When binding arbitration was growing in popularity as an alternative to litigation for resolving disputes, several benefits were touted. But what were seen as benefits then are sometimes viewed less positively today, and it appears that a growing number of companies are opting instead to include in their contracts a provision for the parties to waive their respective rights to a jury trial. That decision does not come without risk in some states.
Perceived benefits that have been raised in favor of arbitration include:
- it helps keep disputes private (out of the media);
- it’s faster;
- arbitrators generally are more knowledgeable and therefore more predictable than the average juror, reducing the chances of an unwarranted verdict or a “sympathy verdict” or “runaway jury;”
- it’s less expensive to arbitrate than to try a case.
But today some people have changed their views. For example, the argument is that while arbitrators might be more knowledgeable, nonetheless they may not be more predictable. That’s because arbitrators usually are not required to follow the law. An arbitrator can substitute his or her own judgments, rules or principles in deciding a case.
That becomes an even greater issue since binding arbitration decisions usually are not appealable. Appeal from a binding arbitration generally is an option only in rare circumstances, such as fraud in the arbitration or an arbitrator exceeding his or her authority. A process where an arbitrator can create their own rules and make decisions that are difficult to appeal can result in a decision that one party is very unhappy with but can’t do anything about.
Further, some people have found arbitration becoming more expensive, bringing it closer to the cost of a trial in some cases.
Given those experiences, it appears that an increasing number of companies are instead including pre-dispute jury trial waiver provisions in their contracts.
But there have been challenges to the enforceability of a pre-dispute waiver of the right to a jury trial. For example, the Georgia Supreme Court refused to enforce a pre-dispute jury waiver. In Bank South N.A. v. Howard, decided in 1994, the Georgia court held that "pre-litigation contractual waivers of jury trials are not provided for by our Constitution or Code and are not to be enforced in cases tried under the laws of Georgia." The court noted that the waiver of a jury trial requires that the parties give up valuable rights, much like a confession of judgment, which also may not be waived before beginning litigation.
In a case now pending, Grafton Partners vs. Superior Court ( PriceWaterhouseCoopers) , the California Supreme Court will determine whether an intermediate appeals court was correct in ruling that all pre-dispute jury waivers are unenforceable in California.
The California constitution states that "a jury trial may be waived by the parties in all civil cases in the manner to be prescribed by law." The appellate court held that, therefore, the state legislature and only the state legislature may decide how and whether the right to a jury trial may be waived; because the legislature has not addressed the validity of pre-dispute jury waivers that are contained in commercial agreements, the court held, they are not valid.
But a different panel of the same intermediate appeals court had earlier decided that such waivers were enforceable in California. The Grafton case was argued to the court in early June.
Not long ago the Texas Supreme Court held that jury trial waivers are enforceable in commercial cases, if the waiver is knowing and voluntary. The proverbial small boilerplate type used in some contracts might not pass muster, but the Texas Supreme Court seems open to the concept. The case was In Re Prudential Insurance Company of America, decided in 2004.
What kind of alternative dispute resolution method works best for a company, or whether to use an alternative to a jury trial at all, depends on the company’s specific circumstances. If the right to a jury trial is to be waived in a contract before any dispute has arisen, it would be prudent to check to see what position, if any, that state’s courts have taken on the enforceability question. It would also be wise to make the waiver conspicuous – in a separate section with a heading clearly stating that it deals with a waiver of the right to a jury trial. And it would be best to have the body text in bold type or in all capital letters to enhance its enforceability.And if desired, the parties should draw the provision broadly enough to be sure to pick up all kinds of claims that could arise between them relating to the contract. For example, they might want it to apply to all matters relating to or arising from the contract, whether or not the claims are based on tort or contract and whether or not they involve the construction or validity of the contract itself or a performance issue arising out of the contract.