WisBar News: Supreme Court: Majority Says Appointment Order Gave Referee Too Much Power:

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  • WisBar News
    April
    03
    2017

    Supreme Court: Majority Says Appointment Order Gave Referee Too Much Power

    Joe Forward

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    Supreme Court chamber in Wisconsin State Capitol  

    Updated on April 4, 2017, at 4:30 p.m.

    April 3, 2017 – Circuit court judges can appoint “referees” to handle aspects of big cases. Recently, the state supreme court ruled that a referee appointed to handle aspects of a big case in Milwaukee was improperly vested with too much authority over the case, and vacated the appointment.

    In Universal Processing Services of Wisconsin v. Circuit Court of Milwaukee County, 2017 WI 26 (March 29, 2017), the court unanimously ruled that a party challenging a referee's appointment did not follow the correct procedures in making the challenge.

    But a 4-3 majority decided the case on the merits anyway, declaring the rights of the parties – and vacating the referee's appointment order – under the court's superintending authority.

    Referee Appointed

    Universal Processing Services of Wisconsin LLC, doing business as Newtek, petitioned the Wisconsin Supreme Court for a supervisory writ, which authorizes the supreme court to exercise “supervisory jurisdiction” over lower courts and the presiding judge.

    Newtek asked the court to vacate the appointment of a referee by Milwaukee Circuit Court Judge John DiMotto to handle aspects of Newtek’s case against an independent sales agent, Samuel Hicks, and the agent’s company, Merchant Card Services.

    Newtek filed a lawsuit against Hicks, whose contract with Newtek was terminated after almost a decade, alleging breach of contract, tortious interference with contract, breach of fiduciary duty, and misappropriation of confidential information and trade secrets.

    The case set out under Judge DiMotto and the parties began extensive discovery, with related scheduling conference and motion hearings. After several months, Judge DiMotto appointed a “referee,” noting the cumbersome discovery process and the fact that he had about 450 cases on his docket. He also chided the parties’ bickering.

    DiMotto noted that the referee, retired Judge Michael Skwierawski, “doesn’t come cheap” and urged the parties to cooperate on discovery and get the case to mediation. Neither party objected to the appointment of Judge Skwierawski as referee, including the $450 per hour fee that Skwierawski would be charging for his referee services.

    Although Newtek was directed to draft the appointment order, the referee told the parties that he already submitted the order and they could submit objections. But before any party could object, Judge DiMotto entered the order for the referee appointment.

    Joe ForwardJoe Forward, Saint Louis Univ. School of Law 2010, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6161.

    The order, called an Order of Reference, granted the referee authority over more than just discovery issues, and provided for limited review by the circuit court. It allowed the referee to hear all motions and enter written rulings, and the circuit court could only modify or set aside those rulings based on an “erroneous exercise of discretion.”

    The referee ruled on more than 15 discovery motions, a few motions for sanctions, as well as summary judgment motions by both parties. Newtek raised issues, including the legality of the referee’s appointment, after the referee ruled on the motions.

    The circuit court agreed to review the referee’s rulings de novo, rather than under the erroneous exercise of discretion standard noted in the appointment order. But the circuit court agreed with most of the referee’s rulings on summary judgment and evidence.

    Newtek filed a petition for leave to appeal, noting problems with the referee appointment, the circuit court’s control of the case, and the referee’s authority.

    The appeals court denied the motion, stating it failed to satisfy the criteria for permissive appeal. Newtek did not appeal this ruling to the supreme court, or petition the appeals court for a supervisory writ. Newtek petitioned the supreme court for supervisory writ.

    Merits Decision Warranted Under Superintending Authority

    The supreme court unanimously ruled that Newtek did not follow the correct procedure for seeking the supervisory writ, because it did not first file the petition in the appeals court and Newtek failed to show why it would have been impractical to do so.

