Shelly D. McMILLAN et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Henry Patrick NELSON, as Referee, etc., Real Party in Interest.
Question: When a discovery referee is appointed over the plaintiff's objection, and the plaintiff thereafter fails to pay his allocated portion of the referee's fees, may the trial court (notwithstanding its failure to determine whether the referee's fees were reasonable or necessarily incurred) order the plaintiff's lawyer to pay the referee? Answer: No.
Edgar Rushing sued Lancaster Radiology Medical Group and others for wrongful termination, alleging he was the victim of racial discrimination. Defendants answered and discovery ensued. Claims of discovery abuses followed, and on October 7, 1994, defendants applied ex parte for an order appointing a discovery referee. Rushing, represented by Shelly D. McMillan (and her firm, McMillan & Bloch), opposed the application, explaining that he could not afford to pay for a referee. The trial court nevertheless granted the application, appointed a retired superior court judge as discovery referee (Hon. Henry Patrick Nelson), and (without first determining Rushing's ability to pay) ordered the referee to allocate costs between the parties.
On November 30, the referee submitted to the trial court his recommendation that his fees ($18,356.25 as of that date) be paid 50 percent by Rushing and 50 percent by defendants. Rushing opposed the referee's recommendation and asked the trial court to order defendants to pay the entire amount. On January 5, 1995, the trial court denied Rushing's request, and ordered the fees allocated as recommended by the referee (but did not then or at any time approve the referee's hourly rate, the amount of the November bill or any of the referee's bills, or the reasonableness of his charges). (Code Civ.Proc., §§ 645.1, 1023.) 1 One month later, the referee sent a letter to the trial court, explaining that Rushing's “counsel ha[d] indicated that they [would] not pay their share” of the referee's fees and that “they intend[ed] to ‘appeal’ [the trial court's] order.” When the referee had suggested the order was not appealable, “the attorneys indicated that they still [did] not intend to pay such fees.” As a result, the referee asked the trial court to “issue an order to show cause why sanctions should not be imposed upon [Rushing's] counsel for refusal to obey the order of the Court.” (Emphasis added.) 2
On February 3 (at which time trial was set for February 6), Rushing applied ex parte for an order terminating the reference. Defendants opposed the motion but when the parties appeared that day the trial judge did not rule on Rushing's application and continued the trial date to May 1. Shortly thereafter, Rushing filed a petition for a writ of mandate, asking us to compel the trial court to vacate its order allocating payment of the referee's fees, and we issued a Palma notice. (Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 180, 203 Cal.Rptr. 626, 681 P.2d 893.) On March 15 (while we were awaiting opposition to Rushing's petition), the trial court issued a nonappearance minute order vacating its January 5 ruling, and reallocating the referee's fees to be paid “33–1/3%” by Rushing, instead of one-half by each side.
Defendants asked us to dismiss Rushing's petition, contending the trial court's March 15 order made the petition moot. We declined, and issued a writ commanding the trial court to vacate its March 15 order, to conduct a hearing to determine a fair and reasonable apportionment of the reference fees, and to enter a new order after evidence was taken and Rushing's financial condition and ability to pay were considered.3 (Rushing v. Superior Court (Apr. 13, 1995) B090915 [nonpub. opn.].) On April 18, the trial court vacated its March 15 order, set a half-day “hearing to determine the fair and reasonable apportionment of reference costs” for May 1, and vacated the May 1 trial date. On May 1, the trial court heard evidence, requested further briefing, then issued precisely the same order it had made before, directing Rushing to pay one-third of the referee's fees and defendants to pay the other two-thirds. Trial was continued to September 17.
On September 7, the parties settled the case. On the record, Rushing personally acknowledged his responsibility to pay workers' compensation and medical liens, if there were any, and also said he understood that his attorneys' fees were to be paid out of his settlement proceeds (the amount of the settlement is subject to an agreement of confidentiality but it is not, by any definition, astronomical). When the court inquired whether the dispute about the referee's fees had been resolved, defendants' attorney said his clients' share had been paid but that he did not believe there had been any “further action” with regard to the remaining balance. The trial court then asked McMillan what was going to happen “with that,” and she responded, “Mr. Rushing understands that there are outstanding referee's fees, and there has been no further action in regards to writs or anything else.” (Emphasis added.) The court then asked, “So, will you be taking care of that? ” (Emphasis added.) McMillan responded, “That is correct.”
