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Monday, January 30, 2006

Contract to Waive Jury Trial Not Enforceable

California_flag_20 The California Supreme Court has held that a contractual agreement to waive a jury in the event of a contract dispute is unenforceable.  Relying on Cal. Code Civ. Proc. ยง 631(d), the unanimous court held that a contractual agreement was not a method authorized by the state legislature for a waiver, and thus that the waiver was ineffective.

The case arose out of a PriceWaterhouseCoopers LLP engagement letter with respect to the audits of two partnerships.  The engagement letter, signed by the plaintiffs, said:

In the unlikely event that differences concerning [PWC's] services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, [the parties] agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to [PWC's] services and fees for this engagement.

When the plaintiffs subsequently sued and demanded a jury trial, PWC moved to strike it.

No can do, wrote Chief Justice Ronald George.  The right to a jury trial is provided for in the state constitution, and is to be "inviolate."  Under section 631(d), it is true, a party can accidentally lose the "inviolate" right in several ways, such as by failing to appear, failing to make jury demand at the right time, or failure to pay the necessary fees on time.  But under the statute the only two ways to knowingly waive a jury trial are by filing a written consent with the clerk or the judge, or by oral consent in open court.  "Pre-dispute contractual waiver" isn't listed.  Ergo, it's not effective.

PWC argued that it makes no sense to allow an inadvertent waiver by, for example, forgetting to speak up at the right time, but to prohibit a knowing waiver by a sophisticated party -- especially when the parties could have agreed to go to arbitration and not gone to court at all.  The court disagreed, noting that the legislature has decreed a public policy in favor of arbitration, and the state constitution has decreed a public policy in favor of jury trials, but there's no public policy in favor of bench trials.

Grafton Partners v. Superior Court, 36 Cal. 4th 944, 116 P.3d 479, 32 Cal. Rptr. 3d 5 (2005).

[Frank Snyder -- thanks to Gerald Caplan for the tip]

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