Filed 6/14/22 Gerro v. BlockFi Lending CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
GEORGE J. GERRO, B307156, B312647
Plaintiff and Appellant, (Los Angeles County
Super. Ct. Nos. 20BBCV00308,
v. 20STCV31493)
BLOCKFI LENDING LLC et al.,
Defendants and Respondents.
APPEALS from orders of the Superior Court of Los Angeles
County, William Stewart, Judge. Reversed in part and affirmed
in part.
Law Offices of Gerro & Gerro, George J. Gerro and John M.
Gerro for Plaintiff and Appellant.
Haynes and Boone, David Clark, Marco A. Pulido and
Benjamin L. Mesches for Defendant and Respondent BlockFi
Lending LLC.
Severson & Werson, Jan T. Chilton and Kerry Franich for
Defendant and Respondent Scratch Services, LLC.
Plaintiff George J. Gerro, cocounsel on this appeal,
borrowed a total of $2.275 million from defendant BlockFi
Lending LLC (BlockFi) and pledged his bitcoin as collateral.
Later, when the value of bitcoin dropped, BlockFi sold Gerro’s
bitcoin under the terms of the governing loan agreements. Gerro
thereafter sued BlockFi and its loan payment processer, Scratch
Services, LLC (Scratch) (collectively, Defendants) seeking, among
other things, damages, return of his bitcoin, and cancellation of
the loan agreements. (Gerro v. BlockFi Lending et al. (Super. Ct.
L.A. County, 2020, No. 20BBCV00308) (Gerro I).)
Defendants moved to stay the case on account of a
Delaware forum selection clause. Gerro countered that the case
should remain in this state because transfer to Delaware would
substantially diminish Gerro’s unwaivable California rights in
contravention of public policy. Although the trial court concluded
that some of Gerro’s claims involved unwaivable rights, it also
concluded that the Delaware forum would not diminish those
rights, and it granted the motion to stay.
Gerro appealed from the order enforcing the Delaware
forum selection clause and staying the California case pending
resolution of the dispute in Delaware.
While appeal of Gerro I was pending, Gerro filed a second
lawsuit, Gerro v. BlockFi Lending et al. (Super. Ct. L.A. County,
2020, No. 20STCV31493) (Gerro II). Based upon many of the
same facts and the same loan transactions alleged in Gerro I,
Gerro II purports to seek public injunctive relief under
California’s Unfair Competition Law (UCL; Bus. & Prof. Code,
§ 17200 et seq.), and California’s False Advertising Law (FAL;
Bus. & Prof. Code, § 17500 et seq.). The trial court granted
Defendants’ plea in abatement via demurrer to the Gerro II
2
complaint on the basis that that there was another action
pending between the same parties on the same cause of action.
(Code Civ. Proc., § 430.10, subd. (c).) Thus, Gerro II was stayed.
Gerro filed an interlocutory appeal from this order. We
consolidated the appeals for purposes of issuing an opinion.
A plaintiff cannot split a cause of action between two
lawsuits that derive from the same primary right. Although
Gerro claims his two lawsuits involve different primary rights
(Gerro I claiming personal injuries and Gerro II seeking public
injunctive relief), the legal claims asserted in Gerro II under the
UCL also depend on personal injuries to Gerro. The overlapping
personal injuries result in impermissible claim splitting.
Accordingly, the trial court did not err in sustaining Defendants’
demurrer in Gerro II.
The Delaware forum selection clause that was upheld by
the trial court contains a predispute jury waiver. Because
California has a fundamental policy against such a waiver,
Defendants carry the burden of proving that Delaware would not
diminish this important right. Under Delaware law, however,
contractual provisions that waive the contracting parties’ right to
trial by jury have been upheld, and relevant case law provides
insufficient assurance that Delaware courts will apply
California’s important public policy to this dispute. Because
California’s policy against contractual, predispute jury waivers
could be violated if Gerro I were heard in Delaware, we reverse
the trial court’s ruling in Gerro I.
