                            In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 07-1037
IFC CREDIT CORPORATION,
                                           Plaintiff-Appellant,
                               v.

UNITED BUSINESS & INDUSTRIAL
FEDERAL CREDIT UNION,
                                           Defendant-Appellee.
                         ____________
       Appeal from the United States District Court for the
         Northern District of Illinois, Eastern Division.
         No. 04 C 5905—Matthew F. Kennelly, Judge.
                         ____________
 ARGUED NOVEMBER 8, 2007—DECIDED JANUARY 15, 2008
                  ____________


 Before EASTERBROOK, Chief Judge, and FLAUM and
KANNE, Circuit Judges.
  EASTERBROOK, Chief Judge. Norvergence sold tele-
communications equipment and services—or claimed to
do so. After three apparently flourishing years it col-
lapsed. The supposedly wondrous equipment it sold or
rented, which it called a Merged Access Transport Intelli-
gent Xchange (MATRIX) device, turned out to be a stan-
dard integrated-access box with none of the benefits
that Norvergence had touted.
  Our case is one of many filed by IFC Credit Corporation
and other commercial factors that bought the right to
2                                             No. 07-1037

payments under these contracts. When Norvergence
stopped providing telecom services, its customers stopped
paying. (Some customers stopped paying even earlier,
when savings did not materialize.) But IFC and similar
entities claim to be holders in due course. If they have
this status, then personal defenses that the customers
could have asserted against Norvergence are unavailable,
and the customers must pay IFC even though Norvergence
told lies to make the sales.
  We have held that the forum-selection clause that
Norvergence included in contracts is valid and may be
enforced by IFC (and similarly situated firms) unless the
clause was the result of a distinct fraud. IFC Credit Corp.
v. Aliano Brothers General Contractors, Inc., 437 F.3d
606 (7th Cir. 2006). In this case, without discussing
Aliano Brothers, the district court held that the forum-
selection clause’s complement, an agreement to resolve
any dispute by bench trial in the selected forum, is
invalid. IFC’s suit to recover the contractual payments
was submitted to a jury, which returned a verdict in
favor of United Business & Industrial Federal Credit
Union.
   Aliano Brothers devoted a good deal of attention to the
question whether state or federal law governs the
validity of a forum-selection clause, when the forum be-
ing selected is a particular federal court. The decision in
Aliano Brothers observed that federal courts have a
substantial interest in agreements that purport to con-
trol where and when, within the federal system, litigation
may occur. The same may be said about an agreement
to a bench trial; Fed. R. Civ. P. 38 governs the choice
between bench and jury trial once a suit has begun, rais-
ing the question whether federal law might apply to a pre-
litigation agreement to waive a jury. But although Aliano
Brothers left open the choice between state and federal
No. 07-1037                                                3

law, Abbott Laboratories v. Takeda Pharmaceutical Co.,
476 F.3d 421 (7th Cir. 2007), later held that the validity
of a forum-selection clause depends on the law of the
jurisdiction whose rules will govern the rest of the dis-
pute. Taking the same approach here means that Illinois
law determines the validity of the waiver in the contract,
for the pact selects Illinois substantive law as well as
an Illinois judicial forum.
   In a letter filed after oral argument, IFC argued for
the first time that federal law controls the validity of
the contract’s bench-trial clause. It relies on Simler v.
Conner, 372 U.S. 221 (1963). Simler holds that the class-
ification of a dispute as “legal” or “equitable” must be
made under federal norms: after all, the phrase “at
common law,” which guarantees a right to trial by jury,
is in the seventh amendment, and meaning of this
phrase therefore must be a matter of federal law. It does
not follow that national law also controls the validity of
a contractual agreement to a bench trial. There is no
general federal law of contracts after Erie R.R. v.
Tompkins, 304 U.S. 64 (1938); if “federal law” did control,
the best it could do would be to use state law as the rule of
decision. See United States v. Kimbell Foods, Inc., 440 U.S.
715 (1979). One could imagine a federal rule prevent-
ing states from discriminating for or against particular
terms; this is the approach that the Federal Arbitration
Act takes to another form of jury waiver, an agreement
to arbitrate, which is valid “save upon such grounds
as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. §2. We therefore ask whether the
agreement is valid under the law of Illinois.
  Contracts for the sale or rental of equipment between
merchants are governed by the Uniform Commercial Code,
which Illinois has enacted. Terms in form contracts
are routinely enforced under the UCC, unless a “battle of
the forms” occurs (see §2–207) or the term would be
4                                              No. 07-1037

