27 February 2024
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The better way to resolve hotel contract disputes:
Judicial Reference or Arbitration?
Hotel Management Agreements & Franchise Agreements
by
Mark S. Adams, Hotel Dispute Lawyer
Partner & Senior Member
JMBM’s Global Hospitality Group®
Judicial Reference is a procedure similar in many ways to binding arbitration. For convenience, we may sometimes use the word “Reference” interchangeably with “Judicial Reference.”
The parties may agree to use this procedure before or after a dispute arises, and may specify various elements of the procedure such as the skills of a retired judge to serve as the referee. Like arbitration, Judicial Reference is effective (even in states like California) to waive jury trial and avoid the risk of runaway jury verdicts. A Judicial Reference comes with a procedural advantage that arbitration cannot match: the right to appeal. With a Reference, the parties retain the appellate rights that they forfeit when they opt for arbitration.
The current prevailing choice is arbitration.
The hotel industry has been an innovator in the use of alternative dispute resolution to resolve disputes arising out of significant hotel contracts such as hotel management agreements, hotel franchise agreements, joint ventures, and even financing arrangements. Overwhelmingly, the industry has opted for binding arbitration. Proponents of arbitration claim that, compared to traditional court trials, arbitration can be faster, more private, impose experience or other qualifications on the arbitrator, and avoid a jury trial (with the potential for runaway verdicts). Many experts believe that the compelling “advantage” is avoiding jury trials, but there may be a better way to accomplish these objectives. See, Critical considerations for hospitality litigation, arbitration & alternate dispute resolution clauses in hotel contracts.
Using the right dispute resolution tool for each type of dispute.
Arbitration may be a quick fix for resolving questions about budget overruns or minor operational hiccups. Its efficiency shines in low-stakes situations where swift resolution is paramount. However, when it comes to major contractual breaches, misinterpretations, or significant financial losses, Judicial Reference emerges as the clear best choice. The stakes in hotel contracts often demand a more robust and transparent solution – one that Judicial Reference demonstrably delivers. So let’s take a look at the details of Judicial Reference.
The California model of Judicial Reference.
Recognizing the need for alternative dispute resolution in complex matters, California established the Judicial Reference procedure (California Code of Civil Procedure sections 638 through 654.2). This procedure allows parties to agree to have a Referee, typically a retired judge, or an experienced attorney, to hear evidence and make legal rulings 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 procedure closely mirrors a traditional trial, with the main distinction being the private and more confidential nature of the proceedings, and the ability to confidently waive jury trial.
At the conclusion of the procedure, the Referee issues a non-binding decision, which is then submitted to the court to review and confirm into a judgment subject to appeal. The decision is invariably confirmed by the court. The Judicial Reference procedure is not necessarily limited to California disputes. Parties in other states could agree by contract to mimic the California Judicial Reference to resolve their disputes.
Parties can choose to use the Reference procedure for various types of cases, including disputes regarding hotel management agreements and franchise agreements. The flexibility and informality of this process can be particularly advantageous for parties seeking a more expeditious and tailored resolution to their conflicts.
Judicial Reference offers all the basic advantages of arbitration, plus more
Judicial Reference offers all the basic advantages of arbitration’s faster timeline, confidential proceedings, selection of decision-maker, and avoidance of jury trials. But it fixes the biggest drawback of arbitration for important cases – the lack of appeal rights, even for decisions contrary to law, unjustified by the evidence, or based upon mistake.
Judicial Reference is also more likely to avoid two other problems endemic with arbitration: (1) arbitrators are frequently observed to “split the baby” rather than dispense the justice deserved, and (2) arbitrators come from a limited pool of hospitality industry figures who hope to be hired again in the next hotel industry dispute where the hotel industry participant will have to approve the arbitrator.
In the next article on Judicial Reference, we will delve more deeply into the advantages and features of the procedure.
For more information about Hospitality Dispute Resolution, you can find below some links to selected articles by Mark S. Adams:
The better way to resolve hotel contract disputes: Judicial Reference or Arbitration?
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”
Mark S. Adams, Hotel Dispute Lawyer, is an experienced trial lawyer and a senior member of JMBM’s Global Hospitality Group®. A primary focus of Mark’s practice is devoted to representing clients on hundreds of matters involving Hospitality Litigation, Arbitration & Dispute Resolution – from avoiding litigation to conducting complex, multi-state litigation, arbitration, and mediation.
Mark’s expertise is grounded on business litigation involving contracts, corporate and partnership disputes, and hospitality disputes and litigation. On behalf of hotel and resort owners, Mark has successfully litigated the termination of long-term, no-cut, hotel management agreements, franchise agreements, fiduciary duty issues, investor-owner disputes, TOT assessments, and more. He has wide-ranging trial experience in a variety of commercial disputes, including complex multi-party litigation and class actions. He has tried numerous cases in state courts, federal courts, and in domestic and international arbitrations, and is a frequent author and speaker on trial practice. Mark’s trial wins have been covered by Forbes, Reuters, and other publications. He has obtained two of California’s annual 50 largest jury verdicts in the same year.
Mark has taken or defended nearly 1,000 depositions throughout North America, Europe, and the Middle East. He has been quoted as an expert on noncompete agreements in the Wall Street Journal. For more information, contact Mark at 949.623.7230 or markadams@jmbm.com.
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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