Of What Value Is a Jury Today? an Updated Empirical Study of Jury Trial Waivers in Large Corporate Contracts

• Publication year: 2022

53 Creighton L. Rev. 283. OF WHAT VALUE IS A JURY TODAY? AN UPDATED EMPIRICAL STUDY OF JURY TRIAL WAIVERS IN LARGE CORPORATE CONTRACTS

OF WHAT VALUE IS A JURY TODAY? AN UPDATED EMPIRICAL STUDY OF JURY TRIAL WAIVERS IN LARGE CORPORATE CONTRACTS

ELIZABETH M. FRALEY ^[D1]

I. ABSTRACT:

This study seeks to evaluate whether a decade of tort reform and Seventh Amendment attacks have eroded corporate confidence sufficiently to prompt a substantial increase in the use of jury waiver and arbitration clauses. In 2006, Eisenberg, et. al examined jury trial waivers in a data set of 2,816 contracts contained as exhibits in Form 8-K filings with the SEC. Those authors found that only about 20% of such contracts contained express waivers of the right to trial by jury, with another 9% implicitly waiving the right by agreeing contractually to arbitrate disputes. In the decade since the study concluded, tort reform advocates have devoted substantial time and resources undermining confidence in the jury trial system. ^[1] During that same period, mandatory arbitration legislation similarly worked to supplant jury trials. ^[2] Replicating Miller and Eisenberg's methodology, this study seeks to evaluate the effects of these Seventh Amendment attacks by examining the prevalence of jury waiver and arbitration clauses since the prior study concluded.

This study, ^[3] like its predecessor, studies contracts attached as exhibits to Form 8-K filings. As these are associated with events deemed material to the financial condition of SEC-reporting firms, these contracts were likely carefully negotiated by sophisticated, well-informed parties. As well, the documents' materiality suggests that they received sufficient scrutiny and attention to be considered intentional in every aspect. Such critical documents provide presumptive evidence about the perceived value of the right to trial by jury. By increasing the data set significantly (from 2,816 contracts to 4,011) and focusing on the same type of contracts as examined by the prior study ten years before, this study enables new conclusions to be drawn about the prevalence of express and implied waivers to the right of trial by jury.

The results of this study both confirm and conform to the findings of the prior study (with a few notable exceptions deserving of analysis) and notes new trends which question the permanence and persistence of the hypotheses respectively confirmed and denied by the prior study. As the results indicate, despite the increased number of contracts filed, it remained that a minority included an explicit jury waiver (less than 30% as compared to about 20% previously). In 2002, about 9% of the contracts required arbitration or an implied jury waiver; in this study that number had grown to only 13%, despite state and federal legislation and case law favoring arbitration. To better understand the issue, this study explored the two factors which appear mostly likely to determine the prevalence of jury waiver or arbitration clauses in studied contracts: (1) the type of contract; and (2) the degree of standardization of that contract. For example, nearly 50% of securities purchase contracts contain explicit jury waivers as compared to only 12.5% of settlement agreements. Results revealed increased standardization in the contracts was strongly associated with use of explicit jury waivers. Ultimately, this study reinforces the conclusions of the prior study: despite widespread media coverage and lay perception that juries are not competent to decide complex business disputes, sophisticated corporate actors perceive that juries add value to dispute resolution even in complex commercial settings.

II. INTRODUCTION

Commercial contracts frequently contain agreements about how the parties intend to resolve disputes which may arise under the contract. Two types of ex ante provisions for dispute resolution are (1) an agreement for one or both parties to waive the right to have a jury resolve such disputes; or (2) an agreement to arbitrate rather than litigate any dispute. Such provisions ordinarily are enforceable, provided they are found to be knowing and deliberate. ^[4] The first provision is an express waiver of the right to trial by jury; the second impliedly waives the right, choosing instead to submit the dispute either to a single arbitrator or to a panel of arbitrators.

