Michigan Supreme Court Lansing, Michigan
Chief Justice: Justices: Clifford W. Taylor Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly 

# Opinion

Maura D. Corrigan Robert P. Young, Jr. Stephen J. Markman
FILED MAY 23, 2007 DANIEL KNUE and JACQUELINE KNUE, Plaintiff-Appellees,
v No. 130377 JOAN SMITH, STEVE SMITH and CORNELIUS CASEY SMITH, also known as CASEY SMITH, Defendant-Appellants.

BEFORE THE ENTIRE BENCH TAYLOR, C.J. At issue in this case is whether th e requirement of the offer of judgment rule, MCR 2.405, to stipulate “to the entry of a judgment in a sum certain” such as to trigger the operation of the rule, a nd its sanction provisi ons, is met if the putative offer would culminate in a judgm ent, not for a sum certain but in a dismissal with prejudice and without cost s only. The trial court and Court of Appeals held that an offer in a quiet title action in which the plaintiffs offered $3,000 to defendants in return for a quitc laim deed, after which a judgment for dismissal with prejudice and without cost s would enter, was the offer of a sumcertain such as to establis h the predicate for the opera tion of the offer of judgment rule. Because we conclude this was not an offer for “the entry of a judgment of a sum certain” we reverse the judgments of th e lower courts and remand to the trial court for entry of an order denying pl aintiffs’ motion for offer of judgment sanctions.
I. FACTS AND PROCEDURAL HISTORY Plaintiffs filed an action to quiet title asserting that they had acquired title to a small strip of land through advers e possession or acquiescence. During the pendency of the lawsuit, pl aintiffs’ counsel sent defen se counsel a letter on May 16, 2003, presenting an offer for settlement that he characterized as a “stipulation of entry of judgment” pursuant to MCR 2.405. The offer was that in return for payment by plaintiffs to defendants of $3,000 the defendant s would convey the disputed land to plaintiffs by quitclaim deed and the parties would stipulate a dismissal of all claims “with prejudice a nd without costs.” Counsel for defendants replied by letter, acknowledging the offer but contesting that this qualified as an offer of judgment pursuant to MCR 2.405. The offer was not accepted and a bench trial was held. The trial court entered a judgment and order quieting title in plaintiffs’ favor. Plaintiffs subsequently filed a motion seeking actua l costs and attorney fees under the offer of judgment rule, MCR 2.405(D )(1). They asserted that the offer of settlement of May 16, 2003, qualified under th e offer of judgment rule and, as the adjusted

2verdict at the conclusion of the trial was more favorable to the plaintiffs than the offer, they were entitled to offer of judgment sanctions. 1 Defendants opposed the motion, arguing that the offer was not for a sum certain because this was an equitable action, and even if this argument was unavailing the court should decline to award sanctions under the “interest of justice” exception set forth in MCR 2.405(D)(3). 2 The trial court rejected the argument th at the offer of judgment rule did not apply to equitable actions, noting that the rule contains no distinction between cases decided in equity and those decide d at law and determin ed that $3,000 was a sum certain. The court further rejected th e claim that the de mand for a quitclaim deed was the attachment of a condition th at took the offer outside the scope of the court rule, holding rather that the offer was only in the form necessary to resolve plaintiffs’ equitable claim. Finally, the tr ial court declined to apply the interest of justice exception. Upon appeal, the Court of Appeals affirmed in a published opinion per curiam. 3 The Court first rejected the argumen t that the offer of judgment rule does

1 The case was not submitted to case evaluation pursuant to MCR 2.403. Per MCR 2.405(E), costs may not be award ed under the offer of judgment rule in a case that has been submitted to case evaluation under MCR 2.403 unless the case evaluation award was not unanimous. 2 This rule provides, “The court may, in the interest of justice, refuse to award an attorney fee under this rule.” 3 269 Mich App 217; 711 NW2d 84 (2005).

3not apply to equitable actions, distinguishing Hessel v Hessel , 168 Mich App 390; 424 NW2d 59 (1988), which had held that the rule does not apply to proposed property settlements in divorce actions, whic h are, of course, equitable. While acknowledging that, the Court opined that because $3,000 is a sum certain and the quiet title demand was akin to a dismissal, the rule of Hessel was inapplicable. Finally, the Court of Appeals concluded th at the trial court had not abused its discretion in failing to invoke th e interest of justice exception. Defendants applied to this Court for leave to appeal, and we directed the clerk to schedule oral argum ent on whether to grant th e application, asking the parties to brief (1) wheth er attorney fees and costs ma y be assessed pursuant to MCR 2.405(D) in a case involving an e quitable claim to quiet title, and (2) whether the $3,000 offer in pl aintiffs' counsel's letter was an offer of judgment under MCR 2.405(A)(1), in light of that ru le's requirement of a "sum certain" and given plaintiffs' additional demand for a quitclaim deed.
II. STANDARD OF REVIEW The proper interpretation and application of a court rule is a question of law that this Court reviews de novo. CAM Constr v Lake Edgewood Condo Ass'n, 465 Mich 549, 553; 640 NW2d 256 (2002).
III. ANALYSIS When called on to interpret and apply a court rule, this Court applies the principles that govern st atutory interpretation. Grievance Administrator v

