Do Juries Add Value?: Evidence from an Empirical Study of Jury Trial Waiver Clauses in Large Corporate Contracts
59 Pages Posted: 22 Nov 2006
Date Written: November 26, 2006
We study jury trial waivers in a data set of 2,816 contracts contained as exhibits in Form 8-K filings by reporting corporations during 2002. Because these contracts are associated with events deemed material to the financial condition of SEC-reporting firms, they likely are carefully negotiated by sophisticated, well-informed parties and thus provide presumptive evidence about the value associated with the availability of jury trials. Only a small minority of contracts, about 20 percent, waived jury trials. An additional nine percent of contracts had arbitration clauses that effectively preclude jury trials though the reason for arbitration clauses need not specifically relate to juries. We explore three groups of factors to explain the pattern of jury trial waivers: (1) contract-specific factors: the subject matter of a contract, a measure of its standardization, choice of law, and choice of forum, (2) contracting-party factors: domestic vs. international status, place of business, place of incorporation, attorney locale, and industry, and (3) factors external to the contracts and parties: perceptions of local jury fairness in the forum specified in the contract and the relative length of jury and bench trial queues in that forum. Contract-type is significantly associated with jury trial waivers. For example, over 50 percent of security agreements and over 60 percent of credit commitments waived jury trials. In contrast, only five percent of employment contracts, two percent of bond indentures, and 3.5 percent of pooling service agreements waived jury trials. Choice of forum, greater contract standardization, and perceived fairness of juries are significantly associated with jury trial waivers. Over 80 percent of the contracts designating Illinois as a forum contained jury trial waivers whereas less than half the contracts designating New York as a forum, and only about one-third of the contracts designating California, Texas, or Florida as a forum contained waiver clauses. Jury trial waivers were not more common in international contracts. Our results suggest that, contrary to a widespread perception about the alleged inadequacies of juries in complex business cases, sophisticated actors may perceive that juries often add value to dispute resolution.
Keywords: Juries, Contracts, Trials, Corporations, Bivariate Probit
JEL Classification: D21, G39, K10, K12, K13, K41
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