California's Supreme Court has passed a ruling that requires all court cases to be heard by a jury. The ruling covers all types of disputes, including credit agreements and loan trading documents, governed by Californian law. The decision does not bode well for banks because it is thought juries will not understand complex loan trading disagreements, and will be unsympathetic to the interests of large financial institutions that go to court.
Elliot Ganz, executive v.p. and general counsel of the Loan Syndication and Trading Association, said banks are still trying to get their heads around the implications of the ruling, which passed in August. "There is little banks can do against it," said Ganz. "There is nothing you can do in writing to address it because it is a constitutional decision."
Most loan disputes are settled before they go to court. But when banks choose to settle this way, cases are usually heard by a judge. "Financial institutions are wary of going to a jury to adjudicate cases," said Ganz. "There is the risk the jury will not understand the complexities of the case. There are also higher costs associated with jury trials."
Georgia and North Carolina have similar rulings that prohibit jury waivers. But the California decision is sobering because the size and importance of the California market means many financial institutions are affected.
Banks that want to avoid jury trials must choose either arbitration or include judicial reference in their contracts that would allow them to have a referee adjudicate a case rather than a jury. The ruling may prompt more banks to arbitrate cases, but Ganz pointed out this is not a perfect solution. "The problem with arbitration is not everyone is comfortable with it," he said. "You don't have the same discovery as in court. It is only a partial solution."
He added it is unclear whether federal courts or courts in states other than California would continue to enforce jury trial waivers in agreements governed by California law. It is also unclear whether California courts would require a jury trial for parties whose agreements are governed by the law of a state that allows cases to be heard by a judge rather than a jury.