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November, 2016
If you never got the Niccum memo, pay heed to the sequel
by Andrew Bergh

Four years ago the Washington Supreme Court decided Niccum v. Enquist, 175 Wn.2d 441 (2012).  In that case, the defendant requested a trial de novo following an arbitration under the mandatory arbitration rules (MAR), and the plaintiff thereafter served an offer to compromise for a given amount “including costs and statutory attorney fees.”  By a slim 5-4 majority, the justices held, among other things, that a party has no legal right to include costs in an offer of compromise – and that an offer of compromise purporting to include them therefore doesn’t necessarily do so. 

Notwithstanding Niccum, plaintiffs in subsequent MAR cases where a trial de novo was requested by the defense have continued to serve offers of compromise that make reference to statutory costs.  In a case decided two months ago – this time by a unanimous 9-0 margin – our high court made it plain as day that such offers are to be discouraged, in large part because they inject confusion into the whole de novo process. 

Like so many MAR cases, Nelson v. Erickson, __ Wn.2d. __ (2016), arose from a car accident.  Before discussing any facts, however, let’s revisit two of the basic principles in MAR cases.  First, under MAR 7.3, if a party requests trial de novo after mandatory arbitration and doesn’t improve his position at trial, the party must pay the other side’s attorney fees.  Second, under RCW 7.06.050(1)(b), if a party offers to settle before trial de novo, this settlement offer replaces the arbitration award for purposes of determining whether the party requesting trial de novo improved his position. 

After being injured in a two-car accident on an unknown date, Jess Nelson later sued the other driver, Michael Erickson, for damages in King County Superior Court.  After opting for mandatory arbitration, Nelson was awarded $44,923 by the arbitrator.  Notably, this amount included $1,522 for statutory costs and attorney fees, which Nelson had apparently documented in his MAR pleadings.  Erickson then requested trial de novo. 

Thereafter, in a good faith effort to avoid trial, Nelson specifically offered to settle for “$26,000 plus taxable costs incurred at arbitration.”  Erickson never responded, so the parties went to trial.  After the jury awarded $24,167 to the plaintiff, the trial court granted his motion for additur to take future noneconomic damages into account – so thanks to the additional $3,000 awarded by the trial court, the total award was $27,167. 

This is where the relatively trivial amount of  $355 came into play. 

According to Nelson, even though his offer to compromise had referenced his “taxable costs incurred at arbitration,” the actual amount of his offer was only $26,000.  Since the trial award (i.e., $27,167) was higher than that, Nelson argued the defense had failed to improve its position – and that he was therefore entitled to his attorney fees under MAR 7.3. 

Erickson’s comeback?  That the offer to compromise included the known arbitration costs of $1,522, thereby increasing the settlement offer to $27,522, which in turn meant the defense had improved its position because the trial award of $27,167 was $355 lower than that.  The trial court instead sided with Nelson, however, awarding $58,908 in attorney fees and another $4,488 in costs. 

But this proved to be Nelson’s last hurrah. 

In an unpublished opinion, the Court of Appeals agreed with Erickson that he wasn’t liable for Nelson’s attorney fees under MAR 7.3, and vacated the prior award.  Thereafter, our state Supreme Court granted the plaintiff’s petition for review. 

The high court’s unanimous decision was written by Justice Susan Owens, who had sided with the majority in Niccum v. Enquist.  Although other published cases have discussed the propriety of attorney fees under MAR 7.3, her succinct, nine-page opinion exclusively relied on Niccum

After reciting the basic facts, the Nelson court summarized the issue in very simple terms: Did the defendant improve his position at trial?  This, in turn, triggered a separate issue relating to whether Nelson’s offer to compromise – “$26,000 plus taxable costs at arbitration” – should be interpreted.as only $26,000 as contended by the plaintiff, or as $26,000 plus the known arbitration costs of $1,522 as contended by the defense? 

To have the proper factual background, it’s necessary to understand what happened in Niccum. 

