The General Reference

Some commentators have grossly oversimplified judicial reference by characterizing the judicial referee as a 'private judge.' Although superficially accurate, a general reference provision envisions the use of a private judge, while at the same time providing a comprehensive form of alternative dispute resolution that falls somewhere between a formal legal proceeding and binding arbitration. In a general judicial reference, the referee, usually a retired judge or lawyer with significant experience practicing in a specified area of law, decides all matters of law and fact as if he were both judge and jury. Unlike a typical judicial proceeding, the referee is bound by the terms of the judicial reference provision negotiated between the parties. On the other side, a referee has the freedoms ordinarily associated with binding arbitration such as: 1) removal from the court's strict calendar and substantive oversight, 2) proceeding in the more 'relaxed' atmosphere outside of a courtroom, and 3) the right to be paid handsomely. Like a referee in sports, a judicial referee is an objective enforcer of contract terms and rules of law. His finding stands as the ruling of the court and in fact becomes a court judgment. A party aggrieved by the referee's judgment may appeal to the appellate courts for relief from the judgment, just like in cases that proceed through the traditional judicial avenues.

California has led the way in the use of judicial referees. In a triumvirate of recent appellate decisions, California courts have unequivocally upheld a contracting party's right to alternative dispute resolution through the appointment of a general judicial referee.

Until recently, California's Code of Civil Procedure judicial reference provisions have been largely unused for general references; instead, parties have relied upon the provisions for the appointment of 'special references' such as discovery referees or special masters (a growing, almost standard practice in construction defect cases). These 'special references' are appointed on a court's initiative under certain statutory-delineated circumstances. See Cal. Code of Civ. Proc. '639. The courts of appeal, however, have authorized the use of general references as a viable contractual alternative dispute resolution approach from a case's inception
to conclusion, with regard to all issues of law and fact. Woodside Homes
of California, Inc. v. Superior Court (2003) 107 Cal.App.4th 723, Greenbriar Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337, Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950. Short of trial, general references can also be a tool used by product manufacturers or distributors to deter claims; as leverage in early settlement talks and advantageous, economic-driven settlements; and as a financial talisman to any plaintiff whose claims do not warrant the expense associated with a protracted trial before a private referee. Companies exposed to numerous or substantial product liability claims, particularly those directly selling to consumers, should consider including a judicial reference provision in every sales contract to avoid the uncertainties of the California jury system and to use their financial resources as leverage against potential or real plaintiffs. Companies should also consider replacing arbitration or other dispute resolution clauses with a judicial reference provision in their dealership, distributor, or retail agreements in order to resolve effectively contribution and indemnity claims, which inevitably arise out of consumer litigation.

Those who have championed contractual judicial reference provisions and judicial reference proceedings shudder at the oft-drawn comparison to binding arbitration. While both proceedings share common elements, their differences are significantly more important. For example, unless otherwise specified by contract, judicial referees are bound by the Code of Civil Procedure and must conduct the trial according to all rules of evidence. More succinctly, judicial reference trials are not the legal and factual free-for-alls characteristic of many arbitrations. In the judicial reference proceeding, the parties have the same assurances as if proceeding in a court of law without the inherent risks associated with relying upon an inexperienced judge or an unpredictable jury.

In the few recent articles on the topic, the authors have opined that one of the major 'cons' associated with general judicial reference is that the parties must bear their share of the referee's fees and costs. While it certainly is not easy to ask a client blithely to accept a bill potentially reaching into six figures, the costs cannot be analyzed in a vacuum. Although a company might not like the idea of paying a referee thousands of dollars to manage a case from appointment through a decision after a trial on the merits, the benefits can outweigh the financial drawbacks. The company is more able to absorb the costs of judicial reference ' be it through raising prices or insurance. Particularly in the product liability context, the plaintiff ' usually an individual or small set of individuals ' is unable to spread out the costs. Moreover, the costs associated with the judicial referee are all too real and immediate. In the absence of a contract provision or a rule outside of the judicial reference statutes, the plaintiff must pay his or her share of the referee's fees regardless of the outcome. This means that a plaintiff's recovery is reduced initially by the referee's costs ' then by the lawyer's fee. If the plaintiff's counsel properly discloses the financial risks involved in proceeding through judicial reference, the provision can have a very profound effect on a party's willingness to bring an action that may cost him or her more than he or she could ever hope to recover. The company can also drive the costs of litigation to a point where the plaintiff is forced to settle lest his or her case be swallowed by the referee's ever-increasing bill.

