Federal Courts to Apply More Protective State Law when Analyzing Validity of Pre-dispute Jury Trial Waivers in Diversity Jurisdiction Cases

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).

Facts/Procedural History

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.