If you never got the Niccum memo, pay heed to the
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
- 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
- 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
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
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.
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.
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.
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