Heimlich v. Shivji

• Decision Date: 31 May 2017
• Docket Number: H042641
• Citation: 12 Cal.App.5th 152,218 Cal.Rptr.3d 576
• Court: California Court of Appeals Court of Appeals
• Parties: Alan HEIMLICH, Plaintiff and Respondent, v. Shiraz M. SHIVJI, Defendant and Appellant.

12 Cal.App.5th 152

218 Cal.Rptr.3d 576

Alan HEIMLICH, Plaintiff and Respondent,

v.Shiraz M. SHIVJI, Defendant and Appellant.

H042641

Court of Appeal, Sixth District, California.

Filed May 31, 2017

Ellahie & Farooqui, Javed I. Ellahie, Omair Farooqui, San Jose, for Appellant

Law Offices of Nicholas D. Heimlich, Santa Clara, Nicholas D. Heimlich, Palo Alto, for Respondent

WALSH, J.^*

I. INTRODUCTION

The issue presented by this appeal is the recoverability of costs available under Code of Civil Procedure section 998 following an American Arbitration Association ("AAA") award that denied requests by both sides for damages, costs, and attorney fees.¹

Attorney Alan Heimlich (Attorney) filed this action seeking payment of unpaid fees from his client Shiraz M. Shivji (Client). Client filed an answer and, one year later, asked for arbitration pursuant to his retainer agreement with Attorney. The trial court compelled contractual arbitration that resulted in no recovery by either side. Six days after the arbitration award, Client asked the arbitrator to award him costs under section 998 because Attorney's recovery was less favorable than a section 998 offer that Client made two months before demanding arbitration. When the arbitrator responded that he no longer had jurisdiction to take further action, Client asked the trial court to confirm the arbitration award and to award him section 998 costs as well. The court confirmed the arbitration award but, relying on Maaso v. Signer (2012) 203 Cal.App.4th 362, 136 Cal.Rptr.3d 853 (Maaso ), determined that Client failed to make a timely section 998 claim to the arbitrator and denied Client's request for section 998 costs. Client has appealed from this order after judgment.

We reject Attorney's suggestion that Client should have presented his section 998 request for costs to an arbitrator before the arbitration award was rendered, because an offer which is not accepted "cannot be given in evidence upon the trial or arbitration." (§ 998, subd. (b)(2).) Further, we find that in the course of his request to confirm the arbitration award Client established that the arbitrator had refused to hear any evidence of Attorney's rejection of Client's section 998 offer. Thus, we conclude that Client timely presented his section 998 claim to the arbitrator, the arbitrator should have reached the merits of that claim, and the arbitrator's refusal to hear evidence of the section 998 offer warranted partially vacating the arbitration award.

Therefore, we will reverse the order confirming the arbitration award and direct that an order be entered partially vacating the arbitration award to allow a determination of the section 998 request by the arbitrator or, if that avenue is not availing, by the court.

II. EVIDENCE ON MOTION

A. THE ARBITRATION AGREEMENT

In August 2003, Client retained Attorney to protect Client's intellectual property. The retainer agreement included the following arbitration provision.

"8. Arbitration . The client and our firm agree that all disputes or claims of any nature whatsoever, including but not limited to those relating to our fees or the adequacy or appropriateness of our services, shall be resolved by private and final binding arbitration before either JAMS or the American Arbitration Association in San Francisco, California in accordance with their rules—the client may choose one of these two providers. The arbitrator must decide all disputes in accordance with California law and shall have power to decide all matters, including arbitrability...." (Capitalization omitted.)

B. COMMENCEMENT OF THIS LAWSUIT

For a number of years after being retained, Attorney assisted Client with filing patent applications and forming a corporation, Giotti, Inc., to hold the patents. A dispute arose over Attorney's fees. Notwithstanding the above arbitration provision, Attorney filed a form complaint in the Santa Clara County Superior Court on September 10, 2012 seeking recovery for unpaid invoices.² The complaint alleged a breach of contract and a common count for services rendered and an open book account. Attorney prayed for damages of $125,244.59, interest on the damages, and costs of suit, but not attorney fees. Client filed a form answer to the complaint that alleged 21 affirmative defenses. Client prayed for costs of suit and reasonable attorney fees, despite the fact that the retainer agreement did not provide for the prevailing party in any dispute to recover attorney fees or costs.³

On September 18, 2013, Client sent Attorney an offer to compromise the action by allowing a judgment providing that Client pay "the amount of thirty thousand and one ($30,001.00) dollars, including all taxable costs of suit to date of acceptance," with each party to bear its own attorney fees and costs.

