• Supreme Court of California Invalidates Predispute Agreements to Waive Jury Trials
  • October 17, 2005 | Author: Barry M. Heller
  • Law Firms: DLA Piper - Reston Office ; DLA Piper - Washington Office
  • The Supreme Court of California recently handed down a decision that will affect franchise agreements that are governed by California law and that contain agreements to waive jury trials in the event of a dispute in the California courts. In Grafton Partners L.P., et al. v. The Superior Court of Alameda County, the Supreme Court of California held that if contracting parties, prior to any dispute, enter into a contractual agreement that waives jury trials, then that agreement is invalid.

    Despite Predispute Agreement, Grafton Demand Jury Trial

    In 1999, Grafton Partners L.P. (Grafton) engaged PricewaterhouseCoopers LLP (PWC) to audit certain accounts belonging to two of Grafton's partnerships. PWC sent an engagement letter confirming the terms of the retainer agreement. The letter stated that "[i]n 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, [Grafton and PWC] 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."

    In 2002, Grafton filed a complaint against PWC alleging negligence, misrepresentation, and other causes of action based upon PWC's alleged failure to disclose and its alleged cover-up of fraudulent business practices that it discovered during its audit. A third amended complaint was filed in 2003, and Grafton demanded a jury trial. The trial court, relying upon the waiver contained in the engagement letter, granted PWC's motion to strike the jury demand. The Court of Appeal reversed the trial court's decision, and the California Supreme Court granted PWC's petition for review.

    California Law Says Right to Jury Trial Is Fundamental

    California's constitution treats the right to a jury trial as fundamental. In a civil case, any waiver of the inviolate right to a jury determination must occur by consent of the parties to the cause as provided by statute.

    The statute implementing this constitutional provision is Section 631 of California's Code of Civil Procedure. It holds inviolate the right to trial by jury and prescribes that a jury may be waived in civil cases only as provided by subdivision (d) of its provisions. Subdivision (d) identifies the six means by which the right to a jury may be forfeited or waived: "A party waives trial by jury in any of the following ways: (1) by failing to appear at trial; (2) by written consent filed with the clerk or judge; (3) by oral consent, in open court, entered in the minutes; (4) by failing to announce that a jury is required, at the time the cause is first set for trial, if it is set upon notice or stipulation, or within five days after notice of setting if it is set without notice or stipulation; (5) by failing to deposit with the clerk or judge, advance jury fees as provided in subsection (b); (6) by failing to deposit with the clerk or judge, at the beginning of the second and each succeeding day's session, the sum provided in subdivision (c)."

    Does Timing of the Waiver Agreement Matter?

    PWC contended that subsection (2) of subdivision (d) permits persons to waive jury trials by contract prior to any legal dispute, as long as one of them, subsequently having become a party to litigation concerning the legal dispute, files the waiver with the clerk or judge. PWC asserted that the provision does not restrict the time at which the waiver agreement is entered.

    The Supreme Court rejected PWC's argument and affirmed the decision of the Court of Appeal. The court acknowledged that section 631 is ambiguous as to the timing of the waiver agreement, but explained that any ambiguity or doubt concerning the waiver provisions of section 631 must be resolved in favor of the litigant's right to a jury trial.

    The concurring opinion noted that the majority of state and federal jurisdictions do permit predispute waivers of the right to jury trial. However, the opinion pointed out, those jurisdictions do not have constitutional provisions like California's that have been interpreted as requiring exclusively legislative authorization for waiver of the right to jury trial in civil cases.

    What Franchisors Should Do

    The lesson of Grafton Partners is clear. Franchisors entering into franchise agreements that are governed by California law should bear in mind that provisions purporting to waive rights to a jury trial are unenforceable in the California courts.