Rules on Referees
By Martin Quinn
Edited by Peg Healy
Category: Court Rules and Procedure
Because of perceived abuses, the California Legislature and the Judicial Council recently placed significant restrictions on the use of referees, adding to the formality of procedures. The four primary changes are: (1) a proposed referee must make more detailed disclosures of past relationships with the parties and lawyers, (2) referees may not be appointed to conduct mediations, (3) before appointing a referee without the parties' consent, the court must find that the parties are able to pay the referee's fees, and (4) a court must review virtually all rulings of a referee even if no one has objected to them.
California state courts appoint two categories of referees: those appointed with the agreement of all parties (CCP §638; CRC 244.1) and those appointed without (CCP §639; CRC 244.2). A consensual appointment may be initiated in one of two ways: by filing a written agreement that a referee hear disputes and a copy of the proposed order of reference, with the assigned judge, if there is one, or with the presiding judge; or by a motion of any party to such an agreement. CCP §638(a); CRC 244.1(a). The agreement may have existed before the litigation, as in a lease or contract clause, or it may be prepared when all the parties agree to appoint a referee. Consensual referees may be appointed to determine any or all issues in a case, including discovery disputes. CCP §638.
A nonconsensual appointment may be initiated by any party's written motion, filed with the assigned judge if there is one, or in the law and motion department; or by the court on its own motion. CCP §639(a); CRC 244.2(a). Nonconsensual referees are generally appointed when the facts are complex, when an accounting is needed, in discovery disputes, or in any other situation when the court believes it necessary. CCP §639(a)(1)-(5).
If the parties agree on the person who should serve as referee, the court must appoint that person. CCP §640(a). If they do not agree, each party submits up to three names from which the court selects a referee. If the parties fail to nominate anyone, the court itself will choose the referee. CCP §640(b).
A referee need not be a lawyer or former judge, although that is the common practice. The court may also appoint a court commissioner as a referee. CCP §640(b). If the referee is a lawyer, the order of reference must now include the referee's State Bar number. CRC 244.1(a), 244.2(c). All former judges who serve as referees are now required to be active or inactive members of the State Bar. CRC 244.2(d).
The Code of Judicial Ethics contains rules applicable to judges for avoiding the appearance of conflicts of interest or bias, and Canon 6(D) of that code specifically applies to referees. A consensual referee must sign the proposed reference order, consenting to serve and certifying in writing that he or she is aware of and will comply with Canon 6(D) of the Code of Judicial Ethics and the Rules of Court. CRC 244.1(a). A nonconsensual referee must sign a certification of compliance with the ethics rules and Rules of Court, which must be attached to the reference order. CRC 244.2(c).
The Legislature has stiffened the disclosure requirements for all types of referees, to counteract the perception that certain referees may have been biased because they were repeatedly hired by the same parties or law firms without adequate disclosure of the connection. Consensual referees previously had no disclosure requirements; nonconsensual referees previously had to disclose relationships during the past 18 months. Now all referees in California must disclose all significant relationships during the past 24 months with a party, lawyer, law firm, or insurance company involved in the case, including situations in which the referee was paid to act as a lawyer, judge, expert witness, or ADR neutral. CRC 244.1(c), 244.2(e). Although the disclosure need not be in writing, it would obviously be good practice for the referee to commit the disclosure to paper.
The referee must make these disclosures as soon as practicable, generally five days before a party would have to file a peremptory challenge under Code of Civil Procedure section 170.6. Since section 170.6 allows only ten days after notice of the appointment to challenge a referee who has been appointed for all purposes or for all discovery purposes, an all-purpose referee must make these required disclosures within five days after notice of the all-purpose assignment. However, the parties must file a section 170.6 challenge of a referee appointed for limited purposes five days before the hearing, if the date of the hearing is known ten days in advance. Therefore, a referee for limited purposes must make the required disclosures ten days before the first hearing before the referee. CCP 170.6(2); CRC 244.1(c), 244.2(e).
Objections to Appointment
A party may agree to the appointment of a referee without waiving the right to object to the individual appointed. CCP §640. The principal reasons for an objection for cause are that a potential referee: lacks qualifications; has a close relationship to a party; or has an interest in the action, a bias, or has formed an unqualified opinion on the merits of the case. See, CCP §641. An objection for cause must be in writing, filed and served on all parties and the referee, and made with reasonable diligence. The court, not the referee, rules on the objections. CCP §642; CRC 244.1(d), 244.2(f).
For a nonconsensual discovery referee appointed under section 639, a peremptory motion to disqualify must be made within ten days after the appointment if the reference is for all discovery purposes, or five days before the first hearing if the reference is for limited purposes. CCP §§170.6, 639(b).
The rules also prescribe in detail the contents of a reference order and erect significant hurdles to the appointment of a nonconsensual section 639 referee. An order appointing a section 639 referee without all parties' consent must state the reasons for the reference, as well as its scope or subject matter. In the case of a discovery referee, it must set forth the "exceptional circumstances" requiring the reference, which must be specific to the circumstances of the case. In addition to the name, business address, telephone number, and State Bar number of the referee, the order must make detailed findings, described below, regarding the referee's fees. As stated, the referee must certify compliance with applicable ethical rules. CCP §639(d); CRC 244.2(c). The court always retains an "overriding" power to change the terms of the referee's appointment at any time, either on the motion of any party for good cause, or on the court's own motion. CCP §643(c).
