A state appeals court has found that the developers of a Milwaukee townhouse project could not sign away their right to appear before a jury in a lawsuit against the bank that had provided loans for the project.
The District 1 Court of Appeals decision Tuesday stems from a home-equity loan and construction loan Taft and Carol Parsons obtained from State Financial Bank, which is now Associated Banc Corp. The money was to finance the construction of the final half of a Milwaukee townhouse project named the Stark Street Rowhouses.
The Parsonses had plans, in 2002, to convert various rundown houses in their neighborhood into a row of 12 townhouses. The couple completed six townhouses, including one that replaced their own house.
The loans involved in Tuesday’s decision were for the construction of six more townhouses. The construction loan was for $774,000, and the home equity loan for $40,000.
Despite securing the money, the general contractor for the project, Central City Construction Inc., never started any of the work. Later, Taft Parsons was forced to sign additional loan documents that gave only the bank and title company the ability to approve the contractor’s requests for project money. Although Central City Construction never did any work, it continued to receive money over Taft Parsons’ objections.
The bank’s loan officer only stopped the payments after Taft Parsons had forwarded him information showing that Central City owed more than $300,000 in taxes to the Internal Revenue Service and had yet to pay various court judgments. The Parsonses had to pay back the money the contractor had taken for the project.
They sued Associated Banc in 2011, alleging the bank had been negligent and complicit in racketeering by employing the loan officer managing the townhouse project. That officer, the plaintiffs noted, had been convicted in federal court over a loan scandal.
Three years into the lawsuit, Associated Banc tried to stop it from going to trial. The bank contended that the Parsonses had waived their right to a trial because Taft Parsons had signed a loan document containing a provision waiving the right to bring any related claim before a jury.
In 2014, Circuit Court Judge Jeffrey Conen sided with the bank, finding the waiver precluded the Parsonses from asking for the jury trial.
The Parsonses appealed, arguing that the provision was not enforceable. They argued it denied the Parsonses their state constitutional right to a jury trial.
Even if the provision trumped the Wisconsin Constitution, they argued that it could not be enforced. Taft Parsons, they explained, had been under threat when he signed the loan documents and therefore had not voluntarily agreed to the provision.
The three-judge panel that makes up the District One Court of Appeals sided with the Parsonses on Tuesday, reversing Conen’s decision and sending the case back to Milwaukee County Circuit Court.
The appeals court held that the bank had failed to show that the Parsonses had actual knowledge that they were giving up their right to a jury trial. To stand up under legal scrutiny, actual knowledge had to be established using a series of factors laid out by the Wisconsin Supreme Court in Brunton v. Nuvell Credit Corp.
In that case, the court decided that a party could contractually waive venue in a consumer-credit case only if certain criteria were met. Among the things that must be established are that the party had actual knowledge of the place of venue and had intentionally relinquished the right to appear in that venue.
In the Parsons’ case, the appeals court found that the couple had not had enough time to read the 30-page loan document they were presented and that they had been made to sign under threat.
Meanwhile, the court ruled the jury waiver unenforceable because it was both “substantively and procedurally unconscionable.” Although Taft Parsons was an engineer, the court held that there had been no “meeting of the minds” such as is required to create an enforceable contract. The loan officer, the court explained, had threatened to pull the construction loan when Taft Parsons raised objections.
Moreover, the court found the waiver was unreasonably favorable to Associated Banc. The judges noted that the Parsonses, in signing the waiver, had given up significant rights regardless of the nature of their complaint. The bank, in contrast, gave up “little or nothing of value.” Follow @erikastrebel