In Washington, plaintiffs may elect to engage in mandatory arbitration, which caps each plaintiff’s damages at $50,000. After arbitration, either party can request a trial de novo; however, if the requesting party does not improve its position from arbitration, it must pay the opposing party’s attorney fees.[i] The rationale here is to encourage settlement and discourage meritless appeals.
Ostensibly, it is easy to determine whether the requesting party has improved its position from arbitration—just compare the arbitration award to the judgment. But there is a caveat: If a party offers to settle after an arbitration award has been appealed but before trial de novo, that settlement offer replaces the arbitration award when determining whether the party who requested trial de novo improved his or her position.[ii]
Recently, in Nelson v. Erickson,[iii] the Washington Supreme Court addressed a complication flowing from this caveat. Plaintiff Nelson sued Defendant Erickson for personal injuries. Nelson sent the case to mandatory arbitration, and the arbitrator awarded him a total of $44,923. Of that total award, $1,522 was for attorney fees and costs. Erickson sought trial de novo. Hoping to avoid trial, Nelson offered to settle for “$26,000 plus taxable costs incurred at arbitration.” The parties went to trial and Nelson was awarded $27,167. Nelson then moved for attorney fees, arguing that Erickson had not improved his position at trial because Nelson’s award of $27,167 exceeded his prior settlement offer, which he characterized as being $26,000. The trial judge agreed and awarded Nelson over $60,000 in fees and costs.
The issue on review, as framed by the Washington Supreme Court, was whether Defendant Erickson had improved his position at trial. More specifically, should Nelson’s settlement offer be interpreted as $26,000 or as $26,000 plus the known arbitration costs? Although Nelson’s offer clearly provided for costs incurred at arbitration, the Supreme Court had previously explained in Niccum v. Enquist[iv] that parties should not reference costs in their settlement offer because costs are generally statutory and awarded by courts. Thus, Nelson argued that his offer should be calculated as only $26,000.
The Court rejected Nelson’s position and distinguished Niccum for the reason that the costs there were not yet known at the time of the offer had been made. The Court emphasized that because the arbitration costs were known at the time of Nelson’s offer, an ordinary person would understand that he was offering to settle the case for $26,000 plus the $1,522 in arbitration costs. Applying an “ordinary person” standard, the Court held that Erickson improved his position at trial and thus was not required to pay Nelson’s attorney fees for the trial de novo.
The Nelson decision clarifies that Washington courts will apply an “ordinary person” standard when interpreting settlement offers made after arbitration but before trial de novo, rather than “dissect[ing] the offer after the fact.”[v] To that end, parties are discouraged “from including costs in their offers and from making vague or confusing settlement offers.”[vi]
[i] MAR 7.3.
[ii] RCW 7.06.050(1)(b).
[iii] No. 92489-9, 2016 Wash. LEXIS 901 (WA. S. Ct. Aug. 18, 2016).
[iv] 175 Wn.2d 441, 448-51, 286 P.3d 966 (2012).
[v] No. 92489-9, 2016 Wash. LEXIS 901, at *9 (WA. S. Ct. Aug. 18, 2016).