Niccum was likewise an MAR case arising from a car accident.  Here is a chronology of the events, as recited in Nelson, that occurred after the plaintiff placed his case into mandatory arbitration: 

  • The arbitrator awards $24,496 in damages to the plaintiff.  His potentially recoverable costs are not then known.
  • The defense requests trial de novo.
  • The plaintiff offers to compromise for $22,000 – but the offer is promptly rejected by the defense.
  • The plaintiff serves a second offer to compromise, this time for “$17,350.00 including costs and statutory attorney fees” (emphasis original).  His potentially recoverable costs still are not yet known.
  • The defense also rejects the second offer to settle, so the parties go to trial.
  • The jury awards damages of $16,650, and the plaintiff then calculates his statutory costs and fees to be $1,016.28.
  • Even though the jury award is less than the monetary amount of his second offer to compromise, the plaintiff moves for an award of attorney fees under MAR 7.3.  His reasoning?  That his offer to compromise should be reduced by the amount of his statutory costs and fees, thereby lowering the determinative number to $16,333.72 – i.e., $267.28 less than the jury award – and that he was therefore entitled to his attorney fees because the defense had failed to improve its position on trial de novo.
  • Siding with the plaintiff, the trial court awards $15,640.00 in reasonable attorney fees, as well as $1,016.28 in costs and $1,461.00 in expert witness expenses.
  • The Court of Appeals affirms in a published opinion (152 Wn. App. 496 (2009)).

At the end of the day, as our high court noted in Nelson, the Niccum majority held that under a “straightforward application of the statutory language” in RCW 7.06.050(1)(b), the defense had improved its position – and that the Court of Appeals had therefore erred by concluding plaintiff was entitled to attorney fees under MAR 7.3. 

As our high court also stated in Nelson, the Niccum majority explained how MAR 7.3 was “meant to be understood by ordinary people” – and that an ordinary person would consider the “amount” of an offer to compromise to be “the total sum of money that a party offered to accept in exchange for settling the lawsuit.”  Consequently, since the plaintiff in Niccum had offered to accept $17,350 – an amount higher than that awarded by the jury – there was no entitlement to attorney fees. 

As was further noted in Nelson, the Niccum majority also addressed the appropriateness of including costs in an offer of compromise.  The short answer?  Don’t do it.  This is so, said the Niccum majority, because there is no judgment – and therefore no “prevailing party” for purposes of the costs statute (RCW 4.84.010) – when a party appeals an arbitration award under the MAR. 

Turning to the facts at hand, the Nelson court observed that the plaintiff had offered to settle the case for $26,000 plus the costs incurred at arbitration.  Since the costs were then known to be $1,522, said the justices, an ordinary person would have understood that the plaintiff was then willing to settle his claim for $27,522.  The Nelson court further elaborated: 

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. 

Just warming up, the Nelson court also observed how confusing offers thwart the purpose of the MAR to encourage settlement and discourage meritless appeals. 

When settlement offers are uncertain, it stymies the system.  Not only is it more difficult for parties to figure out whether to settle, it will likely increase litigation after the fact, as the parties must then litigate the meaning of vague offers. 

Finally, in unequivocal terms, the justices in Nelson emphasized that “[p]ursuant to Niccum, we discourage parties from including costs in their offers [to compromise] and from making vague or confusing settlement offers.” 

We hold parties to the total settlement amount in their offer, and we do not dissect the offer after the fact.  This reasoning and result is the most faithful to Niccum, MAR 7.3, and common sense. 

So there you have it.  If you arbitrate a case for a client and receive a favorable award but the defense then requests trial de novo, by all means consider whether an offer to compromise should be made.  If you do so, however, keep it clean and simple and avoid any reference to statutory costs and/or attorney fees.  If you do want to recover your estimated costs, then all you need do is increase your settlement offer accordingly. 

In sum, don’t serve any offer to compromise in any MAR case that is either vague or confusing.  As Niccum and Nelson both demonstrate, the amounts of offers to compromise and jury awards are sometimes very close, and you don’t want your client’s entitlement to attorney fees to hinge on whether your statutory costs either do or don’t come into play.

Andrew Bergh, WSTLA EAGLE member, former prosecutor and insurance defense attorney, now limits his practice to plaintiff's personal injury cases, including professional liability and insurance bad faith.