Practical Considerations

While it is now well-settled law in California that judicial reference provisions are enforceable when drafted and presented properly, parties are still befuddled by the actual machinations of proceeding through judicial reference. A lawyer, however, cannot anticipate every possibility when drafting a judicial reference provision and the Code of Civil Procedure is too general on many points to provide ready answers. Therefore, in order to alleviate the company's reluctance to depart from the 'old ways' and to provide assurances in the light of an emerging area of the law, the company's counsel should address the following issues in a clear and concise judicial reference clause:

1) Due to the tremendous financial burden that can be imposed upon plaintiff and his or her attorney, a plaintiff most likely will not stipulate to trial by referee. The company must then bring a motion to compel judicial reference in the court in which the case was filed. The appellate courts have set forth certain criteria, discussed below, which should be included in any judicial reference provision to ensure that a motion to compel will be successful. A company should be informed that compelling judicial reference is not a given.

2) If the parties agree to or the court orders a general reference, the plaintiff may stall the case once it is 'out of court' hoping to resolve the case before expending significant sums on a referee. If the plaintiff takes this approach, the company must be prepared to seek aggressively from the plaintiff a stipulation appointing the referee. If the plaintiff is unwilling to cooperate, the company may obtain the court's assistance in empowering a referee. Cal. Code of Civ. Proc. '639. If necessary, the parties will each offer up three potential referees and the court will then choose one to three referees 'against whom there is no legal objection.' Cal. Code of Civ. Proc. '640(b) (emphasis added).

3) It is not uncommon for a plaintiff to run back to the courthouse in an attempt to have the judge essentially overrule a referee's preliminary decision. When crafting judicial reference provisions, counsel must be mindful to delineate clearly the referee's right to decide all issues of fact and law, whether arising before or after trial. Such language will be enforced by the court and will allow the referee to determine all pre-trial matters. Cal. Code of Civ. Proc. '638(a). This language is important when considering the deterrent effect judicial reference has on a plaintiff's decision to proceed with a case. The more the referee is required to do, the more the plaintiff must spend to prosecute the case.

4) Fees are split according to the agreement of the parties. Cal. Code of Civ. Proc. '645.1(a). If the payment of fees is not addressed in the judicial reference provision, the court has the power to determine the cost sharing arrangement based upon a party's 'ability to pay.' Cal. Code of Civ. Proc. '645.1(b). If left to the court, the company can assume that deference will be given to the plaintiff because of the inherent financial inequities. Therefore, payment of the referee's fees ' usually a pro rata split ' must be covered in the judicial reference provision to maintain its deterrent and 'persuasive' effects.

5) While a general reference is essentially a waiver of trial by jury, such a waiver should not be specifically addressed in the judicial reference provision or in any other part of the contract. While judicial reference has found favor with the courts, jury trial waivers have not. In fact, under Grafton Partners, L.P. v. Superior Court (2005) 36 Cal.4th 944, the California Supreme Court found that there is only one way to waive the right to a jury under procedural rules. Not on that 'list' is a contractual alternative dispute resolution provision. Stated bluntly, judicial reference provisions should not comment on the unavailability of a jury trial.

