Competition For Arbitration: Non- Jury Trials

Texas has joined the majority of states that uphold the validity of jury-waiver clauses.

By Joe Dirik

In a column last year, I mentioned that Texas courts generally favor freedom of contract between parties. In September, the Texas Supreme Court reaffirmed that position in a big way. The court decided In Re The Prudential Insurance Co. of America to uphold the right of parties to a commercial lease to waive trial by jury in any future lawsuit involving their lease. Texas now joins the majority of states that uphold the validity of jury-waiver clauses. This decision is important to Texas owners, contractors and subcontractors because over time many contractors will choose non-jury trials over arbitration to resolve their disputes.

The decision's importance should be apparent because it presents contracting parties with a new risk management tool. Contracting parties manage their risks by selecting the appropriate dispute-resolution forum and process. Unless the parties successfully mediate or settle their dispute, they must eventually abide by the decision of an outside third-party. The prudent risk manager should ask who is best suited to decide potential disputes and under what circumstances. How much control do the parties wish to retain over the outcome? Texas contracting parties have three options now: a jury trial, a bench trial or arbitration.

In a jury trial, lay jurors decide the factual issues. Tremendous uncertainty exists over the qualifications and predispositions of the jurors. They must evaluate volumes of project records and testimony of numerous experts. Contracting parties often decide they are unwilling to take a chance on a jury verdict.

Parties have avoided jury trials by agreeing to arbitrate their construction disputes. They believe arbitration eliminates catastrophic results. This has much to do with the real or perceived belief that arbitration decisions "split the baby" and reach compromise verdicts, even when the law is on one party's side. One very real advantage is the flexibility associated with arbitration. For example, parties can require that the arbitrators possess legal and construction industry experience. Other perceived advantages include the belief that arbitration is less expensive, more efficient and will resolve disputes more quickly than the courtroom. But arbitrations can be expensive. It is possible to incur arbitrator fees approaching $1 million in complicated construction cases. And that number doesn't include each side's attorneys' fees.

By choosing arbitration, parties generally give up several things. It is very difficult to appeal an arbitration award. An appeal might succeed if the arbitrator refused to receive evidence. Arbitrators will go out of their way to admit all evidence presented, even if the evidence might not be admissible in court. This can drive up the cost of arbitration. Another negative involves what Ted Daniel, a shareholder in our construction practice group calls, the "do right" rule. Arbitrators aren't technically required to follow the law when they decide cases. They often ignore legal principles and render a decision based on what they feel is fair or the right thing to do. In many cases, parties to arbitration also give up the opportunity for a decisive victory.

While arbitration has its benefits, it may not always be the best forum to resolve disputes. A non-jury, or bench trial, provides an attractive alternative. Based on the Prudential decision, Texas courts should uphold jury waivers in construction contracts entered into between sophisticated companies. In a bench trial, a judge will decide all fact and legal matters. Some disputes might be settled in a summary judgment proceeding, without the need for a full trial. The court's decision can be appealed. And most importantly, we expect our judges to follow the law, even if the resulting decision is unfair to one party. In some cases, the appointment of a special master, with construction experience, can help the trial judge's lack of construction knowledge.

A bench trial might provide greater certainty in resolving your disputes. Ask your attorney if a jury-trial waiver makes sense for your company.