In re Lifetrade Litigation

Background

The plaintiffs are investors in three Lifetrade funds. The funds invested in life-insurance policies and later obtained financing from a Wells Fargo predecessor. In 2012, after the funds could not secure long-term financing and faced repayment obligations, the parties reached a settlement. Wells Fargo acquired the funds’ assets, and the settlement released the funds and certain individuals from liability.

The settlement also contained a jury-trial waiver stating that each party irrevocably waived any right to a jury trial in proceedings arising from or related to the settlement documents, transaction documents, or other connected documents. The plaintiffs later alleged that the assets transferred to Wells Fargo were worth more than the debt and sought to recover their losses.

Judge James Oetken had previously dismissed most of the plaintiffs’ claims against Wells Fargo but allowed two derivative claims to continue: a claim that the settlement was unconscionable, meaning unfairly imposed, and a claim that Wells Fargo aided and abetted alleged breaches of fiduciary duty by Roy Smith and Marcum. The earlier ruling held that the settlement’s release provision could not bar those claims to the extent the release resulted from a fiduciary breach that Wells Fargo knowingly aided.

Motions and arguments

The plaintiffs moved to designate the action for a jury trial under Federal Rule of Civil Procedure 39(a). The Wells Fargo Defendants cross-moved to enforce the contractual jury waiver. The parties agreed that both remaining claims arose from the 2012 settlement and fell within the waiver’s language.

The plaintiffs argued that the earlier ruling invalidating application of the release provision also made the jury waiver unenforceable. They alternatively argued that the waiver was not negotiable and resulted from radically unequal bargaining power. They also argued that the remaining claims were legal claims for purposes of the Seventh Amendment, which protects the civil jury-trial right.

Wells Fargo argued that the waiver was enforceable because it was made knowingly, intentionally, and voluntarily. The plaintiffs did not claim that the jury waiver itself was induced by fraud or was unconscionable, although they challenged the settlement and described the waiver as coerced.

Court’s analysis

The court explained that contractual jury waivers are enforceable when made knowingly, intentionally, and voluntarily. It considered four factors: whether the provision was negotiable, whether it was conspicuous, the parties’ relative bargaining power, and the business experience of the party opposing the waiver.

First, the court found that the waiver was negotiable and that Lifetrade had not attempted to negotiate it specifically. Lifetrade was represented by counsel and had negotiated changes to other provisions of the settlement. The court also noted that Lifetrade had negotiated numerous amendments and extensions to its loan agreement, negotiated provisions of the settlement, and that one Lifetrade fund had entered other agreements with Wells Fargo containing jury waivers.

Second, the court found that Wells Fargo had a stronger bargaining position, but that the imbalance was not so great as to make the waiver involuntary. Lifetrade was a sophisticated corporation represented by prominent law firms, and Marcum and Smith were described as educated and business-savvy. The court stated that unequal bargaining power alone was insufficient to invalidate the waiver.

The court rejected the plaintiffs’ argument that the earlier ruling concerning the release provision also invalidated the jury waiver. The earlier ruling addressed a release that could prevent the plaintiffs from bringing claims at all. A jury waiver, by contrast, changes only the way claims are tried and does not prevent liability from being imposed.

Because the plaintiffs did not challenge the jury waiver itself as fraudulently induced or unconscionable, the court held that the waiver was enforceable. Having reached that conclusion, the court did not decide whether the remaining claims were legal or equitable in nature.

Disposition

The court denied the plaintiffs’ motion to designate the action as triable to a jury at ECF No. 1052 and granted the Wells Fargo Defendants’ cross-motion to enforce the jury-trial waiver at ECF No. 1075.