Private parties can agree to resolve their disputes through arbitration. When they do so, courts enforce those agreements, and the merits of the parties’ disputes are not addressed within the judicial branch. Instead, the parties pay arbitrators to consider evidence, hear argument, and issue binding decisions. But what happens if the court, rather than the parties, wants to divert a dispute to a different decisionmaker? The Wisconsin Constitution places limits on what courts can outsource and to what degree a judge can defer to a private decisionmaker’s determinations. A majority of the Wisconsin Supreme Court expounded on those limits in State of Wisconsin ex rel. Universal Processing Services of Wisconsin, LLC v. Circuit Court of Milwaukee County, 2017 WI 26.

Facts and procedural history

The case began as a commercial dispute. Universal Processing Services (which the court refers to as Newtek) filed suit against a former contract employee, Samuel Hicks, for misappropriation of trade secrets and other related claims. Hicks filed several counterclaims. The parties engaged in extensive discovery, which itself created new disputes. Several months into the litigation, the trial court granted each side additional time for discovery while declaring that its docket was too full “‘to expend a lot of time dealing with [the parties’] discovery bickering.’” Id., ¶14. The trial court thereby appointed a retired judge (now in private practice) to resolve “‘discovery disputes, etcetera.’” Id. The court explained that this step should incentivize the parties to be reasonable, as they would be paying hourly for time the retired judge spent resolving their disputes. See id.

Wisconsin law authorizes judges to appoint referees to assist in complicated cases, though such outsourcing “shall be the exception and not the rule.” Wis. Stat. §805.06(2). (While the trial court in this case used the term special master, which is also the term used in federal courts, the Wisconsin Statutes, and the Supreme Court’s opinion in this case use the term referee.) The court order appointing a referee and delineating the referee’s powers in the particular case is called an order of reference. In this case, the Supreme Court assessed the constitutionality of the order of reference.

The case did not reach the Supreme Court in a typical way. After discovery, the referee issued a partial summary judgment ruling and limited the evidence to be presented at trial. Over Newtek’s objections, the circuit court largely affirmed that ruling. Newtek then petitioned the court of appeals for immediate appellate review. Newtek’s petition focused on the substance of the partial summary judgment ruling and related evidentiary holdings, not on the legality of the order of reference. The court of appeals declined to hear an immediate appeal. Newtek did not appeal that denial. Instead, Newtek asked the Supreme Court to issue a supervisory writ vacating the referee’s appointment. This atypical procedure led three Justices to conclude that the constitutional issues were not properly presented to the Supreme Court. See 2017 WI 26, ¶¶112-16 (Ziegler, J., concurring in part, dissenting in part); ¶¶117-42 (R. Bradley, J., joined by Kelly, J., concurring in part, dissenting in part). Additionally, because the court found certain aspects of the order of reference unconstitutional but deemed others acceptable, the case has an odd outcome where Newtek’s petition for a supervisory writ is denied, even though Newtek got much of the relief it sought.

The Supreme Court’s constitutional analysis

While the opinion devotes significant space to the procedural history, this post is focused on the substance of the court’s constitutional analysis. For those purposes, the Supreme Court focused on three provisions in the order of reference:

  1. The provision that “All motions filed, whether discovery or dispositive, shall initially be heard and decided by the [referee].”
  1. The allowance that the referee could certify specific issues for decision by the trial court, but that the trial court could decline to decide the issues and send them back to the referee.
  1. The limited availability of judicial review for the referee’s decisions. Individual rulings to which a party raised prompt objections were reviewable by the trial court under a deferential abuse-of-discretion standard. All other rulings would be reviewable on appeal after final judgment to the same extent as if rendered by the trial court.

Id., ¶20.

The Supreme Court assessed these provisions in light of Article VII, Section 2 of the Wisconsin Constitution. That provision “vests the ‘judicial power’ of this state in a unified court system.” Id., ¶56. The Wisconsin Constitution does not define “judicial power,” but the Supreme Court has described it as the “ultimate adjudicative authority of courts to finally decide rights and responsibilities as between individuals.” State v. Williams, 2012 WI 59, ¶36, 341 Wis. 2d 191, 814 N.W.2d 460.

