Jack Nelson Jones Professional Association
April 3-9, 2017
Tilley v. Malvern Nat’l Bank, 2017 Ark. App. 127 (March 1, 2017)
This appeal comes from the Garland County Circuit Court, honorable John Homer Wright presiding. This case concerns whether pre-dispute contractual waivers of the right to a jury trial are enforceable under Arkansas law.
In July 2010, Kenneth W. Tilley and Malvern National Bank (MNB) entered into a loan agreement, which included a jury-waiver clause in the event of a dispute. Tilley executed a promissory note in favor of MNB with a principal balance of $221,000. The note was secured through a mortgage on real property in Garland County, Arkansas. Tilley defaulted; MNB accelerated the note and filed its complaint in foreclosure in November 2011. Tilley answered the complaint, demanding a jury trial.
In October 2012, Tilley filed a counterclaim against MNB and a third-party complaint against Moore. Essentially, Tilley argued that Stephen Moore, vice president of commercial lending at MNB, acting on behalf of MNB, promised to loan him $350,000 so that he could fund two development projects. The $350,000 loan was never made to Tilley. Moore resigned from his position at MNB. Following his resignation, Tilley negotiated with other representatives from MNB, resulting in Tilley and MNB entering into the $221,000 loan agreement. Tilley alleged that MNB’s failure to fulfill the promise to loan him $350,000 caused him to default on the $221,000 loan. Tilley sued for breach of contract, promissory estoppel, violations of the Arkansas Deceptive Trade Practices Act (ADTPA), tortious interference, negligence, and fraud and demanded a jury trial.
MNB and Moore filed a motion to strike Tilley’s jury-trial demand. They argued that Tilley was not entitled to a jury trial because, among other things, Tilley had waived his right to a jury trial in the loan agreement with MNB. The circuit court agreed, and, following the bench trial, ruled in favor of MNB on its foreclosure claim and against Tilley on his counterclaim and third-party complaint. Tilley appealed.
On appeal, Tilley argued that he was entitled to have his counterclaim and third-party complaint decided by a jury, asserting: he had a constitutional right to a jury trial; the jury-waiver clause in his loan agreement with MNB was unenforceable; and his waiver was unenforceable because it was not knowingly and voluntarily made.
According to the Court, it is a long-standing rule that the right to a jury trial does not extend to foreclosure proceedings. Accordingly, it was clear that the circuit court was required to decide MNB’s foreclosure claim without a jury. MNB and Moore argued that Tilley’s claims must also be tried by a court of equity pursuant to the clean-up doctrine. However, the Court explained that since Amendment 80 was enacted, the clean-up doctrine has disappeared because any circuit court now has subject-matter jurisdiction to hear all justiciable matters not assigned elsewhere, and it has the power to grant all remedies to the parties before it. Courts must review the historical nature of the claims to determine whether they must be submitted to a judge as equitable matters or whether they may be submitted to a jury as legal matters. The Court added that courts should also look to the remedies sought in the complaint when determining whether a trial by jury is warranted.
Tilley’s counterclaim and third-party complaint included causes of action for breach of contract, promissory estoppel, violations of the ADTPA, tortious interference, negligence, and fraud; he sought money damages on each of his claims. In reviewing the historical nature of these claims and the remedy sought, the Court concluded that Tilley’s claims were legal in nature. Thus, the Court held that the circuit court erred in finding that Tilley did not have a constitutional right to a jury trial on his historically legal claims. With this determination reached, the Court directed its attention to whether the circuit court erred in striking Tilley’s jury demand pursuant to the jury-waiver clause in the loan agreement.
Tilley argued that the Arkansas Constitution provides that “[t]he right of trial by jury shall remain inviolate, and shall extend to all cases at law . . .” However, the Court pointed out, that same section concludes with the proviso: “[B]ut a jury trial may be waived by the parties in all cases in the manner prescribed by law.” Hence, while the Arkansas Constitution clearly emphasizes the fundamental right to a jury, the Court pointed out that it also contemplates that the right may be waived.
In Arkansas, the Court explained that parties to a contract are free to contract upon any terms not contrary to public policy or the terms of our statutes. Arkansas allows parties to enter into contracts that control the manner in which their disputes are resolved. Parties may choose the forum, the law that will govern their case, and even choose to forego the civil justice system and submit to arbitration. Because parties are free to enter into contracts that are not contrary to Arkansas’ public policy, and the Arkansas Constitution itself provides that parties may waive their right to a jury trial, the Court held that pre-dispute contractual waivers of the right to a jury trial—such as the one executed by Tilley—may be enforceable. The Court added that they are particularly enforceable when the waiver is entered into knowingly and voluntarily.
To that end, Tilley argued that the circuit court erred in striking his jury-trial demand because he did not knowingly and voluntarily waive his right to a jury trial. In consideration of whether this jury-waiver clause was valid, the Court referred to the general rules of construction and interpretation of contracts. As a preliminary matter, it is a matter of basic contract law that contracts must be entered into knowingly and voluntarily. Arkansas law provides that if a person signs a document, he or she is bound to know the contents of that document. The fact that a person signed a contract, the Court noted, is evidence of his or her knowledge of the contract.
Here, MNB and Moore attached a copy of the signed loan agreement, which contained the jury-waiver clause, to their motion to strike. Pursuant to Arkansas law, Tilley was bound to know the contents of the agreement. Similarly, Arkansas law presumes that this contract was entered into voluntarily; generally, the Court explained, the party attacking voluntariness must allege and prove otherwise. Tilley attempted in his affidavit challenging the motion to strike to show that he signed this contract under duress. However, he offered only the conclusory statement that he was under duress, and this was insufficient evidence of any alleged involuntariness. Accordingly, the Court concluded that the jury-waiver clause in the loan agreement was enforceable, and held that the circuit court properly granted the motion to strike Tilley’s jury-trial demand on these grounds. Because of the Court’s holding on this issue, MNB and Moore were entitled to have the entire case heard as a bench trial, regardless of whether Tilley’s claims were legal or equitable in nature. Affirmed.