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September 04, 2019 Practice Points

California Court Discusses Another Exception to Doctrine of Officio Functus

The California Supreme Court explained that the doctrine applies only after the arbitrator’s assigned duties have ended and is not so rigid as to always apply after the issuance of an award.

By Joel Levine

Many states have offer-of-settlement or offer-of-judgment rules that provide for the award of certain litigation costs or expenses to the offering party if the rejecting party does not achieve a certain level of success at trial. The requisite level to avoid the imposition of such costs can range from anything less than the offer (e.g., California) or an amount less than 75 percent of the offer (e.g., Florida). In 1997, the California legislature extended the consequences of rejecting a pretrial settlement offer to arbitrations.

Heimlich v. Shivij, 112 CV 231939 (May 30, 2019), concerned an arbitration that attorney Alan Heimlich brought against his client Shiraz Shivji for $125,000 in unpaid legal fees. Shivji made an offer under California Civil Procedure Code section 998 to settle the matter for $30,001, which Heimlich rejected. Shivji also sought a return of the fees that he had already paid. In a 2015 award, the arbitrator awarded nothing to either party and directed each to bear his own costs and fees.

On March 11, 2015, Shivji advised the arbitrator of his original 998 offer and a second one that he had made for $65,001, and asked for his arbitration costs to be added to the award. The arbitrator cited the “functus officio” doctrine and said that he no longer had jurisdiction in this matter. Shivji then filed a motion in the trial court to confirm the award and for his costs of $76,684.02. The trial court confirmed the award but refused to add costs saying it was up to the arbitrator to do so.

The Court of Appeal reversed, holding Shivji’s post-award request to the arbitrator was timely and reasoning that a 998 determination must necessarily postdate an arbitration award. The court also held that the trial court could vacate the arbitrator’s award because the arbitrator refused to hear evidence material to the controversy.

On further appeal, the California Supreme Court agreed that the allocation of costs was an issue for the arbitrator to decide and that Shivji was required to (and did) request costs from the arbitrator in the first instance. It also noted that evidence of a Section 998 offer may be presented before or after a final arbitration award. The court also rejected Heimlich’s argument that arbitrators have no powers after issuing an award. It explained that the functus officio doctrine applies only after the arbitrator’s assigned duties have ended and that the doctrine is not so rigid as to always apply after the issuance of an award—indicating that the arbitrator continues to have jurisdiction until his/her assigned duties have truly ended.

The court also cited Sections 1280-1294.2 of the California Code of Civil Procedure which vest arbitrators with continuing jurisdiction for a brief period (from 10 to 30 days) following the filing and service of a final award. The court stated that an arbitrator should decide “all” questions submitted in order to “determine the controversy,” and cited the rules of the American Arbitration Association to support its opinion.

Despite these rulings favorable to Shivji, however, the court held that the arbitrator’s denial of costs would not be vacated. It noted that given the nature of arbitration, awards may be vacated only for fraud, corruption, misconduct, an undisclosed conflict or similar issues and not for most legal errors. So, although the arbitrator’s refusal to consider Shivji’s request for costs was legally incorrect, such an error was not a basis for vacating the award. As the court stated, “[a]n arbitrator’s legal or factual error in determining which party prevailed may not be reversed.” The court also reiterated that “if an arbitrator elects not to amend a decision in order to add costs of fees . . . cases do not hold that a court may overrule that refusal.” 

Joel Levine is an experienced arbitrator and mediator in the Phoenix/Scottsdale, Arizona, area.

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