On October 27, the referee wrote to McMillan and defense counsel to request payment of his fees ($42,583.74 as of that date), payable one-third by Rushing ($14,194.58 ), the balance by defendants. In November, the case was dismissed as contemplated by the settlement. On December 14, the referee wrote to McMillan, complaining that payment had not been received, demanding $18,356.24, and threatening to apply to the trial court for an order to show cause “as well as other measures” if payment was not received within five days.4 McMillan responded immediately, explaining in a letter to the referee that she and her firm no longer represented Rushing, and that any collection efforts by the referee should be directed to Rushing personally.
The referee did not contact McMillan again (and we do not know if he attempted to collect from Rushing) but on March 11, 1996, the trial court issued an order to show cause regarding “failure to pay fees,” presumably at the referee's request.5 McMillan filed a response, reminding the court that it had never approved the reference fees, and explaining that the referee had repeatedly refused to submit proposed orders to the trial court, had unilaterally decided to attend all depositions (thus unnecessarily increasing his fees notwithstanding his awareness of Rushing's financial problems), and that (despite several requests from McMillan) the referee had never provided an accounting.
The OSC was heard on May 23, 1996. McMillan appeared for Rushing (to whom the OSC had issued), and the referee appeared in propria persona. When the trial court asked the referee to state his position, he explained that he was relying on McMillan's statement to the court at the time the settlement was placed on the record, which the referee understood to mean that McMillan was assuming personal responsibility for the payment of Rushing's share of the fees. As the referee put it, he had been paid by the defendants for their share, and he thought “the court should order Ms. McMillan to [pay Rushing's] share.” He neglected to mention that he had not been present in court when the settlement was placed on the record (and he has never said when or how he happened to hear about McMillan's ambiguous statement, nor has he explained how he could have relied on it). McMillan reiterated the objections raised in her written opposition to the OSC, and the referee provided the court with a copy of his 1995 bill.6
The referee then cited an attorney discipline case (Giovanazzi v. State Bar (1980) 28 Cal.3d 465, 169 Cal.Rptr. 581, 619 P.2d 1005 [an attorney who has misled a court by filing dishonest and inaccurate pleadings is subject to discipline] ) and suggested that McMillan's “indicat[ion] to the court [at the time of the settlement] that she would take care of the fees” prevented the court from making a definite order at that time and constituted a representation that she would personally assume responsibility for the referee's fees. In the referee's words, McMillan was committing “a fraud on [the] court, and, as [he] view[ed] it, professional misconduct.” The referee seems to have forgotten that what McMillan said at the time of the settlement was, “Mr. Rushing understands there are outstanding fees” that would be “take [n] care of,” not that there was a lien or that she had any responsibility to pay the referee (or even that her former client had a responsibility to pay fees which had not yet been billed and which were never approved by the court ).
The trial court took the matter under submission and, almost two months later, issued a minute order finding that the referee had an equitable lien on the settlement proceeds, that McMillan was obligated to pay the referee's fees, and ordering her to pay the referee the sum of $14,194.58, with interest from October 27, 1995, until paid, “as the plaintiff's share of the reference fees․” The next day, the trial court “corrected” its order on its own motion, increasing the amount owed to $18,356.24 (see fn. 4, ante ).
Represented by counsel, McMillan and her firm filed a petition for a writ of mandate asking us to intervene. We issued an order to show cause, set the matter for argument, received opposition from both the trial court and the referee, and now issue the writ as prayed.
McMillan contends the referee did not have an equitable lien against the settlement proceeds and that there is no legal basis for ordering her or her firm to pay the referee's fees. We agree, and therefore do not reach her other claims of error. We do, however, take this opportunity to express our serious concerns about the increasing use of discovery referees.
