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Contractual Jury Waivers: New Case Before California Supreme Court Presents a Challenge

By Julian Mack and Christian Greene

A closely watched case now before the California Supreme Court will impact the way equipment lessors do business. In Grafton Partners L.P. v. Superior Court, 9 Cal.Rptr.3d 511 (2004), the California Court of Appeal held that predispute contractual jury waivers are unenforceable under the California Constitution. The case has been accepted for review by the California Supreme Court, and a decision is expected next year.

If upheld, Grafton will call into question the long-standing practice of including jury trial waivers in equipment leases and commercial finance agreements. The outcome of the Grafton case is thus important to equipment lessors not only in California, but across the country. If Grafton is affirmed and predispute contractual jury waivers are invalidated, equipment lessors could face adverse consequences including:

  • Increased litigation costs;
  • Increases in the time necessary to resolve disputes;
  • Increased uncertainty due to the fact that jurors may be unsophisticated and unfamiliar with complex financial transactions; and
  • The potential of adverse results due to possible jury bias in favor of lessees and borrowers.

The outcome in Grafton will thus affect not only the manner in which lessors draft their leasing agreements, but the way in which disputes are resolved in the courts. If the California Supreme Court upholds Grafton, lessors will be confronted with increased costs and uncertainty as to their ability to collect from defaulting lessees.

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