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Grafton Partners hired accounting firm PricewaterhouseCoopers as its independent auditor. The engagement contract said, “In the unlikely event that differences concerning PwC services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense, both parties agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to PwC services and fees for this engagement.”

When a dispute later arose, Grafton Partners sued PwC, alleging breach of contract, active concealment, professional negligence, aiding and abetting and conspiracy to breach a fiduciary duty. Grafton Partners demanded a jury trial.

Purchase Bob Bruss reports online.

But PwC moved to cancel the jury demand, based on the engagement letter contract. However, Grafton Partners argued pre-dispute jury waivers are unconstitutional and are therefore invalid.

IF YOU WERE THE JUDGE would you rule the pre-dispute contract prohibiting a jury trial is valid?

The judge said NO!

The right to a jury trial in most civil lawsuits is fundamental, the judge began. Of course, when a lawsuit occurs, the plaintiff and defendant can then agree to waive their right to a jury trial and let the judge make the decision without a jury, he explained.

However, parties to a contract can, at the time of signing the contract, agree to binding arbitration without a court trial if a dispute should arise in the future, the judge emphasized. Arbitration clauses are quite common in real estate contracts, often saving time and costs, he noted.

But agreeing in advance at the time of signing a contract to waive rights to a civil jury trial violates the constitutional rights of both parties, the judge ruled. With the exception of an advance agreement for binding arbitration of disputes which might arise in the future, a contract clause waiving legal rights, such as a future right to a jury trial if a dispute later arises, is unenforceable, the judge concluded.

Based on the 2004 California Court of Appeal decision in Grafton Partners, LP v. PricewaterhouseCoopers, LLP, 9 Cal.Rptr.3d 51.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).