County of Orange v. Usdc-Casa , 784 F.3d 520 ( 2015 )


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  •                  FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    IN RE COUNTY OF ORANGE,                   No. 14-72343
    D.C. No.
    COUNTY OF ORANGE, a political             8:13-cv-00683-
    subdivision of the State of                   JLS-JC
    California,
    Petitioner,
    OPINION
    v.
    UNITED STATES DISTRICT COURT
    FOR THE CENTRAL DISTRICT OF
    CALIFORNIA, SANTA ANA,
    Respondent,
    TATA CONSULTANCY SERVICES
    LTD., an Indian corporation; TATA
    AMERICA INTERNATIONAL
    CORPORATION, a New York
    corporation,
    Real Parties in Interest.
    Petition For Writ Of Mandamus
    Argued and Submitted
    March 4, 2015—Pasadena, California
    Filed April 16, 2015
    2                   IN RE COUNTY OF ORANGE
    Before: Ronald M. Gould and Richard C. Tallman, Circuit
    Judges, and Edward R. Korman, Senior District Judge.*
    Opinion by Judge Tallman
    SUMMARY**
    Writ of Mandamus / Erie Doctrine
    The panel granted a petition for a writ of mandamus
    brought by the County of Orange, California, and directed
    the district court to deny Tata America International
    Corporation’s motion to strike the County’s demand for a
    jury trial.
    Under California law, Grafton Partners, L.P. v. Superior
    Court, 
    116 P.3d 479
    (Cal. 2005), pre-dispute jury trial
    waivers are invalid unless expressly authorized by statute.
    Federal law, on the other hand, permits such waivers as long
    as each party waived its rights knowingly and voluntarily.
    The panel held that the five factors to apply to a
    mandamus petition, and announced in Bauman v. U.S.
    District Court, 
    557 F.2d 650
    (9th Cir. 1977), did not apply in
    the extraordinary case where, as here, the petitioner claimed
    erroneous deprivation of a jury trial.
    *
    The Honorable Edward R. Korman, Senior United States District Judge
    for the Eastern District of New York, sitting by designation.
    **
    This summary constitutes no part of the opinion of the court. It has
    been prepared by court staff for the convenience of the reader.
    IN RE COUNTY OF ORANGE                         3
    Because no Federal Rule of Civil Procedure or federal
    law governs pre-dispute jury trial waivers, the panel applied
    the “relatively unguided” Erie R. Co. v. Tompkins, 
    304 U.S. 64
    (1938), analysis. The panel found that the law governing
    pre-dispute jury trial waivers was procedural under Erie, and
    therefore federal courts should apply federal law to determine
    the validity of a waiver. The panel also concluded that the
    federal “knowing and voluntary” standard did not necessarily
    conflict with California’s Grafton rule because the federal
    standard was a constitutional minimum courts use to protect
    litigants’ Seventh Amendment rights to trial by jury. The
    panel held, therefore, that Erie’s federalism principle required
    federal courts sitting in diversity to import, as the federal rule,
    state law governing jury trial waivers, where, as here, state
    law was even more protective than federal law of the jury
    trial right. The panel applied California law, and held that the
    parties’ contractual jury trial waiver was unenforceable. The
    panel concluded that the district court erroneously deprived
    a California county of a jury trial when it granted Tata
    America’s motion to strike, and mandamus relief was
    therefore warranted.
    COUNSEL
    Benjamin Parker Broderick (argued), Allan L. Schare,
    Alexander George Brizolis, and Todd Thodora, Theodora
    Oringher P.C., Costa Mesa, California, for Petitioner.
    William A. Escobar (argued), Kelley Drey & Warren LLP,
    New York, New York; Allison S. Brehm and Kenneth David
    Kronstadt, Kelley Drey & Warren LLP, Los Angeles,
    California, for Real Parties in Interest.
    4                  IN RE COUNTY OF ORANGE
    OPINION
    TALLMAN, Circuit Judge:
    This mandamus petition requires us to decide whether,
    under Erie R. Co. v. Tompkins, 
    304 U.S. 64
    (1938), a federal
    court sitting in diversity applies state or federal law to
    determine the validity of a pre-dispute jury trial waiver
    contained in a contract governed by California law.
    California and federal law treat such waivers differently:
    Under California law, pre-dispute jury trial waivers are
    invalid unless expressly authorized by statute. See Grafton
    Partners, L.P. v. Superior Court, 
    116 P.3d 479
    (Cal. 2005).1
    Federal law, on the other hand, permits such waivers as long
    as each party waived its rights knowingly and voluntarily.
    See Palmer v. Valdez, 
    560 F.3d 965
    , 968 (9th Cir. 2009).
    “The compatibility of these provisions, in an action based on
    [California] law but tried in federal court by reason of the
    parties’ diverse citizenship” implicates the Erie doctrine.
    Gasperini v. Ctr. for Humanities, Inc., 
    518 U.S. 415
    , 419
    (1996). “Under the Erie doctrine, federal courts sitting in
    diversity apply state substantive law and federal procedural
    law.” 
    Id. at 427.
    Because no Federal Rule of Civil Procedure or federal
    law governs pre-dispute jury trial waivers, we apply the
    “relatively unguided” Erie analysis to answer the vertical
    choice of law question presented here. See Hanna v. Plumer,
    
