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April 19, 2015

COA: MCR 2.405’s offer of judgment sanctions do not include appellate fees and costs nor are judgment sanctions entitled to statutory judgment interest

In Lech v Huntmore Estates Condo Ass’n, No. 320028, the Court of Appeals concluded that a party awarded offer of judgment sanctions under MCR 2.405 is not entitled to appellate attorney fees and costs.  The Court further concluded that statutory judgment interest under MCL 600.6013 does not apply to an award of offer of judgment sanctions. 
 
After Lech filed suit, the defendant developers filed an offer of judgment for $5000. Lech effectively rejected the offer by failing to respond within 21 days. The trial court later granted summary disposition to the developers and awarded them attorney fees under MCR 2.405 because of Lech’s refusal of the offer of judgment. After two appeals, the Michigan Supreme Court reinstated the trial court’s grant of summary disposition. After several remands and appeals as to the amount of the offer of judgment sanctions, the Court of Appeals considered whether the developers were entitled to judgment interest or attorney fees that the developers incurred as a result of the appeals.
 
When a party rejects an offer of judgment and “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.” MCR 2.405(D)(1). Verdicts include judgments following jury trials, nonjury trials, or resulting from a motion after rejection of the offer of judgment. MCR 2.405(A)(4). “Actual costs” are “the costs and fees taxable in a civil action and a reasonable attorney fee for services necessitated by the failure to stipulate to the entry of judgment.” MCR 2.405(A)(6).
 
In Haliw v Sterling Hts, 471 Mich 700; 691 NW2d 753 (2005), the Michigan Supreme Court concluded that a party could not recover appellate fees and costs as case evaluation sanctions under MCR 2.403.  Here, the Court of Appeals held that there was no basis to differ from the Supreme Court’s analysis of “actual costs” under MCR 2.403 when interpreting actual costs under MCR 2.405. Both rules are stated in the second chapter of the Michigan Court Rules, which concerns trial court procedure, whereas the seventh chapter addresses appellate procedure, including appellate fees and costs.  Like MCR 2.403, nothing in MCR 2.405’s definition of verdict mentions the appellate process. Under both rules, a party must request fees and costs within 28 days of entry of the judgment, well before a party has incurred the majority of its appellate fees and costs. And both rules use the phrase “necessitated by” which requires “a casual nexus between rejection and incurred expenses.” A decision to bring an appeal does not have this necessary causal nexus.
 
Further, MCL 600.6013(1) provides that “[i]nterest is allowed on a money judgment recovered in a civil action.” A money judgment in a civil action is a judgment “that orders the payment of a sum of money, as distinguished from an order directing an act to be done or property to be restored or transferred,” and certain money awards, such as those in drug forfeiture or divorce judgments, are not a “money judgment in a civil action.” In re Forfeiture of $176,598, 465 Mich 382, 386, 388; 633 NW2d 367 (2001). The Court of Appeals concluded that a sanctions award is properly characterized as an order directing that an act be done instead of a money judgment in a civil action, as sanctions awards to collect attorney fees and costs are post-judgment proceedings.

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