The Michigan offer of judgment: the average-offer rule, and "actual costs" that include a fee

Michigan's offer-of-judgment rule does something no other common formulation does: it does not compare the verdict to the offer. It compares the verdict to the average of the offer and the counteroffer. That single design choice changes the incentives at both ends — it rewards making a reasonable counteroffer and penalises ignoring an offer entirely.

It also shifts a real number. "Actual costs" under this rule includes a reasonable attorney fee.

The five definitions that run the rule

MCR 2.405(A) does most of the work before the rule states a single obligation.

(1) "Offer" means 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. If a party has made more than one offer, the most recent offer controls for the purposes of this rule.

(2) "Counteroffer" means a written reply to an offer, served within 21 days after service of the offer, in which a party rejects an offer of the adverse party and makes his or her own offer.

(3) "Average offer" means the sum of an offer and a counteroffer, divided by two. If no counteroffer is made, the offer shall be used as the average offer.

(4) "Verdict" includes, (a) a jury verdict, (b) a judgment by the court after a nonjury trial, (c) a judgment entered as a result of a ruling on a motion after rejection of the offer of judgment, including a motion entering judgment on an arbitration award.

(5) "Adjusted verdict" means the verdict plus interest and costs from the filing of the complaint through the date of the offer.

(6) "Actual costs" means the costs and fees taxable in a civil action and a reasonable attorney fee, dating to the rejection of the prevailing party's last offer or counteroffer, for services necessitated by the failure to stipulate to the entry of judgment.

Four consequences follow directly from those definitions.

An offer is inclusive. It is "deemed to include all costs and interest then accrued," so the number you write is the whole number.

Only your last offer counts. Serving a second offer supersedes the first for this rule's purposes.

No counteroffer means the offer is the average. That is the mechanism that makes silence expensive: the comparison is then straight offer-versus-verdict, with no averaging to soften it.

"Verdict" reaches beyond trial. A judgment on a dispositive motion after rejection counts, and so does a judgment entered on an arbitration award. The rule is not confined to cases that reach a jury.

And note the asymmetry in "adjusted verdict": interest and costs are added to the verdict through the date of the offer, so the comparison is made in like terms.

Serving an offer, and answering one

MCR 2.405(B):

Until 28 days before trial, a party may serve on the adverse party a written offer to stipulate to the entry of a judgment for the whole or part of the claim, including interest and costs then accrued.

Twenty-eight days, and note "the whole or part of the claim" — a partial offer is contemplated.

MCR 2.405(C) handles the response:

(1) To accept, the adverse party, within 21 days after service of the offer, must serve on the other parties a written notice of agreement to stipulate to the entry of the judgment offered, and file the offer, the notice of acceptance, and proof of service of the notice with the court. The court shall enter a judgment according to the terms of the stipulation.

(2) An offer is rejected if the offeree (a) expressly rejects it in writing, or (b) does not accept it as provided by subrule (C)(1). A rejection does not preclude a later offer by either party.

(3) A counteroffer may be accepted or rejected in the same manner as an offer.

Twenty-one days to accept; silence is rejection. And because a counteroffer must also be served within 21 days under (A)(2), the counteroffer decision and the acceptance decision run on the same clock.

Who pays whom

MCR 2.405(D) is the operative provision, and it runs in both directions:

(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.

Read the second sentence of (2) carefully — it is the sharpest edge in the rule. An offeree who simply ignored the offer cannot recover actual costs even if it beats the average offer, unless the offer arrived inside the last 42 days before trial. Making a counteroffer is not merely tactical; it is what preserves your ability to recover under this rule at all.

The interest-of-justice exception

MCR 2.405(D)(3) gives the court a way out:

The court shall determine the actual costs incurred. The court may, in the interest of justice, refuse to award an attorney fee under this rule. Interest of justice exceptions may apply, but are not limited to: (i) cases involving offers that are token or de minimis in the context of the case; or (ii) cases involving an issue of first impression or an issue of public interest.

Two things about this. The discretion is limited to the attorney fee — not to taxable costs. And the two named examples are illustrative, not exhaustive: a token offer made only to start the fee clock is the paradigm case.

Timing, admissibility and the fee agreement

Three more provisions close out the rule.

MCR 2.405(D)(4): "Evidence of an offer is admissible only in a proceeding to determine costs."

MCR 2.405(D)(5): "Proceedings under this rule do not affect a contract or relationship between a party and his or her attorney." An award under the rule belongs to the party; it does not rewrite the retainer.

MCR 2.405(D)(6) sets the deadline to claim:

A request for costs under this subrule 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.

Twenty-eight days from judgment — or, where a post-judgment motion is pending, from the order denying it.

Finally, MCR 2.405(E): "This rule does not apply to class action cases filed under MCR 3.501."

How Michigan compares to the federal rules

The federal rule punishes a plaintiff who turns down a good offer. Michigan's punishes whichever side turns out to have been further from reality — and gives both sides a way to move their own position by counteroffering.

A short checklist

• Serve by day 28 before trial. After that the rule is unavailable.
• Write a sum certain. It is deemed to include costs and interest already accrued.
• Remember only your latest offer counts. A later offer replaces an earlier one.
• Always consider a counteroffer. Failing to make one both removes the averaging and usually bars you from recovering under (D)(2).
• Diary 21 days for acceptance or counteroffer; they share a deadline.
• Do the arithmetic properly: adjusted verdict against the average of offer and counteroffer, not against the offer.
• Avoid token offers. They are the named example of an interest-of-justice refusal.
• File the costs request within 28 days of judgment, or of the order denying a timely post-judgment motion.
• Do not use this rule in a class action.

Where these rules live

• MCR 2.403 — Case Evaluation
• MCR 2.405 — Offers to Stipulate to Entry of Judgment
• MCR 2.625 — Taxation of Costs

This page explains what the rule says; it is not legal advice, and what counts as a "reasonable attorney fee" under MCR 2.405(A)(6) is decided case by case.