DealLawyers.com Blog

Last February, on TheCorporateCounsel.net, I blogged about the decision by California’s Fourth District Court of Appeal in EPICENTERx, Inc. v. Superior Court (Cal. Ct. Appeal, 9/23), which refused to enforce a forum selection clause “in a Delaware corporation’s corporate documents” since it “would operate as an implied waiver of the plaintiff’s right to a jury trial—a constitutionally-protected right that cannot be waived by contract prior to the commencement of a dispute.” California was an outlier — with Georgia; while most state constitutions recognize the right to a jury trial, California and Georgia courts had expressly prohibited pre-dispute jury waivers.

Earlier this week, in EPICENTERx, Inc. v. Superior Court (Cal. Sup.; 7/25), the California Supreme Court reversed. This Sheppard Mullin blog says:

This decision effectively overrules Handoush v. Lease Financing Group, LLC, 41 Cal.App.5th 729 (2019), in which the California Court of Appeal (First District) restricted courts from enforcing such clauses where the plaintiff would not be entitled to a jury trial in the selected forum. The Supreme Court’s decision thus clarifies the law in California, providing practitioners and litigants with greater certainty that forum selection clauses will be enforced . . .

The Supreme Court explained that although California does recognize a fundamental public policy interest in preserving the right to a civil jury trial and pre-dispute jury waivers are invalid, this policy is tethered to jury trials in California courts. The policy does not conclusively forbid waivers outside California courts. Nor does it preclude contracting parties from agreeing to resolve disputes in fora outside California, even when those fora recognize much more limited (or no) jury trial rights. The Court recognized the importance of enforcing forum selection clauses, citing federal authority from United States Supreme Court and the United States Court of Appeals for the Ninth Circuit.

The California Supreme Court reversed with instructions for the Superior Court to consider the plaintiff’s other arguments for non-enforcement of the forum selection clause, namely that they were improperly adopted and not “freely and voluntarily negotiated at arm’s length.” The Court declined to address the merits of these other theories because they were not considered or decided by the Court of Appeal. Although the Court held that the loss of jury trial rights could not alone justify non-enforcement of a forum selection clause, it left open the possibility that jury trial rights might be relevant to related public policy arguments for non-enforcement.

EpicentRx is an important decision for practitioners in California. It dispels the confusion created by Handoush, and thus provides much greater certainty to California-based corporations that California courts will enforce forum selection clauses — often selecting the Delaware Court of Chancery, but also increasingly selecting business courts being established in Texas, Nevada and other jurisdictions — for resolution of complex corporate and business disputes.

– Meredith Ervine