    Thus, the majority dismissed Newtek’s petition for supervisory writ. But Newtek, in the alternative, asked the supreme court to exercise superintending authority to decide whether the referee’s appointment was valid, and the majority accepted.

    Justice Shirley Abrahamson, in a majority opinion, said this case presented an important issue that warranted the court’s exercise of superintending authority.

    Abrahamson noted that, to obtain review under the court’s superintending authority, parties must show that an appeal from a final judgment would be inadequate and that “grave hardship will follow a refusal to exercise the power.”

    The majority, which included Justice Abrahamson, Chief Justice Patience Roggensack, Justice Michael Gableman, and Justice Ann Walsh Bradley, noted that Milwaukee County often uses referees and such use may become increasingly common.

    The reference order in this case, Justice Abrahamson noted, granted very broad authority and the parties would have to go through a long and expensive reference, then trial, before they would have an opportunity to seek relief on appeal.

    Hicks argued that Newtek waived or forfeited the right to challenge the appointment because Newtek waited too long to make the challenge – it wasn’t until after adverse rulings that Newtek complained of the appointment and the referee’s powers.

    But the supreme court addressed the merits under its constitutional superintending authority, regardless of those arguments, “[b]ecause the issue presented is significant to the functioning of the Wisconsin court system and to the public,” Abrahamson noted.

    Reference Order Invalid

    The majority vacated the reference order because it delegated authority the circuit court was without power to delegate, including the authority to decide dispositive motions.

    “[W]e conclude that the Order of Reference impermissibly delegated to the referee judicial power constitutionally vested in Wisconsin’s unified court system,” Justice Abrahamson wrote. “A referee may share judicial labor, but the Order of Reference may not allow a referee to assume the place of the judge.”

    The majority rejected the argument, by counsel for the circuit court and Judge DiMotto, that all referee decisions were actually reviewed under the de novo standard. Abrahamson said the inquiry focuses on the order, not the circuit court’s conduct.

    The majority also ruled that circuit court review of referee decisions, under the erroneous exercise of discretion standard, impermissibly granted appellate authority to the circuit court, which would be somewhat restricted in overturning a referee’s decision.

    The court mentioned but did not decide whether the appointment of a referee, which required the parties to bear the cost at $450 per hour, violated due process.

    The majority granted retrospective relief in ruling that certain discovery orders are vacated if a party objected to the ruling when it was issued by the referee, and by vacating all rulings on dispositive motions, including motions for summary judgment. Either party will be allowed to request a substitution of judge within 20 days of the decision.

    Dissents/Concurrences

    Justice Rebecca Bradley, joined by Justice Daniel Kelly, also concurred in the majority’s decision to deny the petition for supervisory writ. And these two justices also agreed that the reference order “impermissibly delegated the circuit court’s constitutionally vested judicial power to the referee." On this point, six justices agreed.

    But Justice R. Bradley also found that Newtek dragged its feet.

    “[Newtek] petitioned this court for a supervisory writ only after acquiescing to discovery under the Order of Reference … receiving an adverse summary judgment decision, and failing to persuade the court of appeals to grant interlocutory review,” R. Bradley wrote. “Now, Newtek raises various challenges to the Reference, under which it engaged in discovery without objection for nearly a year,” wrote Justice R. Bradley.

    Thus, Justice R. Bradley and Justice Kelly concluded that only prospective relief, not retrospective, should be granted. 

    "[P]rospectively vacating the order to the extent it contravenes the Wisconsin Constitution is an appropriate, limited application of our superintending authority over Wisconsin courts for the purpose of preserving the rights of these parties going forward," Justice R. Bradley wrote.

    Justice Annette Ziegler agreed that the petition for supervisory writ should be denied because Newtek failed to comply with appellate procedures for filing such a petition.

    She said the case should end there, and departed from the majority’s decision “to nevertheless address broader underlying issues because this court’s determination should end with the fact that Newtek’s petition failed for procedural reasons.”

    ​​



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