    380 U.S. 460
    , 471 (1965). Doing so, we find that the law
    governing pre-dispute jury trial waivers is procedural under
    1
    California Civil Code § 631, which Grafton interprets, expressly
    authorizes several ways a party may waive its jury trial right. None are
    applicable here.
    IN RE COUNTY OF ORANGE                             5
    Erie, and so federal courts should apply federal law to
    determine the validity of a waiver. But we also conclude that
    the federal “knowing and voluntary” standard does not
    necessarily conflict with California’s Grafton rule because
    the federal standard is a constitutional minimum courts use to
    protect litigants’ Seventh Amendment rights to trial by jury.2
    We hold, therefore, that Erie’s federalism principle requires
    federal courts sitting in diversity to import, as the federal rule,
    state law governing jury trial waivers where, as here, state
    law is even more protective than federal law of the jury trial
    right. Applying California law, we hold that the parties’
    contractual jury trial waiver is unenforceable. See 
    Grafton, 116 P.3d at 492
    . And because “the only question presented
    [here] . . . is whether the district court erred in denying
    petitioner’s request for a jury trial,” Mondor v. U.S. District
    Court, 
    910 F.2d 585
    , 586 (9th Cir. 1990), we GRANT the
    County’s petition for writ of mandamus.
    I
    The dispute underlying this mandamus petition is a simple
    breach of contract action. In 2007, Plaintiff - Petitioner the
    County of Orange (the “County”) hired Defendant - Real
    Party in Interest Tata America International Corporation and
    its international affiliate (collectively, “Tata America”) to
    develop a property tax management system. In 2008, the
    parties entered into a contract for professional services to
    develop and implement the computerized system. The
    contract became final when the County Board of Supervisors
    approved it on July 15, 2008. The contract contains an
    2
    The Seventh Amendment provides that “[i]n Suits at common law . . . ,
    the right of trial by jury shall be preserved.” U.S. Const. amend. VII
    (emphasis added).
    6                 IN RE COUNTY OF ORANGE
    unambiguous clause by which each party agrees to waive its
    right to a jury trial in any dispute arising out of the contract.
    That clause provides:
    Waiver of Jury Trial.              Each party
    acknowledges that it is aware of and has had
    the opportunity to seek advice of counsel of
    its choice with respect to its rights to trial by
    jury, and each party, for itself and its
    successors, creditors, and assigns, does hereby
    expressly and knowingly waive and release all
    such rights to trial by jury in any action,
    proceeding or counterclaim brought by any
    party hereto against the other (and/or against
    its officers, directors, employees, agents, or
    subsidiary or affiliated entities) on or with
    regard to any matters whatsoever arising out
    of or in any way connected with this Contract
    and/or any other claim of injury or damage.
    The contract also contains a California choice of law clause.
    Tata America did not perform its obligations under the
    contract to the County’s satisfaction, and, in 2013, the County
    filed a breach of contract action in the United States District
    Court for the Central District of California, invoking that
    court’s diversity jurisdiction. See Compl. 1, Apr. 30, 2013,
    ECF No. 1. The County sued under California contract law,
    asserting claims for promissory fraud, fraudulent
    misrepresentation, fraudulent concealment, negligent
    misrepresentation, and breach of contract. In general, the
    County alleges that Tata America “failed to live up to the
    representations and promises [it] made to the County and also
    failed to comply with generally accepted industry standards.”
    IN RE COUNTY OF ORANGE                       7
    The Complaint and the First Amended Complaint both
    include a jury trial demand.
    Tata America filed a motion to strike the County’s jury
    demand. See Tata Mot. to Strike 1, Apr. 22, 2014, ECF No.
    40. It argued that the County waived its right to a jury trial
    by proposing and signing the contract containing the jury trial
    waiver. See 
    id. at 1–2.
    In its motion, Tata America invoked
    the district court’s power under Federal Rule of Civil
    Procedure 39, which permits a district court to strike a jury
    demand if it “finds that on some or all of [the issues raised]
    there is no federal right to a jury trial.” Fed. R. Civ. P.
    39(a)(2).
    In a thoughtful and well reasoned opinion, the district
    court granted Tata America’s motion to strike. See Cnty. of
    Orange v. Tata Consultancy Serv. Ltd., Case No.
    8:13-cv-00683-JLS-JC (C.D. Cal. June 10, 2014) (ECF No.
    51) (In Chambers) (Order Granting Defendant’s Motion to
    Strike). Noting that “[t]he parties dispute whether federal or
    California law applies to the determination of whether the
    County has waived its right to a jury trial,” the court invoked
    the Erie doctrine. See 
    id. at *3.
    It relied on Simler v. Conner,
    