4Underwood, 462 Mich 188, 193; 612 NW2d 116 (2000) . Accordingly, we look to the language of the court rule and in par ticular to that section which defines what an offer must be to qualify as an “offer of judgment.” MCR 2.405 provides, in relevant part: (A) Definitions. As used in this rule: (1) “Offer” means a written notifica tion 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 in clude 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. Thus, to be an “offer” th e offer must propose to stipulate the entry of a judgment in a sum certain. There is no latitude given in this rule for offers of judgment that culminate in something ot her than a “judgment for a sum certain.” That is, it is nonconforming for the offer to require a reciprocal exchange of cash for the execution of a record able real estate document culminating in a judgment of dismissal with prejudice and without co sts. For such an offer, the offer of judgment rule is simply in applicable and no considera tion of the distinctions between equity and law is required to resolve this matter. Accordingly, contrary to the holdings of the trial court and Court of Appeals, the plaintiffs’ o ffer that a quitclaim deed be provided for $3,000 and then a judgment of dismissal with prejudice a nd without costs would enter would not have culminated in a “judgment for a su m certain.” Thus, the tendered offer fell outside the scope of MCR 2.405(A)(1), and no costs and fees may be awarded under the rule.

5IV. CONCLUSION We hold that the offer of judgment ru le does not apply to lawsuits where the putative offer would not result in j udgment for a sum certain. Because the offer plaintiffs made here was nonconfor ming with the offer of judgment rule, possible sanctions under that rule are unava ilable. Thus, we reverse the contrary judgment of the Court of Appeals and the trial court order granting offer of judgment sanctions. The case is remanded to the trial court for the entry of an order denying plaintiffs’ motion fo r offer of judgment sanctions. Clifford W. Taylor Michael F. Cavanagh Maura D. Corrigan

6v S T A T E O F M I C H I G A N SUPREME COURT

DANIEL KNUE and JACQUELINE KNUE, Plaintiff-Appellees,
No. 130377 JOAN SMITH, STEVE SMITH, and CORNELIUS CASEY SMITH, also known as CASEY SMITH, Defendants-Appellants.

KELLY, J. ( concurring ). I concur in the decision to reverse th e judgments of the lower courts and remand this case to the trial court for an order denying plaintiffs’ motion for offer of judgment sanctions. Ho wever, I would hold that the offer of judgment rule, MCR 2.405, is inapplicable wh en equitable relief is sought. This Court’s recent unanimous decision in Haliw v Sterling Hts , 1 in which we discussed case evaluation sanctions under MCR 2.403, is instructive. In Haliw , after the trial court granted th e defendant’s motion for summary disposition, the defendant sought case evaluation sanctions. Haliw v Sterling Hts, 471 Mich 700, 702-703; 691 NW 2d 753 (2005). Included in this amount were the

1 471 Mich 700; 691 NW2d 753 (2005).defendant’s appellate costs and attorney fees. Id. at 703. The trial court rejected the defendant’s request, but th e Court of Appeals reversed. Id. at 703-704. This Court reversed the Court of App eals judgment and reinstated the trial court’s order noting, among other things, that Michigan follo ws the “American rule” with respect to the paymen t of attorney fees and costs. Id. at 706. Under this rule, attorney fees generally are not recov erable as costs abse nt an exception set forth in a statute or court rule e xpressly authorizing such an award. Id . at 707. Therefore, although MCR 2.403(O)(6) aut horizes recovery of “a reasonable attorney fee” and “costs,” the rule does not mention appellate attorney fees and

costs. Id. Accordingly, this Court in Haliw found that the Court of Appeals erred in concluding that, where MCR 2.403(O) di d not exclude such expenses, they are recoverable. Haliw, 471 Mich at 707. The Court of Appeals conclusion runs “contrary to the American rule governing the payment of attorney fees. . . . [The rule] permits recovery of fees and costs where expressly authorized. ” Id. (emphasis in original). The rationale in Haliw undermines the instant pl aintiffs’ contention that, because MCR 2.405 does not distinguish be tween equitable and legal claims, a court may award sanctions when equ itable relief is sought. As noted in Haliw , the American rule governing payment of atto rney fees permits rec overy of fees and costs only when expressly authorized . MCR 2.405(D) does not expressly authorize the recovery of a ttorney fees and costs in equitable cases. Therefore,