An equitable lien is fashioned by a court of equity to accomplish justice and prevent unfair results (Holder v. Williams (1959) 167 Cal.App.2d 313, 316, 334 P.2d 291) where the parties have a written agreement indicating, at least inferentially, an intent to make a particular fund available for the satisfaction of a particular debt (Miller v. Rau (1963) 216 Cal.App.2d 68, 76–77, 30 Cal.Rptr. 612; McCafferty v. Gilbank (1967) 249 Cal.App.2d 569, 571, 575–577, 57 Cal.Rptr. 695; Weiss v. Marcus (1975) 51 Cal.App.3d 590, 594, 597–601, 124 Cal.Rptr. 297; Siciliano v. Fireman's Fund Ins. Co. (1976) 62 Cal.App.3d 745, 756–757, 133 Cal.Rptr. 376; Kaiser Foundation Health Plan, Inc. v. Aguiluz (1996) 47 Cal.App.4th 302, 305–307, 54 Cal.Rptr.2d 665; Sperber v. Robinson (1994) 26 Cal.App.4th 736, 743, 31 Cal.Rptr.2d 659; cf. Isrin v. Superior Court (1965) 63 Cal.2d 153, 157, 165, 45 Cal.Rptr. 320, 403 P.2d 728; Trimble v. Steinfeldt (1986) 178 Cal.App.3d 646, 651, 224 Cal.Rptr. 195). As between Rushing and the referee, there was no agreement of any kind indicating that Rushing's settlement proceeds would be available for the satisfaction of the referee's fees. The same is true of McMillan.
Indeed, this reference has at all times existed over the strenuous objection of Rushing and McMillan, a situation admittedly permitted by the governing statutes but fraught with problems such as the one now before us. When parties agree (by contract or in court at the time of a dispute) to have a referee try any or all of the issues or ascertain one or more facts, the referee's appointment is made pursuant to section 638 (Marathon Nat. Bank v. Superior Court (1993) 19 Cal.App.4th 1256, 1259, 24 Cal.Rptr.2d 40) and certain obligations, conceivably including an equitable lien, may flow from that agreement (an issue not before us in this case). When (as here) the parties do not consent, “the court may, upon the application of any party, or of its own motion, direct a reference ․ [¶] ․ [¶][w]hen the court ․ determines in its discretion that it is necessary ․ to appoint a referee to hear and determine any and all discovery motions and disputes relevant to discovery ․” (§ 639, subd. (e).)
The referee's fees are covered by sections 645.1 and 1023. Under section 645.1, “[t]he 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 an apportionment of the fees among the parties.” Under section 1023, “[t]he fees of referees are such reasonable sum as the court may fix for the time spent in the business of the reference; but the parties may agree, in writing, upon any other rate of compensation, and thereupon such rates shall be allowed.” To state the obvious, sections 645.1 and 1023 authorize the court to order “the parties,” not an attorney for one of the parties, to pay a discovery referee's fees, and these statutes require the court, not the referee, to determine the reasonableness of the referee's fees. (See also Cal. Rules of Court, rule 244.2(a); McDonald v. Superior Court, supra, 22 Cal.App.4th at p. 370, 27 Cal.Rptr.2d 310 [by “statute it is the court's responsibility to determine what manner of payment is fair and reasonable to the parties”]; Cal.Code of Judicial Ethics, canon 3C(4) [“A judge shall not approve compensation of appointees above the reasonable value of services rendered.”]; canon 6A, D.)
If the trial court in this case had fixed a reasonable sum for the referee's fees (or at any time determined that the referee's fees were fair, reasonable and necessarily incurred), the referee might have had some sort of claim against Rushing's settlement proceeds. But that is not what happened. The only orders made by the trial court go to the allocation of the referee's fees, not to the amount of his hourly rate, his charges for any particular proceeding, or the reasonableness or fairness or necessity of any of the fees he charged.7 As a result, we see no basis for the imposition of liability on Rushing, let alone his lawyer, and we therefore hold (as a necessary predicate for our holding vis-a-vis McMillan) that, on the facts of this case, the absence of a court order approving the referee's fees bars the referee's claim against Rushing.8 Had the referee wanted to protect himself from this result, he had ample opportunity to do so, by declining the reference unless the parties agreed to pay his fees as approved by the court (with a provision covering his rights, if any, in the event one of the parties failed to pay an allocated and approved share), and by applying to the court for an order approving his hourly rate and the fees he billed to the parties. Since it was the referee's decision to proceed as he did, he will not now be heard to complain.
