Hotel Dispute Lawyer: Why Judicial Reference is better than Arbitration for resolving Hotel Management Agreements & Hotel Franchise Agreements. Advanced Analysis of Judicial Reference features.

01 March 2024

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Why Judicial Reference is better than Arbitration for resolving
Hotel Management Agreements & Hotel Franchise Agreements.
Advanced analysis of Judicial Reference features.

Hotel Management Agreements & Franchise Agreements

by

Mark S. Adams, Hotel Dispute Lawyer
Partner & Senior Member
JMBM’s Global Hospitality Group®

 

In prior articles, we have looked at the options available to parties in resolving hotel industry disputes. See, Critical considerations for hospitality litigation, arbitration & alternate dispute resolution clauses in hotel contracts. See also, Is Judicial Reference better than Arbitration to resolve Hotel Contract disputes? The basics of Judicial Reference. 

The authority for Judicial Reference in California comes from two sources. The first is the California Constitution which provides for appointment of temporary judges. (See Cal. Const., Art. VI, § 21). The California Code of Civil Procedure also authorizes Judicial References. Specifically, it provides for the appointment of a Referee to hear all or part of a given case. (See Cal. Code Civ. Proc. §§ 638, 639.) Under § 638, the parties may agree to the appointment of a referee to determine “any or all of the issues” in the action [§ 638(a)], or to “ascertain a fact necessary to enable the court” to decide the case [§ 638(b)].

The purpose of this article is to make a more advanced analysis of the many desirable features of Judicial Reference.

Features of Judicial Reference.

Here are some of the important features of Judicial Reference:

