Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_09-cv-00906/USCOURTS-caed-1_09-cv-00906-90/pdf.json

Nature of Suit Code: 891
Nature of Suit: Agricultural Acts
Cause of Action: 07:499 Agricultural Commodities Act

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

ONIONS ETC., INC., et al.,

Plaintiffs,

v.

Z & S FRESH, INC., et al.,

Defendants.

1:09-cv-00906-AWI-MJS 

ORDER DENYING DEFENDANT FRESNO 

MADERA LAND BANK’S MOTION TO 

STRIKE JURY DEMAND

(ECF No. 913)

AND ALL RELATED ACTIONS

I. PROCEDURAL HISTORY

Litigation in this case arose out of the financial collapse of Defendant Z&S Fresh,

Inc., doing business as Z&S Distributing Company, Inc., a California corporation (“Z&S”).

(Compl., ECF No. 1.) Multiple claims and counter-claims were filed against and amongst 

the various Defendants and related parties by a number of creditors. Among these, the 

Fresno Madera Federal Land Bank Association, FCLA ("Land Bank") sued Aron and 

Carrie Margosian for breaching their guaranty of a $4.8 million restructured loan made to 

ZM Fresh Special T's, Inc, formerly known as ZMC Fresh, Inc (both “ZM”). ZM had been 

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formed by Aron Margosian and Martin Zaninovich, the principal of Z&S. The Margosians 

counter-claimed, alleging, as relevant here, that the Land Bank fraudulently 

misrepresented that the guaranty would not expose the Margosians to personal liability 

for ZM's indebtedness.

The District Court Judge referred the claims between Land Bank and the 

Margosians to the undersigned for all purposes based upon the parties’ consent to 

Magistrate Judge jurisdiction. (ECF No. 826.) These claims are set for trial on May 31, 

2016. (ECF No. 906.) The Margosians have demanded a trial by jury. (ECF No. 675.) 

Before the Court is the Land Bank’s motion to strike the Margosians’ jury demand 

on the grounds that (1) the Margosians’ remaining claims are equitable in nature and 

seek equitable relief and, as such, no right to jury trial attaches, and (2) the Margosians 

contractually waived their right to a jury trial. (Motion (“Mot.”), ECF No. 913.) The 

Margosians respond that their claims are in fact legal and not equitable, and that the

contractual jury trial waiver is invalid under California law. (Opposition (Oppn.) ECF No. 

921.)

II. CONCTRACTUAL WAIVER

“Under California law, pre-dispute jury trial waivers are invalid unless expressly 

authorized by statute. Federal law, on the other hand, permits such waivers as long as 

each party waived its rights knowingly and voluntarily.” In re Cnty. Of Orange v. U.S. 

Dist. Ct., 784 F.3d 520, 523 (9th Cir. 2015) (citations omitted). Thus, the validity of the 

jury trial waiver in the instant case hinges, in part, on whether state or federal law 

applies. 

Under Erie Railroad Company v. Tompkins, 304 U.S. 64, 58 (1938), a federal 

court sitting in diversity applies state substantive law and federal procedural law. 

Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 419 (1996). This principle applies 

equally where, as here, the court hears state law claims based on supplemental 

jurisdiction. Mangold v. Cal. Pub. Utils. Comm'n, 67 F.3d 1470, 1478 (9th Cir. 1995). 

“The law governing jury trial waivers in federal court is federal procedural law.” In 

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re Cnty. of Orange, 784 F.3d at 531. Nevertheless, the Ninth Circuit recently held that

“federal courts sitting in diversity must apply the relevant state law to evaluate the validity 

of a pre-dispute jury trial waiver when that law is more protective than federal law.” Id. at 

531-32. Because California law is more protective of the right to jury trial than the federal 

standard, “district courts sitting in diversity must apply California's rule on pre-dispute 

jury trial waivers to contracts governed by California law.” Id. at 532. 

Here, there is no dispute that the guaranty at issue contains provisions waiving 

the parties’ rights to a jury trial with respect to any action or proceeding relating to the 

guaranty or loan documents. (Mot. at 4; Oppn. at 2.) However, it also is undisputed that 

the guaranty contains a choice-of-law provision stating that its terms are to be governed 

by California law. (Oppn. at 2; see Reply, ECF No. 924 at 5.) Under California law, the 

pre-dispute jury trial waiver here is invalid and does not provide a basis for striking the 

Margosians’ jury demand.

The Court acknowledges the Land Bank’s argument that In re County of Orange, 

decided only eight months ago, should be given only prospective application. However, 

the Ninth Circuit applied its holding in In re County of Orange retroactively to a contract 

entered into in 2008. There is no basis for concluding that the holding is to be applied 

only prospectively.

Accordingly, the contractual jury trial waiver is invalid. The Land Bank’s motion to 

strike the Margosians’ jury demand on the basis of this waiver will be denied.