    372 U.S. 221
    , 222 (1963), and Byrd v. Blue Ridge Rural
    Electric Cooperative, Inc., 
    356 U.S. 525
    , 537–38 (1958), to
    conclude that the right to a jury trial—including waiver of
    that right—is a federal procedural issue controlled in federal
    court by federal law. See Cnty. of Orange, Case No.
    8:13-cv-00683-JLS-JC, at *5. It invoked Herron v. Southern
    Pacific Co., 
    283 U.S. 91
    , 94 (1931), as a basis for rejecting
    the County’s argument that California’s prohibition on
    contractual jury trial waivers controls in federal court.
    Applying this authority, the court “conclude[d] that federal
    law, not California law, governs the question of whether a
    8                    IN RE COUNTY OF ORANGE
    party has waived its right to a jury trial in federal court.” See
    Cnty. of Orange, Case No. 8:13-cv-00683-JLS-JC, at *6.
    Applying federal law, the district court determined that the
    County—which drafted the jury waiver at issue here—
    knowingly and voluntarily waived its right to a jury trial. 
    Id. at *6–7.
    The County then filed the petition for writ of mandamus
    currently before us. In its petition, the County argues that the
    district court erred under Erie when it applied federal law to
    evaluate the validity of the waiver. The All Writs Act,
    28 U.S.C. § 1651, gives us jurisdiction to resolve this
    dispute.3
    II
    A
    Before tackling the Erie issue, we consider whether to
    apply the five factors announced in Bauman v. U.S. District
    Court, 
    557 F.2d 650
    (9th Cir. 1977), to a mandamus
    petition—like the County’s—that alleges the erroneous
    deprivation of a jury trial.
    The All Writs Act provides that federal courts “may issue
    all writs necessary or appropriate in aid of their respective
    jurisdictions and agreeable to the usages and principles of
    law.” 28 U.S.C. § 1651. “A writ of mandamus is an
    3
    We review de novo “[w]hether state or federal law applies in a
    diversity action.” Olympic Sports Prods., Inc. v. Universal Athletic Sales
    Co., 
    760 F.2d 910
    , 912 (9th Cir. 1985). We also review de novo whether
    a party validly waived its right to a jury trial. Palmer v. Valdez, 
    560 F.3d 965
    , 968 (9th Cir. 2009).
    IN RE COUNTY OF ORANGE                        9
    extraordinary or drastic remedy, used only to confine an
    inferior court to a lawful exercise of its prescribed jurisdiction
    or to compel it to exercise its authority when it is its duty to
    do so.” In re Sussex, — F.3d —, No. 14-70158, 
    2015 WL 1379852
    , at *3 (9th Cir. Jan. 27, 2015) (internal quotation
    marks omitted). Thus, the petitioner carries the high burden
    of establishing that his or her “right to issuance of the writ is
    clear and indisputable.” 
    Bauman, 557 F.2d at 656
    (quotation
    marks omitted).
    To evaluate whether the petitioner has carried this burden,
    we ordinarily examine the five factors set forth in Bauman:
    (1) The party seeking the writ has no other
    adequate means, such as direct appeal, to
    attain the relief he or she desires. (2) The
    petitioner will be damaged or prejudiced in a
    way not correctable on appeal.            (This
    guideline is closely related to the first.)
    (3) The district court’s order is clearly
    erroneous as a matter of law. (4) The district
    court’s order is an oft-repeated error, or
    manifests a persistent disregard of the federal
    rules. (5) The district court’s order raises
    new and important problems, or issues of law
    of first impression.
    
