In a decision with widespread ramifications across the West Coast commercial community, California’s highest court has held that the state’s constitution does not allow contracting parties to waive their right to a jury trial prior to a dispute.
The decision in Grafton Partners LP v. Superior Court, 32 Cal.Rptr.3d 5 (Calif. S.Ct. Aug. 4, 2005), affirms a controversial ruling by the state’s First Appellate District last year, and now leaves to the state legislature the decision as to whether to create a statutory right to predispute jury trial waivers.
The California Supreme Court frankly noted that its decision is contrary to the law in most other states.
"[W]e acknowledge that the majority of state and federal jurisdictions permit predispute waiver of the right to a jury trial," the court stated. "But there is no indication that in other jurisdictions, there are constitutional provisions like California’s that have been interpreted as requiring exclusively legislative authorization for waiver of the right to a jury trial in civil cases."
In a concurrence, Associate Justice Ming W. Chin said the court had chosen to strictly parse the state’s Code of Civil Procedure. "I write separately to urge the Legislature to enact legislation expressly authorizing predispute jury waivers."
The case arose out of a contract between Grafton Partners and Pricewaterhouse-Coopers ("PwC") to audit the records of two limited partnerships. The contract contained a waiver of the parties’ right to a jury trial in litigation stemming from the contract. Grafton later alleged that PwC had failed to disclose, and had covered up, certain fraudulent business practices, had filed suit, and demanded a jury trial.
PwC moved to strike and the trial court granted its motion.
The Appellate Court reversed, concluding that a predispute waiver of a jury trial was not authorized by the Code of Civil Procedure §631, which implements a state constitutional provision providing that any waiver to a jury trial must be provided by statute.
PwC argued, among other things, that §631 permits a written jury trial waiver to be filed with the trial court after litigation is commenced, but does not prohibit parties from entering into a waiver before litigation ensues. PwC further argued that predispute waivers have been recognized in California, in Trizec Properties Inc. v. Superior Court, 229 Cal. App. 3d 1616 (1991) and several following decisions, and that the right to a jury trial can be waived by opting for arbitration, which is explicitly permitted by statute.
The California Supreme Court overturned Trizec, emphasizing that under the California Constitution, the right to a jury trial is "fundamental" and "inviolate." Any waiver must be "as provided by statute," the court noted, citing the constitution.
The language of §631 implicitly presumes that any jury trial waiver be both executed and filed after litigation has commenced, the court concluded after parsing the language of that section. It distinguished the statutory authorization for arbitration on the basis that opting for arbitration is a choice to proceed outside of the judicial forum, while a waiver of a jury trial is a choice to proceed inside a judicial forum, but under a procedure not permitted by statute.
Note: The Grafton decision will have a significant impact on financial institutions and other commercial parties unless the state legislature acts. Many loan documents have been modified to avoid the risk of jury trials, and such provisions now will be difficult to enforce in California.
This article is presented for informational purposes only and is not intended to constitute legal advice.