Protecting Both Business Finances And Futures

Wave Goodbye To Predispute Jury Waivers

We’ve all signed standard contracts with paragraph after paragraph of boilerplate miscellaneous provisions and terms. Sometimes, we’re careful enough to read all of the fine print; other times, not so much. Later, when we finally sit down and review what we just signed, we might be surprised and shocked to learn that buried in the fine print was a waiver of one of our most basic, and carefully protected, Constitutional rights: the right to a trial by jury.

Can this unknowing, unintentional waiver of a right guaranteed by the Constitution truly be enforceable? In the recent case of Grafton Partners L.P. v. Superior Court (2005) 36 Cal. 4th 944, the California Supreme Court emphatically answered this question: NO. In a sweeping decision that will undoubtedly affect the interpretation of thousands of written agreements in California, the Supreme Court held that every predispute contractual waiver of jury trial is void and unenforceable as a matter of law.

At issue in Grafton was a retainer agreement between PricewaterhouseCoopers and its client for certain auditing services which contained the following provision:

“In the unlikely event that differences concerning [the] services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, [the parties] agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to [the] services and fees for this engagement.”

Although the client signed the agreement knowing it contained the jury trial waiver, it later sought relief from the appellate courts when PricewaterhouseCoopers attempted to enforce this provision by forcing a bench trial.

The matter ultimately found its way to the California Supreme Court. Since the California Constitution provides that a waiver of jury trial could only occur in a method permitted by statute, the Supreme Court examined the California statutes and found only six ways that a party could forfeit his right to a trial by jury.

None of those six was by a contractual waiver. In fact, all six were procedural acts (or omissions) that could only occur after a lawsuit was filed. At first glance, then, the Supreme Court held that you can’t give up your right to a trial by jury for any claim until after you’ve filed that claim.

Or did it? Although the state Supreme Court nullified all predispute agreements to waive a jury trial, it surprisingly did not ban predispute agreements to waive one’s entire right to relief of the court – e.g., by a mandatory arbitration clause. In justifying its decision, the Court stated that the permissible methods of jury trial waiver set forth in the statutes applied only after litigation had commenced.

The court did not, however, “prevent parties from avoiding jury trial by not submitting their controversy to a court of law in the first instance. Indeed it has always been understood without question that parties could eschew jury trial either by settling the underlying controversy, or by agreeing to a method of resolving that controversy, such as arbitration, which does not invoke a judicial forum.”

So the Supreme Court really held that you can’t give up your right to a trial by jury in a predispute contractual agreement unless you are willing to give up your right to the court system altogether – as you do when you agree to arbitration.

The present impact of this decision is that the State Legislature likely will address this issue by amending the applicable statutes to provide for the enforceability of some, but not all, predispute jury trial waivers. It is likely that the Legislature will allow contractual jury trial waivers in a business-to-business context. Until the Legislature acts, however, contractual jury trial waivers are unenforceable. But watch out – mandatory arbitration provisions – under which you are also giving up your right to a trial by jury – are still largely enforceable.

To arrange a consultation about jury trials, call 888-714-1738 or contact Burkhalter Kessler Clement & George LLP‘s Irvine or Westlake Village offices online. We are glad to represent your business’ best interests.