    Id. at 654–55
    (citations omitted); see also In re Sussex, 
    2015 WL 1379852
    , at *3.
    But Bauman does not apply in the extraordinary case
    where the petitioner claims erroneous deprivation of a jury
    trial. “The right to a jury trial . . . has occupied an
    exceptional place in the history of the law of federal
    10                IN RE COUNTY OF ORANGE
    mandamus . . . .” Wilmington Trust v. U.S. Dist. Court,
    
    934 F.2d 1026
    , 1028 (9th Cir. 1991); see also 16 The Late
    Charles Alan Wright et al., Fed. Prac. & Proc. Juris.
    § 3935.1 (3d ed. 2014). For that reason, we will “grant
    mandamus where necessary to protect the constitutional right
    to trial by jury. If the plaintiffs are entitled to a jury trial,
    their right to the writ is clear.” Tushner v. U.S. Dist. Court,
    
    829 F.2d 853
    , 855 (9th Cir. 1987) (Kennedy, J.) (citations
    omitted); see also 
    Mondor, 910 F.2d at 585
    –86 (“While
    mandamus relief is extraordinary and is available only in very
    limited circumstances, the wrongful denial of a jury trial is an
    appropriate basis for such relief.”).
    Thus where, as here, the mandamus petition alleges the
    erroneous deprivation of a jury trial, the Bauman factors are
    inapplicable and “the only question presented . . . is whether
    the district court erred in denying petitioner’s request for a
    jury trial.” 
    Mondor, 910 F.2d at 586
    . Furthermore, we may
    issue the writ even if “the petitioner is unable to show a ‘clear
    and indisputable’ right” to it. Wilmington 
    Trust, 934 F.2d at 1028
    .
    B
    To decide whether the district court erred in denying
    petitioner’s request for a jury trial we must first
    determine—under Erie and its progeny—whether federal
    district courts sitting in diversity apply federal or state law to
    evaluate the validity of a pre-dispute jury trial waiver. State
    and federal law treat such clauses differently: California
    generally prohibits pre-dispute waivers, 
    Grafton, 116 P.3d at 479
    , but federal law permits them as long as the parties
    waived their rights knowingly and voluntarily, see Nat’l
    Equip. Rental, Ltd. v. Hendrix, 
    565 F.2d 255
    , 258 (2d Cir.
    IN RE COUNTY OF ORANGE                       11
    1977). Although courts (including ours) generally recognize
    that a party’s right to a jury trial in federal court is a federal
    issue controlled by federal law, no circuit court has
    considered the narrower question presented here: What law
    should federal courts sitting in diversity apply to determine
    the validity of a jury trial waiver clause when state law is
    more protective than federal law of the right to a jury trial?
    i
    To answer this question, we begin with Erie. Or rather,
    with the Rules of Decision Act, 28 U.S.C. § 1652. The Rules
    of Decision Act provides that “[t]he laws of the several states,
    except where the Constitution or treaties of the United States
    or Acts of Congress otherwise require or provide, shall be
    regarded as rules of decision in civil actions in the courts of
    the United States, in cases where they apply.” 
    Id. The Supreme
    Court interpreted the Rules of Decision Act in Erie.
    It held that “[e]xcept in matters governed by the Federal
    Constitution or by acts of Congress, the law to be applied in
    any case is the law of the state” including state statutory and
    common law. 
    Erie, 304 U.S. at 78
    . Although this holding
    seems to preclude entirely application of federal common law
    in diversity cases, subsequent decisions have not read Erie so
    strictly. See, e.g., Snead v. Metro. Prop. & Cas. Ins. Co.,
    
    237 F.3d 1080
    , 1094 (9th Cir. 2001) (applying the McDonnell
    Douglas burden-shifting model—which is federal decisional
    law—in the face of a countervailing state rule because the
    state rule is procedural); cf. Semtek Int’l Inc. v. Lockheed
    Martin Corp., 
    531 U.S. 497
    , 508 (2001) (“[F]ederal common
    law governs the claim-preclusive effect of a dismissal by a
    federal court sitting in diversity.”). Rather, Erie has come to
    stand for the general principle that “federal courts sitting in
    12                IN RE COUNTY OF ORANGE
    diversity apply state substantive law and federal procedural
    law.” 
    Gasperini, 518 U.S. at 427
    .
    When confronted with an Erie question, we first ask
    whether a Federal Rule of Civil Procedure or a federal law
    governs. 
    Hanna, 380 U.S. at 470
    –71. If so, we will apply
    that rule—even in the face of a countervailing state rule—as
    long as it is constitutional and within the scope of the Rules
    Enabling Act, 28 U.S.C. § 2072. Olympic Sports Prods. v.
    Universal Athletic Sales Co., 
    760 F.2d 910
    , 914–15 (9th Cir.
    1985) (describing analysis); see also Shady Grove Orthopedic
    Assocs., P.A. v. Allstate Ins. Co., 
    559 U.S. 393
    , 398 (2010)
    (same).
    Absent an applicable Federal Rule or law, we apply the
    “relatively unguided” Erie analysis, 
    Hanna, 380 U.S. at 471
    ,
    which calls on us to determine whether the rules at issue are
    substantive or procedural, see 
    Gasperini, 518 U.S. at 427
    . A
    substantive rule is one that creates rights or obligations, or “is
    bound up with [state-created] rights and obligations in such
    a way that its application in the federal court is required.”
    