3
BACKGROUND
A. Facts Giving Rise to Gerro’s Complaints
BlockFi is a Delaware limited liability company and is
licensed as a finance lender and broker by the California
Department of Business Oversight.1
In September 2019, Gerro obtained two loans from BlockFi
secured by bitcoin.
In February 2020, Gerro refinanced the loans, which
together totaled $2.275 million.
The parties executed a written loan and security agreement
for each transaction. Section 4(d) or 4(e) in each agreement
states, “Priority. Lender shall have actual possession of, and a
first priority security interest in, the [c]ollateral.” (Bold omitted.)
Section 5(a)(vi) states that the borrower “pledges, assigns,
transfers and delivers to Lender, and grants to Lender a
continuing and unconditional first priority security interest in all
of Borrower’s present and future rights, title and interest in the
[collateral, including] . . . [¶] . . . [¶] (vi) all proceeds of the
foregoing.”
Section 7(a) of each agreement provides: “if at any time, the
outstanding principal balance of the [l]oan is equal to or greater
than eighty percent (80.0%) of the [c]ollateral [m]arket [v]alue
(the ‘Accelerated Maximum Loan to Value Ratio’), Lender has the
right to immediately liquidate [c]ollateral in such an amount as
necessary to establish a loan to value ratio where the total of the
1 Gerro requests that we take judicial notice of BlockFi’s
California Finance Lender and Broker License on the basis that
the trial court took judicial notice of the license. (Evid. Code,
§ 459, subd. (a).) We grant Gerro’s request.
4
outstanding principal balance of the [l]oan plus all other amounts
due is equal to or less than seventy percent (70.0%) of the
[c]ollateral [m]arket [v]alue.” (Bold omitted.)
Under section 8, if, after a 72-hour notice from the lender
that the balance of the loan is equal or greater to 80 percent of
the value of the collateral, the borrower does not deposit
additional collateral to bring the balance of the loan to 50 percent
of the value of the collateral, the borrower is deemed to be in
default under the loan.
Section 31 of each agreement states: “Governing Law;
Acceptable Forums; Waiver of Jury Trial. EXCEPT FOR
THE ARBITRATION PROVISION, WHERE APPLICABLE, . . .
THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE WITHOUT REGARD TO ITS
CONFLICTS OF LAW PROVISIONS. BORROWER
UNDERSTANDS THAT BORROWER’S AGREEING TO THE
APPLICABILITY OF DELAWARE LAW AND VENUE ARE A
MATERIAL FACTOR IN LENDER’S WILLINGNESS TO
ENTER INTO THIS AGREEMENT. Any suit, action or
proceeding arising hereunder, or the interpretation, performance
or breach of this [a]greement, shall, if Lender so elects, be
instituted in any court sitting in New Castle County, Delaware.”
Further, section 31 states, “Borrower irrevocably and
unconditionally waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in any
legal proceeding directly or indirectly arising out of or relating to
this [a]greement or any [r]elated [d]ocument or the transactions
contemplated hereby or thereby (whether based on contract, tort
or any other theory).”
5
Scratch is a Delaware limited liability company. According
to the complaint, “Block[F]i utilizes Scratch as a loan servicer for
its loans, and directs borrowers to use the Scratch website’s
payment portal.”
In March 2020, when the value of bitcoin dropped, BlockFi
sold Gerro’s bitcoin pursuant to section 7(a).
B. Procedural Background
1. In the Trial Court
Gerro sued BlockFi and Scratch in Los Angeles Superior
Court, alleging causes of action for (1) bill quia timet (Civ. Code,
§ 3412) (against all defendants); (2) determination of adverse
claims (Code Civ. Proc., § 1050) (against all defendants);
(3) negligence (against BlockFi); (4-9) violation of Commercial
Code sections 1309, 9207, subdivision (b)(4), 9207, subdivision (c),
9610, subdivision (b), 9620, subdivision (a), 9620 subdivision (g)
(against BlockFi); (10) conversion (against BlockFi); (11) trespass
to chattels (against B1ockFi); (12) quantum valebant (against
BlockFi); (13) common count—money had and received (against
Scratch); (14) breach of contract (against all defendants). He
sought, inter alia, cancellation of the agreements, return of his
bitcoin and interest payments, damages for breach of contract in
the amount of $1 million, and disgorgement of profits that
BlockFi obtained from investing his bitcoin. He did not allege a
violation under the California Financing Law (CFL; Fin. Code,
§ 22000 et seq.), the UCL, or the FAL.
