Steiner-Goldstein ()

For many commercial lenders, it is difficult to imagine a less appealing mechanism for adjudicating disputes arising out of its commercial contracts than trial by jury. Lenders often seek ways to avoid jury trials because jurors are generally perceived to be biased against institutional and corporate clients and to lack the expertise and competency to deliberate complex commercial cases. When awarding damages, juries are thought to be more capricious than a judge. One alternative that has been employed as a means to circumvent a trial by jury is binding arbitration. Lenders, however, have found resolution by arbitration to be less than ideal because the arbitrator is not required to follow the law or applicable evidentiary standards, third-party discovery can be difficult to enforce and the arbitrator’s decision is not easily appealable. One preferable method that is used to avoid jury trials is the inclusion of pre-dispute jury waiver provisions in loan documents. While nearly every state’s constitution guarantees the right to a civic jury trial, each state may enact legislation to allow parties to specifically waive that right, both pre- and post-dispute, thus compelling a proceeding in which the judge is the finder of fact. Two states, however, California and Georgia, do not permit pre-dispute jury trial waivers. A recent California case, Rincon EV Realty v. CP III Rincon Towers, 8 Cal. App. 5th 1, 213 Cal. Rptr. 3d 410 (Ct. App. 2017), serves to highlight this issue.

Pre-Dispute Jury Waivers

Under a pre-dispute contractual jury waiver, the parties to a commercial contract expressly waive their respective rights to a jury trial at the time they enter into the contract. Accordingly, assuming the enforceability of such a provision, the lender is afforded the opportunity to resolve controversies in the state or federal judicial system by means of a bench trial exclusively, entrusting assessment of fact and decisions pertaining to the questions of procedure and evidence to a duly appointed judge, without the need to resort to less-certain alternative dispute resolution. Provided that the waiver is entered into knowingly and voluntarily, pre-dispute contractual jury waivers are presumably enforceable and generally upheld in federal courts and in the state courts that have reviewed the issue—with two notable exceptions.

Both California and Georgia have expressly held pre-dispute contractual jury waivers in civil actions unenforceable on statutory and public policy grounds. Georgia’s constitution guarantees the right to a jury trial while its jury waiver statute, Georgia Code of Civil Practice § 9-11-39(a), lists the limited circumstances in which a party may waive that right. In Bank South, N.A. v. Howard, 264 Ga. 339, 444 S.E.2d 799 (1994), the Supreme Court of Georgia held that, because neither its constitution nor governing statute specifically provides for pre-dispute jury waivers, such waivers are unenforceable under Georgia law. Similarly, the California Supreme Court in Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944, 116 P.3d 479 (2005), held that pre-dispute jury waivers were not authorized by either its constitution or its jury waiver statute (California Code of Civil Procedure § 631), and thus are unenforceable under California law.

Commercial loan documents typically provide that such documents, and any litigation arising out of the subject transaction, will be governed by the law of a specified state. Such provisions (for example, the selection of New York law to govern the documents) can be enforceable under certain conditions in Georgia and California but have not been useful in evading the pre-dispute jury waiver bans in California and would likely not be any more efficacious in Georgia. The argument advanced by the party attempting to enforce the jury trial waiver is that the court applying, for example, New York law should uphold the waiver because such waivers are enforceable under New York law. These arguments have proved unsuccessful in California.


In the vein of Grafton Partners, the Rincon case recently affirmed California’s resistance to jury trial waivers with a focus on relevant choice of law provisions in the document that is the subject of enforcement. Rincon made clear that in California, or at least in its First Appellate District, pre-dispute contractual jury waivers are unenforceable despite inclusion of a choice-of-law provision construing the contract under the laws of a state that enforces such waivers. In Rincon, the court found that even when applying the law of another state when adjudicating a case, pre-dispute contractual jury waivers are contrary to California public policy and, therefore, cannot be enforced. Similarly, under Georgia’s conflict-of-laws principles, a party may not seek to apply the law of another state if such law would contravene Georgia’s fundamental public policy.


In light of the foregoing, lenders should make efforts, where possible, from bringing cases in California or Georgia by granting the lender broad choice of venue options in the loan documents. This can be accomplished by providing in the documents that any litigation arising under the loan documents shall be instituted in a specified state (that is, a state in which pre-dispute contractual jury waivers are enforced).

California offers another option for lenders endeavoring to avoid jury trials by permitting the parties to transfer litigation to a referee. The referee, who is appointed by either the parties or the court, will adjudicate the dispute in accordance with the law, including applicable evidentiary rules. The proceeding will be conducted, essentially, in the same manner as a bench trial, resolved by an expert who will also be the finder of fact. Significantly, unlike arbitration, the referee’s decision, while enforceable, is appealable by the non-prevailing party. By including a “judicial reference” provision in the loan documents, the parties agree, pre-dispute, to the appointment of a referee to decide controversies among the parties. Judicial reference provisions in mortgage documents, however, should include language preserving the lender’s right to initiate judicial or non-judicial foreclosures, seek interim remedies, and exercise the right of power of sale.

When advising a lender in a loan transaction, counsel should review local law with respect to the enforceability of jury trial waivers as well as any other matters meaningful to lenders that may extend into the sphere of public policy. If the loan is being made in a jurisdiction such as California or Georgia, lender’s counsel should, to the extent possible, take appropriate steps to mitigate against the prospect of a jury deciding the outcome of a disagreement, should one arise, between the lender and the borrower. To that end, well drafted loan documents will include (1) a prudently selected choice of law provision and an exclusive venue provision choosing a state which enforces pre-dispute contractual jury waivers and (2) in California, a carefully tailored judicial reference provision.