unconscionable (see §2–302). (We cite the UCC’s provisions
on sales; similar provisions in Article 2A cover leases.)
There was only one form, Norvergence’s, so §2–207 need
not be consulted, and the Credit Union does not contend
that a waiver of jury trial is unconscionable. Merchants
often prefer professional adjudicators (be they judges
or arbitrators) over amateurs.
   What the district judge said is that the bench-trial
clause is invalid because it was not the subject of negotia-
tion (that is, it appears on a form), does not stand out
(it is in the same type as other clauses), and was not
reviewed by the Credit Union’s lawyer before the con-
tract was signed (the Credit Union’s executives negoti-
ated the deal without the participation of counsel). The
UCC designates a few kinds of provisions as valid only
if separately signed. See §2–205 (firm-offer clause in
form contract supplied by the buyer is valid only if sepa-
rately signed by the seller); §2–209 (clause limiting
modification to a signed writing, in a contract between a
merchant and a non-merchant, is valid only if separately
signed by the non-merchant). But the UCC does not
contain any separate-signing or separate-negotiation
requirement for a clause agreeing to a bench trial, and
the parties have not cited (and we did not find) any
decision by a state court of Illinois creating such a re-
quirement. Nor does the UCC make the validity of an
agreement turn on review by a lawyer. The Credit Union
had an opportunity to submit the document to counsel;
it cannot use its own decision to bypass legal advice as
a reason why it is not bound by what it signed.
  Form agreements are common and enforceable. Lots
of firms participate in the telecom-equipment business,
and all a customer need do is say no to any given offer and
let the competition continue. Norvergence wanted the cus-
tomers’ money; to get it, Norvergence had to propose
terms that the customers were willing to accept. Illinois
No. 07-1037                                               5

does resolve ambiguities against firms that use form
contracts (that rule is commonly invoked in insurance
disputes), but it honors straightforward terms with
understandable meanings. See, e.g., Nicor, Inc. v. Associ-
ated Electric & Gas Insurance Services, Ltd., 223 Ill. 2d
407, 416–17, 860 N.E.2d 280, 285–86 (2006). See also
Farmers Automobile Insurance Ass’n v. St. Paul Mercury
Insurance Co., 482 F.3d 976 (7th Cir. 2007). There is
nothing ambiguous about the bench-trial clause in the
contract between Norvergence and the Credit Union.
  Ever since Carnival Cruise Lines, Inc. v. Shute, 499
U.S. 585 (1991), enforced a forum-selection clause
printed in tiny type on the back of a cruise-ship ticket, it
has been hard to find decisions holding terms invalid on
the ground that something is wrong with non-negotiable
terms in form contracts. See also, e.g., Gilmer v. Inter-
state/Johnson Lane Corp., 500 U.S. 20, 32 (1991) (unequal
bargaining power does not justify refusal to enforce an
arbitration clause in a form contract); Seawright v.
American General Financial Services, Inc., 507 F.3d 967
(6th Cir. 2007). As long as the market is competitive,
sellers must adopt terms that buyers find acceptable;
onerous terms just lead to lower prices. See, e.g., Hill v.
Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997); ProCD,
Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); George L.
Priest, A Theory of the Consumer Product Warranty, 90
Yale L.J. 1297 (1981). If buyers prefer juries, then an
agreement waiving a jury comes with a lower price to
compensate buyers for the loss—though if bench trials
reduce the cost of litigation, then sellers may be better
off even at the lower price, for they may save more in
legal expenses than they forego in receipts from customers.
  There is no difference in principle between the content
of a seller’s form contract and the content of that seller’s
products. The judiciary does not monitor the content of
6                                               No. 07-1037

