Arbitration: California's Top Court Limits Contractual Jury Waivers (Web)

In Grafton Partners L.P. v. Super. Ct. of Alameda County, No. S123344, 2005 WL 1831995 (Cal. Aug. 4, 2005)(available at http://www.courtinfo.ca.gov/opinions/documents/S123344.PDF), the California Supreme Court held that in accordance with the California State Constitution, and as a matter of statutory interpretation, a predispute agreement waiving a party’s right to a jury trial was unenforceable.

The plaintiff engaged defendant PriceWaterhouseCoopers to audit the accounts of two of the plaintiff’s partnerships. PriceWaterhouseCoopers’ engagement letter released it from liability for misrepresentation by the partnerships’ management, and stated that PriceWaterhouseCoopers would not be liable to the partnerships except for willful misconduct or fraud. In addition, the engagement letter waived the plaintiff’s right to a jury trial, should it dispute PriceWaterhouseCoopers’ services or fees. Id. at *1.

Following the audit, the plaintiff brought several causes of action against PriceWaterhouseCoopers for its alleged failure to disclose the fraudulent business practices it discovered during the audit, and for its cover-up of these practices. In its complaint, the plaintiff demanded a jury trial. PriceWaterhouseCoopers moved to strike the plaintiff’s jury demand, and the trial court, relying on the engagement letter’s waiver language, granted the motion.

The plaintiff filed a petition for a writ of mandate or prohibition in the Court of Appeal. The Court of Appeal held that the plaintiff’s predispute waiver of its right to a jury trial was not authorized by Section 631 of the California Code of Civil Procedure, which set forth six permissible means by which parties to a civil lawsuit could waive their right to a jury trial. In addition, the Court of Appeal held that only these enumerated waivers were consistent with the California State Constitution’s grant of a fundamental right to a jury trial. Id. at *1.

PriceWaterhouseCoopers petitioned the state Supreme Court for review of the appellate decision. Id. at *1. PriceWaterhouseCoopers argued that a predispute agreement to waive a party’s right to a jury trial was analogous to an agreement to submit a controversy to arbitration, because an arbitration agreement also constituted a waiver of a party’s right to a jury trial. Accordingly, PriceWaterhouseCoopers asserted that like an arbitration agreement, a predispute waiver of a party’s jury trial right should be enforceable as a permissible alternative to the judicial forum. Id. at *4.

The Court rejected PriceWaterhouseCoopers argument, and distinguished arbitration agreements from predispute jury trial waivers, noting that “arbitration agreements are distinguishable from waivers of the right to jury trial in that they represent an agreement to avoid the judicial forum altogether.”

Furthermore, the Court held that Section 631 applied to agreements to waive a party’s right to a jury trial only once the parties had submitted their controversy to a court of law; thus, arbitration agreements were not subject to Section 631’s restrictions because arbitration did not invoke the judicial forum at all. Id. at *6. The Court emphasized that California had a strong state policy favoring arbitration, and that unlike predispute jury trial waivers, arbitration was specifically authorized by the California State Legislature. Id. at *12.

The Court’s holding that a predispute agreement to waive a party’s right to a jury trial was unenforceable overruled the California Court of Appeal’s holding in Trizec Properties, Inc. v. Super. Ct., 280 Cal. Rptr. 885, 886 (Cal. Dist. Ct. App. 1991), where the Court of Appeal held that the California State Constitution did not prohibit parties from waiving, in advance of a pending civil action, the right to trial by jury. In Trizec, the Court of Appeal also held that Section 631 was inapplicable to a predispute waiver of the right to a jury trial. Id. at *5.

The Court acknowledged that its holding did not follow the authority of the majority of state and federal jurisdictions, including New York , which permit pre-dispute waiver of the right to a jury trial. Id. at *12. The Court asserted that the California Legislature was the proper forum for evaluating the benefit of joining the approaches of these jurisdictions, and that it would not substitute its judgment for that of the Legislature. Id. at *13.

In his concurring opinion, Associate Justice Ming W. Chin urged the Legislature to enact legislation expressly authorizing pre-dispute jury trial waivers. Id. at *14.

-- Kristien M. Kahn, Associate, Dewey Ballantine LLP