"The Role of the Referee in Partition"
The Referee is not an advocate for either side of the dispute. As a quasi judicial officer, the Referee is an extension of the Court and hence must remain
neutral throughout the proceedings.
WHAT IS A REFEREE IN PARTITION?
The concept of the Referee in Partition is unique to partition law, yet in a general sense the duties and functions of the referee are similar to that of a receiver. The Referee is a "quasi judicial officer" which means that he or she is an extension of the court, reporting to and responsible to the judge, but not representing any of the parties to the litigation. In fact, the Referee must remain a neutral party. With rare exceptions, judges perform their functions in courtrooms and in conformity with rules and laws governing the courtroom proceedings. Yet circumstances may arise where the litigation requires judges to extend their reach beyond the courtroom in order to deal with administrative or investigative matters relating to the the lawsuit. As an example, if a judge determines that a particular question is, as a practical matter, not subject to a courtroom evidentiary presentation, a special master may be appointed to investigate the subject and to report back to the court as to his or her findings. An example of this occurred in the breast implant litigation where the judge appointed a panel of experts to review the relevant medical literature and to report back as to whether there was a correlation between implants and the various adverse medical conditions claimed by the plaintiffs. This panel functioned as special masters. Another example of a quasi judicial officer is a "receiver." Courts will appoint receivers to take control over an asset where there is a risk that the asset will be damaged or income from the asset will be lost in the course of the litigation. As an example, if two owners are fighting over control of a business, the court may want to remove control of the business from both of the owners to prevent either owner from using jointly owned assets to finance the litigation. Similarly, if there is a parcel of real property as say a hotel, where one of the owners is accusing the other of fraud in the handling of the receipts, the court may appoint a receiver to take over management of the hotel while the suit is pending. The receiver is responsible to the court and acts solely as an extension of the judicial power of the court. Failure to cooperate with the receiver by the litigating parties or their attorneys can result in the imposition of sanctions by the court.
WHAT ARE THE REFEREE'S FUNCTIONS?
To understand the primary role of the Referee, it must be kept in mind that a partition action almost inevitably ends with the sale of the property and that at least one of the parties is either hostile to the sale, or hopes to be able to acquire the interests of the other parties in the course of the litigation. It is apparent that were the court simply to order the property sold, there would be no certainty that the parties would cooperate in effecting that order. Additionally, it is unlikely that either the parties or their counsel are competent to effectively market and sell the property. So as to remove the sales process from the underlying dispute, a Referee is appointed to take control over the property and to manage the sales process. While the referee can and should consult with counsel as matters proceed, the Referee is expected to maintain an independent judgment and the parties and their counsel are expected to fully cooperate with the Referee. Remember that any sale is subject to Court supervision and ultimately confirmation. There may be issues regarding the property that may require resolution during the litigation. For example, one or more leases to portions of the property may be expiring, or a tenant may wish to renegotiate or extend their lease. Indeed, if the property is primarily saleable as an investment, restructuring or extending the leases may enhance value or marketability. The Court may direct the Referee to conduct those negotiations subject to Court review before finalization. With rural or farm properties, the Court may direct the Referee to determine whether the property can be partitioned by physical division rather than sale, and if so, to recommend how that division should be ordered. The functions and responsibilities of the Referee can be as varied as the kinds of properties that are involved in partition litigation. For example, if the property is deteriorated, the court may order the Referee to investigate the costs and economic viability of making repairs. If the property produces rental income, the court generally will order the Referee to collect the rents, pay the bills, and distribute the net rental proceeds. If there are ongoing landlord-tenant problems or conflicts, the court may order the Referee to investigate the situation and report back to the court and the parties. While the list is potentially endless, it remains that the primary function of the Referee is to manage and effect the sale of the property. The court can grant the Referee plenary power over the property and can assign whatever tasks are required to effect the sale. Counsel are well advised to consider the problems and issues concerning the property in advance of the Referee's appointment and either to negotiate the inclusion of appropriate provisions in the order appointing the Referee, or to request that the court include those provisions. Judges in general, are inclined to grant authority to the Referee especially if by so doing, disputes along the way are kept out of the courtroom.