    Byrd, 356 U.S. at 535
    . A procedural rule, by contrast, defines
    “a form and mode of enforcing” the substantive right or
    obligation. 
    Id. at 536.
    Although helpful, these definitions
    have their limits: “[T]here is no bright line distinguishing
    substance from procedure, [and] the meanings of these terms
    shade into one another by degrees and vary from context to
    context.” Larry Kramer, Choice of Law in Complex
    Litigation, 71 N.Y.U. L. Rev. 547, 569 (1996); see also
    
    Gasperini, 518 U.S. at 427
    (“Classification of a law as
    ‘substantive’ or ‘procedural’ for Erie purposes is sometimes
    a challenging endeavor.”).
    IN RE COUNTY OF ORANGE                       13
    Thus, even more so than the substantive/procedural
    labels, our “unguided analysis” is informed by Erie’s “core
    policies.” Olympic Sports 
    Prods., 760 F.2d at 913
    . These
    policies require us to consider whether application of the
    federal rule would (1) be “outcome determinative,”
    (2) encourage “forum-shopping” between state and federal
    courts, or (3) lead to “inequitable administration of the laws.”
    
    Hanna, 380 U.S. at 468
    (describing Erie’s “twin aims”);
    Guar. Trust Co. of N.Y. v. York, 
    326 U.S. 99
    , 110 (1945)
    (describing the “outcome determinative” test). If so, the state
    rule is likely substantive and we will apply it in federal court.
    On the other hand, if the rule implicates an essential
    characteristic of the federal system, we typically apply the
    federal rule. See, e.g., 
    Gasperini, 518 U.S. at 432
    ; 
    Byrd, 356 U.S. at 537
    –38.
    ii
    Although we face an issue of first impression, we do not
    write on an entirely blank slate. Federal courts (including
    ours) have applied Erie to hold that the right to a jury trial is
    a federal procedural issue controlled by federal law. For
    example, in Simler, the Court considered whether state or
    federal law governs when a court must determine if an action
    is legal or equitable “for the purpose of deciding whether the
    claimant has a right to a jury 
    trial.” 372 U.S. at 221
    . The
    Court held that “the right to a jury trial in the federal courts
    is to be determined as a matter of federal law in diversity as
    well as other actions.” 
    Id. at 222.
    In Byrd, the Court held
    that federal courts sitting in diversity must apply federal law
    to determine whether a particular factual matter should be
    decided by a judge or a jury. 
    Byrd, 356 U.S. at 533
    –35.
    Circuit courts, including the Ninth Circuit, cite these cases for
    the general proposition that federal courts sitting in diversity
    14                IN RE COUNTY OF ORANGE
    apply federal law to determine the scope of the parties’ rights
    to a jury trial. See, e.g., Granite State Ins. Co. v. Smart
    Modular Techs., Inc., 
    76 F.3d 1023
    , 1026–27 (9th Cir. 1996)
    (“In a diversity action, federal law governs whether a party is
    entitled to a jury trial and if so, on what issues.”).
    Several of our sister circuits have applied this general rule
    to hold that federal courts sitting in diversity look to federal
    law to determine the enforceability of a jury trial waiver
    clause such as the one at issue here. See, e.g., Hergenreder
    v. Bickford Senior Living Grp., LLC, 
    656 F.3d 411
    , 420–21
    (6th Cir. 2011); Tracinda Corp. v. DaimlerChrysler AG,
    
    502 F.3d 212
    , 222 (3d Cir. 2007); Merrill Lynch & Co. Inc.
    v. Allegheny Energy, Inc., 
    500 F.3d 171
    , 188 (2d Cir. 2007);
    Medical Air Tech. Corp. v. Marwan Inv., Inc., 
    303 F.3d 11
    ,
    18 (1st Cir. 2002); Telum, Inc. v. E.F. Hutton Credit Corp.,
    
