6.2Offer of Judgment

MCR 2.405 sets forth procedures applicable to offers of judgment. “The purpose of MCR 2.405 is to encourage settlement and to deter protracted litigation.” Gudewicz v Matt’s Catering, Inc, 188 Mich App 639, 643 (1991).

Although the Court of Appeals did not decide whether MCR 2.405 applies to purely equitable actions, it did state that, “at the minimum, [MCR 2.405] does apply to mixed law and equity actions in which the offer of judgment only offers monetary damages and the equitable claims are to be dismissed.” McManus v Toler, 289 Mich App 283, 290 (2010).

A.Procedure and Timing

A party may serve an offer of judgment for a sum certain on an adverse party until 28 days before trial. MCR 2.405(B). The party may accept the offer, reject it, or submit a counteroffer (which constitutes a rejection). See MCR 2.405(A)(2); MCR 2.405(C).

The adverse party may accept an offer or counteroffer by serving written notice of acceptance on the other parties and filing it and proof of service with the court within 21 days of being served with the offer or counteroffer. MCR 2.405(C)(1); MCR 2.405(C)(3).

If an offer or counteroffer is accepted, the court must “enter a judgment according to the terms of the stipulation.” MCR 2.405(C)(1); MCR 2.405(C)(3).

The adverse party may reject¹ an offer or counteroffer by:

“(a) expressly reject[ing] it in writing, or

(b) . . . not accept[ing] it as provided by [MCR 2.405(C)(1)].” MCR 2.405(C)(2)(a)-(b); MCR 2.405(3).

Costs must be ordered if an offer or counteroffer is rejected and the offeror receives a more favorable decision. See MCR 2.405(D). See also Section 6.2(B) for further discussion.

B.Costs Payable Upon Rejected Offer

“If an offer is rejected, costs are payable as follows:

(1) If the adjusted verdict is more favorable to the offeror than the average offer, the offeree must pay to the offeror the offeror’s actual costs incurred in the prosecution or defense of the action.

(2) If the adjusted verdict is more favorable to the offeree than the average offer, the offeror must pay to the offeree the offeree’s actual costs incurred in the prosecution or defense of the action. However, an offeree who has not made a counteroffer may not recover actual costs unless the offer was made less than 42 days before trial.” MCR 2.405(D)(1)-(2).² 

The court must determine the actual costs incurred. MCR 2.405(D)(3).

“A request for costs under [MCR 2.405(D)] must be filed and served within 28 days after the entry of the judgment or entry of an order denying a timely motion (i) for a new trial, (ii) to set aside the judgment, or (iii) for rehearing or reconsideration.” MCR 2.405(D)(6). “A judgment adjudicating the rights and liabilities of the particular parties, so that there is no cause of action outstanding, starts the 28-day period for requesting offer-of-judgment sanctions under MCR 2.405(D).” Kopf v Bolser, 286 Mich App 425, 433-434 (2009) (finding the defendant was not entitled to offer-of-judgment sanctions where he filed his motion more than 28 days after a judgment adjudicating the rights and liabilities of the parties was entered, even though the precise amount of taxable costs and interest had not yet been determined).

The payment of taxable costs and reasonable attorney fees is required, except “[t]he court may, in the interest of justice, refuse to award an attorney fee[.]” MCR 2.405(D)(3). Other interest of justice exceptions may apply, such as cases involving an issue of public interest. Id. Viewed in light of the purpose of MCR 2.405 to encourage settlement and deter protracted litigation, the interest of justice exception “should not be applied absent unusual circumstances.” AFP Specialties, Inc v Vereyken, 303 Mich App 497, 518-519 (2014) (quotation marks and citations omitted). Granting attorney fees under MCR 2.405(D) “should be the rule rather than the exception” in order to avoid expanding the interest of justice exception “to the point where it would render the rule ineffective.” Andreson v Progressive Marathon Ins Co, 322 Mich App 76, 94 (2017) (quotation marks and citations omitted). Whether the interests of justice exception applies must be decided on a case-by-case basis. Id.

Because they are “too common to fit within the ‘interest of justice’ exception,” factors that should not be considered when determining whether the exception applies include:

•the economic position of the parties,

•the nonfrivolousness of a party’s claim, or

•the reasonable refusal of an offer. Luidens v 63rd Dist Court, 219 Mich App 24, 34-35 (1996).

“[T]he exception may be applied when an offer is made for the purpose of gamesmanship and not a sincere effort at negotiation.” AFP Specialties, Inc, 303 Mich App at 519 (quotation marks and citations omitted).

“[A] party may not recover appellate fees and costs as actual costs under MCR 2.405” because they “are not incurred as a result of a party’s decision to reject an offer of judgment[.]” Lech v Huntmore Estates Condo Ass’n, 310 Mich App 258, 259, 263 (2015), vacated in part on other grounds 498 Mich 968 (2016).³

MCR 2.405 does not apply to class action cases filed under MCR 3.501. MCR 2.405(E).

C.Standard of Review

A trial court’s decision to award offer of judgment sanctions is reviewed for an abuse of discretion. Haliw v City of Sterling Hts (Haliw III) (On Remand), 266 Mich App 444, 450 (2005).