Nobody Put a Gun To Your Head: Judicial Enforcement of Jury Trial Waivers by Franchisees

 
(See www.seinology.com, Episode No. 113, October 5, 1995).

In the franchise arena, this concept can be found in the context of a contested jury trial waiver.  The vast majority of modern-day franchise agreements call for the franchisee to waive its right to a trial by jury concerning any and all disputes that may arise from the franchise relationship. Where a franchisee attempts to pursue a trial by jury regarding its claims against the franchisor, the standard argument advanced by the franchisor urging enforcement of the jury trial waiver is that nobody forced the franchisee to invest in any particular franchise system.
 
In our view, such an argument misses the point entirely.
 
The right to a jury trial in civil litigation is protected by the Seventh Amendment to the Constitution.  A franchisee may validly waive its right to a jury trial, however, so long as the waiver is knowing and voluntary. In making this assessment, courts generally consider the following factors:

• the conspicuousness of the waiver provision,
• the parties' relative bargaining power,
• the sophistication of the party challenging the waiver, and
• whether the terms of the contract were negotiable. 

Unfortunately, courts all too often seem to give short shrift to this constitutional right of the franchisees.  One recent case that illustrates this point is Aamco Transmissions, Inc. v. Baker, 2008 WL 509220 (E.D.Pa.,2008).  In Baker, the U.S. District Court for the Eastern District of Pennsylvania enforced a jury trial waiver contained in the parties' franchise agreement, finding that the franchisee's waiver was knowing and voluntary.
 
The franchisee in Baker argued that he did not knowingly or voluntarily waive his right to a jury trial in that the waiver provision was presented as a "take-it-or-leave-it proposition".  Rejecting that contention, the court observed that the franchisee had chosen to sign on with AAMCO after exploring other business opportunities (in other words: "nobody put a gun to his head" to invest in an AAMCO franchise). The court also noted that there had been no focus on dispute resolution during the parties' negotiations.  Finally, the court found that there was not a gross disparity in bargaining position, as the franchisee had a high level of sophistication, including a college degree and more than 17 years of business experience, and he had carefully analyzed the business opportunity before investing.  The court thus concluded that the jury waiver was knowing and voluntary, and it granted AAMCO's motion to strike the franchisee's jury demand.
 
In our opinion, the Baker court owed far greater deference to the franchisee's right to a jury trial.  At a minimum, two of the four factors noted above appear to warrant the conclusion that the jury waiver in Baker was neither knowing nor voluntary.  We have yet to learn of a situation in which there was not a gross imbalance in the relative bargaining power as between a franchisor and a prospective franchisee.  Furthermore, other than in the hotel industry and in start-up franchise systems, franchise agreements are generally presented on an as is, take-it-or-leave-it basis, without any opportunity for negotiation.  We see nothing in the Baker opinion that suggests that the case presented any exception to these general truisms.
 
We note that courts frequently enforce an implicit waiver of the right to a jury trial by a franchisee by virtue of the inclusion of an arbitration provision in the franchise agreement - a practice currently utilized by many franchisors.
 
The troubling lesson of these cases is that courts generally do not hold franchisors to what should be a very high standard for determining the validity of a waiver of a constitutional right.