It follows ineluctably that the referee's claim against McMillan must fail. While we suppose it is theoretically possible for an attorney to assume responsibility for her client's obligation to pay a referee, McMillan did not do so in this case. First, as we have just explained, her client had no such obligation, leaving nothing for her to assume. Second, what she said at the time the settlement was placed on the record was that “Mr. Rushing under[stood] there [were] outstanding fees” and that they would be “take[n] care of,” not that Rushing was obligated to pay the fees, or that he would voluntarily pay them, or that she or her firm would pay them, out of the settlement proceeds or otherwise. Rushing, who had from the outset objected to the payment of any portion of the referee's fees, had personally acknowledged his responsibility to pay workers' compensation and medical liens, if there were any. But when the issue of the referee's fees was raised, Rushing was not asked if he would pay them (he wasn't asked anything at all in this regard) and he did not say anything one way or the other. In short, we see no representation by Rushing or McMillan that either of them would pay the referee's fees, a conclusion fortified by the fact that the settlement was placed on the record on September 7, 1995, before the referee's final bill was sent to the parties on October 27, 1995.9 For these reasons, we flatly reject the referee's suggestion that McMillan misled the court by indicating that she would “take care of the fees.” 10
In short, there was no legal basis for the order under review.
In 1993, Division Three of our court observed that discovery referees have become indispensable “in the prosecution of a lawsuit,” that we have seen the last of the days when “[d]iscovery disputes were presided over and resolved by the trial courts,” and urged the trial courts to take “responsibility to form a fair means of discovery dispute resolution which takes into consideration the financial status of parties.” (Solorzano v. Superior Court, supra, 18 Cal.App.4th at pp. 614, 616, 22 Cal.Rptr.2d 401.) In the three years since Solorzano was decided, our colleagues' plea for vigilance has been generally ignored. Indeed, we have seen an increased number of references to an exponentially growing number of available retired judges, and a dramatic increase in hourly rates and total billings, leaving those of us who remain in the public system to address the problems inherent in the creation of a second, separate judicial system.11
We are not the first to wonder where this is all headed, and we doubt we'll be the last. For some time, it has been apparent that our state court judges have been required to handle too many cases with too few resources. By placing its imprimatur on the use of discovery referees (§§ 639, 645.1, 1023), the Legislature has (at least indirectly) encouraged the bar and the public to view our courts as adequately staffed and has thus avoided, for the moment, the need for more judges. What this means, of course, is that the public purse-strings remain tightly knotted while litigants are given the privilege of paying twice—first through taxation, then again through a user's fee disguised as payment for a referee to handle discovery disputes so trial judges can try cases. What this also means is that our courts are experiencing the wholesale departure of judges from the public system to the greener pastures of private judging, where they can and do earn more money, receive more help, obtain better accommodations, and work as many or as few hours as they choose.12
This case demonstrates an unacceptable aspect of the reference process when it is thrust on an unwilling participant.13 What began as a lawsuit by an employee against his former employer has turned into a nasty dispute between the plaintiff's lawyer on the one side, and the trial court and a retired judge on the other.14 To say we take no pleasure in judging the judges is to understate our reaction to the briefs we have reviewed in this case. To say that the judicial system is suffering from the competition among and the conduct by some private judges and mediators is to state the obvious. (See, e.g., Evans, Pay–As–You–Go Justice (Nov.1992) 11 Cal.Law. 108; Bigelow & Chernick, Practice Before a Discovery Referee (Mar.1992) 15 L.A.Law. 30; Reuben, The Dark Side of ADR (Feb.1994) 14 Cal.Law. 53; Note, Private Justice: How Civil Litigation Is Becoming a Private Institution—The Rise of Private Dispute Centers (1994) 23 Sw.U.L.Rev. 621; Yamamoto, ADR: Where Have the Critics Gone? (1996) 36 Santa Clara L.Rev. 1055.) As long as the law permits trial courts to force discovery referees on unwilling litigants (§ 639), our trial judges are entitled to make these appointments—but they are not entitled to abdicate their judicial responsibility by simply rubber-stamping whatever the referee does. (Marathon Nat. Bank v. Superior Court, supra, 19 Cal.App.4th at pp. 1260–1261, 24 Cal.Rptr.2d 40.) To the contrary, the judges must be vigilant in their oversight of the referee's rulings and billings, and it is the trial court, not the referee, who must determine the extent of the referee's services, his hourly rate, and all of the specifics of the reference. When the parties voluntarily agree to a referee, they may assume some responsibility for designating the scope and extent of his duties, and for reviewing his bills. In an involuntary reference, the trial court must assume full responsibility.