    859 F.2d 835
    , 837 (10th Cir. 1988); Leasing Serv. Corp. v.
    Crane, 
    804 F.2d 828
    , 832–33 (4th Cir. 1986). The Seventh
    Circuit took a different approach in IFC Credit Corp. v.
    United Business & Industrial Federal Credit Union, 
    512 F.3d 989
    , 991–92 (7th Cir. 2008) (Easterbrook, C.J.). There, the
    court held that even if federal law governs whether a litigant
    waived its right to a jury trial in federal court, federal courts
    should import the state rule of decision to determine the
    validity of a pre-dispute waiver because “there is no general
    federal law of contracts after Erie.” 
    Id. But the
    way California law deals with the validity of
    pre-dispute waivers makes these cases distinguishable from
    ours. Unlike state law in the First, Second, Third, Fourth,
    Sixth, Seventh, and Tenth Circuits, California law (along with
    Georgia law) is more protective than federal law of the right
    to trial by jury. Under California (and Georgia) law, parties
    to a contract cannot waive their right to a jury trial before a
    IN RE COUNTY OF ORANGE                      15
    dispute commences, and any contract provision seeking to
    effect such a waiver is unenforceable unless expressly
    authorized by statute. See 
    Grafton, 116 P.3d at 484
    .
    Recognizing this difference, California and Georgia
    district courts sitting in diversity have split on whether state
    or federal law governs the validity of a pre-dispute jury trial
    waiver. Compare Pallen Martial Arts, LLC v. Shir Martial
    Arts, LLC, Case No. 13-cv-05898-JST, 
    2014 WL 2191378
    , at
    *9 (N.D. Cal. May 23, 2014) (“[T]he growing consensus in
    this district is that jury trial waivers are unenforceable in
    contract actions brought under California law.”), and GE
    Commercial Fin. Bus. Prop. Corp. v. Heard, 
    621 F. Supp. 2d 1305
    , 1310 (M.D. Ga. 2009) (“[T]he Court finds that the
    contractual jury trial waivers in the Georgia contracts are
    null and void under Georgia law and consequently not
    enforceable in this action.”), with Cnty. of Orange, Case No.
    8:13-cv-00683-JLS-JC, at *5–6 (order appealed here)
    (applying the federal “knowing and voluntary” standard to
    evaluate the validity of a pre-dispute jury trial waiver), and
    GEM Acquisitionco, LLC v. Sorenson Grp. Holdings, LLC,
    No. C 09-01484 SI, 
    2009 WL 3246747
    , at *4, *6 (N.D. Cal.
    Oct. 8, 2009) (same); see also Brian S. Thomley, Comment,
    Nothing is Sacred: Why Georgia and California Cannot Bar
    Contractual Jury Waivers in Federal Court, 12 Chap. L. Rev.
    127, 145 (2008) (noting the divergent case law on this issue).
    iii
    As this case law suggests, we are not presented with an
    easy question. “[C]lassification of a law as ‘substantive’ or
    ‘procedural’ for Erie purposes is sometimes a challenging
    16                    IN RE COUNTY OF ORANGE
    endeavor. This is one of those times.” 
    Snead, 237 F.3d at 1090
    (internal citations and quotation marks omitted).4
    On the one hand, rules dictating when a party waives its
    right to a jury trial are procedural, and “federal courts sitting
    in diversity apply . . . federal procedural law.” 
    Gasperini, 518 U.S. at 427
    . 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, see 
    Byrd, 356 U.S. at 535
    , nor is it a rule that dictates the substance of a potential
    award, see 
    Gasperini, 518 U.S. at 428
    . Rather, the
    rule—which allocates tasks between a judge and a
    jury—describes “merely a form and mode of enforcing” the
    law. 
    Byrd, 356 U.S. at 536
    ; see also 
    Gasperini, 518 U.S. at 426
    (noting that a law is procedural when it “assigns
    decisionmaking authority”); Wabol v. Villacrusis, 
    958 F.2d 1450
    , 1460 (9th Cir. 1990) (“The jury trial guarantee is
    primarily a procedural right designed to safeguard the broader
    and more fundamental right to a fair trial . . . .”). Such rules
    are procedural under Erie.
    4
    We use the “relatively unguided” Erie analysis because neither a
    Federal Rule of Civil Procedure nor a federal law dictates whether pre-
    dispute jury trial waivers are enforceable in federal court. See 
    Hanna, 380 U.S. at 470
    –71; Olympic Sports 
    Prods., 760 F.2d at 914
    . Federal Rules
    of Civil Procedure 38 and 39 relate to jury trial waivers, but only in the
    context of cases already in litigation. See Fed. R. Civ. P. 38(d)
    (explaining that a party waives its right to a jury trial by failing to properly
    request one); Fed. R. Civ. P. 39 (giving district courts the power to strike
    a demand for a jury trial on certain issues). And although the Federal
    Arbitration Act, 9 U.S.C. §§ 1–19, permits pre-dispute jury trial waivers,
    the Act is not applicable here because it addresses such waivers only in the
    context of arbitration clauses, and the contract at issue contains no such
    clause.
    IN RE COUNTY OF ORANGE                      17
    Also, application of the federal rule in federal court would
    not be “outcome determinative”: California’s Grafton rule
    does not “‘have so important an effect upon the fortunes of
    one or both of the litigants that failure to [apply] it would
    [unfairly discriminate against citizens of the forum state, or]
    be likely to cause a plaintiff to choose the federal court.’”
    