Less onerously, the order appointing a consensual section 638 referee must state whether the reference covers all or just specified issues, as well as the name, business address, telephone number, and State Bar number of the referee. The referee must sign the order certifying compliance with ethical rules, as described above. CRC 244.1(a).
There are also major limits in the permitted scope of a referee's authority as a mediator. In the recent case of Foxgate Homeowners' Ass'n, Inc. v Bramalea California, Inc. (2001) 26 C4th 1, a former judge was appointed as a consensual referee to both manage and mediate a construction case. Thus the referee wore two hats, as a judicial officer and as a mediator. The referee reported to the court that in the course of a mediation, one party had acted in bad faith and violated his orders. The court of appeal held that the trial court properly considered the referee's report, but the Supreme Court ruled that no exception to mediation confidentiality exists that would have allowed such a report.
Although the Supreme Court's decision has largely put to rest concerns about mediation confidentiality, the outcome has been a prohibition on the power of trial courts to appoint a referee to conduct mediations. Rules 244.1(b) and 244.2(b) now forbid a court from "us[ing] the reference procedure ... to appoint a person to conduct a mediation." However, both Rules of Court go on to state that a judge can nevertheless appoint a referee to conduct a mediation after the reference is ended.
Experienced counsel and neutrals differ about the propriety and wisdom of permitting a private judicial officer, either a temporary judge or a referee, to function as a mediator. Some believe the roles are so fundamentally in conflict that no crossover should be permitted. Others believe that in limited settings, such as complex business or construction cases and discovery disputes, and with clear disclosure and informed consent, a referee could properly facilitate the informal resolution of particular issues without ethics problems. It is perhaps most important to retain this flexibility for discovery referees, who contribute the most value when they work informally with counsel to resolve disputes before those disputes harden into expensive formal motions.
Although an order of reference itself now cannot confer mediation powers on the referee, counsel can preserve this flexibility in two ways. First, the order of reference may empower a referee to conduct "mandatory settlement conferences," which could certainly include conducting informal dispute resolution. CRC 244.1(b). For nonconsensual referees this authority is restricted to "complex cases." CRC 244.2(b). Second, at least for consensual discovery referees appointed under section 638, the parties should still be able-outside the scope of the reference order-to give informed consent to having the referee act as a mediator. Before undertaking such a role, the referee should disclose in writing the danger of confusing the dual roles and advise the parties that they may select another person to act as mediator. After consulting counsel, the parties should stipulate in writing that the referee may mediate their disputes.
Restrictions on Fees
The rules on referees embark on a wholly unique effort to monitor fees charged by nonconsensual section 639 referees. First, a court must now state in the section 639 reference order that no party has shown it is incapable of paying its share of the referee's fees, or alternatively that the other parties will cover the share of a party who cannot afford the fees. The court cannot appoint a referee unless one of these findings is made. The order must also state the referee's maximum hourly rate and the maximum number of hours for which the referee may charge. (The court may modify these for good cause at the written request of a party or the referee). For section 639 discovery referees, the reference order must also state the "exceptional circumstances ... specific to the circumstances of the particular case" that require appointment of a discovery referee. CCP §639(d).
Second, in every ruling on a disputed issue, a nonconsensual referee appointed under section 639 must state the total hours spent and fees charged for that matter, and recommend an allocation of the fees among the parties. CCP §643(c). None of these restrictions on compensation apply if all parties consent and the referee is appointed under section 638.
Effect of Rulings
Unless otherwise directed by the court, any referee must report a statement or decision in writing to the court within 20 days after the hearing, if any, has been concluded and the matter has been submitted. CCP §643(a). This is true both for a referee's binding decision on the whole case and for an advisory report on a particular issue. However, a consensual referee has the flexibility to report as agreed by the parties and approved by the court. CCP §643(b).
There has been a major change in the binding effect of rulings. Under the amended statute, only the rulings of a section 638 referee, pursuant to a consensual general reference for all purposes, are binding orders. All other referees, whether consensual or nonconsensual, are empowered only to make a nonbinding advisory report and recommendation to the court. The court must "independently consider" the referee's findings and any objections to it, and then adopt, modify, or reject it. CCP §644. Until the court adopts the report, the referee's ruling has no legal effect.
This may be a useful effort to curb the independence of referees and retain court involvement in the entire case, but the rule created a cumbersome procedure that adds to the burdens of both parties and trial judges. It has been common, although probably not technically correct, for referees to couch their decisions as "orders." This was particularly true for all-purpose discovery referees who issue dozens of rulings in a case. If any party objected to such an order, it was reviewed by the court. But if no one objected, the referee's "order" was treated as final and filed in court, never coming to the attention of the trial judge. The rules plainly require the trial judge to independently review every ruling of such a referee, whether or not any party objects to it.
The procedure for objection to a decision of a consensual, section 638 referee is unchanged. The parties may object within 15 days, just as if it were a statement of decision by a court. CCP §645; CRC 232(d)(2). Under the amended statute, a party may object to a decision of a section 639 referee within 10 days after service and filing of the report; the other parties have 10 additional days to respond. CCP §643(c). Although the papers must be filed and served, a notice of hearing is no longer required. Sections 643 and 644 now suggest that the court will decide without a hearing. Furthermore, the court has an "overriding" inherent power to modify or disregard a referee's recommendation at any time, on the motion of a party for good cause or on the court's own motion. CCP §643(c).
Martin Quinn, a neutral with JAMS in San Francisco, currently serves as referee or special master in nine complex cases and class actions in both state and federal court.
Article updated: January 2004