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State’s high court to consider first case involving alternative to arbitration agreements

By: Erika Strebel, [email protected]//December 21, 2016//

State’s high court to consider first case involving alternative to arbitration agreements

By: Erika Strebel, [email protected]//December 21, 2016//

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Attorney Alex Flynn is representing Taft and Carol Parsons in an arbitration agreement case. The Parsons tried to redevelop part of their Milwaukee 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. 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 is representing Taft and Carol Parsons in an arbitration agreement case. The Parsons tried to redevelop part of their Milwaukee 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. 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)

Even as some companies continue using arbitration clauses to push employees and consumers to resolve their cases outside court, others are finding they can achieve the same goals by avoiding going before a jury.

Their main means of doing so are so-called contractual jury-waiver agreements. Similar to arbitration clauses, agreements of this sort prevent legal battles from going through what are still widely considered standard court proceedings, despite their increasing rarity.

The big difference is that, with jury waivers, cases can still go to court. It’s just that it will be a judge, rather than a jury, who will be providing the resolution.

Jury-trial waivers are becoming an ever-more standard presence in loan agreements and in some employment agreements. In Wisconsin, they are often found in commercial-loan agreements.

Their increasing popularity is in part a result of their ability to help defendants avoid the high costs of jury trials. They also are relatively free of what some critics deem the drawbacks of arbitration: inconsistent decisions and higher filing costs.

Nor is arbitration always the time-saver that some lawyers believe it to be. Large commercial cases that go to arbitration have been known to take as long as those that stay in court.

Having become a subject of controversy, arbitration clauses have been heavily litigated in recent years. Jury-trial waivers, in contrast have had to stand up to relatively few challenges. Federal and state courts have generally found them to be enforceable as long as they are entered into knowingly and voluntarily.

This is not to say there are no outliers among states. Georgia and California courts have handed down decisions deeming all jury waivers invalid, while Texas courts have come to just the opposite conclusion.

The U.S. Supreme Court, for its part, has yet to take up a case questioning the validity of jury waivers. And no consensus has yet been reached over who has the burden of proving the agreements are enforceable.

Like the U.S. Supreme Court, Wisconsin’s high court has yet to weigh in on a case testing the validity of jury waivers. It will get its first chance to do so next year in a lawsuit filed in 2011 against Green Bay-based Associated Bank.

The suit, brought by Carol and Taft Parsons of Milwaukee, alleges that Associated Bank should be held liable for the actions of a loan officer who had helped them borrow money in 2003 and 2004 for a redevelopment project they wanted to pursue in their neighborhood, near Hampton Avenue and 46th Street.

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

But their plans proved easier to talk about than carry out. The Parsons soon found that little progress was being made even though they had paid out most of the money they had borrowed to their contractor.

They later learned that their contractor, Central City Construction, owed thousands of dollars to the IRS. The bank demanded repayment, and the Parsons declared bankruptcy to prevent the loss of their home.

The Parsons sued in 2011 in an attempt at recovering the money they had spent trying to keep their home. 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 ruled 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.

Rollie Hanson, a Milwaukee consumer lawyer at the Law Office of Rollie R. Hanson, said the appeals court’s decision was a welcome departure from a fairly recent series of disappointing U.S. Supreme Court cases.

“Wisconsin, I think, is bucking the trend,” he said. “A lot of states are embracing that, but Wisconsin is not.”

How long Wisconsin will remain outside the mainstream will be up to the state Supreme Court, which accepted Associated Bank’s appeal in September.

Banks and financial institutions in the state are watching the case closely, said Mindy Rice, a banking and finance attorney at Husch Blackwell in Milwaukee. The Wisconsin Bankers Association, for instance, submitted a brief in June urging the Supreme Court to clarify Wisconsin’s laws involving contractual jury waivers and commercial-loan agreements.

Rice said many of Husch Blackwell’s larger lending clients favor jury-trial waivers over other sorts of alternative dispute resolutions. One reason for this preference is that it gives them more certainty that the terms of loan documents will be respected.

“There’s a pretty clear nationwide trend that jury trial waivers generally are enforceable if given knowingly and voluntarily,” Rice said. “And I would hate to see Wisconsin go down a path that did not join that majority, because it is something that commercial parties and lenders would have concerns about.”

Briane Pagel, a consumer litigator at Kerman & Dunn, said it seems unlikely that the state Supreme Court will side with Taft Parsons, especially since he was trained as a structural engineer and thus could be expected to have a certain amount of expertise.

“I think this is a very hard case to defend,” he said. “The Wisconsin Supreme Court is going to look at, ‘Can we let people out of written contracts in a commercial context if all they argue is that they were not aware or had no choice?’”

Hanson countered that the conservative bloc that now dominates Wisconsin’s Supreme Court might be disinclined to go along with so strict an interpretation. Contract law, he said, still requires a meeting of the minds, even when both parties to a deal have some expertise.

“In the commercial arena you still want people to know what they are doing,” he said. “If the jury trial waiver was not knowing and voluntary, there’s a pretty strong argument to throw it out.

Yet, if you’re going to have a court that says if you signed it, it’s in the paperwork, you didn’t read it, tough. That could be kind of a hard sell to some of the judges up there.”

Pagel says he also thinks the Wisconsin Supreme Court will use the Parsons case to clear up certain “squishy” precedents concerning the doctrine of unconscionability, which calls on courts to examine whether an agreement was unreasonably unfair to a party.

Current case law makes it hard for litigants to know whether a judge is likely to agree with arguments contending that a particular contract was unconscionable, he said. Pagel predicted the justices will make it difficult for lawyers to win with arguments alleging unconscionability.

“I can definitely see them doing that given the current makeup of the court,” he said.

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