Mar 30, 2017
Protecting Your Client from Discovery Referee Fees
Mar 30, 2017
By Sharon Arkin
As budget shortfalls have continued to affect trial courts since the Great Recession of 2008-2009, one way judges have tried to make up for increasing caseloads is by “farming out” discovery disputes to referees. But referees don’t come cheap: They can often charge hundreds of dollars an hour for their services and anecdotal evidence supports the conclusion that, at least in some cases, defense counsel deliberately obstruct discovery in order to foster disputes and thereby put financial and resource pressure on plaintiffs and their counsel by getting a referral to a discovery referee – or maybe that’s just my own cynical perspective.
Whether such a nefarious intent exists or not, you have tools to block the trial courts from forcing you or your client to pay discovery referee costs – but you should be prompt and vigilant in order to gain those protections.
Discovery referee appointments have long been authorized under Code of Civil Procedure section 639. Originally, there were no restrictions on the amount of fees a discovery referee could charge and Code of Civil Procedure section 645.1, only provided at that time that: “The court may order the parties to pay the fees of referees who are not employees or officers of the court at the time of appointment, as fixed pursuant to Section 1023, in any manner determined by the court to be fair and reasonable, including apportionment of the fees among the parties.”
Court action in response to the problems
But that open-ended appointment scheme – and the fee payment requirements associated with the appointment of a discovery referee – created problems for indigent parties or litigants of modest means. One of the earliest cases to address those problems was Solorzano v. Superior Court (1993) 18 Cal.App.4th 603.
Solorzano involved an action by Medicare and Medi-Cal recipients, claiming they were fraudulently induced into enrolling in a senior health plan. A discovery referee was appointed and the parties were ordered to share equally in the costs of the referee. The plaintiffs – who were generally indigent – sought a writ of mandate from the appellate court on the basis that the equal apportionment, in light of the imbalance in the resources of the parties, was not fair and reasonable.
The appellate court in Solorzano agreed and issued the writ, observing that fees “charged by privately compensated discovery referees allow affluent litigants to avoid discovery compliance by pricing enforcement of legitimate discovery demands beyond the means of indigent plaintiffs. This advantage based on wealth flows directly from the trial court’s order imposing equal division of fees between indigent plaintiffs and an adverse litigant of far superior financial means.” (Solorzano, at 614.) As such, the court further commented, “no division or allocation of hourly fees for the services of a privately compensated discovery referee that imposes a monetary burden on impecunious litigants can achieve the fair and reasonable goal of Code of Civil Procedure section 645.1.”
Notably, the Solórzano court also noted that the problem is not limited to indigent parties: The statutes were “similarly silent with respect to the dilemma of a party of modest means who does not qualify for the cost protection afforded by proceeding in forma pauperis. Reference to a discovery referee imposes a substantial economic burden on such a party.” (Id., at 615.)
Solórzano also commented on an issue that has grown more troubling as the courts’ budgets have been slashed over the last few years: A “trial court must also avoid the appearance of delegating judicial functions to referees.” (Ibid.) “The justice system not only must be fair to all litigants; it must also appear to be so. The increasingly common practice of referring discovery matters, without regard to the financial burdens imposed upon litigants, threatens to undermine both of these goals.” (Ibid.)
Taking its cue from Solorzano, a few months later the court in McDonald v. Superior Court (Bechtel Construction Co.) (1994) 22 Cal.App.4th 364, 369-370 held that the same principles apply even when the party objecting to the referral of discovery disputes to a private, paid referee is not an indigent party who qualifies for in forma pauperis status, but also applies to litigants of “modest means.”
A few years later the court in Taggares v. Superior Court (1998) 62 Cal.App.4th 94 held that unless the trial court makes a cost-free option available to the parties, “it may not order a reference in any” case in which a party objects. (Taggares, at 106.)
Finally, in 1999, Hood v. Superior Court (1999) 72 Cal.App.4th 446, 449 confirmed that a trial court should not impose the costs of a referee on a litigant of modest means, because of the existence “of a litigant’s right of access to the courts without the payment of a user’s fee.” (Hood, at 450.)
Legislative action in response to the court cases
In response to the court cases raising concerns about these issues, the Legislature took action in 2000 to amend sections 639 and 645.1 to address the problems. Subdivision (d)(6) of section 639 now lays out several mandatory findings that must be included in a written order before the trial court can appoint a discovery referee, including:
- A statement of the reason the referee is being appointed;
- The exceptional circumstances requiring the reference, which must be specific to the circumstances of the specific case; and,
- The maximum hourly rate the referee can charge and, at the request of any party, the maximum number of hours the referee can charge for.
