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The Strategic Use of Offers of Judgment

(January 19, 2017) We previously discussed ways to recover fees in litigation through contract or statutory provisions. But what if you don’t have a contract or statute allowing you to recover your fees from the other party? The Michigan Court Rules provide another avenue for a party to potentially recover fees from the other side: the offer of judgment. And although an offer of judgment involves risk, used strategically, they can provide an avenue to recover substantial fees from the opposing party.

First, a brief explanation of the offer of judgment rule – Michigan Court Rule (MCR) 2.405. Under that rule, until 28 days before trial, a party may serve on the adverse party a written offer to stipulate to the entry of a judgment in a certain amount.  Of course, if you make an offer and the other side accepts it, the case is done and an actual judgment may enter in the amount agreed upon.  But it is when the offer is rejected that the opportunity to recover fees kicks in. Essentially, if the verdict is more favorable to the party that made the offer, then that party gets to recover fees from the other side. Conversely, if the verdict is more favorable to the party who rejected the offer, then that party gets to recover fees. Utilizing an offer of judgment involves an analysis of numerous factors, including: (1) the strength of your case; (2) the strength of the other side’s case; (3) the amount at stake; (4) the amount to offer; and (5) the cost of obtaining a verdict.

If used in the right circumstances, gambling with an offer of judgment can pay off big time. For example, we recently represented a client who was sued regarding a health-insurance plan.  We served a $5,000 offer of judgment on the plaintiff, which the plaintiff rejected.  After discovery concluded, we successfully obtained summary disposition in favor of the client (a “verdict” for purposes of the offer of judgment rule), and then moved for an award of $60,000 in fees under the offer of judgment rule. We were then able to use that leverage to obtain both a recovery of fees as well as an agreement from the other side to not pursue an appeal.

As another example, in 2016, we represented a company that was sued by a former employee claiming $1.2 million in unpaid sales commissions.  A couple months ahead of trial, and knowing that the expense of the trial would be substantial, we served a $100,000 offer of judgment on the plaintiff, which the plaintiff rejected.  At trial, the jury found in favor of our client and awarded the plaintiff nothing in damages. We thereafter filed a motion asking the business court to award our client fees as a result of the plaintiff’s rejection of the offer of judgment. The business court did so, granting over $121,000 in fees to our client.

While an offer of judgment won’t make sense in every case, it is a tool that should at least be evaluated as part of any litigation.  Used strategically and in the right circumstances, it can shift risk from one side to the other and, if successful, result in a recovery of substantial fees from the other side.