    Snead, 237 F.3d at 1090
    (alterations in original) (quoting
    
    Gasperini, 518 U.S. at 427
    ). It is too speculative to assume
    that an individual who signs a contract containing a jury trial
    waiver would seek to void that waiver by rushing to sue an
    adversary in the adversary’s home-state court (from which the
    adversary could not remove to federal court, see 28 U.S.C.
    § 1441(b)(2)). Viewed this way, application of the federal
    law would not promote forum-shopping or cause inequitable
    administration of the law. See Chambers v. NASCO, Inc.,
    
    501 U.S. 32
    , 53 (1991) (a rule will not implicate Erie’s twin
    aims when its application to the parties is uncertain). Byrd
    confirms that federal courts can apply federal law on jury trial
    waivers without undermining Erie’s core principles: It notes
    that whether a case is tried by a judge or a jury does not
    create “the certainty that a different result would follow, . . .
    or even the strong possibility that this would be the case.”
    
    Byrd, 356 U.S. at 539
    (internal citations omitted). But see
    Bernhardt v. Polygraphic Co. of Am., 
    350 U.S. 198
    , 203
    (1956) (“The nature of the tribunal where suits are tried is an
    important part of the parcel of rights behind a cause of
    action.”).
    On the other hand, California’s rule is substantive. It is
    a state rule of contract interpretation that furthers the state
    constitutional policy favoring jury trials, 
    Grafton, 116 P.3d at 482
    , and rules of contract interpretation and construction are
    plainly substantive under Erie, see IFC Credit Corp.,
    18                IN RE COUNTY OF 
    ORANGE 512 F.3d at 991
    –92 (“There is no general federal law of
    contracts after” Erie).
    But even if we view California’s rule as primarily
    procedural, we are not convinced that federal courts sitting in
    diversity may disregard it. As we recognized in Feldman v.
    Allstate Insurance Co., 
    322 F.3d 660
    (9th Cir. 2003), federal
    courts sitting in diversity must give full effect to state
    procedural rules when those rules are “intimately bound up
    with the state’s substantive decision making” or “serve
    substantive state policies.” 
    Id. at 667
    (quotation marks
    omitted); see also 
    Byrd, 356 U.S. at 535
    . California’s rule on
    pre-dispute jury trial waivers embodies the state’s substantive
    interest in preserving the “right to a jury trial in the strongest
    possible terms,” 
    Grafton, 116 P.3d at 482
    , an interest the
    California Constitution zealously guards, see Cal. Const. art.
    I, § 16 (“Trial by jury is an inviolate right and shall be
    secured to all . . . .”). Also, respecting that interest reinforces
    the Federal Constitution’s preservation of jury trials in civil
    cases. See U.S. Const. amend. VII.
    So the question becomes: Can “federal courts . . . 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[?]” 
    Gasperini, 518 U.S. at 426
    . We
    believe we can.
    We hold, first, that federal procedural law governs the
    validity of a pre-dispute jury trial waiver in federal court.
    This comports with Simler and Byrd, in which the Supreme
    Court held that the scope of the right to a jury trial in a
    federal diversity case is a federal procedural issue governed
    by federal law. 
    Simler, 372 U.S. at 221
    ; 
    Byrd, 356 U.S. at 533
    –35. It also fits with our general understanding of the jury
    IN RE COUNTY OF ORANGE                       19
    trial right as a procedural right that guarantees a particular
    mode of enforcing certain substantive rights. See 
    Wabol, 958 F.2d at 1460
    (interpreting the Sixth Amendment right to
    a jury trial). Having determined that federal law applies, we
    must next ask: What is the federal rule?
    The federal “knowing and voluntary” standard adopted by
    the district court is not a generally applicable federal rule, but
    rather a federal constitutional minimum. “Maintenance of the
    jury as a fact-finding body [in both civil and criminal cases]
    is of such importance and occupies so firm a place in our
    history and jurisprudence that any seeming curtailment of the
    right to a jury trial should be scrutinized with the utmost
    care.” Dimick v. Schiedt, 
    293 U.S. 474
    , 486 (1935) (citations
    omitted); see also 
    Hendrix, 565 F.2d at 258
    (“It is elementary
    that the Seventh Amendment right to a jury is fundamental
    and that its protections can only be relinquished knowingly
    and intentionally.” (emphasis added)), cited with approval in
    
