Understanding Your Lawsuit: Offers of Judgment

In part 11 of this series, our Michigan attorneys will discuss offers of judgment and the financial implications that may come with not accepting one.

An offer of judgement is a tool to negotiate with an opposing party, which essentially compels the opposing party to negotiate a settlement price or, at a minimum, consider an offer. If a party does not accept an offer of judgment or fails to timely accept an offer of judgment, the offering party may be entitled to collect its legal fees and costs.

Michigan Court Rule 2.405 governs offers of judgment. As noted by the Michigan Court of Appeals, the purpose of MCR 2.405 is to encourage settlement between the parties and to deter protracted litigation. See Reitmeyer v Schultz Equip & Parts Co, 237 Mich App 332, 341–343 (1999).

So what is an offer of judgment? And how do you make one?

MCR 2.405(A)(1) defines an offer as “a written notification to an adverse party of the offeror’s willingness to stipulate to the entry of a judgment in a sum certain, which is deemed to include all costs and interest then accrued.” Plainly, to make an offer of judgment, you must send a writing to the other party and offer to settle the case for a certain amount of money, with no other conditions. An offer of judgment is not required to be filed with the court and must be served to the adverse party no later than 28 days prior to trial. If a party makes more than one offer, the most recent offer will control.

Once a party is served with an offer of judgment, that party has three distinct options:

Acceptance: To accept an offer of judgment, the party has 21 days from the date of service to provide the offering party with written notice of agreement to stipulate to the entry of the offered judgment. Additionally, the party must file the offer of judgment and the notice of acceptance with the court.
Rejection: A party may reject the offer of judgment by either providing written notice of rejection or failing to respond to the offer within 21 days. Importantly, MCR 2.405 does not prevent either party from making a new offer after a rejection.
Counteroffer: A party may make a counteroffer within the 21 days allotted to respond to the offer of judgment. A counteroffer serves as a rejection to the original offer, as well as a new offer to the party that first submitted the offer.

If an offer is rejected, the rejecting party may be subject to the payment of costs and fees.

The determination of costs and fees is somewhat complex, as it depends on the timing of the offer, the final amount of the verdict, and whether a counteroffer was made. In the simplest terms, if the party that rejects an offer of judgment does not do better than what the offer was at trial, the rejecting party must pay the other party’s actual costs and attorney’s fees.

While the determination of costs is dependent on many factors, the court may nonetheless decide not to award attorney’s fees under the “interest of justice” exception. However, the court must still reimburse some costs to the prevailing party.

Michigan case law expands on when the court may invoke the interest of justice exception, including:

When a party participates in gamesmanship instead of a sincere offer to negotiate and settle the case;
When there is an issue of public interest or unsettled law; and
When there exists misconduct by the party that is now entitled to fees.

Importantly, the differing financial positions between the parties is not included in the interest of justice exception.

Offers of judgment can be a pivotal point in your case when deciding whether to accept or reject an offer, as well as considering the financial implications of that decision. If you have been sued or are seeking to expedite the litigation and settlement process, contact Grewal Law PLLC online to schedule a free consultation with a Michigan attorney.