the products, demanding that a telecom switch provide
50 circuits even though the seller promised (and delivered)
40 circuits. It does not matter that the seller’s offer was
non-negotiable (if, say, it offered 40-circuit boxes and 100-
circuit boxes, but nothing in between); just so with proce-
dural clauses, such as jury waivers. As long as the price
is negotiable and the customer may shop elsewhere,
consumer protection comes from competition rather than
judicial intervention. Making the institution of contract
unreliable by trying to adjust matters ex post in favor
of the weaker party will just make weaker parties
worse off in the long run. Original Great American Choco-
late Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d
273, 282 (7th Cir. 1992) (“The idea that favoring one
side or the other in a class of contract disputes can redis-
tribute wealth is one of the most persistent illusions
of judicial power. It comes from failing to consider the
full consequences of legal decisions. Courts deciding
contract cases cannot durably shift the balance of ad-
vantages to the weaker side of the market; they can
only make contracts more costly to that side in the
future, because [the other side] will demand compensa-
tion for bearing onerous terms.”).
  Two appellate decisions have held that agreements to
resolve disputes by bench trials are enforceable only if
extra evidence of negotiation or consent supports that
clause. They rely on the fact that, in federal court, the
seventh amendment gives the jury a constitutional
status. See National Equipment Rental, Ltd. v. Hendrix,
565 F.2d 255, 257–58 (2d Cir. 1977); K.M.C. Co. v. Irving
Trust Co., 757 F.2d 752, 755–57 (6th Cir. 1985). These
decisions do not persuade us. They begin from the proposi-
tion that only a knowing and intelligent waiver, with
the usual formalities that “waiver” entails, may sur-
render the right to a jury trial. Yet if the parties’ contract
is silent on the issue, then Fed. R. Civ. P. 38 will govern.
No. 07-1037                                                7

And Rule 38 says that omission of a jury demand from
a complaint or answer forfeits any opportunity to have
the case heard by a jury. Omissions may occur by acci-
dent or lack of foresight. If accidental forfeitures can blot
out any right to a jury trial—for no one argues that
Rule 38 is unconstitutional—then there is no federal rule
that bench-trial agreements must be attended by extra
negotiation or depend on evidence of voluntariness bey-
ond what is required to make the rest of the contract
legally effective.
  Consider an agreement to arbitrate, which surrenders
not only a jury trial but also the right to any judicial
forum. Courts do not impose special negotiation require-
ments on arbitration clauses in form contracts. See, e.g.,
Oblix, Inc. v. Winiecki, 374 F.3d 488 (7th Cir. 2004);
Carbajal v. H&R Block Tax Services, Inc., 372 F.3d
903 (7th Cir. 2004). So too with forum-selection clauses;
parties may agree to a forum in another nation, where
juries are unknown, but this does not make forum-selec-
tion clauses suspect. Even confession-of-judgment clauses
in cognovit notes are enforceable. See D.H. Overmyer Co.
v. Frick Co., 405 U.S. 174 (1972). Agreement to a bench
trial cannot logically be treated less favorably than
agreement to confess judgment, or arbitrate, or litigate
in a forum that will not use a jury. Many courts accord-
ingly hold that an agreement to resolve a dispute in a
bench trial is no less valid than the rest of the contract
in which the clause appears. See, e.g., Leasing Service
Corp. v. Crane, 804 F.2d 828, 832 (4th Cir. 1986); Telum,
Inc. v. E.F. Hutton Credit Corp., 859 F.2d 835, 837–38
(10th Cir. 1988). To the extent that National Equipment
Rental and K.M.C. hold otherwise, we do not follow them.
  We have circulated this opinion to the full court under
Circuit Rule 40(e), because it may create a conflict
among the circuits. Although both Leasing Service and
8                                              No. 07-1037