    Palmer, 560 F.3d at 968
    . But a federal constitutional
    minimum is inapplicable where, as here, state law is more
    protective than federal law of federal constitutional rights.
    There is, thus, no federal rule that governs the validity of a
    pre-dispute jury trial waiver when state law is more protective
    than federal law of the jury trial right.
    When faced with such a gap, Erie’s federalism principle
    directs us to import state law as the federal rule rather than
    construct a new federal common law rule. Erie ensures that
    “a federal court adjudicating a state-created right solely
    because of the diversity of citizenship of the parties is for that
    purpose, in effect, only another court of the State . . . .”
    Guar. 
    Trust, 326 U.S. at 108
    . To that end, and absent a
    countervailing federal rule or interest, federal courts should
    adjudicate state-created rights in a manner that closely
    20               IN RE COUNTY OF ORANGE
    resembles the way in which a state court would adjudicate
    that same right. See, e.g., 
    Bernhardt, 350 U.S. at 202
    –03.
    This goal is particularly important where, as here, the state
    rule has a “substantive thrust.” See 
    Gasperini, 518 U.S. at 426
    . And while expansion of a federal common law rule may
    be necessary when federal interests require a “nationally
    uniform body of law,” United States v. Kimball Foods, Inc.,
    
    440 U.S. 715
    , 728 (1979); 
    Byrd, 356 U.S. at 537
    , here, federal
    courts can ensure uniform protection of Seventh Amendment
    rights by permitting parties to waive those rights—at
    minimum—knowingly and voluntarily, see 
    Hendrix, 565 F.2d at 258
    , while still adhering to California’s Grafton rule. For
    these reasons, “[t]his is, it seems to us, a classic case for
    adopting, as the federally prescribed rule of decision, the law
    that would be applied by state courts in the State” whose law
    governs the contract. See 
    Semtek, 531 U.S. at 508
    .
    To recap: The law governing jury trial waivers in federal
    court is federal procedural law. But the federal rule most
    courts use to evaluate such waivers—the “knowing and
    voluntary” standard—is a federal constitutional minimum.
    Its application is not required where, as here, state law is
    more protective than federal law of the jury trial right. So we
    are faced with a void in federal law. Rather than expand the
    constitutional “knowing and voluntary” standard to fill that
    void, we adopt state law as the federal rule. This means that
    federal courts sitting in diversity must apply the relevant state
    law to evaluate the validity of a pre-dispute jury trial waiver
    when that law is more protective than federal law.
    C
    The parties’ contract is governed by California law.
    California law holds, as a matter of public policy, that a
    IN RE COUNTY OF ORANGE                            21
    litigant cannot waive its right to a jury trial by entering into
    a contract that contains a pre-dispute jury trial waiver clause.
    
    Grafton, 116 P.3d at 484
    , 488 (citing Cal. Const. art. I, § 16
    and Cal. Civ. Code § 631). This rule is more protective of the
    right to a jury trial than the federal “knowing and voluntary”
    standard. See 
    Hendrix, 565 F.2d at 258
    . For that reason,
    district courts sitting in diversity must apply California’s rule
    on pre-dispute jury trial waivers to contracts governed by
    California law.
    The district court thus erred when it applied the federal
    “knowing and voluntary” standard to uphold the parties’
    waiver. While we agree that the County knowingly and
    voluntarily waived its right to a jury trial by drafting,
    proposing, and signing a contract that contained a jury trial
    waiver, California—not federal—law dictates the validity of
    the waiver clause. And under California law, the parties’ pre-
    dispute waiver clause is unenforceable.5 See 
    Grafton, 116 P.3d at 481
    . When it granted Tata America’s motion to
    strike, the district court erroneously deprived a California
    county of a jury trial. Mandamus relief is therefore
    warranted. See 
    Mondor, 910 F.2d at 585
    –86.
    5
    We are unpersuaded by Tata America’s argument that the parties’ jury
    trial waiver is enforceable under California law notwithstanding Grafton.
    Tata America cited no post-Grafton authority for its assertion that
    “although section 631 does not specifically address legislative waivers of
    the right to a jury trial, California Government Code section 25203 [which
    permits the County’s Board of Supervisors to enter into contracts and
    control litigation on behalf of the County] implicitly provides for the
    predispute waiver of jury trials.” We decline to infer such a broad
    exception to Grafton, particularly in light of that case’s unequivocal
    holding that “section 631 does not authorize predispute waiver of [the
    right to a jury trial].” 
    Grafton, 116 P.3d at 488
    .
    22                IN RE COUNTY OF ORANGE
    III
    For these reasons, we grant Orange County’s petition for
    writ of mandamus. We direct the district court to deny Tata
    America’s motion to strike the County’s demand for a jury
    trial.
    Each party shall bear its own costs.
    PETITION GRANTED.
    

Document Info

Docket Number: 14-72343

Citation Numbers: 784 F.3d 520

Filed Date: 4/16/2015

Precedential Status: Precedential

Modified Date: 1/12/2023

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