Ruling spells end of contracts waiving future jury trials
By Michael Kinsman
Jim Edwards, senior vice president and general counsel for California-based Wireless Facilities knows all about big awards by juries in civil business trials.
Companies have the choice of taking their dispute into the court system for a trial with a judge presiding, or into private arbitration.
"We've all heard about those multimillion-dollar verdicts by a runaway jury," he says. "You don't want to find yourself in the middle of one of those."
That's why he frequently includes a clause in contracts with other businesses that waives the right to a jury trial.
He thinks it's smart business.
It may be smart business, but it's no longer legal business in California.
The California Supreme Court recently ruled that companies cannot waive their right to a jury trial at the outset of a business relationship, even though both parties agree that it is in their best interests to do so.
This has been standard fare in California for at least two decades. When companies enter into merger agreements, licensing contracts or other business arrangements, they often include language in them to waive the right to a jury trial should a legal dispute arise.
Companies have the choice of taking their dispute into the court system for a trial with a judge presiding, or into private arbitration.
"It has worked very well and to the benefit of companies for years," says Jim Huston, a contract litigator for the Morrison & Foerster law firm. "Companies are saying to themselves, 'We're adults and we want to avoid coming before a jury should we wind up in court.' They did it because it made sense to them."
But it doesn't make sense to the state Supreme Court. It ruled that an Alameda County court case that allowed two companies to avoid a jury trial because of previous agreement was wrong. The Supreme Court said that companies don't have that right and that it can only be granted by the state Legislature.
"This will keep a lot of companies out of court because they don't want to risk dealing with a jury," Huston says. "It will almost force them to seek arbitration."
Arbitration - a process in which the two parties agree to present their cases to a mutually acceptable arbiter and abide the terms of that arbiter's decision - is often an effective means of resolving business disputes.
Yet, unless the arbitration partners include some form of appeal process, they are bound by the arbiter's decision, even if it is later proven faulty.
Edwards also fears that some people will forsake the court system because of the court's ruling.
"You may have a case that is very complex, maybe very technical," he says. "In some cases, you might be taking a risk by educating jurors and bringing them up to speed to deal with it. Maybe some of them just won't get it. But they still sit on the jury."
So instead of taking their cases to court - where they could wind up before a jury - companies will lean toward agreeing in advance to arbitration.
Huston says companies are comfortable waiving jury trials from the outset. If two companies agree in advance and in writing that any dispute that arises out of their business relationship should not be subjected to a jury trial, the case should not come before a jury, he says.
But he also notes that stipulation only works in business-to-business deals.
"Companies are different than individuals," Huston says. "They have attorneys and accountants and others who review contracts before they enter into them."
There are times when businesses have contracts with consumers where jury trial rights make sense and should be preserved, he says.
"Businesses don't have to agree on waiving the right to a jury trial if they don't want to," Edwards says. "But we want to do it, we should have that option like businesses in 48 other states do.
"In my view, it makes California a little less attractive place to do business."
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