This article does not constitute legal advice nor is a substitute for competent legal counsel. Please consult counsel to determine which of the foregoing options best serves your business practices.
Overview
GoDocs is enhancing its alternative dispute resolution (ADR) provisions by offering new ADR options. ADR gives lenders more flexibility in pursuing its remedies available under its loan documents and is an efficient solution that helps lenders avoid costly litigation before an unpredictable jury should a dispute arise in connection with a loan transaction.
GoDocs currently offers its customers (lenders) the option to include a waiver of jury trial in pertinent loan documents generated by our platform. ADR gives lenders more flexibility in pursuing its remedies available under its loan documents. In waiving a borrower’s right to a jury trial, the lender mitigates the excessive cost and time associated with resolving disputes before a jury that may arise during the life of a lender’s loan; by litigating before a judge (a “bench trial"), lenders may see more favorable outcomes, both in verdict and in cost.
You can now choose to include:
1. Arbitration (default in certain states)2. Mediation (optional add-on to Arbitration; precedes arbitration)
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- Default Arbitrator Language:
If you choose to include ADR, the default language in your loan documents will refer to:
“the private alternative dispute resolution association/service selected by Lender.”
However, GoDocs provides lenders with the flexibility to choose a specific ADR provider at the time the dispute becomes ripe for dispute resolution. If your organization prefers to specify a provider such as JAMS or AAA, you may let the GoDocs Support team know.
- Default Arbitrator Language:
Notwithstanding these new options, if the customer chooses to utilize these new ADR options, the options will also include a required period of negotiation prior to initiating mediation/arbitration proceedings; a period of negotiation preceding mediation/arbitration is viewed favorably by courts should the borrower contest its pre-dispute ADR agreement, thus better ensuring the enforceability of the ADR provisions under the loan documents.
Why This Matters
That said, not every state allows a lender to enforce a pre-dispute waiver of jury trial provision, i.e., a contractual, pre-dispute waiver of a borrower's right to resolve disputes that may arise post-closing before a jury. Reasons range from a right to a jury trial being enshrined in the state’s constitution and being inviolate, to courts having determined that waiving a party’s right to a jury trial, before the dispute has occurred, is inequitable or otherwise violates public policy. To address these situations, GoDocs has introduced these updated ADR options.
State Specifics
1. States where a pre-dispute waiver of jury trial is categorically unenforceable are:
- Georgia
- North Carolina
- North Dakota.
- California
- With respect to California, however, please note that GoDocs already offers judicial reference as the medium for dispute resolution, which is enforceable and is an often-used process to avoid the cost associated with a jury trial. If you opt against making ADR your default setting, you will continue to receive our judicial reference provision.
Default is Arbitration only and Mediation available upon request.
These 4 states prohibit pre-dispute jury trial waivers due to constitutional protections or public policy. Arbitration is a more enforceable alternative.
2. In addition, states where such a waiver receives heighted scrutiny by courts, may be revoked unilaterally by a party, or there is more judicial discretion to set aside the waiver, are:
- Alaska
- Kansas
- Minnesota
- Nebraska
- Oklahoma.
Default is Arbitration only and Mediation and Waiver of jury trial available upon request.
The Courts in these 5 states may allow jury trial waivers but often apply heightened scrutiny or allow unilateral revocation of this pre-dispute selection. Accordingly, arbitration is a more reliable and predictable path in these jurisdictions. That said, should the customer's preference not be ADR, but, rather, use of our waiver of jury trial provision, customers may contact Customer Support to update their lender settings.
3. States Where ADR Is Less Common or May be Set Aside by a Court
- Alabama
- Hawaii
- Rhode Island
Default: Waiver of jury trial. ADR is available if it aligns with your business practices.
While these states enforce jury trial waivers, ADR provisions are either uncommon in the market or may be set aside based on certain factors associated based on various facts that may arise in connection with a dispute between the lender and its borrower.
4. All Other States
Default is Waiver of jury trial. ADR and Mediation are available upon request
In most jurisdictions, pre-dispute jury trial waivers are enforceable and widely used. ADR is available if it aligns with your business practices.
Language Examples:
Arbitration Only
Arbitration & Mediation:
Waiver of Trial by Jury:
California
See screenshot below for Waiver of Jury Trial and Judicial Reference in the Loan Agreement for California:
