WA Supreme Court: Read Post-Arbitration Offers of Compromise Like a Normal Person
This case is a must read for anyone engaging in personal injury or contract litigation on a regular basis, especially if you find yourself in mandatory arbitration.
If you go through arbitration, a party can appeal the case (called a de novo) to the superior court for an actual trial. If you improve your position at trial, the case is done. However, if you do not, you are on the hook for fees and costs incurred from the point of de novo through trial.
The case can take one of two forms. If Plaintiff does not like the award, and de novos the case, it must get at least a penny more in damages; if defendant - a penny less. The kicker, the other side can do what is called an offer of compromise. In the typical context, Plaintiffs do not generally de novo a case, as most plaintiffs cases are taken on contingency. They do not have the money to pay for an attorney up front, let alone front the risk of potentially having fees and costs of a trial assessed against them.
What you usually see is this:
- Plaintiff receives an award at arbitration that defendant is unhappy with;
- Defendant de novos the case, requesting a superior court trial;
- Plaintiff puts forth an offer of compromise at some amount lower than the arbitration award.
By offering to settle the case for less than the arbitration award, the Plaintiff essentially resets the bar by which each side must improve their position.
In the present case, Plaintiff received an award at arbitration for $44,923, of which $1,522 was taxable fees and costs. Defendant de novo'd the case. Plaintiff made an offer of compromise of "$26,000 plus taxable costs incurred at arbitration." As we recall from literally the last sentence, those taxable costs were $1,522. This would seem the total offer of compromise was for $27,522.
At trial, the jury awarded $24,167. The judge, for reasons not described, performed an additur, increased the award by $3,000 (usually some uncontested element of damages the jury did not award contrary to law). So the total award received at the jury trial was $27,167. In case you are bad at math, $27,167 is less than $27,522. Plaintiff did not improve their position.
Plaintiff argued to the trial court that their offer of compromise was really for $26,000, and that the whole "plus taxable costs incurred at arbitration" language didn't count. Under that argument, they did improve their position. The trial court agreed and awarded fees and costs. The court of appeals did not.
In a prior case, Niccum v. Enquist, 175 Wn.2d 441, 286 P.3d 966 (2012), a slightly different situation reared its head, when the offer of compromise by Plaintiff offered to settle for a lower sum, but then stated "[Such compromise in intended to replace the arbitrator's award of $24,496.00 and replace the previous offer of compromise, with an award of $17,350.00 including costs and statutory attorneys fees." The jury awarded less than that amount. Then Plaintiff moved for fees and costs arguing fees and costs from the arbitration award should be subtracted in determining the bar by which a judgment should be judged (sorry, couldn't help myself, I love alliteration and word play).
In Niccum, the Court rejected the position. They stated the offer of compromise has to be understood by ordinary people: "an offer of compromise is the total sum of money that a party offered to accept in exchange for settling the lawsuit." In Niccum, they were offering to settle the case for $17,350, lump sum, done.
So what about the present case, where they do the opposite. They perform an offer of compromise for an amount plus fees and costs awarded at arbitration. The Court took its prior ruling and applied it. The check Defendant would have to write would not be $26,000, it would have been $27,522, the amount it would take to settle the suit based on the offer of compromise:
Thus, both parties are correct that Niccum provides some support for their position. On the one hand, Niccum explained that parties should not reference costs in their settlement offer because costs are generally statutory and awarded by courts. On the other hand, Niccum also explained that offers should be interpreted as an ordinary person would interpret them, and that we should view the offer as a whole-as "the total sum of money that a party offered to accept in exchange for settling the lawsuit." Id. at 452.
We treat this offer as an ordinary person would interpret it. The plaintiff offered to settle the case for $26,000 plus the costs incurred at arbitration. Unlike Niccum, the costs were known at the time of the offer-$1,522. An ordinary person would understand that the plaintiff was offering to settle the case for $26,000 plus $1,522. The plaintiff is essentially arguing that the defendant should have known that Niccum prevented any inclusion of costs in an offer, and thus the defendant should have known that the offer was only for $26,000. But if the plaintiff wanted to offer $26,000, he could have done so by simply offering "$26,000." He now argues that he had no right to make the offer he did, but he places responsibility for identifying that flaw on the defendant. Simply as a matter of fairness, we cannot accept that argument. If he had no right to include costs in the offer, why did he purport to include them? Either he was intentionally making a confusing offer or he negligently made a confusing offer. Regardless, we cannot reward him for making a confusing offer that he now argues was improper.
So, what does this mean for the Plaintiff bar? It would seem the Courts have sent a pretty clear message that any language as to fees and costs should be excluded. Keep it simple. As for the Defense bar, it seems the strong language against confusing terms in an offer of compromise contains additional ammunition to challenge awards of fees and costs where the offer of compromise is not clear on its face.