On Dec. 7, 2017, in a case styled as Tilley v. Malvern Nat’l Bank, 2017 Ark. 343, the Arkansas Supreme Court ruled that certain contractual provisions providing for the waiver of a jury trial are unenforceable. The Supreme Court reasoned in part that waiving the right to a jury trial before litigation arises is unconstitutional.
The right to a jury trial was intended by the framers of the U.S. Constitution as a protection against tyranny and an oppressive government. A jury is conceptually comprised of local citizens representing a demographic cross-section of the community. In a case where a jury has been seated, the jury decides the fate of the litigants rather than the judge. Over time, however, the legal profession, the business community, and even private citizens have become aware of potential shortcomings with, and the unpredictability of jury trials, particularly when a dispute largely hinges on the interpretation of and compliance with contractual agreements.
An ex-federal judge is credited with saying, “Only a very foolish lawyer will dare guess the outcome of a jury trial.” While such statements are flush with hyperbole, they are rooted in some element of truth: jury trials can be unpredictable, and unpredictability is the last thing a business wants or needs when the stakes are high.
Likewise, some believe juries are more likely than a judge to make decisions based on emotion or non-legal perceptions of the litigants themselves. After all, emotion is a fundamental element of our human genome and can affect our judgment and decision-making ability. If given the option to reduce emotion from a decision involving a business dispute, most companies would ensure that such option is exercised.
In order to address these concerns and to remove the unpredictability of a jury trial, businesses for years have commonly employed jury trial waiver provisions in contractual agreements relating to loans, the purchase of real estate, commercial leases, supply agreements, and other commercial documents. When the stakes are high or the issue that will be litigated is complex, a business may prefer to try its case to a judge rather than a jury. Jury waivers arose in part to address these scenarios. For example, if you check the language in a promissory note or a mortgage on your house, you will likely find a clause where you have waived your right to a jury trial with your lender. It should be noted there is no right to a jury trial in lawsuits based primarily in equity, such as foreclosures, but this waiver, before Tilley, would have applied in most other lawsuits with the lender.
In light of the Arkansas Supreme Court’s recent decision, however, these waivers are unenforceable if they are entered into before the parties have a dispute (i.e., before a lawsuit is filed). In large part, the court focused its analysis on the Arkansas Constitution, which only permits citizens to waive their right to a jury trial “in the manner prescribed by law.” The court ultimately concluded “the manner prescribed by law” refers to Arkansas statutes and the Arkansas Rules of Civil Procedure. Currently, other than in the context of a contractual clause requiring arbitration, there is not a separate law or rule that confirms the enforceability of a contractual jury trial waiver.
The court’s holding means that Arkansas courts will not enforce these kinds of jury trial waivers unless the Arkansas legislature passes a law or the Arkansas Supreme Court changes the Arkansas Rules of Civil Procedure in a manner that allows for the enforcement of a contractual provision waiving a jury trial. Until such action is taken, businesses should re-examine any contracts they commonly utilize to determine the best way to proceed going forward.
This article, written by Attorneys Jason Bramlett and Kael K. Bowling originally appeared in the January 22, 2018 issue of Northwest Arkansas Business Journal.
Jason has a comprehensive practice focusing on the representation of financial institutions and commercial parties in connection with a broad spectrum of issues structuring, negotiation and drafting of real estate and asset-based credit facilities for both lenders and borrowers; providing advice, counsel and representation regarding troubled debt restructurings, bankruptcy, foreclosure and workouts; representing parties in connection with commercial real estate dispositions, leasing and other related matters and commercial and bankruptcy litigation.
Kael is an associate in the firm’s Commercial Litigation and Regulation Practice Group. He earned his Juris Doctor from the University of Arkansas School of Law in 2016 and subsequently earned his LL.M. in Agriculture and Food Law from the U of A the following year.