Contractual Jury Waivers in Trust and Estate Litigation in Texas

Originally published by David Fowler Johnson.

I. Introduction

Individuals execute trusts and wills to determine how certain assets are to be managed and distributed. Those same individuals may want to have some control over the dispute resolution process for any conflicts that arise in the future. Specifically, an individual may want to keep disputes in the court system, but want to waive all parties’ rights to a jury trial. A jury-waiver clause can potentially waive a party’s right to a jury trial and require that all disputes be resolved by a judge. This clause has been enforced in Texas in contract and tort-related disputes. There are issues, however, in enforcing these clauses in trust and estate litigation where all of the relevant parties rarely sign a document that contains the clause.

II. Jury Waivers Compared To Arbitration Clauses

A jury waiver is a provision that expressly states that the parties waive their right to a jury should a dispute arise between them. If a dispute arises, one party could sue the other in court, but neither party would have the option to request a jury to determine the outcome. The judge sits as the finder of fact. Of course, this would seem to conflict with a party’s constitutional right to a jury trial. See Tex. Const. Art. I, § 15 (“The right of trial by jury shall remain inviolate.”); Tex. Const. Art. V, § 10 (granting right to jury trial in district courts). Yet, Texas courts, and almost all other jurisdictions, have held that contractual jury waivers are permissible and enforceable under certain circumstances.

A natural question is why a party would choose to use a contractual jury waiver as compared to an arbitration clause. Arbitration clauses may not be such a good idea for some disputes. There are multiple reasons for this, but a few are as follows. Arbitrations are not as inexpensive as advertised. The parties have to pay the arbitrator(s), and this can be very expensive depending on the expertise required. The parties still do discovery, and it is normally about as expensive as regular litigation. Moreover, arbitrators have an incentive to keep the arbitration going, and therefore, do not generally grant pre-hearing dispositive motions. Judges do not have that incentive, and at least in Texas, grant partial or complete summary judgments on a regular basis. So, if a party is in an arbitration, an evidentiary hearing will most likely be required, which will be expensive and uncertain in outcome. In a court of law, that may not be the case. Also, and importantly, in an arbitration there is basically no appellate review. An arbitrator’s decision is almost impossible to overturn no matter the facts or the law. In a court of law, there is an appellate remedy to correct the insufficiency of evidence and the incorrect application of law.

As a result, parties are turning to the alternative of the contractual jury waiver. These clauses are recognized in federal courts and most state courts. This eliminates the uncertainty of a runaway jury finding, but preserves other rights that exist in a court of law. When coupled with a forum-selection clause and venue provisions, a party may be able to eliminate the risk of being in an unfavorable jurisdiction or area of a jurisdiction as well.

III. Texas Courts Have Enforced Arbitration and Forum-Selection Clauses in Trust Disputes

Texas courts have enforced arbitration and forum-selection clauses in trust disputes. The Texas Supreme Court held that an arbitration clause was enforceable in a trust dispute. Rachel v. Reitz, 403 S.W.3d 840 (Tex. 2013). The Court did so for two primary reasons: 1) the settlor determines the conditions attached to her gifts, which should be enforced on the basis of the settlor’s intent; and 2) the issue of mutual assent can be satisfied by the theory of direct-benefits estoppel, so that a beneficiary’s acceptance of the benefits of a trust constitutes the assent required to form an enforceable agreement to arbitrate. See id. See Saks v. Rogers, No. 04-16-00286-CV, 2017 Tex. App. LEXIS 6923 (Tex. App.—San Antonio July 26, 2017, no pet.) (court of appeals rejected a trust beneficiary’s challenge to a trial court’s enforcement of an arbitration decision); Archer v. Archer, No. 05-13-013410-CV, 2014 Tex. App. LEXIS 6551 (Tex. App.—Dallas June 17, 2014, no pet.) (court held that arbitration clauses in trusts are enforceable, but refused to enforce arbitration where the clause was not a mandatory clause). A Texas court has enforced a forum-selection clause in a trust dispute. In re JP Morgan Chase Bank, N.A., No. 05-17-01174-CV, 2018 Tex. App. LEXIS 1883 (Tex. App.—Dallas March 14, 2018, original proceeding). Courts do not require any conspicuousness requirements for the enforcement of these clauses and do not require that the parties prove that they were entered into knowingly and voluntarily. Indeed, all presumptions are implied in favor of arbitration.

