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Contractual Agreement to Submit Construction Disputes to Referee Is Enforceable, California Court Holds
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June 2, 2008
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By Eric Casher
Howrey LLP
A home buyer and the developer of a new subdivision entered into a real estate purchase contract for the purchase of a home. The contract contained a provision requiring judicial appointment of a referee for binding (and not advisory) resolution of all disputes arising under the agreement. The provision stated in pertinent part:
JUDICIAL REFERENCE OF DISPUTES. If either BUYER or SELLER commences a lawsuit for a dispute arising under this Agreement or relating to the condition, design or construction of any portion of the Property, all of the issues in such action, whether of fact or law, shall be submitted to general judicial reference pursuant to California Code of Civil Procedure sections 638 and 641 through 645.1 or any successor statutes thereto.
In May of 2004, the home buyer sued the developer in San Joaquin County Superior Court alleging construction defects. The developer moved for appointment of a referee for all purposes pursuant to the contract. The motion was granted.
Shortly afterward, in August 2005, the California Supreme Court issued an opinion deeming unenforceable pre-dispute agreements waiving the right to a jury trial absent statutory authorization. Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005).
After the decision in Grafton, the home buyer moved to invalidate the contract provision requiring appointment of a referee on the grounds it was an unenforceable pre-dispute waiver of the right to jury trial. The Superior Court agreed and vacated the order appointing a referee. The developer then petitioned the Court of Appeal to determine whether or not the contract provision requiring judicial reference indeed was invalid under Grafton. The Court of Appeal reversed. Woodside Homes of California, Inc. v. Superior Court, 142 Cal.App.4th 99 (2006).
The home buyer argued that the provision requiring appointment of a referee was a pre-dispute waiver of the right to jury trial and thus invalid under Grafton. Furthermore, the home buyer argued that the contract provision lacked an express statutory authorization for a jury waiver because California Code of Civil Procedure §638, cited in the provision, did not use the terms "jury" or "waiver" as required for a statutory waiver under Grafton.
The Court of Appeal acknowledged that the contract provision was a pre-dispute waiver of the right to jury trial. However, the court disagreed with the home buyer's argument that Code of Civil Procedure §638 did not provide explicit statutory authorization for the jury waiver.
The Court of Appeal distinguished the Grafton decision. Enforceability of the agreement in Grafton was analyzed under Code of Civil Procedure §631, which did not explicitly authorize a waiver of the right to a jury trial in pre-dispute agreements. Code of Civil Procedure §631 pertained to acts or omissions constituting a waiver of a right to jury trial occurring during the period after commencement of litigation, not agreements made before litigation. Thus, the Grafton pre-dispute agreement "not to demand a trial by jury in any action" was unenforceable under §631 because it was made before commencement of litigation.
In contrast, the enforceability of the consensual general reference provision in the real estate purchase contract in Woodside Homes was governed by Code of Civil Procedure §638, which explicitly authorizes judicial appointment of a referee upon agreement of the parties. The Court of Appeal noted that a 1982 amendment of §638 specifically authorized pre-dispute agreements for judicial appointment of a referee.
Furthermore, in response to the home buyer's argument that §638 is an insufficient statutory authorization because it does not use the term "jury" or "waiver," the Court of Appeal determined that a statute permitting agreement to appointment of a referee unambiguously results in a waiver of "jury trial" without the need to use those words. Therefore, §638 was sufficient statutory authorization for a pre-dispute waiver of jury trial.
Accordingly, a pre-dispute agreement to judicial appointment of a referee is enforceable and not invalid under Grafton because Code of Civil Procedure §638 provides explicit statutory authorization for a pre-dispute agreement waiving a jury trial in favor of a judicially appointed referee.
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For more information about the issues covered in this report, please contact Eric S. Casher in our San Francisco office at 415-848-3246 or at cashere@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2008 Howrey LLP
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