These issues are only a few of the many that a lawyer must consider when advising clients on the use of general references and drafting an enforceable reference provision. Other considerations that should be taken into account are: 1) the minimum qualifications of the judicial referee; 2) limitations on discovery; and 3) the concurrent use of another form of alternative dispute resolution, e.g., a provision mandating pre-reference mediation. However counsel determines to draft the judicial reference provision to best suit the client's needs, he or she should rely upon the Woodside, Greenbriar, and Trend decisions to ensure that the provision is enforceable.

Not all states recognize general references. In fact, general references seem to be the exception and not the rule. Therefore, if a company does business outside of California, counsel should consider dual alternative dispute resolution provisions ' one specifically labeled 'For Cases Venued In California' or 'For California Residents' and another titled 'For Cases Venued Outside California' or 'For Non-California Residents.' By so doing, counsel preserves his or her client's rights to dispute resolution proceedings approved by other states.

Conclusion

The Woodside, Greenbriar, and Trend decisions have laid the foundation upon which companies can include new, more effective alternative dispute resolution provisions in their consumer contracts. Companies can now confidently compel a real or potential plaintiff into a general judicial reference proceeding wherein companies may find that the financial drawbacks are significantly outweighed by the advantages of 'trial by referee.' Even when his or her decisions seem idiotic and/or make one want to throw a chair.

Chad Starkey is an associate in Bowman and Brooke LLP's San Jose, CA office. His practice focuses primarily on the defense of product liability, toxic tort, and construction claims. He also prosecutes and defends commercial litigation matters and advises clients on risk prevention through effective contract negotiating and drafting. He was one of Greenbriar Homes Communities, Inc.'s attorneys in the litigation underlying the appellate decision discussed in this article.

There is a general distrust and downright loathing of referees in the sports world. Whether it's Bobby Knight throwing a chair across the hardwood in response to a perceived injustice or John McEnroe lambasting a referee for being an 'idiot,' athletes have had a love-hate ' mostly hate ' relationship with the objective arbiter of a game's rules from time immemorial. In the legal industry, however, lawyers are learning that the referee can be a powerful ally in deterring litigation and resolving cases early and successfully. While the legal profession will always have its fair share of Bobby Knights and John McEnroes, the referee appears to be gaining the upper hand.

What Is Judicial Reference?

Companies conducting business with California consumers and other businesses should consider including a judicial reference clause in their contracts of sale. What, however, is judicial reference?

Some commentators have grossly oversimplified judicial reference by characterizing the judicial referee as a 'private judge.' Although superficially accurate, a general reference provision envisions the use of a private judge, while at the same time providing a comprehensive form of alternative dispute resolution that falls somewhere between a formal legal proceeding and binding arbitration. In a general judicial reference, the referee, usually a retired judge or lawyer with significant experience practicing in a specified area of law, decides all matters of law and fact as if he were both judge and jury. Unlike a typical judicial proceeding, the referee is bound by the terms of the judicial reference provision negotiated between the parties. On the other side, a referee has the freedoms ordinarily associated with binding arbitration such as: 1) removal from the court's strict calendar and substantive oversight, 2) proceeding in the more 'relaxed' atmosphere outside of a courtroom, and 3) the right to be paid handsomely. Like a referee in sports, a judicial referee is an objective enforcer of contract terms and rules of law. His finding stands as the ruling of the court and in fact becomes a court judgment. A party aggrieved by the referee's judgment may appeal to the appellate courts for relief from the judgment, just like in cases that proceed through the traditional judicial avenues.

California has led the way in the use of judicial referees. In a triumvirate of recent appellate decisions, California courts have unequivocally upheld a contracting party's right to alternative dispute resolution through the appointment of a general judicial referee.

