According to publications like GQ and other fashionistas, many of the styles from the 1980s are in vogue once again. And with the Michigan Supreme Court decision to do away with case evaluation sanctions in the revised MCR 2.403, the offer of judgment rule created in 1985 may also be trending soon. As you wonder whether you still have that oversized blazer with shoulder pads somewhere deep in your closet, consider these pointers for utilizing the offer of judgment rule found in MCR 2.405.

OFFERS OF JUDGMENT: A BRIEF HISTORY

Michigan courts follow the American rule for attorney fee awards which prohibits an award of attorney fees unless a statute, court rule, or contractual provision expressly provides otherwise.¹ In 1985, the Michigan Supreme Court adopted MCR 2.405, known as the offer of judgment rule.² “The purpose of the offer of judgment rule,” the Court of Appeals has explained, “is to avoid protracted litigation and encourage settlement.”³ By adopting MCR 2.405, the Michigan Supreme Court modified the existing procedure under which only a party defending against a claim could make an offer of judgment.⁴

RISE AND FALL OF CASE EVALUATION SANCTIONS

MCR 2.403, also adopted in 1985, sets forth the framework for case evaluation in Michigan.⁵ Case evaluation is a mediation proceeding prior to trial during which parties submit and argue their positions to a panel of three independent evaluators.⁶ The panel then issues an evaluation that includes separate damage awards for each claim asserted.⁷ The parties must then accept or reject the evaluation.⁸ Before the most recent amendment to MCR 2.403 removing section O,⁹ a party that rejected an evaluation was obligated to pay the opposing party’s actual costs if the ultimate verdict was more favorable to the opposing party than the case evaluation.¹⁰ The recoverable costs included “reasonable attorney fees for services necessitated by the rejection.”¹¹

The amended MCR 2.403 took effect at the start of this year.¹² Case evaluation is now discretionary in civil actions in which the relief sought is primarily money damages or division of property.¹³ Likewise, case evaluation sanctions are no longer mandatory.¹⁴ These changes will likely make other settlement tools more prevalent, including offers of judgment.¹⁵

MCR 2.405(E): INTERPLAY BETWEEN CASE EVALUATION AND OFFERS OF JUDGMENT

Before 1997, parties could utilize offers of judgment in conjunction with case evaluation.¹⁶ At that time, MCR 2.405(E) was aimed at reconciling the cost provisions of the offer of judgment rule and the case evaluation rule.¹⁷ MCR 2.405(E) provided that if a party had rejected both a case evaluation award and an offer of judgment, the cost provisions of the rule under which the later rejection occurred would control,¹⁸ but if the same party would be entitled to costs under both rules, that party could recover costs from the date of the earlier rejection.¹⁹

The Michigan Court of Appeals later observed that this version of MCR 2.405(E) allowed parties to use the offer of judgment rule as a tactic to avoid case evaluation sanctions such that it undermined the process.²⁰ Thus, the Michigan Supreme Court amended MCR 2.405(E) in 1997 in an attempt to eliminate the potential for gamesmanship.²¹ The amendment, which remained in effect until the end of 2021, provided that costs could not be awarded under the offer of judgment rule in cases that had already been submitted to case evaluation unless the award was not unanimous such that sanctions were unavailable.²² Under the new amendment to MCR 2.405, this provision no longer applies.²³ Thus, MCR 2.405 no longer prevents courts from awarding sanctions under the offer of judgment rule if the case has already been submitted to case evaluation.

HOW OFFERS OF JUDGMENT FUNCTION

Who can make offers of judgment?