Defendants moved to stay or, in the alternative, dismiss the
action on the ground of forum non conveniens, arguing that the
forum selection clause required the matter to be heard in
6
Delaware.2 Gerro responded that his causes of action were based
on fundamental California public policy and unwaivable
statutory rights that would be diminished in Delaware, including
those under Commercial Code section 9626, subdivision (b); the
CFL; and California’s pawnbroker statutes (Fin. Code, § 21000 et
seq.). No mention was made of California’s unwaivable right to a
jury trial.
On July 27, 2020, during argument on Defendants’
motions, the trial court observed bitcoin was not tangible and
therefore did not trigger California’s pawnbroker statutes. It also
took note that, although the CFL provided some unwaivable
rights, Gerro did not allege any cause of action arising from those
portions of the CFL.
In response, Gerro submitted supplemental briefing
wherein he argued: “The CFL does not create [a] statutory right
of action. Instead, unwaivable rights under the CFL are asserted
through other causes of action. [¶] For example, violations of the
CFL may be asserted by an action under [the UCL3]. . . . Plaintiff
will request leave to amend the complaint to allege this cause of
action.” The record in Gerro I does not reflect any motion for
leave to amend the complaint. When asked at oral argument
2 The trial court determined that although Scratch was not
a signatory to the loan agreements, it could enforce the forum
selection clause because its conduct was closely related to the
contractual relationship. Gerro does not challenge this finding on
appeal.
3The CFL does not create a private cause of action.
Instead, the substantive rights thereunder may be enforced
under the UCL. (See De La Torre v. CashCall, Inc. (2018) 5
Cal.5th 966, 980.)
7
before this court why Gerro had not alleged a UCL claim in Gerro
I, he acknowledged it was an error.
On August 10, 2020, the trial court stayed Gerro I pending
litigation in Delaware. While finding that the Commercial Code
and the CFL conferred unwaivable rights upon Gerro, the trial
court concluded that litigation in Delaware would not diminish
those rights because “courts in Delaware will apply California
law when fundamental California public policy is at issue.”4
The trial court also observed that, when the Delaware
litigation concluded, “any party may utilize this action to
domesticate the sister-state judgment, subject to the
requirements set forth herein, i.e., that the sister-state court has
afforded the plaintiff his unwaivable rights in accordance with
fundamental California public policy. The California court has
the power to refuse to enforce a sister-state judgment which
violates due process.”
The next day Gerro appealed the trial court’s order.
On August 18, 2020, less than a week later, Gerro filed
another complaint in Los Angeles Superior Court against
BlockFi, BlockFi, Inc. (BlockFi’s parent company), and Scratch
arising from the same loan transactions, this time alleging causes
of action for violation of the UCL, the FAL, civil conspiracy, and
aiding and abetting. Gerro’s claims for violation of the UCL and
4 In its tentative ruling, the trial court stated Gerro had not
cited any authority for the proposition that California’s
pawnbroker law constituted fundamental public policy.
Following supplemental briefing, the trial court concluded that
sections of the Commercial Code and the CFL provided Gerro
with unwaivable rights. The ruling was silent as to the
pawnbroker laws.
8
FAL were based on, inter alia, BlockFi’s alleged violations of
California’s pawnbroker statutes and Commercial Code section
9207, subdivisions (b)(4) and (c)5—the same statutory violations
alleged in Gerro I.
The trial court ordered Gerro I and Gerro II related.
Defendants then moved to stay or dismiss Gerro II
pursuant to the Delaware forum selection clause and demurred
on the basis that Gerro I alleged the same causes of action.
