By Anthony J. Carucci
The Ninth Circuit Court of Appeals recently held that federal courts sitting in diversity jurisdiction must apply the underlying state law to determine the validity of pre-dispute jury trial waivers where the state law is more protective than the federal law. In re Cnty. of Orange, No. 14-72343, 2015 WL 1727240, at *4–5 (9th Cir. Apr. 16, 2015).
In 2007, plaintiff County of Orange (the “County”) hired defendant Tata America International Corporation (“Tata”) to develop a property tax management system. Id. at *5. In 2008, the parties entered into a contract for that purpose, which included an unambiguous jury trial waiver. Id. at *5–6. After Tata failed to perform to its satisfaction, the County sued Tata in federal court for breach of contract, demanding a jury trial. Id. at *6-7. The district court granted Tata’s motion to strike the County’s jury trial demand on the ground that under the Erie doctrine, whether a party has waived its right to a jury trial is a federal procedural issue controlled in federal court by federal law. Id.; Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). Under the federal standard that pre-dispute jury trial waivers must be made “knowingly and voluntarily,” the district court found the County had waived its right to a jury trial. The County then filed a petition for writ of mandamus to the Ninth Circuit. In re Cnty. of Orange, 2015 WL 1727240 at *8.
Holding and Implications
The Ninth Circuit granted the County’s writ of mandamus, and directed the district court to deny Tata’s motion to strike. Id. at *22. First, the Court found the federal “knowing and voluntary” standard “is not a generally applicable federal rule, but rather a federal constitutional minimum.” Id. at *19. Second, the Court found that California’s rule regarding jury trial waivers is substantive, rather than procedural. Id. at *20. Thus, the Court held that application of a federal constitutional minimum is not required where, as here, state law is more protective than federal law. Id. The result is a “void in federal law” that Erie resolves by directing a federal court in such a situation to adjudicate the right as a state court would rather than by expanding the federal rule. Id. at *19–20. Federal courts sitting in diversity must therefore apply the relevant state law to evaluate the validity of a pre-dispute jury trial waiver to the extent it is more protective than federal law. Id. at *20.
Under the Court’s holding pre-dispute jury trial waivers will be unenforceable in California state and federal courts sitting in diversity.