Mandatory Arbitration in Washington

The default policy in American jurisprudence is the so-called “American Rule,” leaving legal fees to be borne by the party incurring the fees. This may be contrasted with British jurisprudence where fees are routinely shifted from the prevailing party against the non-prevailing party. The “American” system wins praise for its avoidance of the “chilling” effect that fee-shifting would have on innovative litigation (e.g. products liability claims, civil liberties actions, etc.) and for its protection of the rights of citizens arising in cases that simply cannot be vindicated without incurring fees that (absent fee-shifting) would vitiate any remedy by exceeding the amounts at issue.

Washington State, like most sister jurisdictions, follows the American Rule with the default being that attorneys’ fees are borne by the party that incurs them unless there are public policy reasons supporting fee-shifting. Such policies in Washington State include, for example, the Insurance Fair Conduct Act, RCW 48.30 et seq., which awards attorneys’ fees and costs of litigation to a prevailing insured who proves that they have been subjected to unfair practices; Federal civil rights (§1983) claims; actions under RCW 19.86 [Washington State Consumer Protection Act]; Domestic Relations Child Support (RCW 26.21.325); Wage Claims under RCW 49.46.090, and, of most importance here, appeals from arbitration awards under the Mandatory Arbitration Rules ( MAR). The statutory basis for fee-shifting in the MAR arises in the context of longstanding Washington State policy. Since 1979, counties in Washington State have had a local option to implement mandatory arbitration pursuant to RCW 7.06. It was introduced in King County with a jurisdictional limit of $10,000 in 1980, upped to $15,000 two years later, increased to $35,000 in 1989, and later to the current level of $50,000.

If a case is filed in King County, Washington or most Washington counties, arbitration is mandatory for cases involving the award of damages under $50,000. This affords the litigants a quick, inexpensive alternative to a jury trial. The right to jury trial is, of course, preserved by the right of appeal. Appeals, however, are discouraged by the existence of a “fee-shifting” provision. If the appealing party fails to improve his or her position from the arbitration award, the appealing party must bear the other side’s litigation costs – including legal fees.

I have had the privilege to be an early advocate and supporter of Mandatory Arbitration and served as a member of the Bench-Bar Task Force on Mandatory Arbitration. In my article in the Washington State Bar News, October 1996: How Much Justice Can We Afford?: The Argument for Mandatory Arbitration, I noted that by 1989, half of all civil, nondomestic cases went to arbitration and 97% were resolved without a trial de novo in superior court. As I noted there:

Initial objectives emphasized reducing court congestion and costs. Yet society most benefits from reductions in time to disposition, reduced litigation costs and increased access to justice. Prompt resolution of disputes has incalculable benefits, not the least of which is the liberation of productive energies otherwise engaged. Reduced litigation expenses and the resultant increase in justice move us closer to the attainment of essential social goals. Institutional savings are secondary. Nonetheless, it should be noted that mandatory arbitration spares judges prehearing motions for cases quickly diverted into the arbitration track. ….Regarding civil cases resolved more than 150 days after filing … only 3.6% of those in the arbitration track went on to a trial de novo, as opposed to 6.6% of the non-arbitrated cases.”

Access to justice requires fee-shifting in the context of mandatory arbitration cases. Such cases, as in the instant matter, cannot be undertaken by counsel at all unless the promise of simple, cost-effective (economical) adjudication held forth by mandatory arbitration is fulfilled. If the party against whom judgment has been rendered in arbitration is free to appeal without consequence, the purposes of mandatory arbitration are thwarted. Once the losing party at the arbitration appeals, the parties entering arbitration with the promise of prompt and cost-effective resolution find that the MAR process has not only failed to fulfill its promise, but actually worsened their position: the case now has to be tried twice: once in arbitration and a second time at trial. Without consequences to the appealing party, incentives to enter MAR in the first instance would evaporate, cases in MAR would return to the trial docket and superior courts would be flooded with cases that could not be handled cost-effectively. Ultimately, such cases would be without remedy. A whole class of litigants would be deprived access to justice.

The architects of the MAR were well aware of this practical challenge: disincentives to appeals had to be built into the system to deter those who would use litigation costs to foist settlements upon the financially weaker party independent of considerations of merit. The principal deterrence to frivolous appeals for trials de novo in superior court is the fee-shifting of post-award fees. Additional disincentives were considered, including shifting pre-award fees and expert witness costs. This latter is a fee-shifting stratagem employed in the Insurance Fair Conduct Act.