2when such fees and costs are not expressly authorized, they are not recoverable as sanctions under MCR 2.405(D). Furthermore, the intent of a court rule must be de termined from an examination of the court rule itself a nd its place within th e structure of the Michigan Court Rules as a whole. Haliw , 471 Mich at 706. Both MCR 2.405(D) and MCR 2.403(O) are located in chapter 2 of the Michigan Court Rules, which addresses matters of civil procedure. A lthough the rules are in the same chapter, the absence of any reference to equitable claims in MCR 2.405(D) is in stark contrast to the reference to equitable claims made in MCR 2.403(O). Specifically, MCR 2.403(O)(5)(b) expressly authorizes attorney fee awards in cases involving equitable claims. Although this Court forewarned litigants that MCR 2.403(O) applies if equitable relief is sought, it provi ded no such warning in MCR 2.405(D). There are also practical considerations that support the conclusion that MCR 2.405(D) is inapplicable when equ itable relief is sought. An offer made pursuant to MCR 2.405 is controlled solely by a party to the litigation. However, an award made pursuant to MCR 2.403 is controlled by a panel of three neutral persons who must unanimously agree on an award before a p revailing party may obtain costs. See MCR 2.043(D)(1), (O)(7). Hence, an offer made pursuant to MCR 2.405 can be more easily manipulated for strategic purposes than an award made pursuant to MCR 2.403. An offeree faced with a case ev aluation award in an equitable action is explicitly

3forewarned by MCR 2.403(O)(5) that sanctions are possible if the offeror prevails. Moreover, the deterrent to rejecting the offer is more justified th an in the offer of judgment setting because the award represents th ree unbiased evaluators’ unanimous opinion about the worth of the claim. MCR 2.405(D) stands in contrast. It does not forewarn that sanctions are possible where the principal nature of the dispute is equitable a nd the offer represents the opposing party’s biased opinion about the wort h of the claim. Accordingly, the absence of any reference to equitable relief in MCR 2.405 can be rationally distinguished from the explicit reference to equitable re lief in MCR 2.403(O)(5). Moreover, the conclusion that o ffer of judgment sanctions are not applicable where equitable relief is sought is supported by MCR 2.405(A)(5), which provides: “‘Adjusted verdict’ means the verdict plus in terest and costs from the filing of the complaint through the da te of the offer.” The offer of judgment rule assumes an automatic adjustment of prejudgment interest. However, in actions to quiet title, there can be no ad justed verdict b ecause the judgment consists of a decision by th e court regarding which party owns the disputed real property. For the above reasons, I would hold th at the offer of judgment rule, MCR 2.405, is inapplicable when equitable relief is sought. I would reverse the

4judgments of the trial court and the C ourt of Appeals and remand the case for entry of an order denying plaintiffs’ motion for offer of judgment sanctions. Marilyn Kelly

5v S T A T E O F M I C H I G A N SUPREME COURT

DANIEL KNUE and JACQUELINE KNUE, Plaintiff-Appellees,
No. 130377 JOAN SMITH, STEVE SMITH and CORNELIUS CASEY SMITH, also known as CASEY SMITH, Defendant-Appellants.

Y OUNG , J. ( concurring ). I concur in the result only. Because plaintiffs’ offer required a quit claim deed in addition to the transfer of $3,000, the offer could not be for a sum certain. Therefore, MCR 2.405 does not apply to this case. Robert P. Young, Jr. Elizabeth A. Weaver_______________________________ v S T A T E O F M I C H I G A N

SUPREME COURT

DANIEL KNUE and JACQUELINE KNUE, Plaintiffs-Appellees,
No. 130377 JOAN SMITH, STEVE SMITH and CONRELIUS CASEY SMITH, also known as CASEY SMITH, Defendants-Appellants.

MARKMAN, J. ( dissenting ). I would deny leave to appeal on the application. I believe that the Court of Appeals correctly held that the offer of judgment rule , MCR 2.405, may apply to cases, like this, in which the relief sought is equitable, and that the offer in dispute here constituted an offer of judgment w ithin the meaning of MCR 2.405. The language of MCR 2.405 does not differentiate between legal and equitable claims. Under MCR 2.405(D)(1), if a verdict is more favorable to the offeror than the offer, the offeree must pay the offero r’s actual costs. “Offer” is defined as “a written notifica tion to an adverse party of the offeror’s willingness to stipulate to the entry of a judgment in a sum certain.” MCR 2.405(A)(1). Here, plaintiffs notified defendants in writing th at they were willing to stipulate to theentry of a judgment, i.e., a judgment award ing plaintiffs the property, for a sum certain, i.e., $3,000. Defendants contend that plaintiffs’ offer did not constitute an offer of judgment under MCR 2.405 because it was not unconditional since plaintiffs’ offer to pay defendants $3,000 was “conditi oned” on defendants’ transferring the deed to the property to plain tiffs. I respectfully disagree. Because this is a quiet

title action, an “entry of a judgment” in plaintiffs’ favor would necessarily have required defendants to transfer the deed to the property to plaintiffs. Therefore, although plaintiffs’ offer may have been more explicit than necessary in referencing the transfer of the deed, it was ne vertheless, for all practical purposes, an unconditional offer. Moreover, the offer was for a “sum cert ain” because plaintiffs offered to pay defendants $3,000 and $3,000 constitutes a sum certain. Because plaintiffs offered to pay defendants $3,000 for the entry of a judgment in their favor, and because th ey ended up having to pay defendants $0 for the entry of a judgment in their favor, the trial court did not abuse its discretion by awarding costs to plaintiffs under MCR 2.405(D)(1).

Stephen J. Markman

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