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Equipment Leasing & Finance

The Handoush Case

Nov/Dec 2020

CAmapAmicus Curiae, Latin for “friend of the court,” is a non-party who files a brief with the appellate court to provide information, expertise or insight on the issues presented in an underlying appeal. ELFA recently agreed to file an Amicus Curiae brief with the California Supreme Court in the appeal of Handoush v. Lease Fin. Grp., LLC, 41 Cal. App. 5th 729 (2019). Due to an unexpected and unrelated twist in the case, ELFA’s brief never made it to the California Supreme Court; however, the issues presented in the case are worthy of discussion.

Small but Mighty (Important).
ELFA supports a wide range of member volunteer committees and subcommittees, including the Amicus Curiae Subcommittee. This group, housed under the Legal Committee, does not receive a lot of attention, and over the past several years, has received only a smattering of requests for Amicus Curiae briefs. Nevertheless, it plays an important role to ELFA and the equipment finance industry, as it is a receptacle for legal issues working their way up through the court system.

How Does ELFA Become Involved in an Amicus Brief?

ELFA learns about amicus opportunities through its active and educated membership. Its members are the boots on the ground, experiencing legal challenges and appealing issues that impact the industry.

When an organization or member seeks ELFA's support, ELFA follows a process and guidelines to determine whether it will accept a request to file an Amicus brief. The official guidance is provided on ELFA’s website, but below is an overview of the important standards to accept such a request:

  • Except in extraordinary situations, ELFA considers participation only for appeals;
  • The request must be made in writing to the ELFA President &CEO’s office and it must be made with sufficient time to analyze the request, including any applicable deadlines;
  • The request must relate to a legal issue that has national significance and is directly important to the industry; and
  • There must be factual basis for the case and a reasonable expectation of success.
Upon an Amicus request meeting these standards, the request is passed along to the Amicus Curiae Subcommittee. Any recommendation by this Subcommittee is passed on to ELFA’s President & CEO, who consults with the ELFA Board of Directors before granting final approval.

Who Handles the Amicus Brief?
Once ELFA determines that it will move forward as an Amicus Curiae party, it must choose the law firm that will provide legal services and coordinate the overall strategy of the brief. One particular firm does not represent ELFA for such matters, and the decision is dependent on the issues and jurisdiction of the appeal. Most recently, the Subcommittee established an RFP process for Amicus work, requesting that any applying firm meet the following criteria:
  • Membership of ELFA or otherwise illustrated dedication to the representation of ELFA's interests;
  • Experience with the applicable court jurisdiction and issue(s) raised;
  • Experience with Amicus briefs;
  • Description of staffing, availability, fees and costs.
Once selected, the firm works with ELFA and the Subcommittee members on the strategy and issues to the case at hand.

What Happened in the Handoush case?
In Handoush, a California lessee of credit card processing equipment brought suit against lessor Lease Finance Group, LLC (LFG) in California, alleging claims for fraud, rescission, injunctive relief and violation of unfair competition laws. LFG moved to dismiss the case based upon the New York forum selection clause in the lease agreement, which provided that any disputes between the parties must be brought in the State of New York. The trial court agreed with LFG and dismissed the case, and the lessee appealed to the California Court of Appeals.

The California Court of Appeals reversed the trial court and sided with the lessee, holding that the New York forum selection clause was unenforceable. In addition to the forum selection clause, the lease contract provided that New York law governed the lease, and that the lessee waived the right to jury trial. Notably, pre-dispute contractual jury waivers are unenforceable under California law.

The California Court of Appeals reasoned that enforcing the New York forum selection clause would be contrary to California’s fundamental public policy protecting the right to jury trial and prohibiting courts from enforcing pre-dispute jury trial waivers. The California Court of Appeals refused to enforce the New York forum selection clause, because doing so would have deprived the lessee of his right to a jury trial. Reversing the trial court’s decision, the California Court of Appeals held that the lessee’s case against LFG in California should not have been dismissed.

LFG then appealed to the California Supreme Court and requested that ELFA file an Amicus Curiae brief in support of LFG’s appeal. The California Supreme Court’s acceptance of appeals is discretionary, and it usually takes only a fraction of all of the cases appealed to it. When the California Supreme Court agreed to accept the appeal—signaling its interest in the issue—ELFA decided to participate and submit an Amicus Curiae brief.

Why Did ELFA Decide to Participate in the Handoush Case?
As mentioned above, ELFA rarely gets involved in litigation as an Amicus Curiae party. However, ELFA felt that the Handoush appeal to the California Supreme Court warranted involvement, because of the clear negative impact of the case on the equipment finance industry. Contractual jury waivers are universally used by leasing companies to avoid costly and risky jury trials. Leasing companies also often include choice of law provisions and forum selection clauses that specify a different state, usually the lessor’s home state and one that enforces contractual jury waivers. If, like in Handoush, a lessee brought suit in his home state, rather than in the forum set forth in the contract, the lessor could move to dismiss the case or change venue. However, under the California Court of Appeals’ opinion in Handoush, that approach would no longer be successful. Handoush opened the door to lessors having to litigate jury trials in California, rather than in their home states, increasing the cost of lessors doing business with California customers. Handoush also injected uncertainty into California transactions and had the potential to lead to inconsistent rulings from courts, since lessors could not necessarily rely on their choice of law and forum selection clauses being enforced in California. Because of the Handoush opinion’s impact, ELFA felt it should implore the California Supreme Court to reverse the California Court of Appeals’ decision.

However, the appeal to the California Supreme Court took a very unexpected turn. In late May 2020, in the case of New York v. Northern Leasing Systems, Inc., et al. (Index No. 450460/2016), a New York trial court entered an order against LFG, Northern Leasing Systems, Inc., and other related companies, purporting to void potentially hundreds of thousands of credit card equipment leases that were allegedly fraudulently induced. The New York trial court entered a permanent injunction against LFG and its related companies from “conducting the business of equipment finance leasing or collection of debts under equipment finance leases and from purchasing, financing, transferring, servicing, or enforcing equipment finance leases.” Though LFG appealed the New York order, LFG’s California counsel was instructed not to work on the appeal any further, in light of the injunction. As a result of LFG’s failure to prosecute the appeal, in August 2020, the California Supreme Court dismissed the appeal before the case was briefed by the parties and ELFA submitted its Amicus Curiae brief.

How Should ELFA Members Go Forward After Handoush?
Unfortunately, the California Court of Appeals’ decision in Handoush remains on the books. Attorneys often get around California’s refusal to enforce contractual jury waivers by including binding arbitration clauses or judicial reference provisions. To prevent further California decisions invalidating out-of-state forum selection clauses, lawyers will need to get creative when drafting contracts with California customers. One suggestion would be to include a provision that, with respect to the forum selection clause and choice of law provision, the contractual jury waiver is unenforceable, if the jury waiver would be unenforceable in the home state of the lessor or lessee. That provision may hinder a California court from invalidating an out-of-state choice of law or forum selection clause on the basis that the contract contains a jury waiver. Unless or until Handoush is overturned in the future by the California Supreme Court, the industry should plan to adapt to Handoush and proceed with vigilance when documenting California transactions.

 

Categorized With:

  • LEGAL RESOURCES