Here, the issue was whether the order of reference exceeded the scope of what may be permissibly delegated to a referee. Nineteenth-century Wisconsin case law suggests that “the power to refer [is] not limitless.” 2017 WI 26, ¶64. And the court cited federal cases discussing the scope of a referee’s abilities and highlighting that the referee serves as a judicial aid. Id., ¶69. The court should not delegate “‘the core function of making dispositive rulings, including findings of fact and conclusions of law on issues of liability.’” Id., ¶71 (quoting In re Bituminous Coal Operators’ Ass’n, 949 F.2d 1165, 1166 (D.C. Cir. 1991)).

Wisconsin courts have not, before now, clearly delineated the parameters of how referees may aid judges. Id., ¶ 75. The Supreme Court adopted the federal standard that courts cannot delegate core judicial powers–for example the power to decide dispositive motions and conduct trials. Id., ¶76. Under this standard, it followed that the order of reference exceeded constitutional limits when it delegated the authority to hear and decide all motions. This delegation—compounded by the certification provision that allowed the circuit court to refuse to resolve issues in the first instance—and reduced the trial judge’s responsibilities to something more akin to a reviewing court. Id., ¶77. “A referee may share judicial labor, but the Order of Reference may not allow a referee to assume the place of the judge.” Id., ¶82.

The Supreme Court next considered how closely a circuit court must review the referee’s determinations. The order of reference in this case provided for a deferential, abuse-of-discretion review. Such a standard contemplates affirmance even if the court may not necessarily have reached the same conclusion. See id., ¶86. It is unlike de novo review, in which “the reviewing court reaches whatever decision it would reach independently of the decision of the prior decision maker.” Id., ¶85. Agreeing to apply only such surface review “gives the appearance of an abdication of the circuit court’s responsibility to exercise independent judgment.” Id., ¶86. While the Wisconsin Constitution permits the legislature to grant the circuit court appellate jurisdiction over referee rulings, the legislature has not done so. Id., ¶87. The court therefore held application of abuse-of-discretion review was unconstitutional here.

Takeaways from this decision

The Court’s decision makes clear that circuit courts may not delegate their fundamental, or “core,” functions to referees. Private parties may choose to arbitrate their disputes outside of the judicial branch if they so desire. But circuit courts may not compel privatization of the judicial function, because the Wisconsin Constitution entitles parties to litigate their claims before a court. This is why the Supreme Court cautions trial judges to utilize referees sparingly and only as support, rather than as stand-ins.

Finally, it’s notable that the Supreme Court’s decision cut across the Court’s ideological divisions. Justice Abrahamson wrote the majority opinion. She was joined not only by Justice A.W. Bradley, but also by Chief Justice Roggensack and Justice Gableman. This is highly unusual. Last term, for example, Justices Abrahamson and A.W. Bradley agreed in every case decided, while Justice Abrahamson agreed with the Chief Justice in only 12 percent of non-unanimous cases and with Justice Gableman in 25 percent of those cases. See Alan Ball, Wisconsin Supreme Court Statistics, 2015-2016, SCOWstats (July 22, 2016). Even in a separate opinion concurring in part and dissenting in part, Justices R. Bradley and Kelly “agree with the majority’s conclusion that the Reference impermissibly delegated the circuit court’s constitutionally vested judicial power to the referee.” 2017 WI 26, ¶118. Only Justice Ziegler does not endorse the majority’s constitutional analysis; she offers no opinion on the constitutional issues at all, focusing only on procedural flaws in the presentation of the case. See id., ¶115 (Ziegler, J., concurring in part and dissenting in part). Defending the judiciary’s constitutional role seems to be the rare issue that transcends the current schisms on the Court.

Law clerk Olivia Pietrantoni assisted in researching and writing this post.

Find a Professional