Metropolitan News-Enterprise


Monday, February 9, 2004


Page 1


Appeals Court Rules Pre-Dispute Jury Waivers Are Unenforceable


By KENNETH OFGANG, Staff Writer/Appellate Courts


Pre-dispute contractual waivers of trial by jury are unenforceable in California, the First District Court of Appeal ruled Friday.

Saying a contrary 1991 decision by this district’s Div. Two was wrong, the San Francisco-based court’s Div. Five granted a writ of mandate directing that a demand for trial by jury in a putative class action against the world’s largest auditing firm be reinstated.

The suit seeks to hold Pricewaterhousecoopers LLP, among others, responsible for the looting of more than $330 million invested in PinnFund.

The purported mortgage investment firm turned out to be a Ponzi scheme, and its accounts, and those of its founders, were frozen by the Securities and Exchange Commission, but not until most of its assets disappeared.

Chief Executive Officer Michael Fanghella pled guilty to multiple counts of fraud and is serving a 10-year prison term. Six others involved in the scheme also entered guilty pleas.

Allegation Against Auditors

The complaint in the investors’ suit accuses Pricewaterhousecoopers of breaching a promise to inform the investors of “any illegal act, material errors, or evidence that fraud may exist as identified during our audits.” The auditors, the complaint says, stood idly by while “Fanghella and his mistress and hangers-on...loosed investor funds in a profligate downpour upon a host of grateful realtors, yacht brokers, luxury car dealers, jewelers, couturiers, and restaurateurs.”

An Alameda Superior Court judge struck the plaintiffs’ jury demand, citing a waiver clause in their agreement with the auditors. But Justice Mark Simons, writing Friday for the Court of Appeal, said that California does not permit predispute contractual jury waivers.

The civil jury clause, Art. I. Sec. 16 of the state Constitution, permits waiver of trial by jury only as prescribed by statute, Simons explained.

The Legislature, the justice explained further, has only authorized jury waivers in Code of Civil Procedure Sec. 631. Under that statute, a jury waiver must be made in open court, or in a writing filed with the court, or is inferred from failure to request a jury or to pay jury fees.

The 1991 case was wrongly decided, Simons explained, because the court analyzed the question as one of public policy rather than of enforcing a statute.

The court in that case, Trizec Properties, Inc. v. Superior Court (1991) 229 Cal.App.3d 1616, erroneously analogized to cases upholding predispute arbitration agreements, the justice said.

Arbitration Distinguished

Those cases, the jurist explained, “hinged on the distinction between an agreement opting for a court trial in the judicial forum, which is governed by section 631, and an agreement opting out of the judicial forum entirely.” The defendant, Simons wrote,  “would have us ignore that fundamental distinction and conclude that the two types of agreements are so similar that the Legislature’s approval of one necessarily implies its approval of the other.”

Simons also rejected the contention that the statutory requirement of a written waiver filed “with the clerk or judge” was satisfied by the defendant’s filing of the parties’ agreement as an exhibit attached to its motion to strike the jury demand. “We decline to read into section authorization for predispute jury waivers that the Legislature has not provided,” the justice said.

The case is Grafton Partners LP v. Superior Court, Pricewaterhousecoopers LLP, A102790.


Copyright 2004, Metropolitan News Company