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Friday, May 31, 2019


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California Supreme Court:

Arbitrator May Add Post-Award Costs Based on CCP §998


By a MetNews Staff Writer


The California Supreme Court decided. in an opinion filed yesterday. that where a party makes a statutory offer to compromise while the matter is in arbitration, and the other party does not obtain a more favorable result, costs should be sought within 15 days of the award from the arbitrator, not the court, and a judicial review of a refusal to grant costs is narrow.

Justice Carol Corrigan wrote for a unanimous court. The opinion reverses a May 31, 2017 decision by the Sixth District Court of Appeal which remanded the case to an arbitrator to act on an application for costs.

Under Code of Civil Procedure §998, “[i]f an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant’s costs from the time of the offer.”

Corrigan said:

“We hold a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award. In response to such a request, an arbitrator has authority to award costs to the offering party. However, if an arbitrator refuses to award costs, judicial review is limited.”

The controversy arises from a case in which San Jose attorney Alan Ernest Heimlich sued his former client, inventor Shiraz M. Shivji, for fees, and the client cross-complained. The matter was sent to arbitration pursuant to a provision in the retainer agreement, and the arbitrator on March 5, 2015, awarded nothing to either side.

Email Correspondence

Six days after the decision, Shivji’s attorney, Javed I. Ellahie, wrote the arbitrator, Paul A. Renne, in an email, saying:

“There is one open matter that has to do with the award of costs pursuant to CCP § 998 and the procedure to follow regarding the same.”

Ellahie went on to say:

“Our understanding is that the demand for an award for recovery of these costs should be submitted to the Arbitrator rather than directly to the Court. Your confirmation of this procedure will be appreciated.”

Renne responded by e-mail:

“Counsel, once I issued [m]y Final Award I no longer have jurisdiction to take any further action in this matter. As discussed in the Award, whatever may have been the costs, fees, etc. associated with the Santa Clara litigation were to be borne by the parties....”

The arbitrator had not known of the §998 offer prior to making the award.

2012 Decision Cited

In the Superior Court, Shivji filed a cost memorandum seeking $76,684.02. Santa Clara Superior Court Judge William J. Elfving on May 27, 2015 confirmed the arbitration award, saying that he did so “notwithstanding consideration of any motions pursuant to California Code of Civil Procedure § 998.”

He explained that under the Court of Appeal’s Feb. 7, 2012 decision by this district’s Div. Two in Maaso v. Signer, any application for costs related to an arbitration based on a party’s spurning of an offer had to be made to the arbitrator prior to the award.

But, the Court of Appeal said in reversing Elfving’s decision, Shivji could not have alerted the arbitrator to the §998 offer prior to his decision because §998(b)(2) provides that a rejected offer to compromise “cannot be given in evidence upon the trial or arbitration.”

The opinion holds that Shivji “timely presented his section 998 claim to the arbitrator, the arbitrator should have reached the merits of that claim, and the arbitrator’s refusal to hear evidence of the section 998 offer warranted partially vacating the arbitration award….to allow a determination of the section 998 request by the arbitrator or, if that avenue is not availing, by the court.”

Corrigan’s Opinion

In yesterday’s opinion, Corrigan said the arbitrator did have the power to award costs after the award was made; the Superior Court judge did not; and the Court of Appeal erred in ordering that the case be returned to Renne.

Under the Supreme Court’s 1985 decision in White v. Western Title Ins. Co., “although a 998 offer is inadmissible to prove liability, it may be admissible to prove unrelated matters,” she said, declaring:

“The Court of Appeal erred in concluding, without discussion of White, that section 998, subdivision (b)(2), prevented Shivji from revealing the offer.”

That does not mean, she continued, that Shivji was obliged to reveal the offer prior to the arbitration decision being issued. If the offer had been made during the course of proceedings in the Superior Court, Corrigan noted, the offeror would have had 15 days after notice of entry of judgment (or 180 days after entry if no notice were given) to seek costs through a memorandum of costs.

“When the Legislature amended section 998” in 1997 “to extend its application to private arbitrations,” the justice noted, “it did not specify a different timeline for seeking costs….Had the Legislature sought to impose more stringent time limits, it was free to say so.”

Although Shivji’s request for costs was timely, Corrigan observed, he would have been wise to have made note of his offer earlier, staving off the possibility that the arbitrator would base a post-award denial on the proposition that his powers had been spent.

Exhaustion of Powers

Heimlich argued that Renne was right, explaining that an arbitrator has no authority to alter an award because, once it is made, his or her powers are exhausted.

Corrigan responded:

“But the rule that issuance of a final award terminates an arbitrator’s power is not so rigid.”

She quoted Black’s Law Dictionary as saying that the doctrine of functus officio “renders an actor “without further authority or legal competence because the duties and functions of the original commission have been fully accomplished,” and commented:

“The doctrine applies only after the arbitrator’s assigned duties have ended. Further, common law rules are subject to legislative revision….The Legislature may confer authority to correct or amend a final decision or make additional rulings contingent upon, and necessarily subsequent to, a final award. A change in the scope of an arbitrator’s duties will affect when those duties have been completed and the arbitrator’s powers extinguished.”

The Arbitration Act does vest arbitrators with the power, for a short period, to correct awards, she noted.

Corrigan’s Conclusion

Corrigan reached this conclusion:

“Cost applications in a case governed by section 998 likewise must come after a judgment or award. Only then can the outcome be compared with the terms of the settlement offer and deemed more or less favorable. Section 998 is intended to place parties to arbitration and court proceedings on equal footing and should be read to grant arbitration parties the same shield against premature disclosure of settlement offers that parties in court enjoy. Arbitrators have limited continuing jurisdiction after issuance of a final award, and the Legislature by statute can expand an arbitrator’s powers”

She continued:

“The rule most consistent with these principles is this: Consistent with practice in civil litigation, for 15 days after issuance of a final award, a party to an arbitration may submit a cost request asserting rejection of an earlier 998 offer. The arbitrator has implicit power under section 998 to consider the request and amend any award accordingly. To deem any postaward application untimely would ignore the parity between arbitrations and court cases that section 998 sought to ensure; the policy against early disclosure of settlement offers reflected in section 998, subdivision (b)(2); and the Legislature’s power to grant arbitrators supplemental but limited authority to act even after a final award.”

No Relief

While the Court of Appeal was correct that Renee did have authority to award costs, Corrigan said, it erred in ordering a remand to him.

“Most legal errors in arbitration are not reviewable,” she pointed out. “…An award may be vacated only for fraud, corruption, misconduct, an undisclosed conflict, or similar ‘circumstances involving serious problems with the award itself, or with the fairness of the arbitration process.’”

She added that “ordinary errors in ruling on costs are not subject to correction, nor do they serve as a basis for vacating an award.”

The case is Heimlich v. Shivji, 2019 S.O.S. 2531.


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