IV. Standards for Enforcement of Jury Waivers

In In re Prudential, the Texas Supreme Court held that contractual jury waivers were enforceable. 148 S.W.3d 124 (Tex. 2004). The Court analogized contractual jury waivers to arbitration agreements and forum-selection clauses, and held that such clauses were less imposing on a party’s rights than an arbitration clause. The Court held that such an agreement would be enforceable:

[A] waiver of constitutional rights must be voluntary, knowing, and intelligent, with full awareness of the legal consequences. We echo the United States Supreme Court’s admonition that ‘waivers of constitutional rights not only must be voluntary but must be knowing, intelligent acts done with sufficient awareness of the relevant circumstances and likely consequences.’ Under those conditions, however, a party’s right to trial by jury is afforded the same protections as other constitutional rights.

Id. Therefore, the Court found that a contractual jury waiver had to be entered into knowingly and voluntarily.

In In re GE Capital, the Court followed up the In re Prudential opinion by once again granting mandamus relief to enforce a contractual jury waiver. 203 S.W.3d 314, 316-17 (Tex. 2006). The Court held that “a conspicuous provision is prima facie evidence of a knowing and voluntary waiver and shifts the burden to the opposing party to rebut it.” Id.

In In Re Bank Of America, N.A., the Texas Supreme Court granted mandamus relief and ordered the court of appeals to enforce the trial court’s order enforcing the contractual jury waiver. 278 S.W.3d 342 (Tex. 2009). The Court disagreed with the court of appeals’s inference that a contractual jury waiver was not enforceable. Id. The Court first held that a presumption against waiver would violate the parties’ freedom to contract. The Court held that “a presumption against contractual jury waivers wholly ignores the burden-shifting rule” previously found by the Court that “a conspicuous provision is prima facie evidence of a knowing and voluntary waiver and shifts the burden to the opposing party to rebut it.” Id. Courts presume that “a party who signs a contract knows its contents.” Id. Therefore, the Court concluded that “as long as there is a conspicuous waiver provision, Mikey’s Houses is presumed to know what it is signing.” Id.  Interestingly, the Court noted that if the party opposing the jury waiver had alleged fraud with regard to the jury waiver provision, that it would have shifted the burden to the party seeking to enforce the jury waiver to establish a knowing and voluntary waiver: “As for the extent of the allegation that would be necessary to shift the burden to Bank of America to prove knowledge and voluntariness, an allegation could be sufficient to shift the burden if there is fraud alleged in the execution of the waiver provision itself.” Id.

Several courts of appeals have addressed contractual jury waivers. Some courts treat jury waivers the same as arbitration and forum-selection clauses. One court has held that contractual jury waiver provisions are enforced like any other contractual clause, including an arbitration clause. In re Wild Oats Mkts., No. 09-09-00031-CV, 2009 Tex. App. LEXIS 2316 (Tex. App.—Beaumont Apr. 2, 2009, orig. proceeding). That court stated: “In its response, Kuykendahl suggests arbitration cases are treated more favorably than other contractual jury waiver cases. We disagree.” Id. at n. 1. Ultimately, the court denied the petition for writ of mandamus because the plaintiff was not a signatory to the agreement, and though potentially available, direct-benefits estoppel did not apply due to the facts of the case. See id. Other courts have enforced jury waivers and held that they were the same as arbitration agreements. See, e.g., Great Hans, LLC v. Liberty Bankers Life Ins., No. 05-17-01144-CV, 2019 Tex. App. LEXIS 2111, 2019 WL 1219110 (Tex. App.—Dallas Mar. 15, 2019, no pet.); In re MCO Mgmt., LLC, No. 05-17-00882-CV, 2018 Tex. App. LEXIS 2180 (Tex. App.—Dallas March 27, 2018, original proceeding) (all clauses construed the same); In re Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 885–887 (Tex. App.—Houston [14th Dist.] 2012, orig. proceeding) (court decided that both enforcement and scope of jury waiver should be determined in same manner as other dispute resolution agreements, such as forum selection clauses and arbitration clauses); In re Key Equipment Fin. Inc., 371 S.W.3d 296, 301 (Tex. App.—Houston [1st Dist.] 2012, orig. proceeding) (contractual jury waiver deserves no more scrutiny than agreement to waive judicial forum and arbitrate future dispute).