Both express and implied waivers are rooted, at least in part, in the belief that juries lack the sophisticated business acumen to understand and resolve disputes in complex commercial cases. If indeed most large corporate parties involved hold this view, one could predict a near universal inclusion of ex ante provisions to avoid jury trials in the major business contracts considered by this study. An additional reason cited for jury trial waivers and arbitration clauses is the perception that both options are more cost-effective for the corporations involved. Evidence of whether arbitration is superior to litigation is often anecdotal and case specific, leading to prejudices and preferences rather than empirical evidence that one provides a tangible benefit. ^[5] Albeit subjective, this perceived bottom-line rationale would also tend to predict a strong corporate preference for dispute resolution through means other than jury trial.

This study, like its predecessor, is a large-scale empirical study of jury trial waivers in significant commercial contracts, testing the prior data and conclusions regarding jury waiver against a new and larger set of data. It seeks to reveal trends in corporate confidence in the jury system and how those corporate behaviors changed over the intervening ten years. The methodology mirrors that used in the Eisenberg and Miller empirical study of 8-K filed contracts (the "prior study" or the "Eisenberg study"). ^[6] By building upon the Eisenberg study and using a similar methodology, this study enables data to be compared across time, allowing some conclusions about not only the present-day prevalence of such clauses among sampled contracts, but also about the changes over time in the prevalence of the studied clauses.

A. EXPLICIT JURY WAIVERS: WHY SO FEW?

Despite the time interval and increased number of studied contracts, the study demonstrates that use of jury waivers is far from universal and has increased by a smaller than anticipated margin. Of the 4,011 contracts in this study's data set, only 29.79% contained explicit jury trial waivers. If a "[c]ivil jury trial is so long, expensive, and unpredictable that the clear majority of parties would rather settle than endure it," ^[7] why are there relatively few explicit jury trial waivers in the data? Potential explanations include agency costs, strategic considerations, and transactions costs.

The contracting parties in this study's data set, like the prior study's data, are SEC-reporting businesses that have entered into transactions of a magnitude that require reporting through 8-K filings. The SEC requires public companies to file a Form 8-K to inform shareholders of material corporate events. ^[8] These include complicated events such as matters impacting a company's business and operations, its financial information, securities and trading markets, accounts and financial statements, corporate governance and management, and asset-backed securities. ^[9] Because of the materiality of these transactions and agreements, and the level of sophistication and experience these businesses hold, the presence or absence of jury trial waivers in the data sample can provide insight to the general business community's perception of the value and risk of civil juries. 8-K exhibit contracts admittedly are not the contracts most frequently negotiated by large businesses in their day-to-day operations, as critics are correct to point out. ^[10] However, 8-K contracts tend to be especially material or impactful agreements which are scrutinized and negotiated more carefully than boilerplate agreements made in the everyday course of business. Given the characteristics of 8-K contracts and the small increase in jury waiver provisions by sophisticated businesses (less than 10% over ten years), it is also possible - or perhaps likely - that the parties omit jury trial waivers because they perceive the availability of a jury trial as adding value to the contract. Whether the party desires a trial, believes a jury trial would harm the other party more, sees trial as a valuable negotiating tool, or all three - most companies choose to retain the option of trial by jury.

B. IMPLICIT JURY WAIVERS: MANDATORY ARBITRATION CLAUSES ARE NOT JUST TO AVOID JURY TRIALS

Despite the time interval and increased number of studied contracts, slightly fewer than 13% of the data set contained mandatory arbitration clauses. While the effect of a mandatory arbitration clause is to avoid jury trial, such clauses may be adopted for reasons other than avoiding jury trial, since an express jury waiver would achieve this goal more certainly and more directly. ^[11] For example, a perceived decrease in the cost of arbitration versus litigation may motivate general counsel drafting or approving contracts to include mandatory arbitration provisions, ^[12] although arbitration as a "cheaper" alternative has been debunked in a number of arenas. ^[13] Similarly, the perception that arbitration is a faster and less expensive alternative to...