Although the trial court denied Defendants’ motion to dismiss
based on the forum selection clause (relying upon the public
interest in enjoining unfair business practices under the UCL
and FAL on behalf of Californians), it granted Defendants’
demurrer to Gerro II on the basis that, under McGill v. Citibank,
5 Commercial Code section 9207, subdivision (b)(4) states:
“Except as otherwise provided in subdivision (d), if a secured
party has possession of collateral, all of the following apply:
[¶] . . . [¶] . . . (4) The secured party may use or operate the
collateral for any of the following purposes: [¶] (A) For the
purpose of preserving the collateral or its value. [¶] (B) As
permitted by an order of a court having competent jurisdiction.
[¶] (C) Except in the case of consumer goods, in the manner and
to the extent agreed by the debtor.”
Commercial Code section 9207, subdivision (c) states:
“Except as otherwise provided in subdivision (d), a secured party
having possession of collateral or control of collateral under
[Commercial Code s]ection 7106, 9104, 9105, 9106, or 9107 may
or shall, as the case may be, do all of the following: [¶] (1) May
hold as additional security any proceeds, except money or funds,
received from the collateral. [¶] (2) Shall apply money or funds
received from the collateral to reduce the secured obligation,
unless remitted to the debtor. [¶] (3) May create a security
interest in the collateral.”
9
N.A. (2017) 2 Cal.5th 945 (McGill)’s interpretation of Proposition
64, Gerro II must be deemed to seek individual remedies. The
trial court thereafter entered an interlocutory judgment in favor
of Defendants pursuant to Code of Civil Procedure section 597.
Gerro timely appealed the judgment, arguing that Gerro II need
not be stayed because it does not involve the same primary rights
as Gerro I.
2. Appellate History
On August 11, 2020, Gerro initiated the appeal in Gerro I,
and briefing in that matter was completed on July 22, 2021.
On April 29, 2021, Gerro initiated the appeal in Gerro II,
and filed his opening brief in that matter on September 20, 2021.
On September 23, 2021, we requested supplemental
briefing from the parties as to whether the appeals in Gerro I and
Gerro II should be consolidated for purposes of oral argument and
our opinion. On October 4, 2021, the parties filed letter briefs;
Defendants argued against consolidation and Gerro argued in
favor of it.
On October 19, 2021, the parties appeared before this court
for oral argument in Gerro I.
On November 10, 2021, we vacated submission of Gerro I
and ordered the appeals consolidated for oral argument and
decision. Following extensions of time for Defendants to file their
responsive brief and for Gerro to file his reply brief, on
January 14, 2022, Gerro II was fully briefed.
On April 19, 2022, the parties appeared for oral argument a
second time, and the matter was thereafter submitted for
decision.
On April 22, 2022, BlockFi requested we again vacate
submission of the matter to allow it to file a letter brief further
10
addressing its counsel’s proposed oral stipulations to waive and
not to enforce the contractual waiver of jury trial in its loan
agreements with Gerro and to provide additional authority on
Delaware jury trial law and whether Delaware would enforce
such a stipulation. On June 7, 2022, we denied that request.
DISCUSSION
A. Gerro I and Gerro II Improperly Split a Cause of
Action Because They Involve the Same Primary
Rights
A plaintiff may not split a cause of action among multiple
lawsuits. (Code Civ Proc., § 430.10, subd. (c); Crowley v.
Katleman (1994) 8 Cal.4th 666, 681-682.) Under California law,
a cause of action is defined as “ ‘the violation of a single primary
right.’ [Citation.]” (Boyd v. Freeman (2017) 18 Cal.App.5th 847,
854.) Thus, pleading the violation of one primary right in two
suits “contravenes the rule against ‘splitting’ a cause of action.”
(Crowley, supra, at p. 681.)
“[T]he primary right is simply the plaintiff’s right to be free
from the particular injury suffered.” (Crowley v. Katleman,
supra, 8 Cal.4th at p. 681.) It is not the same as the legal theory
on which liability for that injury is premised. An injured party
may allege multiple legal theories in seeking redress for a single
injury. (See id. at pp. 681-682.) Nor is a primary right the same
as the remedy sought. “ ‘The violation of one primary right
constitutes a single cause of action, though it may entitle the
injured party to many forms of relief, and the relief is not to be
confounded with the cause of action, one not being determinative
of the other.’ ” (Id. at p. 682.)
11
When a plaintiff impermissibly splits a cause of action, the
second action may be abated based on the prior, pending action.
(Hamilton v. Asbestos Corp. (2000) 22 Cal.4th 1127, 1146.) “ ‘A
plea in abatement is essentially a request—not that an action be
terminated—but that it be continued until such time as there has
been a disposition of the first action.’ [Citation.]” (Lawyers Title
Ins. Corp. v. Superior Court (1984) 151 Cal.App.3d 455, 459.)6
Code of Civil Procedure section 430.10, subdivision (c)
authorizes a demurrer where “[t]here is another action pending
between the same parties on the same cause of action.” (See
People ex rel. Garamendi v. American Autoplan, Inc. (1993) 20
Cal.App.4th 760, 773.) We review de novo an order sustaining a
plea in abatement on a demurrer. (See, e.g., Committee for Green
Foothills v. Santa Clara County Bd. of Supervisors (2010) 48
Cal.4th 32, 42.)
Gerro contends his two lawsuits do not involve the same
primary right because Gerro I seeks redress for his personal
injuries and Gerro II seeks a public injunction. In light of McGill,
supra, 2 Cal.5th 945, this argument is unavailing.
Following the passage of Proposition 64, McGill considered
whether private individuals could nevertheless seek public
injunctive relief under the UCL and FAL without meeting class
6 At times, however, “nothing more [may be] accomplished
by sustaining [a] plea [in abatement] than a continuance with its
inconvenience to the parties and witnesses.” (5 Witkin, Cal.
Procedure (6th ed., 2022) Pleading, § 1179.) “[T]he better
practice in such a situation would be for the trial judge to
recognize the technical sufficiency of the plea in abatement, and
then to order the actions consolidated.” (Ibid., citing Bank of
America v. Cohen (1937) 21 Cal.App.2d 510, 512.)
12
action requirements.7 Notwithstanding Proposition 64’s
prohibition on individuals filing UCL claims on behalf of the
public, the Supreme Court held that an individual “who has
‘suffered injury in fact and has lost money or property as a result
of’ a violation of the UCL or the false advertising law [citations]—
and who therefore has standing to file a private action” may
“request[ ] public injunctive relief in connection with that action.”
(McGill, supra, 2 Cal.5th at p. 959, italics added.)
Importantly, the high court explained: “A person who
meets these [standing] requirements is ‘fil[ing]’ the ‘lawsuit[ ]’ or
‘action[ ]’ on his or her own behalf, not ‘on behalf of the general
public.’ [Citations.] This remains true even if the person seeks,
as one of the requested remedies, injunctive relief ‘the primary
purpose and effect of’ which is ‘to prohibit and enjoin conduct that
is injurious to the general public.’ [Citation.]” (McGill, supra, 2
Cal.5th at p. 959, italics added.) Thus, “the remedy sought does
7 “In 2004, the voters, by passing Proposition 64, amended
[the UCL and FAL] to provide that private individuals may
(1) file an action for relief only if they have ‘suffered injury in fact
and [have] lost money or property as a result of’ a violation
[citations], and (2) ‘pursue representative claims or relief on
behalf of others only if [they] meet[ ] [these] standing
requirements . . . and compl[y] with [s]ection 382 of the Code of
Civil Procedure,’ which relates to representative suits
[citations]. . . . In uncodified sections, Proposition 64 identified
the ‘[f]il[ing] [of] lawsuits’ by private attorneys ‘on behalf of the
general public’ as a misuse of the unfair competition laws
[citations], and stated the voters’ ‘intent . . . that only the
California Attorney General and local public officials be
authorized to file and prosecute actions on behalf of the general
public’ [citation].” (McGill, supra, 2 Cal.5th at pp. 958-959.)
