Jul 14, 2017

California Court of Appeals Clarifies Procedure for Seeking Costs Under CCP § 998 During Arbitration
By Carl Mueller, The Maloney Firm, APC

In Heimlich v. Shivji, the California Appellate Court Appellate Case No. H042641, the California Court of Appeal recently clarified the procedure for both seeking an award of costs pursuant to Cal. Code of Civil Procedure (“CCP”) § 998 during arbitration and how to seek those costs from the California Superior Courts should an arbitrator refuse to enforce CCP § 998.
Alan Heimlich, an attorney, brought suit against Shiraz M. Shivji for unpaid legal fees. After approximately a year of litigation and after Mr. Shivji had made a settlement offer under CCP § 998 for $30,000, Mr. Shivji successfully moved to compel the case into arbitration proceedings per an arbitration clause within his retainer agreement with Mr. Heimlich. The arbitration was conducted with AAA, and per the terms of the arbitration provision, “in accordance with California law.”
After the arbitrator issued a final award finding that neither party owed the other any money, Mr. Shivji’s counsel sent an email to the arbitrator seeking guidance on the procedure for moving for costs under CCP § 998. The arbitrator refused to hear the motion for costs, as he claimed he “no longer had jurisdiction to take any further action in this matter.”
Mr. Shivji then moved for the Superior Court to confirm the arbitration award and for costs under CCP § 998. The trial court confirmed the arbitration award, but denied the request for costs, because “it was incumbent upon the defendant to raise the CCP issue with the arbitrator on a timely basis.” That is to say, the trial court ruled that Mr. Shivji should have sought costs under CCP § 998 before the arbitrator issued its decision determining that Mr. Shivji was entitled to costs under CCP § 998.
In its decision, the Court of Appeal found such a decision to be unjust, and concluded that both statutory and case law policies required that Mr. Shivji should be able to seek costs under CCP § 998. As such, the decision includes guidance on how a party to arbitration may seek costs under CCP § 998 without prematurely offering evidence of the offer:

Rather than requiring this party to violate section 998, subdivision (b)(2) by prematurely disclosing the existence of a rejected offer in arbitration proceedings, we believe a party’s section 998 request should be deferred until after the arbitration award is made. If and when a party makes a section 998 post-award request, an AAA arbitrator is empowered to recharacterize the existing award as interim, interlocutory, or partial and proceed to resolve the section 998 request by a subsequent award.

In addition, the Court of Appeal issued the following guidance for parties facing an arbitrator refusing to consider a motion for costs under CCP § 998, instructing parties to seek a ruling from the trial court charged with confirming the arbitration award:

We have concluded that the arbitrator should have reached the merits of Client’s post-award section 998 request by recharacterizing his final decision as an interim or partial final decision. We note that when a trial court vacates an arbitration award because the arbitrator refused to hear material evidence, the court’s power to remand the matter to the same arbitrator is limited. “If the award is vacated on the grounds set forth in paragraph (4) or (5) of subdivision (a) of Section 1286.2, the court with the consent of the parties of the court proceeding may order are hearing before the original arbitrators.” (§ 1287.) This restriction should not preclude [Mr. Shivji] from obtaining a decision on the merits of his section 998 request. If the parties in this case do not consent to a rehearing by the original arbitrator, the trial court is required un Pilimai to decide the Client’s section 998 request.

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.

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