Commerical: 7th amendment right to a jury trial

Dispute Resolution Journal, Aug-Oct 2000 by Zuckerman, Susan C

A federal district court in New York held that a mandatory arbitration provision in the Minnesota Sales Representative Act was unconstitutional as applied to a foreign corporation that had not agreed to arbitrate because the company was entitled to have its breach of contract and other claims heard by a jury.

GTFM, a New York apparel manufacturer, retained TKN, an apparel distributor incorporated in Minnesota, to distribute its merchandise in certain territories, including Minnesota. The sales representative agreement did not include an arbitration clause. But the Minnesota Sales Representative Act, which regulates the termination of sales representative agreements involving a Minnesota party, provides that the sole remedy for a manufacturer is to submit the matter to binding arbitration. The sales representative also may submit a matter to arbitration. Claims under the MSRA are not limited to alleged violations of the act.

When a dispute arose over sales commissions, TKN demanded arbitration pursuant to the MSRA. The complaint alleged wrongful termination, a statutory claim for failure to pay commissions, and breach of contract. Before filing an answer and the start of discovery, GTFM sued in federal district court in New York seeking a declaratory judgment enjoining the arbitration on the ground that it was entitled to have its claims heard by a jury.

The court granted GTFM summary judgment permanently enjoining the arbitration. Since the 7th Amendment preserves the right to a jury trial in suits in federal court in which legal rights and remedies (as opposed to equitable ones) are to be determined, the court examined the nature of the issues involved and the remedies sought. It found that all the claims involved legal rights and remedies (despite the fact that equitable relief was also requested). Therefore, it held that GTFM was entitled to a jury trial on all claims. The mandatory binding arbitration system in the MSRA deprived GTFM of this right and was thus unconstitutional. In a footnote the court explained that it was the binding nature of arbitration that caused the constitutional infirmity. If it were mandatory but not binding there would have been no problem.

GTFM, LLC v. TKN Sakes, Inc., No. 00CIV022335BSJ, 2000 WL 364871 (S.D.N.Y. Apr. 10, 2000).