13
not define the interests vindicated.” (DiCarlo v. MoneyLion, Inc.
(9th Cir. 2021) 988 F.3d 1148, 1158 [interpreting McGill].)
Following McGill, notwithstanding any injunctive relief or
other benefit that might inure to the general public, Gerro II’s
claims under the UCL and FAL can only exist if they are brought
on Gerro’s behalf based on injuries to him. The fact that Gerro
bases his UCL and FAL claims on, inter alia, violations of
California’s pawnbroker statutes and Commercial Code section
9207—the same statutory violations he alleged in Gerro I and
based on the same transactions—only strengthens our conclusion
that a cause of action is being split. Accordingly, the trial court
properly found Gerro split primary rights between Gerro I and
Gerro II.
B. Defendants Have Not Demonstrated that Gerro’s
Right to a Jury Trial Would Not Be Diminished in
Delaware
1. Legal Framework and Standard of Review
California law favors enforceability of forum selection
clauses to which the parties have agreed. (Smith, Valentino &
Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 495.) “A
mandatory forum selection clause . . . is generally given effect
unless enforcement would be unreasonable or unfair, and the
party opposing enforcement of the clause ordinarily bears the
burden of proving why it should not be enforced.”8 (Handoush v.
8 In his trial court briefs, Gerro acknowledged the forum
selection clause is mandatory; the trial court concluded it was
mandatory; and Gerro does not challenge this finding on appeal.
Because the parties agree the clause here is mandatory, we will
treat it as such.
14
Lease Finance Group, LLC (2019) 41 Cal.App.5th 729, 734, fn.
omitted.) “Nonetheless, ‘California courts will refuse to defer to
the selected forum if to do so would substantially diminish the
rights of California residents in a way that violates our state’s
public policy.’ [Citations.]” (Verdugo v. Alliantgroup, L.P. (2015)
237 Cal.App.4th 141, 147.)
“[W]hen the claims at issue are based on unwaivable rights
created by California statutes[, the burden is reversed and] . . .
the party seeking to enforce the forum selection clause bears the
burden to show litigating the claims in the contractually
designated forum ‘will not diminish in any way the substantive
rights afforded . . . under California law.’ [Citations.]” (Verdugo
v. Alliantgroup, L.P., supra, 237 Cal.App.4th at pp. 147-148.)
“[A] defendant can meet its burden only by showing the foreign
forum provides the same or greater rights than California, or the
foreign forum will apply California law on the claims at issue.”
(Id. at p. 157.)
2. Analysis
Gerro argues Gerro I implicates four unwaivable rights
that would be diminished in a Delaware forum, among which is
the predispute right to a jury trial, a position which he has raised
for the first time on appeal. Although a party’s failure to raise an
objection in the trial court forfeits appellate review of the issue,
“it is well settled that when the issue raises a pure question of
law, . . . we may consider the issue for the first time on appeal.”
(Gilliland v. Medical Board (2001) 89 Cal.App.4th 208, 219.)
Given the importance of the fundamental right implicated here,
we exercise our discretion to review this issue.
A California litigant’s right to a jury is “fundamental,”
“inviolate,” and “sacred in its character,” and predispute
15
contractual jury waivers are contrary to California’s policy.
(Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 951,
956; see Handoush v. Lease Finance Group, LLC, supra, 41
Cal.App.5th at p. 739 [“we agree that even if [the Grafton] rule is
considered procedural, it is ‘ “intimately bound up with the state’s
substantive decision making” ’ and it ‘ “serve[s] substantive state
policies” ’ of preserving the ‘ “right to a jury trial in the strongest
possible terms” . . . , an interest the California Constitution
zealously guards’ ”].)
