A decision from the Sixth District Court of Appeal is worth a look. (Heimlich v. Shivji (May 31, 2017) 2017 WL 2351269). The opinion rests on the premise, recognized in at least one prominent practice guide as well, that Code of Civil Procedure section 998(b)(2) prevents a party from breathing a word about a 998 offer until after the arbitrator renders an award. Those perusing the statute have probably noticed the language, and perhaps wondered about its scope:
If the offer is not accepted prior to trial or arbitration or within 30 days after it is made, whichever occurs first, it shall be deemed withdrawn, and cannot be given in evidence upon the trial or arbitration. (Emphasis added.)
According to Heimlich, this provision prohibits alerting the arbitrator that a 998 offer has been made until after the arbitrator renders an award. As Heimlich puts it, “the best practice … would be to present evidence of a rejected section 998 offer after an arbitration award resolves the underlying dispute.” (Emphasis added.) Heimlich suggests that the arbitrator then “recharacterize” the award as interim, resolve the 998 issues and then issue a “final” award.
But as a myriad of cases demonstrate, keeping issues off of an arbitrator’s radar screen until after an award is made can lead to all kind of disasters if the award is characterized as “final” and the arbitrator refuses to do anything more. (See, e.g., Maaso v. Signer (2012) 203 Cal.App.4th 362, 369 (2012).) Maaso held that a trial court lacks the power to alter a final award to account for an arbitrator’s failure to address cost shifting under Section 998, putting the onus on the party to obtain a ruling on the 998 offer prior to entry of a final award.
Is Heimlich making too much of section 998(b)(2)? There’s actually not much case law discussing the scope of 998(b)(2). Yet there is a California Supreme Court case which addressed the meaning of the statute and seems to contradict Heimlich’s strict reading. In White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 888-89, the Court observed that the “language [in section 998(b)(2)] refers to the trial upon the liability which the offer proposed to compromise … [but] permit[s] its introduction to prove some other matter at issue.” However, White was not making that statement in the context of how 998 offers should operate in arbitration. And Maaso did not address the issue head-on, but noted without comment that counsel raised the 998 issue in general terms prior to an award being made (but then failed to obtain a ruling in time thereafter). Two unpublished decisions also appear to interpret 998(b)(2) narrowly, permitting a party to alert the arbitrator to a 998 offer prior to an award being made. (See Barany v. Andron (1st District, Div. 5, 2012) 2012 WL 1187934 at *4; see also Wells Fargo Advisors, LLC v. Fernandez (4th Dist., Div. 2, 2013) 2013 WL 527381 at *4.
We suspect that in many arbitrations, counsel raise the issue of a 998 offer at the outset of arbitration, without concern over and perhaps not even thinking about, section 998(b)(2). Heimlich suggests such disclosures are a big deal, but without comment on White. White states that the statutory prohibition is not necessarily that broad. Whatever the ultimate resolution of this tension, going forward, being aware of Heimlich and White may be a big deal too.