• Judicial Reference permits an enforceable waiver of jury trial. In California and many other states, there is a strong public policy against waivers of the right to jury trial. Like arbitration, Judicial Reference is a well-established means to accomplish jury trial waiver in California.
• Efficiency and Timeliness: One of the primary advantages of the Reference procedure is its potential to resolve disputes more quickly than traditional court trials. The parties have more control over the scheduling of proceedings, which can lead to a swifter resolution. Generally, there is less risk of having to prepare for trial repeatedly because of continuances as a result of congested court dockets. While not inherently cheaper than arbitration, Judicial Reference can be more cost-effective in the long run due to the reduced risk of erroneous decisions and the potential for appeal. Compared to court trials, Judicial Reference offers a more streamlined and efficient process, minimizing disruption to hotel operations.
• Practical Expertise of the Referee: Parties have the opportunity to select a referee with expertise in the specific area relevant to their dispute. This allows for a more informed and specialized decision-maker, potentially leading to more accurate and equitable outcomes.
• Confidentiality: Unlike court trials that are generally open to the public, Reference proceedings can be more private and confidential. This can be appealing to parties who value the protection of sensitive hotel information, such as guest data and hotel operations. And unlike confidential arbitration, Judicial Reference proceedings could be made public, deterring frivolous claims, and promoting transparency.
• Appellate Review: Decisions made through the Reference procedure have opportunities for appellate review. This is a major advantage over arbitrations, which have very limited rights to appeal. Imagine a scenario where an arbitrator makes a decision contrary to law or evidence, potentially costing your hotel millions. In arbitration, your options are severely limited, with appeals rarely granted. Judicial Reference, however, provides a safety net of appeal rights, allowing you to challenge erroneous decisions in court and seek justice. This safeguard is invaluable for protecting your investments and ensuring a fair outcome. Unfortunately, arbitration’s “finality” often comes at the expense of justice. Consider the case of Vail Resorts Management Co. v. Rizzuto, where an arbitrator awarded a mere $150,000 in a $20 million breach of contract claim, despite overwhelming evidence in favor of the plaintiff. This decision, unappealable due to the arbitration clause, stands as a stark reminder of the risks associated with limited review.
• Comparison with Arbitration: Both arbitration and the Judicial Reference procedure offer alternatives to traditional court trials. Arbitration is typically less formal and more flexible. Arbitrators are often chosen by the parties, similar to referees, but the process may lack the level of formality associated with Reference proceedings. Both arbitration and Judicial References offer other avenues for waiving jury trials, albeit with distinct characteristics. Compared to Judicial Reference, arbitration is binding, meaning the arbitrator’s decision is final and cannot be appealed on factual issues. While offering finality and potentially faster resolution, arbitration raises concerns about neutrality and limited Judicial review. Unlike referees, arbitrators are not bound by strict rules of evidence and procedure, potentially raising concerns about fairness and transparency. Additionally, challenging an arbitrator’s decision is significantly more difficult than appealing a court ruling. Judicial Reference provides greater procedural oversight and potential flexibility due to the non-binding nature of the referee’s decision, which will become binding following court confirmation. However, Judicial Reference lacks the finality and expediency of arbitration. Conversely, arbitration offers finality but sacrifices judicial review and raises concerns about bias.
• Due Process and Discovery: Arbitration often restricts the ability to present crucial evidence because of limited discovery and unpredictable rules of evidence. This can leave you vulnerable to incomplete information and potentially unfair outcomes. Judicial Reference, on the other hand, adheres to established rules of evidence and discovery, ensuring a greater level of due process and a more thorough examination of the facts. This is critical when protecting your interests in high-value disputes. Extensive discovery provides deeper evidence but can be time-consuming and expensive. Limited discovery expedites the process but might restrict your ability to fully present your case. Similarly, broader appeal rights offer recourse against unfair outcomes but can lead to protracted legal battles and further costs.
• California-Specific: Judicial Reference is only available in California unless both parties agree to its application under another state’s law, which might face enforceability challenges. In key hospitality markets, such as Texas, Florida, New Jersey, New York, and DC, none has a Judicial Reference procedure at all, let alone one like California’s procedure. The same is believed true for all of the other states in the US, as well.
• Cost: Similar to arbitration, the costs of a Judicial Reference can be significant, especially with complex disputes and experienced referees.
• Judicial Expertise of the Referee: Unlike arbitration, where decisions can be made by industry “mavens” but with limited legal knowledge, Judicial Reference brings in retired judges or legal experts. Their in-depth understanding of the law ensures rulings are based on evidence and precedent, not industry biases or “splitting the baby” compromises. This is crucial in complex hotel contracts, where nuanced interpretations can have profound financial and reputational consequences.
• Reliable enforceability: California’s Judicial Reference procedure does not violate California’s constitution. Sandoval v. Salazar (1922) 57 Cal.App. 756, 759 (Code Civ. Proc., § 638,-645, relating to trials by referees, is not violative of Const., art. VI, § 14, as the referee’s report may be accepted or rejected by the trial court which renders the judgment.) Although the decision of a judicial referee is generally enforceable like a court judgment, the enforceability of such agreements relies on factors like the complexity of the issues, the qualifications of the referee, and the fairness of the proceedings. Judicial References are generally upheld, but there is no guarantee of enforcement, and parties may still challenge the referee’s recommendation before a judge during the confirmation process.

For more information about Hospitality Dispute Resolution, you can find below some links to selected articles by Mark S. Adams:

Why Judicial Reference is better than Arbitration for resolving Hotel Management Agreements & Hotel Franchise Agreements. Advanced Analysis of Judicial Reference features.

The better way to resolve hotel contract disputes: Judicial Reference or Arbitration? 

What’s best for hospitality contract dispute clauses? Arbitration, court litigation, or judicial reference in hotel management and franchise agreements?

Should New York law govern your hospitality contract? How about Texas, California or Florida law?

Meet Mark S. Adams, Hotel Dispute Lawyer – Hospitality Litigation, Arbitration & Dispute Resolution

How Pennsylvania Resort Fees Settlements Could Play Out for US Hotel Industry

Disclosing Mandatory Resort Fees – What Hoteliers Need to Know

Force Majeure – Contract provisions and governing law are important

History & origins of Force Majeure as a contract defense

JMBM’s Global Hospitality Group® announces 5th edition of The HMA & Franchise Agreement Handbook

Hotel Lawyer on HMAs: “The shrinking terms of hotel management agreements”

Losing the expectation of privacy bit by bit, byte by byte

 

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This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators, and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.

JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.

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