III. NATURE OF CLAIMS AND DEFENSES

A. Legal Standard

The Seventh Amendment to the United States Constitution, which became 

effective as part of the Bill of Rights in 1791, provides that: “In suits at common law, 

where the value in controversy shall exceed twenty dollars, the right of trial by jury shall 

be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of 

the United States, than according to the rules of the common law.”

Determining whether a jury trial right exists for a particular action is a two-step 

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process. The first step involves an historical inquiry: if an issue would have been heard 

at common law in 1791, it is now triable of right to a jury. However, if the issue

historically would have been tried in the courts of equity or otherwise without a jury, no 

right to a jury trial attaches. Wooddell v. Int'l Bhd. of Elec. Workers, Local 71, 502 U.S. 

93, 97 (1991) (quotation omitted). The second step requires determining whether the 

remedy sought “is legal or equitable in nature.” Id. (quotation omitted). 

“[D]etermining as a historical matter whether a particular contract action would 

have been tried to a jury at English common law in 1791 is at best ‘difficult, and even at 

times impossible.’” Burlington N. R.R. Co. v. Nebraska Pub. Power Dist., 931 F. Supp. 

1470, 1481 (D. Neb. 1996) (quoting 5 Arthur L. Corbin, Corbin on Contracts, § 1103, at 

557 (1964)). However, certain categories of contract actions generally were or were not 

tried to a jury: (1) a breach of contract action claiming damages was tried to a jury, 9 

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2316, at 125-

26 (1995) (citing Ross v. Bernhard, 396 U.S. 531, 542 (1970)); (2) an action claiming 

that a contract should be reformed was tried to the judge, id. at 130 (citing Great Atl. Ins. 

Co. v. Liberty Mut. Ins. Co., 773 F.2d 976, 978 (8th Cir.1985)); and (3) an action claiming 

a right to specific performance of a contract was tried to a judge, id. § 2309, at 85 (citing 

Turner v. Burlington N. R.R. Co., 771 F.2d 341, 343 (8th Cir. 1985)).

A claim of fraud “is not distinctively either a legal issue or one of an equitable 

nature,” id. § 2311, and thus the right to a jury turns on the remedy sought and the 

context in which the claim of fraud arises.

B. The Claims at Issue

In this action, the Land Bank has brought a claim for damages against the 

Margosians for breach of the guaranty. The Bank seeks to recover: the total amount due 

under the Restructure Loan; fees, costs, and interest as provided for under the 

Restructure Loan; attorney’s fees; Trustee’s fees; and, costs of suit. (ECF No. 432.)

The Margosians’ answer raises various defenses. (ECF No. 675.) However, at the 

hearing on the instant motion, the Margosians’ counsel explained that they primarily

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intend to defend on the ground that the Land Bank’s fraudulent misrepresentations 

prevented the formation of a valid contract, and thus there could be no breach.

The Margosians also brought against the Land Bank a counter-claim for 

“Damages for Fraud and Deceit – Intentional Misrepresentation of Facts.” (ECF No. 675 

at 17.) At the hearing, the Margosians’ counsel clarified that the fraud underlying both 

their affirmative defense and their counter-claim is the same: that Land Bank 

representatives misrepresented the guaranty to be a name change and misrepresented

that the guaranty would not expose the Margosians to personal liability.

C. Parties’ Arguments

The Land Bank argues that the Margosians have no right to a jury trial. According 

to the Land Bank, no factual issues remain with regard to its claim for breach of the 

guaranty, other than those raised by the Margosians’ defenses and counter-claim. 

Because the defenses and counter-claim essentially are equitable in nature, the 

Margosians have no right to a jury trial. (Mot. at 3.) 

More specifically, the Land Bank argues that the Margosians seek to avoid liability 

on the guaranty “based upon alleged fraudulent misrepresentations that they were not 

signing a Guaranty but a name change (the Guaranty should be rescinded based upon 

fraud) or that the Guaranty, despite its terms, would not cover their personal assets (the 

Guaranty should be reformed based upon fraud).” (Id.) Similarly, the Bank argues that 

the Margosians’ affirmative claim of fraudulent misrepresentation merely “seek[s] to 

avoid liability under the 2008 Guaranty based upon the premise that the Margosians are 

entitled to rescind the contract (they didn’t know they were signing a guaranty, but 

thought it was a name change) or reform the contract to conform it to what they claim 

was represented (they were told it was a guaranty, but that wouldn’t extend to their 

personal assets).” (Id. at 6.) Because rescission and reformation are equitable remedies, 

no right to a jury trial attaches. (Id.)

The Margosians disagree with this characterization of their claim and defenses as 

equitable. They argue that, under California law, they have the option to seek to “undo 

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the transaction in its entirety” or to seek damages. (Oppn. at 7-8). Here, the Margosians 

expressly seek damages, a legal remedy. (Id.).