In 1894, Anatole France wrote that “[t]he law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” (The Red Lily, ch. 7.) Today, our concern is that we are too fast approaching the time when the law, in its majestic equality, will forbid the poor from using not only a private system restricted to the wealthy, but also the public system theoretically available to all. Before it is too late, we believe the Legislature should reexamine the entire notion of involuntary references and either withdraw its approval of these references or at least impose some limitations on the process. To leave things as they are is to slam the courthouse doors in the face of the poor.
Let a peremptory writ of mandate issue commanding the trial court to vacate its orders of July 16 and July 17, 1996, and to enter a new order denying the referee's request for an order compelling McMillan and her firm to pay the referee's fees. The parties are to pay their own costs of these writ proceedings.
1. All section references are to the Code of Civil Procedure.
2. Since Rushing was the only plaintiff, the referee's use of the plural clearly referred to Rushing and McMillan (Rushing's attorney). As will appear, the referee's position is that an equitable lien was created by a statement McMillan made to the court when a subsequent settlement was placed on the record, a position we cannot reconcile with this early assumption (on the referee's part) that McMillan was somehow liable for her client's share of the referee's fees.
3. We held that this should have been done at the outset, explaining that the allocation of reference fees equally between the parties can be unfair and unreasonable when one party is of “modest means” (Solorzano v. Superior Court (1993) 18 Cal.App.4th 603, 615, 22 Cal.Rptr.2d 401), and that where (as here) the issue of economic hardship is raised before commencement of the referee's work, the court (and not the referee) must determine a fair and reasonable apportionment of reference costs before issuing its order, taking into account the objecting party's financial condition and its impact on his ability to proceed with the litigation (McDonald v. Superior Court (1994) 22 Cal.App.4th 364, 369–370, 27 Cal.Rptr.2d 310). Because this had not been done, we held that the trial court had abused its discretion.
4. The 1994 statement (which billed for time spent between October 7, 1994, and November 8, 1994) was for a total of $18,356.24. The 1995 statement is unclear in that it appears to include the same time period and services shown on the earlier statement, plus additional time spent in December 1994 and January 1995, and shows a “Total Time & Amount” of $24,227.50—but then shows the previous 1994 billing ($18,356.24) and a “Grand Total” of $42,583.74. There is then a further entry showing the “Total Due by Plaintiff Rushing: [¶] ($8075.83 [1/3 of $24,227.50] + $6118.75 [1/3 of $18,356.24] )” for a total due from Rushing of “$14,194.58.” (There is a similar entry for defendants, with credit given for a partial payment.) Since the referee's arithmetic is correct, and since the amount claimed in the referee's later letter to McMillan ($18,356.24) is the full amount of the first bill, not the one-third allocable to Rushing, it appears that the maximum owed by Rushing was $14,194.58 (but see fn. 7, post ).
5. The order to show cause (OSC) is on a form designed for a failure to prosecute, and is directed to the parties, advising that they are to show cause “why sanctions, including dismissal of this action or striking of pleading, should not be imposed” but that “[n]o appearance is necessary if dismissal or judgment is lodged ․ two days prior to the appearance date.” In other words, the OSC had nothing to do with the price of tomatoes.
