Are Case Evaluation Sanctions Gone Baby, Gone?

Prior to the Jan. 1, 2022 amendment to the Michigan Court Rules, a party to a lawsuit who accepted a case evaluation award could hit a proverbial “home run” and have its actual costs paid by an opposing party.

This was not automatic, however. If a party rejected a case evaluation award, it could avoid sanctions by obtaining a more favorable verdict at trial. 

Specifically, MCR 2.403(O)(1) previously provided that  if “a party has rejected an evaluation and the action proceeds to verdict, that party must pay the opposing party's actual costs unless the verdict is more favorable to the rejecting party than the case evaluation.”  Actual costs included taxable costs and a reasonable attorney fee for work performed after the rejection of the case evaluation award.

The rule forced parties to a lawsuit to seriously consider the impact of failing to accept an award. But that changed when the Michigan Supreme Court amended MCR 2.403, effective Jan. 1, 2022. Since that time, questions have arisen regarding the application of the court rules to cases that pre-dated the amendment.  To further muddy the waters, two recent appellate cases appear to provide conflicting decisions.

On Aug. 10, the Michigan Court of Appeals reversed a trial court’s case evaluation sanctions and vacated the court’s orders awarding case evaluation sanctions in the case of R.A.D. Construction v Davis.

In this case, the parties attended case evaluation in January 2021 – about one year prior to the effective date of the amended court rules. RAD rejected the award on Feb. 9, 2021, and the parties, Chase Bank, Integrity and Boyd, accepted. The parties would then go on to a bench trial over one year later in March 2022 during which RAD failed to obtain a more favorable verdict.

While not clear in the opinion, it appears that the trial court awarded case evaluation sanctions against RAD because the parties engaged in case evaluation before the Supreme Court amended MCR 2.403.

The Michigan Court of Appeals, however, reversed the sanctions award. According to the appellate court, the timing of the bench trial was paramount. Specifically, the ruling provided:

The amendments became effective January 1, 2022. MCR 1.102 requires applying the court rules to all pending cases. Amended court rules apply to pending actions unless there is a reason to apply the old rules. We find no reason to apply the old rule in this case.

Ultimately, the appellate court held that the trial court had no authority to sanction RAD for a trial occurring after Jan. 1, 2022, effectively turning that apparent home run into a flyout.

Yet, another question remains – was RAD wrongly decided?  A decision from the Court of Appeals two weeks later appears to think so.

On Aug. 24, the Michigan Court of Appeals arrived at a different conclusion in Conifer Holdings v Innovative Network Solution. The appellate court provided that a trial court is required to undertake an interest-of-justice analysis under MCR 1.102 in deciding whether to apply a pre-amendment rule. 

Similar to RAD, the parties in Conifer attended case evaluation prior to the Jan. 1, 2022 amendment; specifically, on Nov. 4, 2021. Plaintiff accepted, and defendant rejected the case evaluation award. Thereafter, a bench trial was conducted on April 1, 2022. Because the verdict was not more favorable to the defendant than the case evaluation award, plaintiff moved for case evaluation sanctions pursuant to the former MCR 2.403(O).  The trial court denied the motion pursuant to MCR 2.403(L) by citing MCR 1.102, which provides:

These rules take effect on March 1, 1985. They govern all proceedings in actions brought on or after that date, and all further proceedings in actions then pending. A court may permit a pending action to proceed under the former rules if it finds that the application of these rules to that action would not be feasible or would work injustice.

The appellate court noted that the general rule is to apply newly adopted or amended court rules to pending actions unless there is a reason to continue applying the old rules.  However, it also provided that there is no “bright-line rule” in determining whether an amended or prior version of a court rule applies in a case and that a court must look more closely at the particular circumstances in the case and the purpose behind the amendment. 

While the trial court did not offer reasons for denying plaintiff’s motion for case evaluation sanctions, the appellate court provided that “it does not appear that it considered MCR 1.102 at all” and that “a decision under MCR 1.102 requires an individual determination in this (and every case) whether such ‘injustice’ would result from the application of the ‘amended’ rule.”

Ultimately, the appellate court held that the trial court’s limited decision provided no indication that it recognized its discretion to consider whether applying the amended rule to deny sanctions to plaintiff would result in an injustice under the circumstances. As a result, it remanded the matter back to the trial court for additional proceedings.

The RAD court’s failure to undertake the “interest of justice” analysis is certainly at odds with the holding in Conifer. As further developments happen in the appellate courts regarding this issue, the proverbial “home run” is a ball suspended in the outfield air. Will it go over the wall? Or lazily drop into the outfielder’s glove? Plunkett Cooney will keep you apprised of the developments on this issue.

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