On November 1, 2013, the trial court denied Client's motion for summary judgment. On November 14, 2013, the court denied Attorney's motion for judgment on the pleadings, except as to affirmative defenses 7 through 12, 14, 17, 18, 20, and 21. The trial court also vacated a December 2013 trial date. On January 31, 2014, Attorney filed a first amended complaint that added two causes of action for fraud and another for declaratory relief.

C. THE ARBITRATION PROCEEDINGS

One year after Client filed his answer, on November 18, 2013, he demanded arbitration of the dispute on an AAA form entitled "Commercial Arbitration Rules."⁴ Attorney objected to Client's demand.

On April 4, 2014, in response to Attorney's objection, an AAA arbitrator decided that it was up to the trial court to determine whether Client had waived arbitration by participating in this action. On May 29, 2014, the trial court granted Client's motion to compel arbitration and stay this action pending arbitration.

In the arbitration proceedings, Client filed a 21–page statement of claims. Client alleged that Attorney had achieved approval of only one of Client's 108 patent claims. Client paid Attorney $16,867.78 between September 3, 2003 and August 27, 2004. In September 2005, Client incorporated Giotti and, between November 26, 2005 and May 22, 2009, Giotti paid Attorney $159,697.44 for his services. Client accused Attorney of unauthorized flat fee billing, double billing, unilateral fee increases, delayed billing, and inflated billing. Client alleged breaches of contract, fiduciary duty, and the duty of good faith and fair dealing, and also alleged unlawful business practices. Client requested restitution for unjust enrichment, a refund of amounts paid, punitive damages, and "all costs of suit incurred herein." There is no indication that Client specifically claimed entitlement to costs under section 998 either in his statement of claims or any other pleading preceding the arbitrator's decision.

Attorney filed an 18–page "Counterclaim" in arbitration that restated the five causes of action in his amended civil complaint and added claims for indemnification and comparative fault. Attorney sought to recover for unpaid invoices, attorney fees, "Costs of this Arbitration and the Lawsuit in Santa Clara County ... per Civil Code Section 3300, and [Attorney's] costs of the lawsuit and this arbitration per California Code of Civil Procedure Section 1032."

After hearing six days of evidence, the AAA arbitrator issued an eight-page decision on March 5, 2015. The award was titled as from a "Commercial Arbitration Tribunal." The arbitrator determined that Attorney helped Client form a corporation, Giotti, Inc., to which Client transferred his interest in four patents. After late November 2005, an attorney-client relationship was created between Attorney and Giotti. Attorney was awarded nothing on his counterclaims against Client because "[t]he legal services provided by [Attorney] from late November, 2005 through May, 2007 were performed for the benefit of Giotti, Inc. and the obligation to pay for those services rested with Giotti, Inc.," which Attorney had not named as a party in his complaint or his counterclaim.

The arbitrator awarded Client $0 on his claims against Attorney. As to arbitration expenses, "[t]he administrative fees and expenses of the [AAA] totaling $9,575.00 shall be borne as incurred and the arbitration compensation totaling $22,800.00 shall be borne as incurred. Each side will bear their own attorneys' fees and costs." (Capitalization omitted.) As to prearbitration expenses, the arbitrator ruled that, while Attorney had breached the arbitration agreement by filing this lawsuit, Client could have remedied the breach by raising the issue immediately. "Accordingly, both parties are at fault for any expenses incurred in that litigation." The award also stated, "This Award is intended to be a complete disposition of all claims and counterclaims submitted to this Arbitration. All claims not expressly granted herein are hereby[ ] denied."

Six days after the award, on March 11, 2015, Client sent an e-mail to the arbitrator stating in part, "There is one open matter that has to do with the award of costs pursuant to CCP § 998 and the procedure to follow regarding the same." "Our understanding is that the demand for an award for recovery of these costs should be submitted to the Arbitrator rather than directly to the Court. Your confirmation of this procedure will be appreciated."

The arbitrator responded by e-mail the following day. "Counsel, once I issued [m]y Final Award I no longer have jurisdiction to take any further action in this matter. As discussed in the Award, whatever may have been the costs, fees, etc. associated with the Santa Clara litigation were to be borne by the parties...."

D. MOTION SEEKING COSTS AND CONFIRMATION OF AWARD

On April 24, 2015, Client filed a motion asking the court to resume jurisdiction in the case, confirm the arbitration award, and "Grant Interest and Costs Pursuant to CCP § 998." Client's motion explained that the arbitrator had rejected his request to award costs under section 998 due to a lack of jurisdiction....