California Supreme Court Clarifies Standards For Seeking Costs In Arbitration Pursuant To CCP Section 998
By Carl Mueller, The Maloney Firm, APC
In Heimlich v. Shivji, published May 30, 2019, the California Supreme Court overturned an appellate court’s holding that “required” a trial court to hear a timely request for fees pursuant to a rejected 998 offer if an arbitrator refused to hear it. I previously wrote an article discussing the opinion Seeking Costs Under CCP § 998, which concluded with:
In short, the Court of Appeal ensured that the costs provision under CCP § 998 is available to parties in arbitration – at least those in AAA – notwithstanding whether the arbitrator will consider the request for fees.
In that case, one party (Shivji) made a CCP § 998 offer that was rejected, and then Shivji prevailed on the merits. After the issuance of the final award, Shivji’s counsel emailed the arbitrator seeking costs pursuant to CCP § 998, but the arbitrator refused to consider the request. The appellate court ruled that in that situation, the trial court must consider the fee request if the arbitrator does not. The Supreme Court overruled the appellate court, holding that the trial court lacked the authority to overturn the arbitrator’s refusal to consider the timely fee request:
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 Court of appeal erred in relying on a narrow exception to those limits for failure to consider evidence. We reverse.
Notably, the Supreme Court made clear that evidence of a CCP § 998 offer may be given in arbitration either before or after the issuance of a final award:
With certain limits, evidence of a 998 offer may be presented before or after an arbitrator’s final award on the merits. While Shivji would not have been categorically prohibited from advising the arbitrator of the rejected 998 offer sooner, his proffer six days after the final award was timely.
Specifically, the Supreme Court held that overlapping common law and statutory schemes allow an arbitrator to consider evidence of the rejected CCP § 998 offer and a request for costs “within 15 days after issuance of a final award.” However, a trial Court lacks the authority to overturn an arbitrator’s failure to consider such a request for costs, as in the instant case, because the “court’s power to correct or vacate an erroneous arbitration award is closely circumscribed.” This holding is based on the well-established rule that “[o]rdinary errors in ruling on costs are not subject to correction, nor do they serve as the basis for vacating an award.”
In addition to its holding on the merits, the Supreme Court’s decision points out a trap for the unwary practitioner, which any litigator that ventures into arbitration must take to heart:
Insofar as appears from the record, Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer. Instead, he chose to wait until shortly after the arbitrator’s merits award to raise the issue. While Shivji was legally entitled to do so, he ran the risk that the arbitrator would erroneously refuse to award costs, leaving him without recourse under the narrow ground for vacation or correction contained in the statutory scheme.
As such, introducing a CCP § 998 offer into evidence at arbitration and requesting leave to make a post-award request for costs should be on any litigator’s arbitration check-list.