Arbitration is often viewed an attractive alternative to litigation because it is designed to be quicker, less costly, and final. Even when an arbitrator’s decision was patently unfair or the arbitrator clearly didn’t follow the law, many cases have held that the parties are stuck with the decision.

However, over the past few years, there have been a few published appellate court cases where this hard and fast rule has been relaxed. Heimlich v. Shivji, recently decided, is yet another one.

Attorney Alan Heimlich sued his client, Shiraz Shivji, for unpaid fees of over $125,000. The trial court compelled the parties to arbitrate the dispute. The arbitrator decided that neither party should get any money.

Six days later, Shivji asked the arbitrator to award him costs, arguing that in effect he had prevailed in the arbitration. Shivji noted that he had previously made the attorney a $30,000 settlement offer. Heimlich didn’t even get that in the arbitration, Shivji said, so the outcome was less favorable to the attorney than to the client.

The arbitrator replied that he no longer had jurisdiction, because the original dispute had been decided, and thus could not consider the claim for costs. He said Shivji should have asked for costs before the decision was rendered. Shivji appealed.

Appellate courts typically refrain from second-guessing decisions by arbitrators. But this case, despite not appearing to involve an egregiously unfair outcome, was accepted.

“When a party has agreed to an alternative dispute resolution mechanism like arbitration and has broadly agreed to submit all issues to arbitration,” the appellate panel said, “then the party should submit all issues to arbitration,” including a request for costs such as Shivji had made.

The problem, the appellate court noted, is that the rules governing arbitrations seem unclear on how the issue of a rejected prior settlement offer should be handled.

The text of the relevant statute prohibits the parties from requesting costs based on such a settlement offer. Yet the rules used by arbitrators seem to require the parties to make such a request.

In this case, the appellate court said, it was not being asked to correct a legal error by the arbitrator, or to reopen the case so new evidence could be considered. The issue was whether the arbitrator should have heard evidence on the issue of costs and ruled on it.

He should have done so, the appellate court ruled.

If that meant changing the “final” ruling the arbitrator had already issued, the court said, he could simply declare that the “final” decision he had already rendered was in fact an interim or partial decision, and then issue a new decision.

The issue of costs should be reheard by the original arbitrator, the appellate court said, or if the parties don’t agree to that, the lower court should rule on it.

Only time will tell whether the courts will take a more hands-on approach towards arbitration awards.

By M. Laurie Murphy