In a case closely on point, Handoush v. Lease Finance
Group, LLC, supra, 41 Cal.App.5th 729, the parties entered into
a contract that included a New York forum selection clause and a
predispute jury waiver. The Handoush court concluded
“[b]ecause New York permits predispute jury trial waivers, and
California law does not, enforcing the forum selection clause [in
favor of New York] has the potential to operate as a waiver of a
right the Legislature and our high court have declared
unwaivable.” (Id. at p. 739, fn. omitted; see Pinnacle Museum
Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55
Cal.4th 223, 245 [“Notably, Grafton explicitly distinguished
predispute jury waivers from predispute arbitration agreements,
observing that arbitration agreements are specifically authorized
by Code [Civ. Proc., §] 1281”].)
Notwithstanding Handoush, Defendants argue the
Delaware Supreme Court has recognized that “the right to a jury
trial in civil proceedings has always been and remains exclusively
protected by provisions in the Delaware Constitution.” (McCool
v. Gehret (Del.Supr. 1995) 657 A.2d 269, 282.) But Defendants do
not address that Delaware—unlike California and like New York
in Handoush—permits predispute jury waivers. (See, e.g., The
16
Data Centers, LLC v. 1743 Holdings LLC (Del. Super. Ct.,
Oct. 27, 2015) 2015 WL 6662107 at p. *4, fns. omitted [“[T]he
Delaware Constitution recognizes the right to trial by jury in
certain civil actions. . . . Nevertheless, a party may waive the
right to trial by jury several ways, including by contract. In
Delaware, contractual provisions that waive the contracting
parties’ right to trial by jury have been held to be neither
unconscionable nor against public policy”].) Nor do Defendants
cite any authority demonstrating how Delaware would treat a
predispute jury waiver in a situation comparable to this case.
Defendants also contend that California’s policy will not be
diminished because “the courts in Delaware will apply California
law when fundamental California public policy is at issue.” This
statement significantly oversimplifies a complex choice of law
question.
In addition to the Delaware forum selection clause, the loan
agreements include a Delaware choice of law clause. In
determining whether to enforce a choice of law clause, Delaware
follows the Restatement Second of Conflict of Laws, section 187.
(Focus Financing Partners, LLC v. Holsopple (Del.Ch. 2020) 241
A.3d 784, 803-804.) The Restatement provides that, if the parties
to a contract have selected the law of a particular jurisdiction to
govern their agreement, then “[t]he law of the state chosen by the
parties to govern their contractual rights and duties [here,
Delaware] will be applied,” unless either “(a) the chosen state has
no substantial relationship to the parties or the transaction and
there is no other reasonable basis for the parties choice, or [¶]
(b) application of the law of the chosen state would be contrary to
a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the
17
particular issue and which, under the rule of [Restatement
section] 188, would be the state of the applicable law in the
absence of an effective choice of law by the parties.”9 (Rest.2d,
Conf. of Laws, § 187(2).)
Defendants have not shown that, after utilizing a
comprehensive choice of law analysis, Delaware would enforce
Gerro’s right to a jury trial. For example, Defendants have not
established that a Delaware court would find California’s interest
in prohibiting predispute jury waivers to be materially greater
than Delaware’s interest in promoting freedom of contract and
the Delaware courts’ interest in exercising autonomy over the
procedural aspects of the proceedings before it. Nor do
Defendants discuss how the result might be affected given that,
per their written agreement, Delaware law is supposed to apply
to the parties’ disputes “without regard to [Delaware’s] conflicts
of law provisions.”
9 Restatement Second of Conflict of Laws (1971), section
188 states: “(1) The rights and duties of the parties with respect
to an issue in contract are determined by the local law of the
state which, with respect to that issue, has the most significant
relationship to the transaction and the parties under the
principles stated in § 6. [¶] (2) In the absence of an effective
choice of law by the parties (see § 187), the contacts to be taken
into account in applying the principles of § 6 to determine the law
applicable to an issue include: [¶] (a) the place of contracting, [¶]
(b) the place of negotiation of the contract, [¶] (c) the place of
performance, [¶] (d) the location of the subject matter of the
contract, and [¶] (e) the domicile, residence, nationality, place of
incorporation and place of business of the parties. [¶] These
contacts are to be evaluated according to their relative
importance with respect to the particular issue.”
