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NEWS August 2005 JURY WAIVERS IN LOAN DOCUMENTS AND CONTRACTS UNENFORCEABLE IN CALIFORNIA A unanimous Supreme Court held during the first week of August 2005, that contracts with jury waivers are not fair game and absolutely unenforceable in California. Grafton Partners, L.P. v. Superior Court, _______. 4th___ (August 4, 2005). This much awaited decision has a far-reaching effect. No matter how sophisticated the relationship between lender and a borrower, a jury waiver will not be enforceable in the event of litigation commenced by either party. The court's decision has a retrospective application to all contracts in effect as of the date of the decision. The decision affects not only loan agreements, but purchase agreements, leases and all business contracts. This decision directly impacts the national commercial real estate lending industry that farms as much as 20% of its loan volume in California. We note that the majority of states will enforce jury waiver decisions. Can non-California lenders have non-California law govern loan documents in California loans and then still include jury waivers? Given conflict of law cases, it may be difficult, if not impossible, to apply non-California law, to loans originated in California for California borrowers and California real estate, even if a lender is from another state. Bottom line analysis: The same jury system which has delivered sometimes controversial verdicts in high profile celebrity and non-celebrity cases, will ultimately control all real estate, real estate lending and business disputes litigated, if either side requests a jury trial, even though documents were executed which waived such right.  |