GR [General Rule] 16 states the purpose underlying the MAR:

Purpose. The purpose of mandatory arbitration of civil actions under RCW 7.06 as implemented by the Mandatory Arbitration Rules is to provide a simplified and economical procedure for obtaining the prompt and equitable resolution of disputes involving claims of fifty thousand dollars ($50,000.00) or less. The Mandatory Arbitration Rules as supplemented by these local rules are not designed to address every question which may arise during the arbitration process, and the rules give considerable discretion to the arbitrator. The arbitrator should not hesitate to exercise that discretion. Arbitration hearings should be informal and expeditious, consistent with the purpose of the statutes and rules.

MAR 7.3 gives effect to this purpose using mandatory “shall” language respecting fee and cost-shifting:

The court shall assess costs and reasonable attorney fees against a party who appeals the award and fails to improve the party’s position on the trial de novo. The court may assess costs and reasonable attorney fees against a party who voluntarily withdraws a request for a trial de novo. “Costs” means those costs provided for by statute or court rule. Only those costs and reasonable attorney fees incurred after a request for a trial de novo is filed may be assessed under this rule.

Court decisions have been unwavering in their support of mandatory arbitration as a means of combatting congestion and delays in the courts and to discourage meritless appeals. See, e.g., Nevers v. Fireside, Inc., 133 Wn.2d 804, 815, 947 P.2d 721(1997); Wiley v. Rehak, 143 Wn.2d 339, 348, 20 P.3d 404 (2001). Hutson v. Rehrig Intern., Inc., 119 Wash. App. 332, 334, 80 P.3d 615, 616 (2003). (at 334: “The purpose of the mandatory arbitration scheme is to ease court congestion and discourage meritless claims. Perkins Coie v. Williams, 84 Wash. App. 733, 737, 929 P.2d 1215 (1997);” at FN1: “The court shall assess costs and reasonable attorney fees against a party who appeals the award and fails to improve the party’s position on the trial de novo ….” MAR 7.3.) The courts have zealously guarded against interpretations of the rules that would undermine full recovery by the prevailing party for costs and fees against those parties who initiated appeals, yet failed to improve their position. It should be noted that under the MARs (Mandatory Arbitration Rules), the prevailing party is permitted to “lower the bar” by which improvement of his or her position is measured by use of an “offer of compromise.” For example, if the arbitration award is, say, $35,000, the prevailing party may offer to compromise and accept $25,000 (or any number less than the award). If the non-prevailing party fails to accept the offer (even though less than the award(!)), the prevailing party will need only to improve its position above $25,000 in order to be entitled to its award of fees. This means that by obstinately refusing to accept the offer of compromise, the appealing party is now exposed to the risk of being made to pay substantial attorneys’ fees – often in excess of the amounts at issue. On the other hand, the prevailing party is at risk: they must do better than their offer or not only get a lesser verdict from a jury, but bear all of their own costs and expenses, substantially eliminating any meaningful recovery.

The single most important disincentive for the filing of ill-considered demands for trial de novo is the accountability that the appealing party who fails to improve his or her position has for the attorneys’ fees incurred by the prevailing party. It is, after all, wholly the responsibility of the appealing party that costs and fees were incurred post-award, to say nothing of the inconvenience to the parties and the burden to the system. The award of post-award fees to the prevailing party against the appealing party who fails to improve his or her position has two salutary impacts: it deters de novo appeals that tend to increase cost congestion and it compensates plaintiff’s counsel for the efforts undertaken, thereby enhancing access to judgment. The application of a multiplier (twice the fees actually incurred, for instance) is warranted in recognition of the risk of the undertaking, the fact that pre-award fees are not compensated, and to encourage representation of a class of litigants, which, but for fee-shifting, would often be unable to obtain counsel.

Mandatory arbitration is so important to maintaining a functioning civil justice system and the ability to obtain justice for the significant cases in the range below $50,000 that courts should seriously consider awarding attorneys’ fees with a “multiplier” of 2.0 to provide disincentives for appeals from arbitration awards. This is particularly true in cases involving insurance companies, which, as professional litigants, employ the costs and delays in the civil justice to extract settlements in the small, but signficant, case and pursue unsuccessful appeals, burdening both the injured party, their own insured, and the court system.

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