Friday, August 5. 2005
State High Court Holds Pre-Dispute Jury Waivers Unenforceable
By KENNETH OFGANG, Staff Writer/Appellate Courts
Pre-dispute contractual waivers of trial by jury are unenforceable in California, the state Supreme Court ruled yesterday.
In a 6-0 decision, the court upheld a ruling by the First District Court of Appeal’s Div. Five and directed 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, and James Hillman, a former Oakland attorney and the alleged chief fundraiser for the operation, faces trial in October.
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 Chief Justice Ronald M. George, writing for the high court, said that California does not permit predispute contractual jury waivers.
Earlier Case Overruled
The civil jury clause, Art. I, Sec. 16 of the state Constitution, permits waiver of trial by jury only as prescribed by statute, the chief justice explained.
The Legislature, George 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.
A 1991 case that enforced a contractual waiver of jury trial, Trizec Properties, Inc. v. Superior Court (1991) 229 Cal.App.3d 1616, was wrongly decided, George said, because the court erroneously analogized to cases upholding predispute arbitration agreements.
“The difficulty with the analysis in Trizec is that it is inconsistent with an established line of cases beginning with an early decision of this court,” the chief justice explained. As early as 1855, he said, the high court held trial by jury may not be waived in a civil case, other than as prescribed by the Legislature.
“The analogy to arbitration agreements is not persuasive,” George wrote. “Unlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute....Moreover...arbitration agreements are distinguishable from waivers of the right to jury trial in that they represent an agreement to avoid the judicial forum altogether.”
George 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.
The statute presupposes that there is a suit pending between the parties at the time of the waiver, the chief justice reasoned.
Justice Ming Chin, while joining in the opinion, wrote separately to urge the Legislature to permit contractual waivers of jury trial in the future. Since predispute arbitration agreements are generally enforceable, Chin reasoned, allowing the parties to agree to a court trial provides “an attractive middle ground” that keeps the case in the court system.
Only California and Georgia do not permit contractual jury waivers, he added.
The case is Grafton Partners LP v. Superior Court (PriceWaterhouseCoopers LLP , 05 S.O.S. 3667.
Copyright 2005, Metropolitan News Company