California Mediation and Arbitration

Section 998: Fourth District, Div. 3 Holds Later Offer To Enter Into Stipulated Judgment On Only One Cause Of Action Extinguished 998 Offer On All Causes Of Action

A Case Of First Impression.

        Section 998 offers belong to the armamentarium of litigators engaged in settling cases, because the potential of such offers to shift costs can be a source of negotiating leverage. Hence, our blog about ADR has a sidebar category "Section 998 (Settlements)".

        In Varney Entertainment Group, Inc. v. Avon Plastics, Inc., No. G058903 (4/3  2/23/21) (Goethals, Aronson, Fybel), the court had to decide whether defendant/appellant Avon's second offer to settle extinguished its pending section 998 offer. "Section 998 is silent about the revocability of statutory offers to compromise, but our Supreme Court has held that section 998 offers are fully revocable prior to acceptance." That would seem to make this an easy case to decide (and perhaps it was easy to decide). However, the case had unusual facts that made it a case of first impression.

        Plaintiff Varney alleged two causes of action, one for breach of contract, and one alleged in an amended complaint after a year of litigation, for unauthorized use of Varney's name and likeness in violation of Civil Code section 3344.  Defendant Avon offered to settle the entire lawsuit for $250,000 for a stipulated judgment pursuant to section 998. Defendant then offered to settle just the contract cause of action for $191,626.03. Plaintiff Varney accepted the offer as to the single contract cause of action, and on the eve of trial, dismissed the section 3344 cause without prejudice, later filing a  new complaint for unauthorized commercial use of name, voice, signature, photograph, and likeness in Tennessee. 

        So now you see the twist: Varney would claim the stipulated judgment on one cause of action completely superseded Avon's 998 offer to settle the entire lawsuit, and thus no cost shifting should be permitted to Avon under section 998. Avon would claim that the voluntary dismissal of Varney's second cause of action meant that Avon had bested its $250,000 998 offer, entitling Avon to attorney fees it incurred after serving its section 998 offer.

        Justice Goethals presented the issue: "does a later offer to enter into a stipulated judgment on only one cause of action extinguish an earlier pending section 998 offer covering all causes of  action?" The answer is yes, the stipulated judgment did extinguish the earlier 998 offer. A different result would inject uncertainty into the 998 process.

 

Arbitration, Section 998: California Supreme Court Rules Request For Costs Timely Under Section 998 If Filed With The Arbitrator Within 15 Days Of Final Award

A Question Of Timing: Case Explains  How To Handle Costs Under Section 998 In An Arbitration.

    Heimlich v. Shivji, S243029 (Cal. S.Ct.  5/30/19) (Corrigan, J.) is good news for practitioners, because it settles a timing issue, but it is no help to the hapless appellant who helped make law. Code of Civil Procedure section 998 authorizes an award of costs to a party that makes a pretrial settlement offer when the opponent rejects the offer and obtains a lesser result at trial. Heimlich v. Shivji holds, "a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award." The question had been somewhat in doubt, because for most purposes, an arbitrator's power to act terminates once the final award issues.

    However, the ruling makes sense, because section 998 applies to arbitration, as well as to litigation, and allowing a request for costs to be made under section 998 after the award is final puts arbitration and litigation on an equal footing. In a court case, a memorandum of costs is typically filed within 15 days of the final judgment, and the rule in Heimlich v. Shivji allows a parallel practice in arbitration. Furthermore, it is good policy not to require the party who will be asking for costs to make a settlement offer known prior to the final award, for fear it might influence the arbitrator in undesirable ways.

    The issue in Heimlich v. Shivji arose because Shivji  had a fee dispute with his attorney Heimlich, and Shivji made a settlement offer that Heimlich could not best in arbitration. Within 15 days after the final award issued, Shivji informed the arbitrator that he would request costs under section 998. Unfortunately for Shivji, the arbitrator concluded that after issuing the final award, he no longer had jurisdiction to take any further action in the matter. The trial court confirmed the arbitration award that did not include Shivji's requested costs. The Court of Appeal reversed, holding that Shivji's request was timely, and that the trial court could vacate the arbitrator's award because the arbitrator had "'refuse[ed] . . . to hear evidence material to the controversy'" when he rejected Shivji's attempt to raise the issue. (We blogged about the Court of Appeal opinion on June 15, 2017). And the Supreme Court agreed with the Court of Appeal that Shivji's request was timely.

    So that all sounds like it would be good for Shivji. But not so fast. The arbitrator made a mistake of law when he concluded that he lacked jurisdiction to rule on the post-award request for costs. His refusal to consider further evidence resulted from the mistake of law. And a mistake of law is not a basis for overturning an arbitration award. So hooray for Shivji and his attorney: they were right that Shivji's request was timely, and they made law in the California Supreme Court. Unfortunately, it won't help Shivji.

