Wave Goodbye to Waivers of Jury Trials

Although the court recognized that its ruling is not in line with most other U.S. jurisdictions, it reached back to a line of cases starting with the court's decision in 1855 in Exline v. Smith, 5 Cal. 112 (1855) to find the pre-dispute waiver unenforceable. The court noted that the Exline decision held that “the rules under which the parties to a lawsuit may waive a jury trial must be prescribed by the Legislature, which is without power to delegate to the courts the responsibility of determining the circumstances under which such a waiver may be permitted.” The court added that a “nonstatutory authority for waiver of the right to jury trial is not permitted by our Constitution.”

According to the court in Grafton, “the Framers of the [California] Constitution intended to restrict to the Legislature the power and obligation to establish rules for jury waivers, because '[t]he right of trial by jury is too sacred in its character to be frittered away or committed to the uncontrolled caprice of every judge or magistrate in the State.'” The court added that “later cases confirm that the right to jury trial is considered so fundamental that ambiguity in the statute permitting such waivers must be 'resolved in favor of according to a litigant a jury trial.'”

The court, however, recognized that the legislature is permitted to, and does, allow disputes to be resolved without a jury trial in several instances. First, the court stated that California Code of Civil Procedure Section 631 implements the constitutional provision and sets forth the means by which the right to trial by jury may be waived after the commencement of an action: failure to appear at trial; failure to demand a jury trial within a specified period after the case is set for trial; failure to pay required jury fees in advance or during trial; oral consent to waive a jury trial in open court; or written consent to that effect with the clerk or court. Second, the court found strong policy and statutory authorization in favor of arbitration. Third, the court found that the legislature also has embraced a reference proceeding.

Adding to the impact of the decision, the court stated that its decision will apply retroactively, thereby invalidating all pre-dispute jury-trial waivers in existence as of the date of its ruling. This decision undoubtedly will have repercussions in many circumstances.

A New Item for Consideration

The court's decision must now be added as a factor when a California-based franchisor or a franchisor with California franchisees makes its decision regarding a method of resolving disputes. A contractual jury waiver will not be enforced in California state court. However, as noted by Justice Ming W. Chin in his concurring opinion, “as a practical matter, in a diversity action, a federal court will routinely enforce a knowing and voluntary pre-dispute jury waiver as a matter of federal law.”

If proceeding in federal court is not viable, a jury trial may also be avoided by contract provisions mandating arbitration or reference proceedings. Arbitration is a regularly used dispute resolution procedure in franchising. For franchisors that prefer a bench trial to arbitration, a reference proceeding may be another approach. Reference proceedings are governed by California Code of Civil Procedure section 638, et. seq. A judicial reference proceeding is very similar to a bench trial. The referee is typically a retired judge chosen by the parties. If the parties cannot reach agreement on the referee, then the referee will be appointed by the court. The referee has the powers of a Superior Court judge, and the judgment entered by the retired judge can be appealed. One important difference is that the referee's fees are paid by the parties, either pursuant to agreement of the parties or by order of the court.

The full repercussions of this decision have yet to be felt or addressed. It is possible that the California legislature will react to the pressures of business interests within the state to permit pre-dispute waiver of jury trial. Indeed, in a concurring opinion, Justice Chin, although agreeing with the conclusion reached by the majority of the court, wrote separately to urge the California legislature to enact legislation expressly authorizing pre-dispute jury waivers. But until the legislature acts, existing waivers are invalid, and franchisors and practitioners must consider the implications of Grafton in selecting their approach to dispute resolution.

In a decision that all franchisors need to note, on Aug. 4, 2005 the California Supreme Court ruled that pre-dispute waivers of a jury trial in a civil matter are unconstitutional under the California constitution. Many commercial agreements include a pre-dispute waiver of a jury trial so that businesses that prefer not to submit disputes to arbitration can elect to litigate claims and have their disputes heard by a judge rather than submit to a jury trial. The high court in Grafton Partners v. Superior Court (PricewaterhouseCoopers), 2005 Cal. LEXIS 8586, 4 (2005), affirmed an appellate court's decision to reject the 1991 appellate court decision upholding pre-dispute waivers of jury trials in Trizec Properties Inc. v. Superior Court , 229 Cal.App.3d 1616 (1991). This case will alter the way commercial contracts ' from joint venture agreements, to franchise agreements, real estate leases and other contracts ' are written. The Grafton decision is a call to California-based franchisors, and franchisors with franchises in California, to take stock of their decisions and provisions regarding dispute resolution.