In response, the Land Bank acknowledges that the Margosians may elect either 

to avoid liability under the guaranty or to sue for damages, but argues that they may not 

do both. (Reply at 2-3.) Thus, if the Margosians choose to affirm the contract and sue for 

damages, the Court should enter judgment on the Land Bank’s claim. (Id. at 3.) 

D. Discussion

The Land Bank’s claim for breach of the guaranty is a classic action at law. See

Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477 (1962) (“As an action on a debt allegedly 

due under a contract, it would be difficult to conceive of an action of a more traditionally 

legal character.”); Wyler Summit P'ship v. Turner Broad. Sys., Inc., 235 F.3d 1184, 1194 

(9th Cir.2000) (“In most instances, a claim seeking money damages for breach of 

contract is an action at law.”). The remedy sought by the Land Bank, i.e. damages, is a 

legal remedy. Accordingly, a right to trial by jury attaches to this claim.

Similarly, the Margosians’ counter-claim for fraud seeks money damages, and 

therefore is a legal claim. See Curriden v. Middleton, 232 U.S. 633 (1914). A right to trial 

by jury also attaches to this claim. 

All that remains, then, is the Margosians’ affirmative defense to the Land Bank’s 

claim for breach of the guaranty. The Margosians have essentially argued that the 

nature of their defense is irrelevant because it is brought against a legal claim with an 

attendant jury trial right. This is not an entirely accurate characterization of the law. In the 

Ninth Circuit, “[a] litigant is not entitled to have a jury resolve a disputed affirmative 

defense if the defense is equitable in nature.” Granite State Ins. Co. v. Smart Modular 

Techs., Inc., 76 F.3d 1023, 1027 (9th Cir.1996). Accordingly, the Court must examine 

the nature of the Margosians’ defense.

As an initial matter, the Court notes a significant lack of clarity regarding the 

Margosians’ affirmative defense. However, at the hearing on this matter, the Margosians’ 

counsel explained that they intend to defend on the ground that no valid contract was 

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formed. Specifically, the Margosians contend that they did not assent to material terms 

of the contract because those terms were fraudulently misrepresented by Land Bank 

representatives. Because there is no valid contract, there can be no breach. The Court 

agrees with the Margosians that this defense is distinguishable from the cases cited by 

the Land Bank (ECF No. 913) in which a defending party specifically brings a counterclaim for the equitable remedies of rescission or reformation. 

The Court also concludes that the defense is distinguishable from other 

affirmative defenses that, due to their equitable nature, have been found not to invoke a 

right to a jury trial. See, e.g., Granite State Ins. Co., 76 F.3d at 1027 (no right to a jury on 

defense of equitable estoppel); Danjaq LLC v. Sony Corp., 263 F.3d 942, 962 (9th Cir. 

2001) (no right to a jury on the equitable defense of laches). Significantly, neither the 

affirmative defense nor the counter-claim seeks equitable relief. Rather, the Margosians 

are defending on the ground that the Land Bank cannot prove all of the elements 

necessary to succeed on their cause of action. Thus, they are raising a legal defense. 

Cf. Brown v. San Diego State Univ. Found., No. 3:13-CV-2294-GPC-NLS, 2015 WL 

4545857, at *4 (S.D. Cal. July 28, 2015) (finding defense of settlement and release to be 

a legal defense).

Finally, the Court rejects the Land Bank’s argument that the Margosians have

elected, or are required to elect, between rescission and damages at this juncture. It is 

true that California law requires a person claiming to be defrauded by false 

representations to elect between two inconsistent remedies: rescission of the contract, or 

affirmance and a suit for damages. Hjorth v. Bernstein, 44 Cal. App. 2d 561, 564 (1941).

“But the mere attempt to obtain one remedy, or even the commencement of an action 

seeking one remedy, is not a binding election.” 5 Witkin, Summary 10th Torts § 829, p. 

1201 (2005); see also Hjorth, 44 Cal. App. 2d at 565-66. No binding election occurs until 

a contract has effectually been affirmed or disaffirmed. Thus, a party is permitted to seek 

these alternative, inconsistent, remedies in a single action. 5 Summary 10th Torts § 829, 

p. 1201; Hjorth, 44 Cal. App. 2d at 565. Put simply, “[t]here is nothing inconsistent in [a 

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party] asking for rescission first and damages if he cannot have it.” Hjorth, 44 Cal. App. 

2d at 565. Although the Margosians eventually may be required to make an election, 

they need not do so now.

IV. CONCLUSION AND ORDER

Based on the foregoing, the Court concludes the Margosians have a right to a trial 

by jury on the claims asserted herein. Accordingly, the Land Bank’s motion to strike the 

jury demand is HEREBY DENIED.

IT IS SO ORDERED.

Dated: January 23, 2016 /s/Michael J. Seng 

UNITED STATES MAGISTRATE JUDGE

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