May We Waive Goodbye to Juries?

Enforcement of pre-litigation jury waiver clauses, although clearly the majority approach, has not been universal. Where a statute or a state constitutional provision control waiver of the right, which is frequently the case, courts are likely to invalidate a pre-litigation waiver that is not explicitly authorized by the statute. This was the reasoning relied on by the California Supreme Court in Grafton Partners v. Superior Court, 116 P.3d 479 (Cal. 2005), which invalidated a jury waiver clause in an engagement letter. The court relied on a strict construction of the waiver provisions of the state constitution, which provides that '[i]n a civil cause a jury may be waived by the consent of the parties expressed as prescribed by statute.' California Civil Procedure Code '631 enumerates six ways a party may waive its right to a jury trial, all of which are clearly applicable only in the context of existing litigation. The court read these six methods as exclusive, and refused to enforce the pre-litigation waiver clause.

The court's decision in Grafton was grounded on a strict construction of the statutory scheme that enables waiver of a party's right to a jury trial and did not hold that jury waiver clauses are intrinsically unfair. The California legislature is currently considering legislation that will permit the enforcement of a waiver of a party's right to a jury trial in a pre-litigation contract. This or similar legislation is likely to pass, and parties wishing to avoid having their disputes submitted to a jury in California should continue to include jury waiver clauses in their contracts. In addition, parties may include mandatory arbitration clauses in their contracts as an alternative means to avoid the prospect of a jury trial.

In New York, jury waiver clauses are generally upheld, although in the context of a lease, Real Property Law '259-c may render a jury waiver clause unenforceable 'in any action for personal injury or property damage.' New York courts have defined 'property' liberally and have held that a commercial lessee asserting a claim for lost business revenue against a commercial lessor has a claim for property damage. Such a claim is not automatically entitled to the protection of '259-c, however. In the Second Department (which includes the areas surrounding New York City, exclusive of Manhattan and the Bronx), the Appellate Division has held that '259-c applies only in damage claims grounded in tort, leaving jury waiver clauses fully effective in contractual claims. See, e.g., Lindenwood Realty Co. v. Feldman, 338 N.Y.S.2d 245 (N.Y.App. Div. 2d Dept. 1972). In the First Department (Manhattan and the Bronx), however, the Appellate Division has extended the protection of '259-c to property damage actions sounding in contract as well. See, e.g., Phoenix Garden Restaurant, Inc. v. Chu, 651 N.Y.S.2d 510 (N.Y. App. Div. 1st Dept. 1996) (citing Swinger Realty Corp. v. A.S. Kinzer Imports, Inc, 335 N.Y.S.2d 108 (N.Y. App. Term 1st Dept. 1972). This position has been widely criticized, however, and the Appellate Division, First Department routinely seeks to avoid directly addressing the question. See, e.g., Chemical Bank v. Stahl, 685 N.Y.S.2d 238 (N.Y. App. Div. 1st Dept. 1999).

Illinois courts generally uphold pre-litigation jury waiver clauses, subject to concerns for individuals' knowledge and volition. Where the parties are both business-savvy and represented by counsel, it is unusual for a court to invalidate a jury waiver clause. See, e.g., GreatAmerica Leasing Corp. v. Cozzi Iron & Metal, Inc., 76 F.Supp.2d 875 (N.D. Ill. 1999). There have been no developments in Illinois that raise the same kinds of issues raised by the California Grafton decision and the jurisdictional split with respect to New York's '259-c.

Implications for Commercial Lessors

Notwithstanding the particular law governing a contract, strict construction of jury waiver clauses usually requires that they be unequivocal manifestations of the parties' intent to waive their right to a jury trial with respect to the particular cause of action alleged. For example, some courts will not enforce a waiver as to a cause of action that did not exist at the time the parties entered into the agreement. Quigley v. KPMG Peat Marwick, LLP, 749 A.2d 405 (N.J. Super. Ct. App. Div. 2000). Where a new cause of action has been created by the enactment of a statute, parties may want to consider amending their existing agreements to ensure any waivers will be effective with respect to the new law. Further, where there is a danger of undue influence on an unrepresented party, courts will scrutinize waivers more closely. In the case of experienced and represented parties, however, there is a strong presumption that the parties intended that all provisions of the contact be given effect, and absent the specific statutory considerations discussed above, waivers signed in such a context will likely be enforced.

Gary A. Goodman is a real estate partner in the New York office of Sonnenschein Nath & Rosenthal LLP, specializing in leasing. Miles Cowan is a third-year law student at New York Law School.

Like most rights, the right to a jury trial can be waived. In general, commercial landlords disfavor jury trials, especially when the opposing party is an individual, finding the outcomes of such trials to be either too uncertain, or if consistent, consistently against the landlord's interest. The general perception is that juries tend to favor individuals in disputes against institutional parties as a way to rectify a perceived injustice that corporations and other institutions allegedly inflict on the public. Jury trials are also more costly than non-jury trials, and parties may waive their right to a jury trial to avoid the added expense.