Jury Waivers Out

Grafton arose out of a complaint against PricewaterhouseCoopers, L.L.P. (“PWC”), alleging negligence, misrepresentation, and other causes of action. PWC sought a court trial, and the plaintiffs sought a jury trial. The trial court granted PWC's motion to strike the plaintiff's request for a jury trial but, as noted above, the appellate court overturned the trial court's ruling and held that a pre-dispute waiver of a jury trial is not authorized by California Code of Civil Procedure section 631 and is therefore unconstitutional.

Although the court recognized that its ruling is not in line with most other U.S. jurisdictions, it reached back to a line of cases starting with the court's decision in 1855 in Exline v. Smith , 5 Cal. 112 (1855) to find the pre-dispute waiver unenforceable. The court noted that the Exline decision held that “the rules under which the parties to a lawsuit may waive a jury trial must be prescribed by the Legislature, which is without power to delegate to the courts the responsibility of determining the circumstances under which such a waiver may be permitted.” The court added that a “nonstatutory authority for waiver of the right to jury trial is not permitted by our Constitution.”

According to the court in Grafton, “the Framers of the [California] Constitution intended to restrict to the Legislature the power and obligation to establish rules for jury waivers, because '[t]he right of trial by jury is too sacred in its character to be frittered away or committed to the uncontrolled caprice of every judge or magistrate in the State.'” The court added that “later cases confirm that the right to jury trial is considered so fundamental that ambiguity in the statute permitting such waivers must be 'resolved in favor of according to a litigant a jury trial.'”

The court, however, recognized that the legislature is permitted to, and does, allow disputes to be resolved without a jury trial in several instances. First, the court stated that California Code of Civil Procedure Section 631 implements the constitutional provision and sets forth the means by which the right to trial by jury may be waived after the commencement of an action: failure to appear at trial; failure to demand a jury trial within a specified period after the case is set for trial; failure to pay required jury fees in advance or during trial; oral consent to waive a jury trial in open court; or written consent to that effect with the clerk or court. Second, the court found strong policy and statutory authorization in favor of arbitration. Third, the court found that the legislature also has embraced a reference proceeding.

Adding to the impact of the decision, the court stated that its decision will apply retroactively, thereby invalidating all pre-dispute jury-trial waivers in existence as of the date of its ruling. This decision undoubtedly will have repercussions in many circumstances.

A New Item for Consideration

The court's decision must now be added as a factor when a California-based franchisor or a franchisor with California franchisees makes its decision regarding a method of resolving disputes. A contractual jury waiver will not be enforced in California state court. However, as noted by Justice Ming W. Chin in his concurring opinion, “as a practical matter, in a diversity action, a federal court will routinely enforce a knowing and voluntary pre-dispute jury waiver as a matter of federal law.”

If proceeding in federal court is not viable, a jury trial may also be avoided by contract provisions mandating arbitration or reference proceedings. Arbitration is a regularly used dispute resolution procedure in franchising. For franchisors that prefer a bench trial to arbitration, a reference proceeding may be another approach. Reference proceedings are governed by California Code of Civil Procedure section 638, et. seq. A judicial reference proceeding is very similar to a bench trial. The referee is typically a retired judge chosen by the parties. If the parties cannot reach agreement on the referee, then the referee will be appointed by the court. The referee has the powers of a Superior Court judge, and the judgment entered by the retired judge can be appealed. One important difference is that the referee's fees are paid by the parties, either pursuant to agreement of the parties or by order of the court.

The full repercussions of this decision have yet to be felt or addressed. It is possible that the California legislature will react to the pressures of business interests within the state to permit pre-dispute waiver of jury trial. Indeed, in a concurring opinion, Justice Chin, although agreeing with the conclusion reached by the majority of the court, wrote separately to urge the California legislature to enact legislation expressly authorizing pre-dispute jury waivers. But until the legislature acts, existing waivers are invalid, and franchisors and practitioners must consider the implications of Grafton in selecting their approach to dispute resolution.