Until recently, California's Code of Civil Procedure judicial reference provisions have been largely unused for general references; instead, parties have relied upon the provisions for the appointment of 'special references' such as discovery referees or special masters (a growing, almost standard practice in construction defect cases). These 'special references' are appointed on a court's initiative under certain statutory-delineated circumstances. See Cal. Code of Civ. Proc. '639. The courts of appeal, however, have authorized the use of general references as a viable contractual alternative dispute resolution approach from a case's inception
to conclusion, with regard to all issues of law and fact. Woodside Homes
of California, Inc. v. Superior Court (2003) 107 Cal.App.4th 723, Greenbriar Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337, Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950. Short of trial, general references can also be a tool used by product manufacturers or distributors to deter claims; as leverage in early settlement talks and advantageous, economic-driven settlements; and as a financial talisman to any plaintiff whose claims do not warrant the expense associated with a protracted trial before a private referee. Companies exposed to numerous or substantial product liability claims, particularly those directly selling to consumers, should consider including a judicial reference provision in every sales contract to avoid the uncertainties of the California jury system and to use their financial resources as leverage against potential or real plaintiffs. Companies should also consider replacing arbitration or other dispute resolution clauses with a judicial reference provision in their dealership, distributor, or retail agreements in order to resolve effectively contribution and indemnity claims, which inevitably arise out of consumer litigation.

Those who have championed contractual judicial reference provisions and judicial reference proceedings shudder at the oft-drawn comparison to binding arbitration. While both proceedings share common elements, their differences are significantly more important. For example, unless otherwise specified by contract, judicial referees are bound by the Code of Civil Procedure and must conduct the trial according to all rules of evidence. More succinctly, judicial reference trials are not the legal and factual free-for-alls characteristic of many arbitrations. In the judicial reference proceeding, the parties have the same assurances as if proceeding in a court of law without the inherent risks associated with relying upon an inexperienced judge or an unpredictable jury.

In the few recent articles on the topic, the authors have opined that one of the major 'cons' associated with general judicial reference is that the parties must bear their share of the referee's fees and costs. While it certainly is not easy to ask a client blithely to accept a bill potentially reaching into six figures, the costs cannot be analyzed in a vacuum. Although a company might not like the idea of paying a referee thousands of dollars to manage a case from appointment through a decision after a trial on the merits, the benefits can outweigh the financial drawbacks. The company is more able to absorb the costs of judicial reference ' be it through raising prices or insurance. Particularly in the product liability context, the plaintiff ' usually an individual or small set of individuals ' is unable to spread out the costs. Moreover, the costs associated with the judicial referee are all too real and immediate. In the absence of a contract provision or a rule outside of the judicial reference statutes, the plaintiff must pay his or her share of the referee's fees regardless of the outcome. This means that a plaintiff's recovery is reduced initially by the referee's costs ' then by the lawyer's fee. If the plaintiff's counsel properly discloses the financial risks involved in proceeding through judicial reference, the provision can have a very profound effect on a party's willingness to bring an action that may cost him or her more than he or she could ever hope to recover. The company can also drive the costs of litigation to a point where the plaintiff is forced to settle lest his or her case be swallowed by the referee's ever-increasing bill.

Practical Considerations

While it is now well-settled law in California that judicial reference provisions are enforceable when drafted and presented properly, parties are still befuddled by the actual machinations of proceeding through judicial reference. A lawyer, however, cannot anticipate every possibility when drafting a judicial reference provision and the Code of Civil Procedure is too general on many points to provide ready answers. Therefore, in order to alleviate the company's reluctance to depart from the 'old ways' and to provide assurances in the light of an emerging area of the law, the company's counsel should address the following issues in a clear and concise judicial reference clause:

1) Due to the tremendous financial burden that can be imposed upon plaintiff and his or her attorney, a plaintiff most likely will not stipulate to trial by referee. The company must then bring a motion to compel judicial reference in the court in which the case was filed. The appellate courts have set forth certain criteria, discussed below, which should be included in any judicial reference provision to ensure that a motion to compel will be successful. A company should be informed that compelling judicial reference is not a given.