18
Defendants’ offer to stipulate that the Delaware court
should apply California law gives us little assurance that a
Delaware court would enforce such a stipulation under the facts
present here. (See LTL Acres Ltd. Partnership v. Butler Mfg.
(Del. 2016) 136 A.3d 682, 685, fn. 2 [choosing to apply its own law
notwithstanding a Rhode Island choice of law provision because
the parties stipulated Delaware law was the same]; American
Intern. Group, Consol. Deriv. Lit. (Del.Ch. 2009) 976 A.2d 872,
882, fn. 17 [collecting cases in footnote that a party can forfeit
enforcement of a choice of law clause by failing to raise it in a
timely fashion]; In re Asbestos Litigation (Del. Super. Ct., June 1,
2012) 2012 WL 2007291 [accepting without analysis the parties’
stipulation to apply Arkansas law and without any indication
whether the matter concerned a choice of law or forum selection
clause and the terms thereof].)
The terms of Defendants’ offer to stipulate also give us
pause. The proposed stipulation language is equivocal and
conditional: “[I]f [Gerro] can sustain a viable claim implicating
some unwaivable California right or fundamental California
public policy that it cannot pursue under Delaware law, [Gerro]
may pursue any such claims in Delaware under California law.”
Although Defendant’s counsel strengthened his proposed terms
at oral argument, we observe that negotiation with Gerro was
never part of the stipulation process and that a binding client
authorization was never presented.
Nor is it clear what protection the California trial court
could provide to Gerro if the matter were heard in Delaware.
Although California Code of Civil Procedure section 1710.40
states a judgment “may be vacated on any ground which would be
a defense to an action in this state on the sister state judgment,”
19
such grounds are limited. Neither Defendants nor the trial court
sufficiently addressed how vacating a judgment under section
1710.40, or refusing to enforce a Delaware judgment, would
protect Gerro’s unwaivable rights.
Accordingly, Defendants have not met their burden of
establishing that litigating in Delaware “ ‘will not diminish in
any way’ ” Gerro’s unwaivable rights. (See Verdugo v.
Alliantgroup, L.P., supra, 237 Cal.App.4th at p. 147.)10
C. Consolidation Vel Non of Gerro I and Gerro II Is a
Matter for the Trial Court
Gerro invites us to resolve both appeals by remanding the
matters with instructions that the trial court consolidate Gerro I
and Gerro II for all purposes. We reject this invitation because
Gerro raised this argument for the first time in his reply brief in
Gerro II. “We will not consider arguments raised for the first
time in a reply brief, because it deprives [respondents] of the
opportunity to respond to the argument.” (Mansur v. Ford Motor
Co. (2011) 197 Cal.App.4th 1365, 1387-1388.) Further, whether
the trial court should allow Gerro to amend either complaint,
dismiss a complaint, consolidate the matters (see Shuffer v.
Board of Trustees (1977) 67 Cal.App.3d 208, 217-218), or prohibit
further pleading amendments presents a case management
question that is entrusted to the trial court in the first instance.
(Lucas v. County of Los Angeles (1996) 47 Cal.App.4th 277, 284-
285 [“A court has inherent equity, supervisory and
10 In light of our ruling as to Gerro’s unwaivable jury trial
right, we do not address Gerro’s assertion of other unwaivable
rights that he claims would be diminished were the case to
proceed in Delaware.
20
administrative powers, as well as inherent power to control
litigation and conserve judicial resources. [Citation.] Courts can
conduct hearings and formulate rules of procedure where justice
so demands”]; see, e.g., IIG Wireless, Inc. v. Yi (2018) 22
Cal.App.5th 630, 653 [“Motions for leave to amend are left to the
sound discretion of the trial judge”].)
DISPOSITION
We reverse the trial court’s August 10, 2020, order staying
the California proceedings in Gerro I and remand for further
proceedings. We affirm the trial court’s interlocutory judgment
in Gerro II. Each party shall bear its costs on appeal.
NOT TO BE PUBLISHED
CRANDALL, J.*
We concur:
ROTHSCHILD, P. J.
BENDIX, J.
*Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
21