Perhaps most critically, subdivision (d)(6)(A) of section 639 now requires either “a finding that no party has established an economic inability to pay a pro rata share of the referee’s fee or a finding that one or more parties has established an economic inability to pay a pro rata share of the referees fees and that another party has agreed voluntarily to pay that additional share of the referee’s fee. A court shall not appoint a referee at a cost to the parties if neither of these findings is made.” Thus, if your client cannot afford the referee fees, and the other side does not agree to pay them, the trial court cannot refer the case out.
The amendments were intended to “clarify that discovery references are limited to exceptional circumstances of the particular case, and prohibits the court appointment of referees unless the parties are able to pay the fees” and were intended “to address criticisms that references are being made in inappropriate cases and at an unreasonable cost to the parties forced to accept the reference.” (AB 2912, Assembly Judiciary Committee Minutes, 6/29/2000.)
What is perhaps the most critically important part of the statute is section (d)(6)(B), which provides that the determination of a party’s ability to pay may not be based on the ability of the party’s counsel to pay the referee fees. Thus, whether you are part of a small firm or a large one is irrelevant: Your ability to absorb the costs of a discovery referee is irrelevant.
Thus, where the court indicates that it intends to appoint a discovery referee, make sure the court complies with the statutory requirements. In challenging the appointment, you may need to disclose some of your client’s financial information. But if you have an indigent client or a client of “modest means,” that disclosure (which you should be able to provide under a protective order and/or a sealing order) may be well worth the cost savings.
Beware the request for reimbursement in the Memo of Costs
One other thing to be wary of: If you lose your case, make sure that the defense does not try to recover the referee fees it paid as part of its Memorandum of Costs. Nothing in the statutory scheme under section 639 authorizes recovery of already-allocated fees as costs. (See, e.g., Carr Business Enterprises, Inc. v. City of Chowchilla (2008) 166 Cal.App.4th 25, 27, 29, 30.)
Defendants who do have the intestinal fortitude to demand costs reimbursement for discovery referee fees they agreed to pay because the plaintiff could not afford them will cite to a few cases which – on their face – appear to support the claim. Do not be fooled.
For example, although the court in Most Worshipful Sons v. Sons of Light (1956) 140 Cal.App.2d 833, 834 held that where a party requests the appointment of a referee and pays the fees, those fees can be recovered as litigation costs, that case was decided more than 40 years before the amendments to section 639(d)(6)(A). “It is axiomatic that language in a judicial opinion is to be understood in accordance with the facts and issues before the court. An opinion is not authority for propositions not considered.” (Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195.) Thus, Sons of Light is irrelevant in this context because it could not have considered the effect of section 639, as amended. Similarly, Winston Square Homeowner’s Association v. Centex West, Inc. (1989) 213 Cal.App.3d 282, 292 was also decided well before the 2000 amendments to section 639.
And even though it was decided after the amendments to section 639, the decision in Baker-Hoey v. Lockheed Martin Corp. (2003) 111 Cal.App.4th 592, 596-597 similarly fails to even mention, let alone analyze or discuss the effect of section 639(d)(6)(A) or its legislative intent and, as such, is not controlling on the issue.
Nor can a defendant succeed in recovering such fees by citing to the general statutes regarding costs recovery by a prevailing party, i.e., Code of Civil Procedure sections 1032 and 1033.5. No provision of those statutes specifically authorizes recovery of discovery referee fees, but defendants often argue that because the costs recovery statutes permit discretionary recovery of reasonable costs incurred that are not otherwise expressly precluded, a trial court has the power to award such fees as costs.
The problem with that argument is that it ignores some very compelling rules of statutory construction and would utterly undermine the public policy concerns underlying the amendments to section 639 to require apportionment of discovery referee fees where one party simply cannot afford to litigate their case if they are required to pay them.
First, “[i]t is a settled rule of statutory construction that a special statute dealing expressly with a particular subject controls and takes priority over a general statute. The fact that the Legislature has enacted a specific statute covering much the same ground as a more general law is a powerful indication that the Legislature intended the specific provision alone to apply. Indeed, in most instances, an overlap of provisions is determinative of the issue of legislative intent and requires us to give effect to the special provision alone in the face of the dual applicability of the general provision . . . and the special provision . . . .” (People v. Benhoor (2009) 177 Cal.App.4th 1308, 1321.)
