Good, Bad or Ambivalence: The Litigation Detour of Judicial Reference under California Law

Property subrogation cases that proceed against developers and seller-builders of homes are suddenly apt to being diverted from judicially engaged litigation into the province of Judicial Reference pursuant to California Code of Civil Procedure Section 638. In essence, this Code section exercises to remove judicial litigation and substitute independent arbitration pursuant to a written agreement between the insured and the developer/builder that was entered into at the time of the purchase of the home. The result is that a negligence or products liability action against a seller-builder or developer is evaluated by a single or multiple arbitrators [three maximum] whose decision stands “as the decision of the Court” and judgment may be entered in the same manner as if the action had been tried by the Court.

In order to activate the provisions of California Code of Civil Procedure Section 638, or other similar codified Judicial Reference laws in other states, there must be a written agreement between the insured and the builder/developer. Normally, these agreements are part of the purchase transaction in which the buyer and seller agree that any disputes between the parties will be regulated and decided by a neutral arbitrator.

The insurer in a subrogation matter “stands in the shoes” of the insured, and thus is bound by the agreement between their insured/buyer and the potential tortfeasor/developer/seller.

The benefits of Judicial Reference are speed, access to a decision-maker and potential cost savings. That is, the matter is immediately “stayed” if filed in a California Court and referred to an mutually agreed independent arbitrator. Written discovery, depositions and expert disclosures are thereafter controlled by agreement of the parties in conjunction with the arbitrator and Court dates and other judicially monitored actions are eliminated.

All parties to the potential dispute must either be signatories to the agreement to Judicial Referral or must accede to the process. Judicial Referral is “discretionary” to the Court if sought after litigation ensues.

Where multiple parties are involved, for instance in a fire case involving the construction of a home where the seller/manufacturer may be among many potential defendants [appliance manufacturers and sub-contractors may be others], the Court may deny Judicial Reference as being potentially prejudicial to other parties or leading to potentially conflicting findings of fact between an arbitrator and a Court proceeding.

While cost-saving and potentially expedient, the detriment to Judicial Reference is elimination of jury trials and Court supervised discovery. Placing decision making into the control of an independent arbitrator would require evaluation and vetting of that arbitrator with extreme scrutiny to eliminate any potential prejudice or preconceptions.

Hence, the Judicial Referral option has both advantages and disadvantages that must be evaluated on an individual case basis.
 

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