6. By way of example, the referee's 1995 statement looks like this:“DATEACTIVITYTIME “10/12/94Depositions of Rushing and Yagerin Marina del Rey11.15“10/17/94Deposition of Dr. McGrady at 5670 Wilshire Blvd., Suite 1650 3.00“10/17/94Deposition of Dr. Haker 3.50“10/18/94Deposition of Dr. Moses 2.00L1-3“․“01/30/95Discovery Motion Hearing, Review of Motions,Preparation of Report 11.50”At $275 per hour, this is the sort of “detail” provided for a total bill of $42,583.74.
7. As noted in footnote 4, ante, there are some rather substantial overlapping entries in the referee's bills. Entries for the same dates (and services) appear on both the 1994 and 1995 statements, but the amount of time billed for the same services differs. It is precisely this sort of “mistake” the trial court is supposed to catch when it reviews a referee's fees. (Marathon Nat. Bank v. Superior Court, supra, 19 Cal.App.4th at p. 1261, 24 Cal.Rptr.2d 40.) Any doubt about the effect of judicial review on the amount of a referee's bill is resolved by reference to a “further response” filed in this case on the day before oral argument—in which the referee's secretary explains there were errors in the referee's bills, that almost a dozen items were double-billed, that the amount “owed” by McMillan is $10,225.41 (not $18,356.24), and that the referee owes $7,938.33 to defendants because they too were overbilled.
8. The referee's claim against Rushing is not before us in these writ proceedings. We thus do not decide whether the final settlement of Rushing's case deprives the trial court of jurisdiction to consider a belated application by the referee for the orders that were not earlier obtained pursuant to sections 645.1 and 1023.
9. At the time McMillan was ordered to pay the referee's fees, the trial court found that McMillan “had knowledge of the Referee's fees prior to and upon receiving the proceeds of the settlement between [Rushing] and [defendants]; that ․ McMillan acknowledged and represented to the Court that such fees were owing to and would be paid to the Referee; and further the proceeds of the settlement have been paid to ․ Rushing by ․ McMillan without having paid the Referee's fees as promised and agreed.” Although we ordinarily defer to a trial court's findings of fact, we cannot do so when the record supports the opposite conclusion. (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 51–52, 248 Cal.Rptr. 217.) As noted in the text, the record in this case does not include an acknowledgment by Rushing or McMillan that the fees billed to Rushing were actually owed, nor does McMillan's comment come close to a “promise” to pay the referee. Moreover, the trial court's findings do not include any explanation for its failure to review or approve the amounts billed by the referee.
10. As noted earlier, the referee was not in court at the time the settlement was placed on the record. For this reason, we summarily reject his claim that he was somehow misled by anything McMillan might have said at that time.
11. When Solorzano was decided, referees were charging “$200 to $300 per hour.” (Solorzano v. Superior Court, supra, 18 Cal.App.4th at p. 614, 22 Cal.Rptr.2d 401.) Today, we see records where referees have charged $400 or $500 per hour and more.
12. We have not attempted to list all of the real and imagined problems inherent in a two-tiered system. We are aware that many lawyers believe some referees favor larger firms because they will be repeat customers, try to compromise to avoid angering either set of lawyers and losing a source of repeat business, improperly threaten adverse rulings if obviously excessive fees are questioned, and so on. We could go on, but we think this list suffices.
13. Most of the serious problems with private judging are avoided when the process is invoked at the behest of all parties, or at least with their uncoerced consent. Aside from our concerns about a two-tiered system of justice, we believe parties have the right to select whatever form of alternative dispute resolution they want, and our comments in this case are directed at references ordered over the objection of a party.
14. Both the trial court and the referee have appeared in these writ proceedings, the trial court represented by county counsel, the referee in propria persona. The referee is in the position of a creditor, the trial court in the unenviable position of defending itself, presumably to ensure its continuing ability to find retired judges willing to take references without worrying about whether they will be paid.
MIRIAM A. VOGEL, Associate Justice.
ORTEGA, Acting P.J., and MASTERSON, J., concur.