Other older courts of appeals’s opinions have not been as friendly to the enforcement of contractual jury waivers. For example, in Mikey’s Houses, LLC v. Bank of America, N.A., the Fort Worth Court of Appeals found that a trial court erred in enforcing a contractual jury waiver because the defendant did not prove that it was entered into voluntarily and knowingly.  232 S.W.3d 145 (Tex. App.—Fort Worth 2007, no pet.), rev’d by mandamus, In re Bank of America, N.A., 278 S.W.3d 342, 344–346 (Tex. 2009). In In re Credit Suisse First Boston Mortgage Capital, L.L.C., the Houston Fourteenth Court of Appeals similarly refused to enforce a contractual jury waiver. 257 S.W.3d 486 (Tex. App.—Houston [14th Dist.] 2008, orig. proceeding). The court stated that because the clause expressly only applied to the signatories, the non-signatory defendant could not enforce the provision, and also held that it would not apply equitable estoppel in the context of contractual jury waivers. Id.

Most recently, the Texas Supreme Court held in In re Frank Kent Motor Co., that an employer can require an employee to sign a jury waiver in fear of termination without that constituting coercion. 361 S.W.3d 628 (Tex. 2012). The Court held:

There is no reason to treat the effect of the at-will employment relationship on a waiver of jury trial differently from its effect on an arbitration agreement. Arbitration removes the case from the court system almost altogether, and is every bit as much of a surrender of the right to a jury trial as a contractual jury waiver. Additionally, refusing to allow the enforcement of jury trial waivers in the context of the at-will employment relationship would create a practical problem. Since employers can fire at-will employees for almost any reason, employers could resort to firing all employees when they wanted to implement new dispute resolution procedures and rehiring only those employees who signed the waiver.

Id. at 632. The Court concluded: “An employer’s threat to exercise its legal right [to fire an employee for any reason] cannot amount to coercion that invalidates a contract.” Id.

There is no question that contractual jury waivers are enforceable in Texas under the right circumstances. The issue facing Texas courts is whether the clause is something different from an arbitration clause or a forum-selection clause and thus should be judged by different standards. Does Texas law require a conspicuous jury waiver clause? Does the clause have to be entered into by both parties on a knowing and voluntary basis? If so, whose burden is it to prove a knowing and voluntary waiver? Are there any presumptions in favor of or against jury waivers? What factors will Texas Courts look to in determining a voluntary and knowing waiver?

The opinion in In re Bank of America could be read narrowly. Just as the Court determined in In re General Electric, the jury-waiver clause was conspicuous, and therefore, the burden was on the party opposing the waiver to prove that it was not entered into knowingly and voluntarily. The Court did not deal with a non-conspicuous clause and did not expressly hold that the party opposing a non-conspicuous clause would have that initial burden of proving a knowing and voluntary waiver. Further, the holding in In re Frank Kent Motor Co., that jury waivers should be treated the same as arbitration clauses specially dealt with the issue of whether an employer coerced an employee by requiring the employee to sign the agreement containing the clause in order to maintain employment. The Court did not address with the issue of conspicuousness or burden to prove a knowing and voluntary waiver. Therefore, there is still a question as to whether the burden of proving a knowing and voluntary waiver is on the party attempting to enforce a non-conspicuous jury-waiver clause.

