In construing California's Arbitration Act, most practitioners take the position that a broad contractual arbitration clause will result in the arbitrator rendering decisions on all disputes between the parties. However, one question that has remained is whether a party that has served a Statutory Offer to Compromise pursuant to Code of Civil Procedure section 998 must present the Statutory Offer to the Arbitrator in order to recover post offer costs and under what circumstances can the trial court award post offer costs per Code of Civil Procedure section 998 when the Arbitrator fails to rule on that issue (or refuses to issue an award on that issue).
In that regard, the California Court of Appeal, Sixth District, in Heimlich v. Shivji (2017) (WL 2351269) ("Heimlich case") recently ruled that the trial court may award post offer costs per Code of Civil Procedure section 998 if the arbitrator fails to issue a ruling on that issue. In the Heimlich case, a case arising from unpaid fees due to a patent attorney, attorney Alan Heimlich sued his former client, Shiraz Shivji, for unpaid fees. Suit was filed in the Santa Clara Superior Court. About one year into the litigation, Shivji demanded arbitration pursuant to the arbitration clause in the retainer agreement between Heimlich and Shivji. The trial court granted Shivji's motion to compel (over Heimlich's objections) and ordered that the matter be arbitrated before the American Arbitration Association. Arbitration then occurred pursuant to the American Arbitration Association rules. The arbitration resulted in no recovery to either side.
Shivji served a Statutory Offer to Compromise per Code of Civil Procedure section 998 two months before demanding arbitration. Six days after the arbitration award was issued, Shivji requested that the arbitrator award him post offer costs under Code of Civil Procedure section 998 because Heimlich's recovery was less favorable than Shivji's section 998 offer. When the arbitrator responded that he no longer had jurisdiction to take further action, Shivji asked the trial court to confirm the arbitration award and to award him section 998 costs as well. The trial court confirmed the arbitration award but, relying on Maaso v. Signer (2012) 203 Cal.App.4th 362, determined that Shivji failed to make a timely section 998 claim to the arbitrator and denied Shivji's request for section 998 costs. Shivji appealed from this order after judgment.
On appeal, the Court of Appeal noted that case law on point concluded that, for policy reasons, any award of arbitration costs should be made by the arbitrator without focusing on the timing or procedure of making such a request of the arbitrator (the same being true for an award of attorney fees as a prevailing party). However, the Court of Appeal noted that there are different considerations for recovery of costs per Code of Civil Procedure section 998. In that regard, the Court of Appeal noted that an arbitrator cannot compare the favorability of an arbitration award to a rejected offer of settlement until after the award is made and that a section 998 determination necessarily must postdate an arbitration award. The Court of Appeal went on to rule that arbitrators, following issuance of the award, have the jurisdiction to rule on motions for costs per Code of Civil Procedure section 998. The Court of Appeal also went on to rule that, where the arbitrator has declined to rule on a matter within the arbitrator's jurisdiction and/or the parties fail to consent to a rehearing before the original arbitrator, the trial court will be empowered to rule on a motion for costs pursuant to Code of Civil Procedure section 998. The Court of Appeal then reversed the ruling of the trial court and directed the trial court to enter an order partially vacating the award and, with the parties' consent, to order a hearing on Shivji's request for section 998 costs before the same arbitrator so that the arbitrator may make an additional award. The Court of Appeal further ruled that, if the parties do not consent or the arbitrator again refuses to reach the merits of the section 998 request, the trial court shall hear and determine Shivji's request for section 998 costs.
The Heimlich case is an important decision in that it provides valuable guidance as to when to raise the issue of recoverability of costs per Code of Civil Procedure section 998. So long as a request is made in a reasonable amount of time following issuance of the award of arbitrator, the arbitrator is to rule on the question of section 998 costs and, if the arbitrator declines to do so, the trial court is to take up the issue.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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