August 5, 2005

On August 4, 2005, the California Supreme Court held that a contractual agreement waiving a jury trial entered into before a dispute arose is unenforceable. Grafton Partners L.P. v. Superior Court.

BACKGROUND
A split previously existed among California appellate courts. One court, in 1991, held that predispute jury trial waivers (i.e., waivers in contracts before there is a dispute) were enforceable. A different appellate court held last year in Grafton that predispute jury trial waivers were unenforceable. The California Supreme Court agreed to review the issue to resolve the conflict.

FACTS AND HOLDING OF GRAFTON CASE
In Grafton, an accounting firm’s engagement letter contained the following predispute jury trial waiver:
“In the unlikely event that differences concerning [the accounting firm’s] 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 accounting firm’s] services and fees for this engagement.”

A dispute subsequently arose and the accounting firm argued that the clause should be enforceable--there should be no jury trial to resolve the dispute. The California Supreme Court disagreed. Unless a waiver is specifically allowed by California statute, the right to a jury is “inviolate.” Predispute jury trial waivers are not authorized under any statute and, therefore, the Court held, are invalid under California law.

The Court continued to recognize the validity of predispute arbitration agreements which “waive an entire package of trial rights”, holding that the Legislature has enacted a scheme authorizing these types of agreements, “expressing a strong state policy favoring arbitration.” Therefore, parties can still, in effect, obtain predispute jury trial waivers, in the form of mandatory arbitration provisions.

SIGNIFICANCE OF CASE
Unless the Legislature enacts legislation to the contrary, predispute jury trial waivers are invalid under California law.

If you have any questions concerning the referenced decision, please feel free to call any of the following members of our Litigation Group:

Jeffrey N. Brown 310.201.8990
James L. Goldman 310.201.8958
I. Bruce Speiser 310.201.8908
Alan S. Petlak 310.201.8996

The PN&M Newsletter on Real Estate Law is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.

WE ARE PLEASED THAT Jeffrey N. Brown has joined Pircher, Nichols & Meeks, as a litigation partner. With more than 20 years of litigation experience, Jeff will be responsible for enhancing and expanding the Firm’s litigation department, especially as it relates to our representation of top-tier real estate clients. Prior to joining Pircher, Nichols & Meeks, Jeff was a partner at Morgan, Lewis & Bockius’ Los Angeles office, where he focused on handling complex litigation, with an emphasis on real property and commercial litigation. Alan S. Petlak, of counsel, has also joined Pircher, Nichols & Meeks, in our litigation department. Alan has over ten years of experience in litigation. Prior to joining Pircher, Nichols & Meeks, Alan was an associate at Morgan, Lewis & Bockius’ Los Angeles office.