Another issue is the application of choice-of-law clauses on the interpretation and enforcement of jury wavier clauses. For example, it is not uncommon for dispute resolution clauses to also provide that all of the contractual clauses will be construed by a foreign jurisdiction’s law. Where the issue has been raised, some courts hold that dispute resolution clauses are to be construed under the law of the forum on which the parties have contractually agreed. Lost Maples Gen. Store, LLC v. Ascentium Capital, LLC, No. 14-18-00215-CV, 2019 Tex. App. LEXIS 3549, 2019 WL 1966671 (Tex. App.—Houston [14th Dist.] May 2, 2019, no pet.) (contractual jury waiver); Hooks Indus., Inc. v. Fairmont Supply Co., No. 14-00- 00062-CV, 2001 Tex. App. LEXIS 2568 (Tex. App.—Houston [14th Dist.] April 19, 2001, pet. denied) (not designated for publication) (court interpreted contract with forum-selection clause under law designated by parties). Determining how a foreign country would interpret or enforce a clause may require the admission of evidence. Under Texas Rule Evidence 203, a trial court may consider affidavits in determining the law of a foreign nation. Tex. R. Evid. 203; Dankowski v. Dankowski, 922 S.W.2d 298, 302-03 (Tex. App.—Fort Worth 1996, writ denied). A trial court will likely not abuse its discretion in believing one credible expert witness over another. See Phoenix Network Techs. Ltd. v. Neon Sys., Inc., 177 S.W.3d 605, 618 n. 15 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (in the context of whether a foreign jurisdiction would enforce a forum-selection clause, a trial court did not abuse discretion in being advised on foreign law by one party expert’s affidavit over the opponent’s expert’s affidavit). Accordingly, if a trust or will designates the law to use in construing the document, a court should use that law to determine the enforceability and scope of a jury waiver provision.

V. Jury Waivers in Trust and Estate Litigation

One Texas court enforced a contractual jury waiver in a trust document, largely on the basis that the beneficiary waived her complaint. Laven v. THBN, LLC, No. 14-13-00440-CV, 2014 Tex. App. LEXIS 13281, 2014 WL 6998098 (Tex. App.—Houston [14th Dist.] Dec. 11, 2014, no pet.) (mem. op.). In this case, the plaintiff anticipated difficulty making mortgage payments on her recently-purchased suburban home. She and an entity executed multiple documents which accomplished the following: created a land trust; transferred the home into the trust, subject to the existing mortgage; assigned her interest in the trust to the entity; and gave an individual power of attorney relative to the property. The entity and its representative, both individually and as trustee, filed suit requesting a declaratory judgment that the documents were valid and enforceable. The defendant filed a counterclaim, alleging fraud, breach of fiduciary duty, negligence and gross negligence, violations of the Texas Deceptive Trade Practice Act and Texas Real Estate Licensing Act, conspiracy, and conversion. The defendant timely filed a jury demand. The plaintiff moved to strike the demand on the ground that the defendant contractually waived her right to a jury trial. The trial court signed an order striking the jury demand as to the entire case. Therefore, trial was to the bench. After hearing evidence, the trial court signed a judgment, declaring the documents are valid and enforceable and awarding attorney’s fees to appellees and also denying relief on the counterclaims. The defendant appealed on the basis that the trial court improperly enforced the jury waiver in the trust document.

The court of appeals held:

Parties may contractually agree to waive their constitutional right to a jury trial. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 132 (Tex. 2004). A contractual jury waiver is enforceable as long as the waiver is voluntary, knowing, and made with full awareness of the legal consequences. Id.

Id. The court noted:

The provision on which appellees relied as a contractual jury waiver is contained in only one of the documents executed during the transaction, entitled “Agreement and Declaration of Trust,” which created the trust and appointed Arnold as trustee and Laven as original beneficiary. Only Laven and Arnold, as trustee, signed that document. It was executed immediately before other pertinent documents transferring Laven’s interest in the trust to THBN and transferring the property into the trust. The following language is included within a section of the “Agreement and Declaration of Trust” entitled “Governing Law”: “The parties herein waive trial by jury . . . .”

Id.

The defendant contended that (1) the trial court erred by striking the jury demand as to “THBN and Arnold individually because they were not signatories to the ‘Agreement and Declaration of Trust,’” and (2) the jury waiver was unenforceable as to all appellees because she was not fully aware of its legal consequences when she signed the “Agreement and Declaration of Trust.” Id. In support of her second issue, she argued that she was a teacher at the time of the transaction (although she subsequently became a lawyer), there was a disparity in bargaining power, she was not given the opportunity to negotiate terms or consult counsel, and the jury waiver was inconspicuous.

