Predispute Jury Trial Waivers Are Unenforceable in California
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.
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
1. Unless the Legislature enacts legislation to the contrary, predispute jury trial waivers are invalid under California law.
2. Parties will need to decide on a transaction-by-transaction basis whether the benefits of mandatory arbitration justify giving up certain benefits of litigation, including the ability to appeal an adverse result.
If you have any questions concerning this Legal Update, please feel free to contact any member of our Litigation Group in Los Angeles at:
Pircher, Nichols & Meeks
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Los Angeles, California 90067
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