Law Blog – Business Law & Litigation
Given the frequent use of pre-litigation jury trial waivers in contracts, it may be news to some that such waivers are considered unenforceable under California law since the California supreme court’s decision in Grafton Partners L.P. v. Sup.Ct., 36 Cal. 4th 944 (2005). Virtually all other states in the nation, save California and Georgia, permit pre-litigation jury trial waivers in contracts subject to certain conditions, such as whether the waiver was knowing and voluntary. The same rule – conditional enforceability of pre-dispute jury trial waivers – is followed by the federal courts as well, as least for cases arising under federal law. However, a recent decision by the Ninth Circuit holds that federal courts enforcing state law in diversity cases must follow state law regarding pre-litigation jury trial waivers. In re County of Orange, 784 F.3d 520 (9th Cir. 2015).
In this case, the Ninth Circuit Court of Appeals addressed whether a federal court sitting in diversity (a case lacking a substantive federal question but involving parties from diverse jurisdictions) applies state or federal law to determine the validity of a pre-dispute jury trial waiver in a contract governed by California law. While one might expect that such waivers are enforceable in any federal case because federal procedural law permits these waivers and a jury trial would seem to be a procedural issue, the Ninth Circuit reasoned that California’s rule is both procedural and substantive because it “embodies the state’s substantive interest in preserving the right to a jury trial in the strongest possible terms, an interest the California Constitution zealously guards.” For legal enthusiasts, the decision is all the more interesting because of the issues raised under the pivotal Erie doctrine, which requires federal courts sitting in diversity to apply state law on substantive issues (such as what defines a legal claim) but confirming they may continue to apply federal law on procedural questions.
While it may be too soon to tell if the Ninth Circuit’s ruling will be adopted by other courts or lead to any shift in the use of jury trial waivers in contracts, both this case and California’s law regarding such waivers should give contracting parties and their counsel serious pause in including these waivers in contracts governed by California law. It should also give parties who sign such waivers – but who would have preferred not to – cause to believe they will not be enforced in a case involving claims under California law (and presumably Georgia law, too). An issue not addressed is the enforceability of pre-litigation jury trial waivers in federal cases arising under federal law with supplemental jurisdiction over state law claims arising under California or Georgia law. Applying In re County of Orange, it seems likely a court would bifurcate trial and try the state law claims with a jury and the federal claims with a judge. With this scenario inevitable, it should not be long before the case law develops an answer to this and related issues in this interesting nexus of substantive and procedural law.
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Interesting. Would that mean that a “binding arbitration clause” which includes a “waiver of right to trial-by-jury”, often included in employment or property rental agreements, is unenforceable in California?
Thanks for your question, Martin. Interestingly enough, arbitration clauses are a separate animal. Because arbitration clauses are intended to, and necessarily, take a dispute out of the court system, they imply a jury trial waiver so a recitation of such a waiver _inside_ an arbitration clause isn’t really a true jury trial waiver but sort of just an explanation of what arbitration means. The pre-litigation jury trial waiver that is the subject of my blog post relates only to jury trial waivers found in contracts that intend to permit the parties to file lawsuits and use the court system. If the waiver is enforceable, a trial would be heard and decided only by the judge, and not by a jury. As a footnote, following an arbitration, a party may return to the court system to enforce an arbitration award against a party that refuses to comply with the award. Also, though I have never seen this done, theoretically, parties to an arbitration could agree to hire a private jury to decide questions of fact (and agree for the arbitrator to apply the facts to the law in order to render a decision). However, such a proceeding would really be in the nature of what is called a “private trial” where the parties litigate a dispute much like a public court lawsuit but hire a private judge (and jury, if desired) instead of wait for the public court system to provide the judge (and jury, if desired). Private trials also enable the parties to maintain a degree of confidentiality in the proceeding, but they can be very expensive. I would also note that, once an actual dispute or lawsuit does exist, the parties _can_ agree to waive a jury trial, which is why the blog post focuses only on pre-dispute / pre-litigation jury trial waivers.