of a jury in a civil case must be made knowingly & voluntarily. Palmer (9th Cir. 2009). There is a strong federal policy favoring juries in civil actions and the right to a jury in federal courts is a matter of federal law. Simler (US 1963). Even so, since jurisdiction here is based on diversity, the contract is interpreted under state law. Albert (9th Cir. 1959). The paragraph at issue also provides that the contract is to be governed by Montana law — where Rainbow Dam is situated. While Montana law recognizes that a contract may provide jury waiver when it has an arbitration clause, a contractual provision restricting enforcement of contractual rights “by the usual proceedings in the ordinary tribunals” is void. MCA 28-2-708. The parties and Court were unable to find any cases applying 28-2-708 to unilateral contractual jury waivers. Walsh makes the point that if it rendered contractual jury waivers void it would conflict with Montana Art. II §26 which authorizes trial without a jury upon lawful consent of the parties. However, the waiver here was a unilateral condition imposed by “corporate” that was not amenable to negotiation absence corporate counsel’s input. In any event, it is unnecessary to decide whether the unilateral waiver here is void under Montana law because the facts at the hearing show that Impact did not knowingly & voluntarily waive a jury.

4 factors are weighed in determining whether there was a knowing & voluntary waiver: negotiability of contract terms, conspicuousness of the waiver, relative bargaining power, and business acumen of the party opposing the waiver. Cannon (N.D.Cal. 2013). The ultimate question is whether the waiver is “unconscionable, contrary to public policy, or simply unfair.” Id. The facts show that all 4 favor Impact, compelling the conclusion that the unilaterally imposed waiver is unfair.

Negotiations on the subcontract were conducted in several meetings, phone calls, and emails. The only proof about the waiver was that Kueffner read the contract. Walsh contends that nothing was off the table, as evidenced by modification of scope of the work at Impact’s request and a rider containing clarifications to the subcontract. But Kueffner testified that Walsh refused his attempts to negotiate minor changes to how the work was to be performed. Most importantly, it is undisputed that the waiver was never discussed during negotiations. Although Lowney averred that he reviewed all contract documents with Kueffner “page by page,” he admitted he did not review Exh. A and that is the boilerplate language that he said he had no authority to alter absent specific approval by counsel. It was also established that Exh. A was part of Walsh’s form in use since at least 2008. Lowney actually referred to it as “boilerplate” and admitted that in his 6 years of negotiating contracts he had made fewer than 10 changes to it and most of them involved the indemnification clause and he never made changes to the waiver. While he was responsible for negotiating numerous million dollar contracts, he had no authority to make changes to Exh. A. Kueffner testified that the focus of negotiations was on the bond, timing of payments, scope & timing of the work, and safety. He testified that he told Lowney that he was not used to reading large contracts. Lowney replied that it was a standard form contract that all subcontractors were required to sign if they wanted to do business with Walsh. Kueffner admits that he read most of the contract, but focused on provisions describing the work he had to do and he did not really consider the significance of the jury waiver. The hurried reading of a jury waiver, without more, does not overcome the presumption against waiver or prove a knowing & intelligent waiver of a constitutional right.

The only thing that could make the waiver less conspicuous is if it was in fine print in a footnote. It is buried in the 5th sentence of a 6-sentence paragraph, in the 11th article of a 12-article, 8-page exhibit, that is one of 8 exhibits which total over 30 pages. It is not pronounced in any way, it is not set off by bold type, large type, or capitals, and Impact was not asked to initial it or sign the page. This does not rise to the level of proof required to show a knowing & intelligent waiver of a fundamental right.

Lowney’s testimony that he felt Impact’s bargaining power was similar to Walsh’s is belied by the fact that Walsh was a general contractor in charge of 20 subcontractors on a $245 million project, of which Impact’s portion was $1.3 million. It is a bit disingenuous to argue that the bargaining power of a nationwide sophisticated corporation is on the same level as a mom & pop operation committed to finding piece work. Moreover, Kueffner testified that there are half a dozen other companies in Montana that do the same type of work and that performing well would mean more work for PPL. Walsh’s proof on this factor is not persuasive.

Walsh invokes representations on Impact’s website that it has “a combined 57 years of experience in the energy industry” and claims Signal Peak Mine, Conoco Phillips, CHS, Stillwater Mining, and MillerCoors as clients as proof that it is a sophisticated energy player. Walsh also elicited testimony that Kueffner had an attorney review parts of the subcontract, but that he did not ask him to review the unilateral jury waiver. On the other hand, Impact is a relatively small company that Kueffner and his wife started 3 or 4 years before the events giving rise to this suit. Kueffner also testified that Impact had never been involved with a project that descended into litigation. The proof shows that Impact lacks the sophistication & acumen of Walsh when it comes to business practices or contract negotiations.

The essence of Walsh’s argument is that Kueffner read the contract and signed it so he must be bound by it. While that may be enough to bind Impact to an ordinary provision, the unilateral waiver of the 7th Amendment right to a jury is no ordinary provision. Because the first 3 considerations strongly favor Impact and the 4th is neutral or slightly in its favor, the compelling conclusion based on the proof is that Walsh has not met its burden. Unfairness of the waiver is particularly accentuated by the fact that Walsh retained its right to a jury. Walsh’s motion to strike jury demand is denied.

Impact Mechanical v. Walsh Const. et al, 40 MFR 484, 8/8/13.

James Ragain (Ragain Law Firm), Billings and Shane Colton & Joseph Cook (Edmiston & Shermerhorn), Billings, for Impact; Dennis Clarke (Smith, Walsh, Clarke & Gregoire), Great Falls, for IMI; Eric Nord (Crist, Krogh & Nord), Billings, for Walsh, PPL, and Travelers.