Judicial reference vs. arbitration in California: Key differences for dispute resolution clauses

Most practitioners are well aware of the advantages arbitration may offer over court litigation for many disputes. California law provides another mechanism: judicial reference under section 638 of the California Code of Civil Procedure (CCP). Through judicial reference, parties may obtain some of the benefits commonly associated with arbitration, including the ability to choose a neutral and tailor proceedings for efficiency, while preserving court-based procedures such as discovery, dispositive motions, the application of law and evidentiary rules, and appellate review. I have represented clients in both types of proceedings and each has distinct advantages.

Note that this article concerns a general, voluntary reference under CCP section 638. Involuntary references, such as the appointment of a discovery referee, are beyond the scope of this article.

Judicial reference and arbitration: Similarities and key differences

While the proceedings share many surface similarities, "[t]here are significant differences between a judicial reference and a contractual arbitration." Sy First Family Ltd. Partnership v. Cheung, 70 Cal.App.4th 1334, 1341 (1999). Some of the key differences are summarized below, and parties should consider them when deciding which procedure to include in their agreements.

Arbitration is inherently flexible. The parties can decide virtually every aspect of the proceeding. See Moncharsh v. Heily & Blase, 3 Cal.4th 1, 11-12 (1992). An arbitrator is bound by neither the law nor the rules of evidence. Indeed, "arbitrators, unless specifically required to act in conformity with the rules of law, may base their decision upon broad principles of justice and equity. Id.

Judicial reference, on the other hand, "involves sending a pending trial court action to a referee for hearing, determination and a report back to the court." Trend Homes, Inc. v. Superior Court, 131 Cal.App.4th 950, 955 (2005). While the parties and the referee can work together on the case schedule and procedures, the referee must operate under the same rules that would apply in court in terms of access to discovery, see id.; application of the rules of evidence, see Sy First Family, 70 Cal.App.4th at 1341; and the right to post-judgment appeal. See Michael S. Yu, a Law Corp. v. Superior Court, 56 Cal.App.5th 636, 651-52 (2000). 

Choosing between arbitration and judicial reference

The impact of these distinctions will depend on the type of case and the needs of the parties:

·         Confidentiality: Arbitration may be preferable when confidentiality is paramount. A referee can be appointed only after a lawsuit is filed, see Treo @ Kettner Homeowners Assn. v. Superior Court, 166 Cal.App.4th 1055, 1061 (2008), which means that the fact of the dispute is available to the public. All documents filed in the case must be filed with the court, Cal. Rule Ct. 2.400(b), and the clerk must post information sufficient for members of the public to access proceedings. Cal. Rule Ct. 3.931. On the other hand, JAMS Rules require that JAMS and the arbitrator keep proceedings confidential (unless otherwise compelled by law), see JAMS Rule 26, and parties can, and often do, enter into agreements that require them to maintain confidentiality over the proceedings as well. (Citations to JAMS Rules in this article refer to the JAMS Comprehensive Rules, although each of the cited Rules also appear in the JAMS Employment and Construction Rules). In practice, parties to valid arbitration clauses often file first in court and an award may also be made public as part of confirmation and vacatur proceedings. And except in high-profile cases, the public generally has little interest in obtaining access to proceedings before a referee.

·         Dispositive motions: Cases that are likely to be resolved through motion practice favor judicial reference. Anti-SLAPP motions are not available in arbitration. See EHM Prods., Inc. v. Starline Tours of Hollywood, Inc., 1 F.4th 1164, 1174 (9th Cir. 2021). Referees also apply California law regarding summary and summary adjudication, see CCP § 437c, granting a motion whenever a moving party has demonstrated the absence of a triable issue of material fact and that it is entitled to judgment as a matter of law. See Cal. Civ. Proc. Code § 437c. Motions for summary disposition are, of course, permitted in arbitration (see JAMS Rule 18), although given the flexibility and limited discovery inherent in arbitration, an arbitrator may consider the parties' representations of the evidence they expect will be adduced in the hearing, whereas a referee must look only to the evidence submitted in connection with the motion itself. 

·         Discovery and evidence: Parties seeking structure and predictability will likely prefer judicial reference. Discovery in arbitration is flexible and highly reliant on voluntary disclosure, see JAMS Rule 17, while a referee must permit discovery into non-privileged matter relevant to the proceeding. See CCP § 2017.010 et seq. An arbitrator need not (in the absence of an agreement otherwise) follow the rules of evidence, while a referee may consider relevant and admissible evidence only in rendering a decision.

·         Judicial review and appeal: Arbitration may result in a final resolution more quickly than a decision rendered by a referee. While an arbitration award must be reduced to judgment to be enforceable, CCP § 1287.6, courts cannot, unless the parties otherwise expressly agree, review an arbitration award on the merits. See Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1335, 1361 (2008). Instead, a court can correct or set aside the award only on limited, statutorily enumerated grounds. CCP § 1286.2. In contrast, a referee's decision "stands as the decision of the court," CCP § 644(a), and, once judgment is entered, may be challenged on the merits by a motion for new trial, motion to vacate, CCP §§ 657, 662, 663, or appeal. CCP § 904.1.

Matching the procedure to the dispute

The choice between arbitration and judicial reference ultimately depends on whether the parties value the predictability and structure of a reference over the flexibility of arbitration. While there is no one-size-fits-all answer, parties would be wise to consider judicial reference when contemplating how disputes are to be resolved.

Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.