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High court to take first crack at provisions requiring bench trials

By: Erika Strebel, [email protected]//November 30, 2016//

High court to take first crack at provisions requiring bench trials

By: Erika Strebel, [email protected]//November 30, 2016//

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Attorney Alex Flynn (left) stands with his clients, Taft and Carol Parsons, in front of their home on Stark Street in Milwaukee. Parsons tried to redevelop part of their neighborhood at 46th Street and Hampton Avenue into townhouses, but a contractor and loan officer, both of whom later pleaded guilty to a bank fraud scheme, left them with thousands of dollars in debt and not even a building permit to show for it. The Parsons have sued the bank that issued them the loans for the project in order to recover the money they lost. (Staff photo by Kevin Harnack)
Attorney Alex Flynn (left) stands with his clients, Taft and Carol Parsons, in front of their home on Stark Street in Milwaukee. Parsons tried to redevelop part of their neighborhood at 46th Street and Hampton Avenue into townhouses, but a contractor and loan officer, both of whom later pleaded guilty to a bank fraud scheme, left them with thousands of dollars in debt and not even a building permit to show for it. The Parsons have sued the bank that issued them the loans for the project in order to recover the money they lost. (Staff photos by Kevin Harnack)

Should a jury waiver be deemed unenforceable unless the person who signed it can be shown to have acted in a knowing and voluntary manner? What if the signer, because of his experience and occupation, could be expected to have a certain amount of expertise regarding contracts?

Those are questions the Wisconsin Supreme Court is planning to take up for the first time in a case scheduled for oral arguments on Friday. At its heart, Parsons v. Associated Banc-Corp involves the validity of contract provisions requiring parties to waive their right to a jury trial and instead settle disputes at a bench trial.

The case stems from a lawsuit that two Milwaukee residents, Carol and Taft Parsons, filed in 2011 against Green Bay-based Associated Bank. The couple alleged that the bank should be held liable for the actions of a loan officer who had helped them borrow money for a redevelopment project they wanted to pursue in their neighborhood, near Milwaukee’s Hampton Avenue and 46th Street.

The same bank officer was eventually convicted in federal court of bank fraud for his part in a separate transaction.

Even though the case started with concerns over the construction loan, it has since largely become about whether the Parsons should have to abide by a jury waiver they had to sign in order to borrow the money in the first place.

The Parsons’ plan for their neighborhood was to build 12 townhouses on the block of Milwaukee’s Stark Street where they lived. They wanted to market the properties using the name Stark Street Rowhouses.

The redevelopment proposal came after the couple had enjoyed a successful run of years, boosted in large part by Taft’s career as a structural engineer.

“We thought, why not build something here?” Taft had said.

The couple started their foray into development by securing home-equity and construction loans in August 2003. Their primary lender was State Financial Bank, which has since become part of Associated Bank. Also helping to line up the financing was the vice president of Central City Construction, the general contractor that the Parsons had selected for the project.

The trouble started when the loan officer and the Central City vice president both pleaded guilty in 2011 to federal bank-fraud charges related to a separate redevelopment project, one planned for an area near Fifth and Arthur streets. Their convictions immediately raised suspicions about the Parsons’ own project.

The couple, though, had caught a hint that was something was amiss well before then. Back in 2005, they had learned from the IRS that Central City Construction was under an obligation to pay more than $300,000 to satisfy back taxes and various court judgments. As a result, the Parsons discovered, any money the couple planned to pay Central City should eventually be going to the IRS.

Vacant land around the Parsons’ residence, at 4611 W. Stark St. in Milwaukee, was earmarked to be redeveloped into townhouses.
Vacant land around the Parsons’ residence, at 4611 W. Stark St. in Milwaukee, was earmarked to be redeveloped into townhouses.

Taft showed the letter to the loan officer at State Financial Bank, who eventually called for an immediate payment of the Parsons’ loan. When the Parsons learned of this demand, they had already paid out $30,000 from their $40,000 home-equity loan and $121,000 from their $774,000 construction loan.

To prevent the bank from foreclosing on their house, the couple declared bankruptcy in 2005. Taft now blames that decision, forced by necessity, for his subsequent inability to get government work.

The Parsons’ suit against Associated Bank stems from an attempt to recover the money they lost while trying to keep their house. Three years passed and a date for a jury trial was set.

Only then did Associated Bank note that the paperwork Taft Parsons had signed to get his construction loan had contained a document waiving his right to appear before a jury. Despite the passage of so much time, Milwaukee County Circuit Court Judge Jeffrey Conen later upheld the waiver, finding that Taft Parsons had acted in a knowing and voluntary manner when he signed it.

The District 1 Court of Appeals was of a different mind, though. The three-judge panel found in May that Associated Bank’s three-year delay in raising its objection had been too long. The judges also found that the bank had failed to show any evidence that the Parsons had willingly or voluntarily agreed to waive their right to go before a jury.

What Taft Parsons had in fact signed was a contractual jury waiver, a type of waiver most often found in loan agreements and similar contracts.

Jury waivers are similar to arbitration agreements but not exactly the same. The main difference is that whereas arbitration agreements generally take disputes out of court and place them before independent arbitrators, jury waivers still allow for courtroom proceedings, but only before judges.

There are several reasons why defendants like jury waivers. For one, trials held before a single judge are often much less costly than those conducted before a jury. There is also a widely held belief, true or not, that judges are more likely to side with banks, corporations and other defendants.

Although arbitration agreements have been the alternative dispute-resolution method of choice for companies for years, jury-trial waivers are gaining ground. One reason for the change is the increasing expense of arbitration. What’s more, arbitration outcomes are often considered unpredictable, largely because arbitrators are not subject to the rules of procedure that govern state and federal courts.

Despite the increasing popularity of jury waivers, U.S. courts have generally been disinclined to uphold them. The one exception has been for contracts in which all the parties to a contract have agreed knowingly and voluntarily to seek a resolution from some arbiter other than a jury.

Not all states are in agreement, though. Both Georgia and California have deemed the contract provisions unenforceable. Courts in those states have determined that a jury trial can only be waived by statute, and both states’ constitutions lack provisions allowing for contractual jury waivers.

Texas courts, for their part, have taken the opposite tack and deemed all contractual jury trial waivers enforceable.

In arguments before the Wisconsin Supreme Court, which agreed to hear Associated Bank’s appeal in September, the bank is contending that no matter whether the right to a jury trial arises in Wisconsin from statute or the state constitution, it can be waived. Moreover, the bank contends that Taft Parson’s experiences and occupation have in effect made him a commercial party who can be expected to know more than most people about development contracts.

Associated Bank argues that the enforceability of a jury waiver should not rest on a defendant’s ability to prove that a borrower — particularly a knowledgeable borrower — acted in a knowing and voluntary manner.

The bank is receiving support from several places. The Wisconsin Bankers Association submitted a brief in June urging the Supreme Court to take the case in order to clarify Wisconsin law involving contractual jury waivers and commercial-loan agreements.

Taft Parsons, for his part, is arguing that state law already explicitly lists ways he might have waived his right to a jury trial, had he chosen to do so. He could, for instance, have failed to assert his right to a jury trial before certain procedural deadlines were reached, have stipulated that he wanted a bench trial or failed to pay a jury fee. But, he argues, he did none of those things.

Taft Parsons is further arguing that his position is consistent with state precedents set in cases involving the contractual waiver of rights that are explicitly protected by statute. The Wisconsin Association for Justice, which represents plaintiff attorneys around the state, has submitted a brief in support of the Parsons.

The high court will hear arguments in the case at 10:45 a.m. Friday at the Supreme Court Hearing Room in the state Capitol.

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