“Even when one statute merely deals generally with a particular subject while the other legislates specially upon the same subject with greater detail and particularity, the two should be reconciled and construed so as to uphold both of them if it is reasonably possible to do so.” (Medical Board of California v. Superior Court (On-Sang Lam) (2001) 88 Cal.App.4th 1001, 1016.) Thus, “[w]here the special statute is later it will be regarded as an exception to or qualification of the prior general one; and where the general act is later the special statute will be considered as remaining an exception to its terms unless it is repealed in general words or by necessary implication.” (Ibid.)
Either approach – i.e., that the special controls over the general or that the special is an exception to the general – applies to preclude recovery of allocated discovery referee fee costs under section 639 as recoverable costs under section 1032. Section 639(d)(6)(A) is a special statute that addresses the allocation of discovery referee fee costs as between the parties; sections 1032 and 1033.5 are general statutes addressing recoverable costs in litigation. The specific allocation of costs ordered under section 639(d)(6)(A) controls over the general costs recovery statute – which is silent on the issue because it neither authorizes nor forbids recovery of such fees as costs.
Alternatively, while the general costs recovery statutes control with respect to recovery of general litigation costs, section 639(d)(6)(A) provides an exception for costs relating to discovery referee fees where there has been an allocation based on economic hardship.
This is consistent with the language of section 1032, subdivision (b), which specifically provides that a prevailing party is entitled as a matter of right to recover costs, “[e]xcept as otherwise expressly provided by statute.” As a statute expressly and specifically providing for the allocation of discovery referee costs, section 639(d)(6)(A) controls over section 1032.
The Legislature provided that discovery disputes could be referred to paid referees in order to help “reduce the extensive burden on the trial courts occasioned by discovery disputes.” (McDonald, at 369-370.) But Taggares recognized the problems in allowing a trial court to delegate its discovery responsibilities: Prior to the enactment of sections 639 and 645.1 “all discovery was free” and “disputes were presided over and resolved by the trial courts.” (Id., at 100, fn. 4.) Because allocation of discovery referee costs where one party is affluent and the other is low income, and because one party “may be victorious in the discovery dispute and yet unable to recover the expense of obtaining discovery compliance from the other,” non-fee options should be explored by a trial court. (Id., at 105-106.)
Thus, a judicial task for which a litigant of modest means would not otherwise have to pay for at all if handled by the assigned judge (either by payment directly to the court or imposed as costs under section 1032), can become such an extreme burden that it creates an obstacle to effectively litigating the case. The legislative solution to that dilemma was to permit allocation of the costs associated with the referral to a discovery referee, or to preclude the appointment of a referee altogether. It is inherently inconsistent – and undermines the public policy reasons for enacting section 639, subd. (d)(6) – to permit a prevailing party (especially one that demanded the referral) to recover, as “costs,” fees that the losing party should never have been required to pay in the first place. This conclusion is mandated by the final sentence in section 639(d)(6)(A): If another party does not voluntarily agree to pay the allocated costs, the court “shall not appoint a referee.”
Once allocated under section 639, discovery referee fees are not recoverable as costs, because, as the Taggares court said, the party paying the costs is “unable to recover the expense.” Thus, “a litigant’s right of access to the courts without the payment of a user’s fee” is the rule. (Hood, at 449.)
There are numerous alternative ways to obtain resolution of discovery disputes that do not impose a financial burden on any party. (Taggares at 106.) Section 639 provides another alternative, i.e., allocating all the costs to one party. By allocating 100% of the referral fee costs to defendants, the trial judge’s order reestablishes the status quo, i.e., plaintiff, as a person of modest means who objected to the appointment of a referee, did not incur those costs, either directly as a “user’s fee” or indirectly as a “cost” to be recovered under section 1032. To later impose those costs on a plaintiff under section 1032 unreasonably punishes the plaintiff for exercising the right to litigate those claims and is inherently unfair because it imposes a “cost” that should have been borne by the judicial system but for the defendant’s demand for a discovery referee and the order imposing on the defendant the obligation to bear the costs of the referral.
There may be times when a discovery referee is right for your case. But if you have a client of modest means, that does not require your client (or you) to bear those costs; a little foresight can help you achieve a fair allocation of those costs.
Sharon Arkin is certified by the California State Bar, Board of Legal Specialization as a certified appellate specialist, and does high-level law and motion and appellate work for plaintiff firms.