HOW IS THE REFEREE SELECTED?
The Referee is generally nominated by one of the parties, often the plaintiff, and often on the basis of prior experience with the individual in the partition context. In some instances, the judge may be familiar with a person who has previously performed this function in another matter over which the judge presided. It should be clear from the foregoing discussion, that expertise with real estate matters and generally prior experience as a Referee are essential prerequisites. The nomination motion should be accompanied with a resume of the candidate's relevant education and experience and the licenses held by the candidate. It is always wise for the attorneys to interview a proposed Referee prior to any appointment to be sure that the requisite qualifications are present. It is best if the attorneys for all sides can agree on a candidate. It is a poor and expensive strategy to turn the selection of the Referee into a battle. The typical statute requires the appointment of a Referee the attorneys should avoid an adversarial stance toward the Referee.
HOW IS THE REFEREE COMPENSATED?
The Referee is generally compensated on an hourly fee basis together with reimbursement for out-of-pocket expenses. Of course, it is important to determine the Referee's hourly rate in advance. The fees are paid from the proceeds of the sale in the larger context of a distribution order which also reconciles the final economic interests of the parties. The parties' attorneys' fees are generally also paid from the proceeds of the sale pursuant to that order. The question is frequently raised whether the Referee, if a licensed broker or real estate salesperson should list the property with their firm. There are pros and cons depending upon the nature of the property and of the underlying dispute. If the dispute is particularly hostile and there is a significant lack of cooperation among or between the parties, it is may be better for the Referee to manage, but not be involved in the marketing and sale of the property. In such instances, the proposed Referee should be an attorney with both litigation and real estate experience. Generally speaking, merely being licensed as a broker or sales agent would not be sufficient qualifications in such a case, for the Referee is very likely to be actively involved in assisting the judge as the matter progresses, and litigation experience would be very helpful. In such and instance, the Referee will be tasked with identifying qualified brokers and soliciting listing proposals from them. If the parties to the dispute are reconciled to the fact that the property will be sold. Or, if the dispute is relatively calm, or involves a simple residence or small commercial property, it is often appropriate and economical for the Referee to be the listing broker and to be actively involved in the marketing and sale process. If the Referee is compensated by a listing commission, it is inappropriate for the Referee to receive additional compensation for the Referee functions unless these are substantially more involved than would be the case in an ordinary listing and sale situation. Thus, if the Referee is commissioned as a broker, he should not receive any hourly fee compensation. If the property is specialized, or of large commercial dimensions such as multi-tenant warehouse facility, shopping center, or large office building, it is generally wise to list the property with a commercial broker specializing in such properties. An exception to the foregoing can arise when there are complexities involved in straightening out the economic claims between the parties or the distribution involves complex administration. In the Case Histories section, the dispute involving the San Francisco Victorian involved a very complex effort to locate the many owners, a difficult negotiation with the title company in order to obtain title insurance, and several court hearings involving these issues. In that case, the Court determined that the Referee was entitled to both a commission for effecting the sale and hourly fees for administering the distribution. Selection of an appropriate Referee is a critical to the efficiency and ultimate success of the partitioning process. The Referee should be experienced, mature in his judgment, professionally competent both as to legal matters and as to real estate generally, and a skilled negotiator. Often the Referee will informally serve to mediate disputes between the parties and a patient and unflappable personality is helpful. Remember that the Referee in many ways serves as the eyes and ears of the court and has the power and responsibility to bring intractable aspects of the dispute to the court's attention. The judge will tend to rely upon the Referee's perceptions of issues that are standing in the way of resolution and ultimate sale of the property. Permitting the Referee to complete his work expeditiously and without micromanagement by counsel serves to reduce litigation costs and to increase the ultimate proceeds received by the property owners.