May/June 2009 / Features
Don’t Let a Jury Decide What Your Contract Means
In a 2008 decision, the California Supreme Court overturned a $200 million punitive damages award against Genentech Inc. for breach of fiduciary duty. The ruling was welcomed by the technology and biotechnology industries, but portions of it increase the risk that contract interpretation may end up in the hands of a jury. The ruling also opens up greater potential liability for the party that bears primary responsibility for drafting a contract.
The Supreme Court’s ruling has significant implications for breach-of-contract litigation. Many lawyers are anxious about a jury deciding a commercial dispute. Jurors may have difficulty understanding commercial arrangements, and they may be susceptible to emotional arguments, even if they are without merit. A losing party is less likely to obtain relief if it appeals a contract interpretation made by a jury. And, the authors note appellate courts give great deference to a jury’s interpretation, rather than re-interpreting the disputed provision from scratch as they do when the contract has been interpreted by the trial court.
The authors include practical suggestions for drafting contracts that may be subject to litigation in the California courts. These include specifying arbitration or the use of a judicial referee in contract disputes, thereby waiving a jury trial, or a provision stipulating that a special verdict procedure be used if disputes about contract interpretation arise.
Jerome B. Falk, Jr. is a director at Howard Rice Nemerovski Canady Falk in San Francisco. He is a certified specialist in appellate law. Contact him at jfalk@howardrice.com.
Celia Van Gorder is a director at Howard Rice Nemerovski Canady Falk in San Francisco. She specializes in merger and acquisitions and complex business transactions. Contact her at cvangorder@howardrice.com.
