Legal Developments in Banking By Justin T. Allen
Attorney • Wright, Lindsey, & Jennings LLP
There are two significant issues for banks that have made their way through the court system recently. One involves waiver of jury trials in the event of a dispute and the other impacts cross collateralization. Banks need to be mindful of these developments as they move forward with drafting loan documents.
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Jury Trial Waiver
he last 2 years have seen a lot of activity with regard to jury trial waiver provisions, including multiple court decisions and legislative activity. Earlier this year, the Arkansas Supreme Court weighed in again and the opinion seems to be largely good news in that it supports the validity of jury trial waiver provisions in lending transactions.
In late 2017, in Tilley v. Malvern National Bank (Tilley I), the Arkansas Supreme Court invalidated the jury trial waiver provision in the loan documents. The Court held that a jury trial waiver can only be done in the manner “prescribed by law” and, since the legislature had not passed a law allowing a waiver in that manner, the Court declined to enforce the provision. In the wake of that decision, in a 2018 special session, the legislature passed Act 13, which allowed for a jury trial waiver in lending contracts. After Act 13 was adopted, MNB again sought to enforce the waiver against Tilley. That issue went back up to the Supreme Court and, in December of 2019, the Court essentially ruled that Act 13 could not be applied retroactively to Tilley’s claim against MNB. (Tilley II) The majority opinion in Tilley II was troubling because it contained some language that suggested that Act 13 wasn’t valid in any case, present or future. The good news is recently, in
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The Arkansas Banker n Summer 2020
BHC Pinnacle Pointe Hospital v. Nelson , the Arkansas Supreme Court issued an opinion that should ensure that Act 13 is valid, and jury trial waivers are enforceable in lending transactions. In Nelson, the two named plaintiffs filed a class action suit against Pinnacle alleging violations of the wage and hour laws in Arkansas. Pinnacle moved to dismiss relying on a clause in the employment agreement calling for such disputes to be submitted to arbitration, rather than to a court. The circuit court denied Pinnacle’s request, but the Supreme Court reversed and held the matter should be dismissed and submitted to arbitration. One of the plaintiffs’ arguments in the case relied on Tilley v. Malvern National Bank. Plaintiffs claimed that since the arbitration clause in the employment agreement was based on federal arbitration law that is was invalid because a wavier can only be provided by “Arkansas law.” The Court rejected that argument, holding that the jury trial waiver can be based on court rule, Arkansas law and/or federal law. In short, while a borrower may still try to argue otherwise, Nelson strongly suggests that Act 13 is valid and enforceable moving forward despite the loose language in Tilley II. Indeed, it holds that a jury trial waiver can be enforced in the manner prescribed by both state and federal law.