2) If the parties agree to or the court orders a general reference, the plaintiff may stall the case once it is 'out of court' hoping to resolve the case before expending significant sums on a referee. If the plaintiff takes this approach, the company must be prepared to seek aggressively from the plaintiff a stipulation appointing the referee. If the plaintiff is unwilling to cooperate, the company may obtain the court's assistance in empowering a referee. Cal. Code of Civ. Proc. '639. If necessary, the parties will each offer up three potential referees and the court will then choose one to three referees 'against whom there is no legal objection.' Cal. Code of Civ. Proc. '640(b) (emphasis added).

3) It is not uncommon for a plaintiff to run back to the courthouse in an attempt to have the judge essentially overrule a referee's preliminary decision. When crafting judicial reference provisions, counsel must be mindful to delineate clearly the referee's right to decide all issues of fact and law, whether arising before or after trial. Such language will be enforced by the court and will allow the referee to determine all pre-trial matters. Cal. Code of Civ. Proc. '638(a). This language is important when considering the deterrent effect judicial reference has on a plaintiff's decision to proceed with a case. The more the referee is required to do, the more the plaintiff must spend to prosecute the case.

4) Fees are split according to the agreement of the parties. Cal. Code of Civ. Proc. '645.1(a). If the payment of fees is not addressed in the judicial reference provision, the court has the power to determine the cost sharing arrangement based upon a party's 'ability to pay.' Cal. Code of Civ. Proc. '645.1(b). If left to the court, the company can assume that deference will be given to the plaintiff because of the inherent financial inequities. Therefore, payment of the referee's fees ' usually a pro rata split ' must be covered in the judicial reference provision to maintain its deterrent and 'persuasive' effects.

5) While a general reference is essentially a waiver of trial by jury, such a waiver should not be specifically addressed in the judicial reference provision or in any other part of the contract. While judicial reference has found favor with the courts, jury trial waivers have not. In fact, under Grafton Partners, L.P. v. Superior Court (2005) 36 Cal.4th 944, the California Supreme Court found that there is only one way to waive the right to a jury under procedural rules. Not on that 'list' is a contractual alternative dispute resolution provision. Stated bluntly, judicial reference provisions should not comment on the unavailability of a jury trial.

These issues are only a few of the many that a lawyer must consider when advising clients on the use of general references and drafting an enforceable reference provision. Other considerations that should be taken into account are: 1) the minimum qualifications of the judicial referee; 2) limitations on discovery; and 3) the concurrent use of another form of alternative dispute resolution, e.g., a provision mandating pre-reference mediation. However counsel determines to draft the judicial reference provision to best suit the client's needs, he or she should rely upon the Woodside, Greenbriar, and Trend decisions to ensure that the provision is enforceable.

Not all states recognize general references. In fact, general references seem to be the exception and not the rule. Therefore, if a company does business outside of California, counsel should consider dual alternative dispute resolution provisions ' one specifically labeled 'For Cases Venued In California' or 'For California Residents' and another titled 'For Cases Venued Outside California' or 'For Non-California Residents.' By so doing, counsel preserves his or her client's rights to dispute resolution proceedings approved by other states.

Conclusion

The Woodside, Greenbriar, and Trend decisions have laid the foundation upon which companies can include new, more effective alternative dispute resolution provisions in their consumer contracts. Companies can now confidently compel a real or potential plaintiff into a general judicial reference proceeding wherein companies may find that the financial drawbacks are significantly outweighed by the advantages of 'trial by referee.' Even when his or her decisions seem idiotic and/or make one want to throw a chair.

Chad Starkey is an associate in Bowman and Brooke LLP's San Jose, CA office. His practice focuses primarily on the defense of product liability, toxic tort, and construction claims. He also prosecutes and defends commercial litigation matters and advises clients on risk prevention through effective contract negotiating and drafting. He was one of Greenbriar Homes Communities, Inc.'s attorneys in the litigation underlying the appellate decision discussed in this article.