Under MCR 2.405, any party may serve an adverse party with a written offer to stipulate to the entry of a judgment in a sum certain.²⁴ Additionally, any party may make multiple offers of judgment.²⁵

Responding to an offer of judgment

The recipient of an offer of judgment can accept, reject, or make a counteroffer.²⁶ To accept, the recipient must serve the other parties with a written notice of agreement to stipulate to the entry of the judgment offered.²⁷ The recipient must then file the offer, notice of acceptance, and proof of service with the court.²⁸ Counteroffers must be made in writing but need not be filed with the court unless accepted.²⁹ Rejections can be made in writing or by simply not responding.³⁰

Timing is everything

Well, it’s not everything, but it is important. A party may make an offer of judgment until 28 days before trial.³¹ An offer of judgment may be accepted within 21 days of service.³² If an offer of judgment is not accepted within 21 days after service, it is considered rejected.³³

SANCTIONS

How are sanctions calculated?

Sanctions are calculated by comparing the adjusted verdict to the average of the offers made. The adjusted verdict “means the verdict plus interest and costs from the filing of the complaint through the date of the offer.”³⁴ When an offer and a counteroffer have been made, they are added together and divided by two to establish the average offer.³⁵ If no counteroffer is made, the single offer establishes the average.³⁶ If a party has made more than one offer of judgment, the most recent offer is used to calculate the average offer.³⁷ This system tends to encourage reasonable offers and counteroffers since there is little tactical benefit to making an unreasonably low or high offer. The party to whom the adjusted verdict is more favorable than the average offer can recover its actual costs.³⁸ Actual costs are costs and fees taxable in a civil action plus a reasonable attorney fee for services necessitated by the failure to stipulate to the entry of judgment.³⁹

The interest of justice exception

The interest of justice exception states that “[t]he court may, in the interest of justice, refuse to award an attorney fee under this rule.”⁴⁰ Awarding attorney fees under MCR 2.405 “should be the rule rather than the exception.”⁴¹ Economic disparity between the parties doesn’t warrant applying the interest of justice exception,⁴² nor does the fact that the offeree’s rejection may have been reasonable or that its position wasn’t frivolous.⁴³ The interest of justice exception requires unusual circumstances such that few situations will justify it.⁴⁴ For example, the exception may be invoked when a party makes “a de minimus offer of judgment early in a case in the hopes of tacking attorney fees to costs if successful at trial.”⁴⁵

Retainer agreements are as relevant as parachute pants

MCR 2.405(D)(5) provides that “proceedings under the offer of judgment rule do not affect a contract or relationship between a party and his or her attorney.”⁴⁶ Thus, MCR 2.405(D)(5) contemplates that an attorney is not bound to accept a fee set by the court in lieu of a fee called for by a contract between the attorney and their client.⁴⁷

THE FEDERAL RULE’S KEY DIFFERENCES

Federal Rule of Civil Procedure 68 is the counterpart to MCR 2.405.⁴⁸ Unlike MCR 2.405, FR Civ P 68 only permits a defending party to make an offer of judgment while MCR 2.405 allows any party to do so.⁴⁹ Further, FR Civ P 68 permits an offer of judgment to be made “on specified terms” while MCR 2.405 requires an offer of judgment to be made “in a sum certain.”⁵⁰ Finally, FR Civ P 68 permits an offer of judgment to be made until 14 days before trial while MCR 2.405 allows an offer of judgment to be made until 28 days before trial.⁵¹

PRACTICAL IMPLICATIONS

An offer of judgment differs from settlement in that settlement does not typically result in the entry of an enforceable public judgment.⁵² Unlike settlement, “a judgment entered pursuant to the acceptance of an offer of judgment under MCR 2.405 functions as a full and final adjudication on the merits.”⁵³ Practitioners contemplating an offer of judgment must not only be aware that an enforceable judgment will be entered upon acceptance, but must also consider that an offer of judgment will not result in execution of a written release unless negotiated separately.

CONCLUSION

The Michigan Supreme Court decision to do away with case evaluation sanctions in the revised MCR 2.403 likely means that offers of judgment are back in fashion. Like belt bags (formerly known as fanny packs), offers of judgment can be useful. Accordingly, practitioners should reacquaint themselves with the operation and nuances of MCR 2.405.