Telum hold bench-trial agreements valid as components
of otherwise-valid contracts, they also state (inconsis-
tently, it seems to us) that an agreement to resolve a
dispute by a bench trial must be assessed by the standards
of “waiver.” Moreover, National Equipment, K.M.C.,
Leasing Service, and Telum all approach the inquiry on
the assumption (which the parties to those cases ap-
parently did not contest) that federal law governs the
validity of such a clause, even when state law applies to
the substance of the parties’ dispute. None of the four
decisions mentions or attempts to justify the disparate
treatment of bench-trial and arbitration agreements, or
the oddity of applying a waiver standard to a contract
when Rule 38 does not use a waiver approach once the
case gets to court. For the reasons we have given, we
hold that state law governs the validity of a bench-trial
agreement in a case under the diversity jurisdiction,
and that the clause at issue here is enforceable under the
UCC. None of the active judges favored a hearing en banc
on this issue.
  One final subject requires brief consideration. Just
before the trial began, the Credit Union raised a defense
of fraud in the factum, one of the “real defenses” that
apply even to a holder in due course. This was the
ground on which it prevailed before the jury. If a person
signs a contract thinking it to be something else—say,
a request for sales literature—then the pact is void. And
a waiver-of-jury clause in a void contract would be
void as well.
  Things are not quite this simple, however. If the
judge determines before trial that the contract is void,
and that the jury waiver falls with it, then there is
nothing to be tried to a jury. If the facts leave a material
dispute requiring resolution by a trier of fact—here IFC
maintains that the Credit Union knew full well exactly
what it was signing, and that its defense of fraud in
the factum is just a misnamed defense of fraud in the
No. 07-1037                                               9

inducement—then the jury-waiver clause might be
applied to determine whether a judge or a jury makes
the critical decision.
  In the law of arbitration, Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395 (1967), holds that, if the
parties sign a contract containing an arbitration clause,
then the arbitrator will decide whether the contract was
signed only as a result of fraudulent inducement. Several
courts have held that the defense of fraud in the factum
must be treated like a defense of fraud in the induce-
ment. See, e.g., R.M. Perez & Associates, Inc. v. Welch,
960 F.2d 534 (5th Cir. 1992); C.B.S. Employees Federal
Credit Union v. Donaldson, Lufkin & Jenrette Securities
Corp., 912 F.2d 1563 (6th Cir. 1990). Others have held that
a defense of fraud in the factum must be resolved by
a judge in advance of submitting the remainder of the
dispute to arbitration. See, e.g., I.S. Joseph Co. v. Michi-
gan Sugar Co., 803 F.2d 396 (8th Cir. 1986); Three Valleys
Municipal Water District v. E.F. Hutton & Co., 925 F.2d
1136 (9th Cir. 1991); Cancanon v. Smith Barney Harris
Upham & Co., 805 F.2d 998 (11th Cir. 1986). By parallel
reasoning, when the clause waives a jury trial a judge
would resolve a defense of fraud in the factum before
deciding whether any remaining disputes would go to a
jury.
  We need not take sides in this conflict, for two reasons.
First, the Credit Union has not argued that a judge
must make a preliminary decision about a fraud-in-the-
factum defense to determine whether the jury waiver
is valid. This omission forfeits the argument. Second,
whatever the best rule would be when a party says that
it did not know the document it signed was a contract,
that’s not the Credit Union’s position. It concedes knowl-
edge that it was making a contractual commitment and
argues only that it thought the contract one for communi-
10                                              No. 07-1037

cations services, as opposed to a combination of service
and equipment. This means that the Credit Union know-
ingly assented to a contract containing a clause agree-
ing to a bench trial.
  A judge, not a jury, must resolve the remaining disputes
in this litigation. None of the other issues joined in the
appellate briefs is likely to recur at a new trial, so no more
need be said. The judgment is reversed, and the case
is remanded for a new trial.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit




                   USCA-02-C-0072—1-15-08
