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Media Alerts - County of Orange v. United States Dist. Court - Ninth Circuit
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June 9, 2015
  County of Orange v. United States Dist. Court - Ninth Circuit
Headline: Erie's federalism principle requires the federal court, sitting in diversity in a breach of contract action, to import, as the federal rule, California state law governing contractual jury trial waivers, where California state law is even more protective than federal law of the jury trial right.

Areas of Law: Civil, Federal Civil Procedure; Erie issue

Issues Presented: What law should federal courts sitting in diversity apply to determine the validity of a contractual jury trial waiver clause when state law is more protective of the right to a jury trial than federal law?

Brief Summary: Preliminarily, the panel held that the five Bauman factors to apply for a writ of mandamus do not apply to extraordinary circumstances. Here the panel held that denial of a constitutional right to a jury trial granted by the 7th Amendment is an extraordinary circumstance.

Addressing the vertical choice of law issue, the panel, finding that no Federal Rule of Civil Procedure or federal statute governs pre-dispute jury trial waivers, applied the "relatively unguided" Erie analysis to determine that, although the law governing pre-dispute jury trial waivers is "procedural," and therefore federal law governs their validity, Erie's federalism principle requires federal courts sitting in diversity to import the more protective state law where the federal "knowing and voluntary" standard is merely a constitutional minimum federal courts use to protect litigants' 7th Amendment jury trial right.

Extended Summary: This case arises out of a breach of contract dispute between the County of Orange (the County) and Real Party in Interest Tata America International Corporation and its international affiliate (collectively, "Tata"). Tata was hired by the County to develop and implement a computerized property tax system. The contract contained a California choice of law clause and an unambiguous waiver of jury trial clause. The County filed for breach of contract under California law and included a demand for a jury trial in their complaint.

The district court granted Tata's motion to strike the jury trial request ruling that, under Erie, the Seventh Amendment right to a jury trial is "procedural" and, therefore, the federal "knowing and voluntary" standard is applicable to determine the enforceability of the contractual pre-dispute waiver clause.

Finding that no Federal Rule of Civil Procedure or federal statute governs the validity of pre-dispute jury trial waivers, the panel proceeded to apply the "relatively unguided" Erie analysis to determine whether the rules at issue are "substantive" or "procedural." Applying this analysis, the panel determined that the issue whether a party waived its jury trial right is "procedural" and, therefore, federal procedural law is applicable. The panel, applying the Supreme Court's "Erie" analysis in Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525 (1958), also determined, first, that "California's rule that pre-dispute jury trial waivers are unenforceable is not a rule that creates 'rights and obligations' for the parties to a contract * * * nor is it a rule that dictates the substance of a potential award" but is, rather, a rule "which allocates tasks between a judge and a jury" and, therefore, "describes 'merely a form and mode of enforcing' the law" and, second, that application of the federal rule is not "outcome determinative."

However, the panel determined that California's rule is "substantive" as it is a state rule of contract interpretation and construction, which is substantive under Erie. The panel further ruled that, even if California's rule on pre-dispute jury trial waivers were to be viewed as primarily "procedural," that California rule "embodies the state's substantive interest in preserving the 'right to a jury trial in the strongest possible terms.'" Consequently, the panel then proceeded to apply the Supreme Court's Erie approach, in Gasperini v. Center for Humanities, Inc., 518 U.S. 415 (1996), by asking whether the federal court can "give effect to the substantive thrust of [California's rule] without untoward alteration of the federal scheme for the trial and decision of civil cases[?]'"

While holding that "federal procedural law governs the validity of a pre-dispute jury trial waiver in federal court," the panel also held that "[t]he federal 'knowing and voluntary' standard adopted by the district court is not a generally applicable federal rule, but rather a federal constitutional minimum" that is inapplicable "where, as here, state law is more protective than federal law of federal constitutional rights." Accordingly, to accommodate, in Gasperini fashion, California's substantive interest in applying its more protective rule to the jury trial waiver issue, the panel held that "Erie's federalism principle directs us to import state law as the federal rule rather than construct a new federal common law rule" and concluded that "district courts sitting in diversity must apply California's rule on pre-dispute jury trial waivers to contracts governed by California law."

To read full opinion, please visit:
http://cdn.ca9.uscourts.gov/da...15/04/16/14-72343.pdf

Panel: Ronal M. Gould and Richard C. Tallman, Circuit Judges, and Edward R. Korman, Senior District Judge.

Date Of Issued Opinion: April 16, 2015

Docket Number: 14-72343

Decided: Reversed

Case Alert Author: Robert J. Dagmy

Counsel: Petitioner - Benjamin Parker Broderick (argued), Allan L. Schare, Alexander George Brizolis, and Todd Thodora, Theodora Oringer P.C
Respondent - William A. Escobar (argued), Kelley Drey and Warren LLP, New York, New York; Alison S. Brehm and Kenneth David Kronstadt.

Author of Opinion: Judge Tallman

Case Alert Supervisor: Professor Glenn Koppel

    Posted By: Glenn Koppel @ 06/09/2015 05:02 PM     9th Circuit  

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