Once a dispute has arisen, parties may waive their rights to a jury trial in anticipation of litigation. It may be at precisely this time, however, that a potential litigant realizes the benefit of a jury trial. Because of this realization, landlords frequently include jury waiver clauses in their leases. A majority of courts put strong emphasis on the predictability that fully upheld contracts provide, and, remaining ever aware of the overburdened jury system, usually uphold jury waiver clauses. Because of the fundamental nature of the right to a jury trial, however, these clauses are frequently construed strictly, and any ambiguity in either the language or the intent of the parties entering into the agreement will be resolved against enforcement of the waiver.

Recent Case Law Limiting the Effectiveness of Jury Waiver Clauses

Enforcement of pre-litigation jury waiver clauses, although clearly the majority approach, has not been universal. Where a statute or a state constitutional provision control waiver of the right, which is frequently the case, courts are likely to invalidate a pre-litigation waiver that is not explicitly authorized by the statute. This was the reasoning relied on by the California Supreme Court in Grafton Partners v. Superior Court , 116 P.3d 479 (Cal. 2005), which invalidated a jury waiver clause in an engagement letter. The court relied on a strict construction of the waiver provisions of the state constitution, which provides that '[i]n a civil cause a jury may be waived by the consent of the parties expressed as prescribed by statute.' California Civil Procedure Code '631 enumerates six ways a party may waive its right to a jury trial, all of which are clearly applicable only in the context of existing litigation. The court read these six methods as exclusive, and refused to enforce the pre-litigation waiver clause.

The court's decision in Grafton was grounded on a strict construction of the statutory scheme that enables waiver of a party's right to a jury trial and did not hold that jury waiver clauses are intrinsically unfair. The California legislature is currently considering legislation that will permit the enforcement of a waiver of a party's right to a jury trial in a pre-litigation contract. This or similar legislation is likely to pass, and parties wishing to avoid having their disputes submitted to a jury in California should continue to include jury waiver clauses in their contracts. In addition, parties may include mandatory arbitration clauses in their contracts as an alternative means to avoid the prospect of a jury trial.

In New York, jury waiver clauses are generally upheld, although in the context of a lease, Real Property Law '259-c may render a jury waiver clause unenforceable 'in any action for personal injury or property damage.' New York courts have defined 'property' liberally and have held that a commercial lessee asserting a claim for lost business revenue against a commercial lessor has a claim for property damage. Such a claim is not automatically entitled to the protection of '259-c, however. In the Second Department (which includes the areas surrounding New York City, exclusive of Manhattan and the Bronx), the Appellate Division has held that '259-c applies only in damage claims grounded in tort, leaving jury waiver clauses fully effective in contractual claims. See, e.g., Lindenwood Realty Co. v. Feldman , 338 N.Y.S.2d 245 (N.Y.App. Div. 2d Dept. 1972). In the First Department (Manhattan and the Bronx), however, the Appellate Division has extended the protection of '259-c to property damage actions sounding in contract as well. See, e.g., Phoenix Garden Restaurant, Inc. v. Chu , 651 N.Y.S.2d 510 (N.Y. App. Div. 1st Dept. 1996) (citing Swinger Realty Corp. v. A.S. Kinzer Imports, Inc , 335 N.Y.S.2d 108 (N.Y. App. Term 1st Dept. 1972). This position has been widely criticized, however, and the Appellate Division, First Department routinely seeks to avoid directly addressing the question. See, e.g., Chemical Bank v. Stahl , 685 N.Y.S.2d 238 (N.Y. App. Div. 1st Dept. 1999).

Illinois courts generally uphold pre-litigation jury waiver clauses, subject to concerns for individuals' knowledge and volition. Where the parties are both business-savvy and represented by counsel, it is unusual for a court to invalidate a jury waiver clause. See, e.g., GreatAmerica Leasing Corp. v. Cozzi Iron & Metal, Inc. , 76 F.Supp.2d 875 (N.D. Ill. 1999). There have been no developments in Illinois that raise the same kinds of issues raised by the California Grafton decision and the jurisdictional split with respect to New York's '259-c.

Implications for Commercial Lessors

Notwithstanding the particular law governing a contract, strict construction of jury waiver clauses usually requires that they be unequivocal manifestations of the parties' intent to waive their right to a jury trial with respect to the particular cause of action alleged. For example, some courts will not enforce a waiver as to a cause of action that did not exist at the time the parties entered into the agreement. Quigley v. KPMG Peat Marwick, LLP , 749 A.2d 405 (N.J. Super. Ct. App. Div. 2000). Where a new cause of action has been created by the enactment of a statute, parties may want to consider amending their existing agreements to ensure any waivers will be effective with respect to the new law. Further, where there is a danger of undue influence on an unrepresented party, courts will scrutinize waivers more closely. In the case of experienced and represented parties, however, there is a strong presumption that the parties intended that all provisions of the contact be given effect, and absent the specific statutory considerations discussed above, waivers signed in such a context will likely be enforced.

Gary A. Goodman is a real estate partner in the New York office of Sonnenschein Nath & Rosenthal LLP, specializing in leasing. Miles Cowan is a third-year law student at New York Law School.