The court of appeals did not decide these issues, rather, it concluded that the defendant failed to preserve error on her appellate complaints because she did not present them to the trial court. The court noted: “In her response, Laven did make a specific objection, but it was distinctly different than the complaint she raises on appeal. The objection did not in any manner inform the trial court that Laven opposed enforcement of the jury waiver because it was applicable to Arnold as trustee only, nor was such a complaint apparent from the context.” Id. She first advanced such complaints in a motion for new trial, but the court concluded “that her presenting this new ground to attack enforcement of the contractual jury waiver after the trial court had conducted a bench trial was not a timely objection.” Id.

With respect to her second issue, the court held:

Texas law does not impose a presumption against contractual jury waivers; therefore, the party seeking enforcement does not bear the burden to prove that the opposing party agreed to waive its constitutional right to a jury trial knowingly, voluntarily, and with full awareness of the legal consequences. A conspicuous jury waiver in an agreement shifts the burden to the opposing party to rebut that the waiver was made voluntarily, knowingly, and with full awareness of the legal consequences. In response to the motion to strike, Laven did not assert the jury waiver was inconspicuous and thus that appellees failed to meet their burden to enforce the provision. Moreover, Laven failed to complain in her response that the jury waiver was not knowing or voluntary and she did not understand its legal effects, much less present evidence supporting such a contention. As stated above, the only ground on which Laven opposed enforcement of the jury waiver was the timing of the motion to strike.

Id. In summary, because she did not preserve error on her appellate challenges to enforcement of the jury waiver, the court of appeals overruled her appellate issues and affirmed the trial court’s judgment.

An important note about this case is that the beneficiary actually signed the trust document. This was not a typical private trust, but rather was a part of a business transaction. The trustee and beneficiary signed a number of documents, including the trust document. So, the many issues involving a trustee attempting to enforce the jury waiver against non-signatory beneficiary were simply not present in the case.

VI. Conclusion

It is still unclear whether a Texas court would enforce a jury waiver provision in a trust where the beneficiary/plaintiff does not sign the trust document. There are many questions involving such an issue: 1) whether such a clause can be enforced against a non-signatory; 2) whether direct-benefits estoppel can apply to such a clause like it does in the arbitration context; 3) which party has the burden to establish that an unconspicuous clause was entered into knowingly and voluntarily; and 4) what evidence has to be present to prove a knowing and voluntary waiver. Fundamentally, arbitration, forum-selection, and jury waiver clauses should all be judged by the same standard. They all deprive a party of constitutional rights – however, as courts acknowledge, a party can waive those rights.  They should all be judged either under the contract/mutual assent standard of arbitration agreements or by some higher “knowing and voluntary” standard. There is no logical difference between them. In the author’s view, courts are too ready to enforce arbitration, forum-selection, and jury-waiver clauses. The right to a trial by jury is “one of our most precious rights,” and holds “a sacred place” in our history. General Motors Corp. v. Gayle, 951 S.W.2d 469, 476 (Tex. 1997) (orig. proceeding). Restrictions placed on that right will therefore be subject to “utmost scrutiny.” Bell Helicopter Textron, Inc. v. Abbott, 863 S.W.2d 139, 141 (Tex. App.—Texarkana 1993, writ denied); Jones v. Jones, 592 S.W.2d 19 (Tex. Civ. App.—Beaumont 1979, no writ); Rayson v. Johns, 524 S.W.2d 380 (Tex. Civ. App.—Texarkana 1975, writ ref’d n.r.e.); Silver v. Shefman, 287 S.W.2d 316 (Tex. Civ. App.—Austin 1956, writ ref’d n.r.e.). Respectfully, the Texas Supreme Court has not done a very good job of requiring “utmost scrutiny” in allowing a defendant to deny a plaintiff their day in court (a Texas court). The words “knowing and voluntary” waiver should mean something and should apply to arbitration, forum-selection, and jury-waiver clauses.

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