    PHRASE OF THE DAY. Apparently Heimlich relied on the ancient doctrine of "functus officio." "At common law," the Supreme Court explained, "the issuance of an arbitration award was treated as functus officio, an act that terminates the actor's authority." Here, however, the doctrine only applied after the arbitrator's assigned duties ended -- and apparently those post-final award duties can now include awarding costs to a party that prevails under section 998. "Further, common law rules are subject to legislative revision." And pursuant to the California Arbitration Act, arbitrators do have some vestigial powers after issuing an award, so the doctrine of functus officio is not absolute. And 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."

    PRACTICE TIP. What should the practitioner do about making a request for costs under section 998 in an arbitration? The Court notes, "Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer." That could have been done before the final award was issued. If the arbitrator had then refused to accept evidence on an issue of costs that he had to decide pursuant to a joint stipulation, that might have been a solid ground for challenging the award, for squarely refusing to consider important evidence would have been more than a mistake of law. Of course, in the absence of a stipulation, the next person requesting costs within 15 days after issuance of the final award can present the arbitrator with a copy of Heimlich v. Shivji, and hope the arbitrator does not go off the rails.

    

Section 998, Costs: Insurance Company That Is De Facto Party Under Probate Code Is Party To CCP 998 Settlement Offer, And On The Hook For Litigation Costs

Because Insurance Company Controls The Litigation, Court Looks Past "Legal Fiction" That Decedent's Estate Is The Party.

    Amanda Meleski was injured when Albert Hotlen ran a red light and collided with her vehicle. But by the time Mr. Hotlen could be served with a summons, he was dead. However, Mr. Hotlen had purchased a $100,000 policy from Allstate. Ms. Meleski offered to settle with Allstate for one dollar less than policy limits, to wit, for $99,999. Allstate rejected the offer, went to trial, and took a hit from the jury for $180,613.86. Ms. Meleski then sought to recover expert witness fees and other litigation costs, in the amount of $66,017.08, pursuant to section 998, having done better at trial than the offer that Allstate rejected. However, the trial court held that her recovery against Allstate was limited by the policy limit of $100,000. She appealed. Meleski v. Estate of Albert Hotlen,  C080023 (3rd Dist.  11/29/18) (Blease, Robie, Mauro).

    The Court refused to ignore the reality that Allstate controlled the litigation, adding: "Moreover, we find it manifestly unfair that section 998 could be employed by Allstate to recover costs from the plaintiff (which costs it would have no obligation to pay to the estate), but Allstate would have no corresponding responsibility to pay costs merely because it is not the named party."

    The Court reversed the order denying an award of costs from Allstate, and modified the award to add $66,017.08 to $100,000 in damages.

 

    

 

 

Arbitration/Fees/Settlement: Sixth District Holds That Party May Ask Arbitrator For Attorney's Fees Based On Section 998 Settlement Offer, After The Arbitrator Has Ruled On The Merits

The Case Is Heimlich v. Shivji, Case No. H042641 (6^th Dist. May 31, 2017).  

     Ordinarily, a prevailing party's request for fees and costs in an arbitration is presented to the arbitrator, before an award is rendered, unless the arbitrator and the parties agree to address fees and costs after an interim award is made.  But what if the arbitrator has already rendered a final award, and the basis for the fees/cost request is a Cal. Code of Civ. Proc. section 998 procedure, allowing the prevailing party to seek fees/costs?  In the ordinary situation, the trier of fact doesn't even know that a section 998 offer has been made until after a party has prevailed and seeks costs and fees based on that provision.  Here, the arbitrator believed that the arbitrator's jurisdiction to rule on the request had expired after the arbitrator's final award had been made.  Not so, ruled the Court of Appeal, in an interesting disposition of the matter:

The court is directed to enter an order partially vacating the award and, with the parties’ consent, to order a hearing on Client’s request for section 998 costs before the same arbitrator so that the arbitrator may make an additional award. If the parties do not consent or the arbitrator again refuses to reach the merits of the section 998 request, the court shall hear and determine Client’s request for section 998 costs.

 

Arbitration/Costs/Deadlines/Scope/Section 998: Second District, Div. 2, Affirms Trial Court’s Denial of Costs

 

Look to the Scope of the Arbitration Provision to Determine Whether Costs Need to Be Addressed by the Arbitrator or the Court

     The plaintiff, a patient alleging malpractice, suing through his guardian ad litem, lost a first arbitration against a doctor. Unfortunately for the doctor, his party arbitrator had an ex parte contact with the neutral arbitrator while the award was pending -- leading the court to vacate the eventual award that would have helped the doctor. In a second arbitration, the patient won a significant monetary award, and then sought costs (based on an earlier cost shifting CCP section 998 offer). Costs were denied by the trial court on the grounds that costs should have been determined by the arbitrator. Maaso v. Signer, Case No. B228314 (2nd Dist., Div. 2 Feb. 7, 2012) (certified for publication).

     The patient appealed the denial of costs, and the doctor appealed the vacation of the first arbitration.