Pre-Dispute Jury Trial Waivers Unenforceable, Rules California Supreme Court

In a decision that potentially has an impact nationwide, the California Supreme Court has upheld a state appeals court's ruling that a pre-dispute contractual agreement waiving the right to a jury trial in the event of a dispute between the parties to the contract is unenforceable under the state's constitution. This development is of particular importance to those who use agreements containing California choice of forum, venue and/or law provisions.

In an effort to avoid the unpredictability and costs associated with jury trials, parties entering into an agreement frequently enter into a pre-dispute contractual provision waiving any right to resolve a contractual dispute with a jury trial.

In a 2005 case between PriceWaterHouseCoopers LLP and Grafton Partners LP, a California trial court held that Grafton had contractually waived its right to a jury trial, due to a term in the engagement letter between the parties. However, the California Court of Appeal reversed that ruling, holding that Section 631 of the California Constitution, while permitting waiver of jury trials under very specific circumstances, does not authorize the pre-dispute contractual waiver of a jury trial.

The Supreme Court of California affirmed the Court of Appeal ruling, emphasizing that previous case law and the legislative history of the enactment of state laws mandate that only the California Legislature can prescribe the methods for waiver of a jury trial, which has long been held to be an inviolate right of any party to a civil case. Therefore, under Section 631, a party can waive or forfeit the right to a jury trial on several specific grounds, including: failing to appear at trial; failing to pay jury fees; failing to announce that a jury is desirable or required; and as relied upon by PriceWaterHouseCoopers in the present case, by giving written consent to the clerk or judge of the court. (emphasis added)

The state Supreme Court rejected the theory that a pre-dispute contract can be used in lieu of "written consent" under Section 631. The Supreme Court stressed that only once an action is pending does Section 631 apply, and only then can parties waive their right to trial by jury by submitting written consent to the clerk or judge. In other words, a pre-dispute contract cannot substitute for written consent once a lawsuit has begun. The Supreme Court was not persuaded by the laws of other jurisdictions, the vast majority of which permit pre-dispute jury waivers.

Although the Supreme Court rejected any analogy between mandatory arbitration provisions and pre-dispute waivers of jury trials, it should be noted that, significantly, arbitration agreements are left unaffected by this ruling and such agreements do not constitute an unenforceable waiver of a jury trial because they are considered agreements to avoid the judicial forum altogether. The Supreme Court pointed out that indeed the California Legislature has created an entire statutory scheme authorizing avoidance of the judicial forum, thereby sanctioning mandatory arbitration agreements and the dispute resolution process associated with them.

As a consequence of the California Supreme Court's decision, companies who enter into agreements containing California choice of forum, venue and/or law clauses, or who will likely end up in a California civil court adjudicating any dispute arising out of an agreement that is lacking any such clause, but generally subject to California law, should take note of this ruling. Unless and until California lawmakers pass legislation that statutorily allows pre-dispute contractual waivers as an explicit basis upon which to avoid jury trials, companies doing business in California and/or subject to a California contractual forum clause will be hard-pressed to avoid jury trials by relying on pre-dispute contractual provisions.

For more information, please contact John J. Soroko.

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