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MTR Capital, LLC v. Lavida Massage Franchise Development, Inc.

United States District Court, E.D. Michigan, Southern Division

April 2, 2019

MTR CAPITAL, LLC, Plaintiff,



         Plaintiff MTR Capital seeks to rescind a franchise agreement with Defendants LaVida Massage and its principals, Peggy Davis and Duane Goodwin, and also seeks damages, alleging that Defendants fraudulently induced Plaintiff to enter into the agreement, violated federal and state franchise laws, and failed to perform under the contract. Complaint, ECF No. 1, PageID.3. Plaintiff demanded a jury trial in its Complaint. Id. at PageID.23. Defendants now move to strike Plaintiff's jury demand based on a provision in the franchise agreement waiving their right to a trial by jury on matters related to enforcement of the agreement. ECF No. 38. The Court GRANTS Defendants' motion based on the reasoning below.

         I. Facts

         On October 14, 2014, Defendant Goodwin sent a copy of the franchise agreement to Plaintiffs principal, Joaquin Esquivia. Defendants' Motion to Strike Jury Demand, ECF No. 38, PageID.403. On February 2, 2015, Esquivia emailed Defendants' franchise broker, Bernardo Yibirin, and stated: “After reading the entire La Vida Massage Franchise Agreement (FA) document, I have the following questions. . .” ECF No. 39-1, PageID.465. In this email, Esquivia listed eighteen questions about different terms in the franchise agreement. None of these questions relate to the jury waiver provision. In response, Defendant Davis sent a revised franchise agreement in which she “answered most of [Esquivia's] questions.” ECF No. 39-2. Plaintiff and Defendant executed the franchise agreement on February 17, 2015. Executed Agreement, ECF No. 40-1.

         The agreement contains the following provision:

         (Image Omitted)

         Esquivia initialed the page containing the waiver of jury trial provision. ECF No. 40-1, PageID.546.

         Plaintiff's Complaint specified the following bases for its fraud allegations:

Specifically, Plaintiff's principal, Mr. Joaquin Esquivia, fell prey to a fraudulent scheme orchestrated by Defendants, in which the Defendants touted the alleged extraordinary amount of financial success and growth enjoyed by the LaVida franchise system at locations across the country, provided financial performance representations in violation of law, and used “time is of the essence, ” “bait and switch, ” and other high pressure and deceptive sales tactics to coerce prospective franchisees into investing substantial sums of money toward the purchase of a LaVida franchise.

ECF No. 1, PageID.3-4. Importantly, the Complaint does not allege that there was any fraud that specifically induced Plaintiff to agree to the provision containing the jury trial waiver.

         II. Analysis

         Individuals (or, in this case, LLCs) may waive their Seventh Amendment right to a trial by jury. K.M.C. Co. v. Irving Trust Co., 757 F.2d 752, 755 (6th Cir. 1985). Such a waiver is enforceable if it was “knowing and voluntary.” Id. at 756. The record before the Court establishes that Plaintiff's assent to the jury trial waiver was knowing and voluntary. And in fact, Plaintiff does not dispute the applicability of the knowing and voluntary test-nor that the test is satisfied with respect to the jury trial waiver language in the franchise agreement. Response to Defendant's Motion to Strike Jury Demand, ECF No. 45, PageID.574-75.

         Instead, Plaintiff raises two related arguments. First, it points to the language of the waiver-specifically, the first sentence: “To the extent either party is permitted to enforce this agreement by judicial process and elects to do so, each of the parties waives its right to a trial by jury.” (emphasis added). Plaintiff argues that Defendant is not “permitted to enforce this agreement” because it fraudulently procured the agreement. Therefore, the argument goes, the jury trial waiver does not apply. Plaintiff cites case law to support the proposition that “[c]ourts must give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory.” Response, ECF No. 45, PageID.575 n.7. This is true-which makes it important to turn to the very next sentence of the jury trial waiver after the portion Plaintiff quotes: “This waiver shall apply to all causes of action that are or might be included in such action including, but not limited to, claims related with respect to the enforcement or interpretation of this agreement, allegations of . . . fraud, misrepresentation, or similar causes of action.”

         The jury trial waiver specifically includes fraud claims of the type that Plaintiff argues should be excluded from the waiver. Giving effect to each word of the contract thus undercuts Plaintiff's position that ...

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