Van Elslander v. Thomas Sebold & Assocs., Inc.

297 Mich.App. 204

823 N.W.2d 843

VAN ELSLANDER

v.THOMAS SEBOLD & ASSOCIATES, INC.

Docket No. 301822.

Court of Appeals of Michigan.

Submitted March 19, 2012, at Detroit.

Decided June 28, 2012, at 9:00 a.m.

Kolin & Associates, PLC, Farmington Hills (by Marjorie L. Kolin), for Archie A. Van Elslander.

Zausmer, Kaufman, August, Caldwell, & Tayler, PC, Farmington Hills (by Mark J. Zausmer), and Daniel S. Follis for Daniel S. and Mary Elizabeth Follis.

Before: O'CONNELL, P.J., and SAWYER and TALBOT, JJ.

TALBOT, J.

Plaintiff, Archie A. Van Elslander, appeals the award of case evaluation sanctions comprised of attorney fees and costs totaling $776,076.48. We affirm in part, reverse in part and remand.

I. FACTUAL AND PROCEDURAL HISTORY

This case initially involved claims pertaining to breach of contract, breach of warranty, negligence and silent fraud, arising from the sale of a home by defendants, Daniel and Mary Follis, to Van Elslander. As described in a previous appeal to this Court:

Unit 6 is a six-bedroom, approximately 9,000–square–foot home on the shore of Lake Michigan, in Bay Harbor. The Follises contracted with TSA to construct Unit 6, most of which occurred in 1996 and 1997, as a vacation residence and potential retirement home. In 1998, plaintiff purchased Unit 6 from the Follises for $3 million. In July 2002, powerful storms swept across Lake Michigan, and a tremendous quantity of water entered Unit 6. Plaintiff subsequently discovered that the home had extensive water damage and widespread mold. Significant portions of the home ultimately were removed and rebuilt, at great expense, and this lawsuit followed.¹

The parties engaged in a case evaluation on April 13, 2005. Van Elslander was awarded $173,500, which he rejected. During the pendency of the action, all the defendants, except for Daniel and Mary Follis, were dismissed and the first trial proceeded solely against them on Van Elslander's claim of $1.6 million in damages. A nine-day jury trial resulted in a special verdict that rejected Van Elslander's claim of silent fraud but found the Follises had breached their responsibility to repair and awarded Van Elslander $680,838.82 in damages. With costs the award to Van Elslander totaled $706,465.30. The Follises appealed, and this Court remanded for a new trial solely on the issue of whether they had breached the escrow schedule pertaining to a window well and any damages arising therefrom.

A second trial was conducted on this limited issue, resulting in a jury verdict of no cause of action in favor of the Follises. The judgment permitted the Follises to submit a motion for taxation of costs. Van Elslander filed several motions for reconsideration and appeals to this Court and the Michigan Supreme Court, which were all denied. The Follises sought case evaluation sanctions, taxation of costs and other sanctions. An evidentiary hearing was conducted after the Follises' sought reconsideration of the trial court's initial refusal to award sanctions. At the conclusion of a multi-day evidentiary hearing, the trial court awarded the Follises $86,813.98 in taxable costs, and attorney fees of $689,262.50 as sanctions pursuant to MCR 2.403(O), for a total award of $776,076.48. It is this subsequent award of sanctions that is the focus of this appeal.

II. STANDARD OF REVIEW

Our Supreme Court has delineated the applicable standard of review pertaining to the award of case evaluation sanctions, as follows:

A trial court's decision whether to grant case-evaluation sanctions under MCR 2.403(O) presents a question of law, which this Court reviews de novo. We review for an abuse of discretion a trial court's award of attorney fees and costs. An abuse of discretion occurs when the trial court's decision is outside the range of reasonable and principled outcomes.²

This Court reviews for an abuse of discretion a trial court's ruling on a motion for costs pursuant to MCR 2.625.³ “[W]hether a particular expense is taxable as a cost is a question of law[,]” which we review de novo. ⁴

III. PROPRIETY OF CASE EVALUATION SANCTIONS

Van Elslander contends that the trial court erred by awarding case evaluation sanctions premised on the unique circumstances of this case. Van Elslander rejected the case evaluation award of $173,500. The first jury trial resulted in a special verdict and award of $680,838.82 in favor of Van Elslander. The Follises appealed. This Court reversed and remanded, instructing that a new trial be conducted to address only one, limited issue. The second jury trial resulted in a no cause of action verdict in favor of the Follises. Van Elslander contests the award of case evaluation sanctions, arguing that the single issue tried on remand following the appeal to this Court was not the same or comparable to the multiple issues originally submitted for case evaluation.

It is well recognized that

Michigan follows the “American rule” with respect to the payment of attorney fees and costs. Under the American rule, attorney fees generally are not recoverable from the losing party as costs in the absence of an exception set forth in a statute or court rule expressly authorizing such an award. The American rule is codified at MCL 600.2405(6), which provides that among the items that may be taxed and awarded as costs are “[a]ny attorney fees authorized by statute or by court rule.” The American rule stands in stark contrast to what is commonly referred to as the “English rule,” whereby the losing party pays the prevailing party's costs absent an express exception. MCR 2.403(O)(6) exemplifies the American rule by expressly authorizing the recovery of attorney fees and costs as case evaluation sanctions.⁵

The underlying purpose for the exception permitting the grant of mediation sanctions is to shift or “impose the burden of litigation costs upon the party who insists upon trial by rejecting a mediation award.” ⁶ This is consistent with the intent behind requiring litigants to engage in case evaluation in an effort “to encourage settlement and deter protracted litigation.” ⁷

Because the sanctions awarded in this matter are governed by MCR 2.403(O), we follow our Supreme Court's admonition:

When called upon to interpret and apply a court rule, this Court applies the principles that govern statutory interpretation. Accordingly, this Court beginswith the language of the court rule.⁸

MCR 2.403(O)(1), the court rule that applies to a “[r]ejecting party's liability for [c]osts” following case evaluation, provides in relevant part:

(1) 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.⁹

“Actual costs” are defined within the court rule as comprising “(a) those costs taxable in any civil action, and (b) a reasonable attorney fee based on a reasonable hourly or daily rate as determined by the trial judge for services necessitated by the rejection of the case evaluation.” ¹⁰

Courts have interpreted MCR 2.403(O) to be “trial-oriented.” ¹¹ “[U]nder MCR 2.403(O), a rejecting plaintiffwho is liable for a defendant's attorney fees is only liable for those fees that accrued after the case evaluation as a consequence of defending against the rejecting plaintiff's theories of liability and damage claims.” ¹² A potential award is limited because the rejecting party is “only [ ] liable for those attorney fees directly flowing from [his or] her rejection of the case evaluation—those that accrued after the rejection and which were caused by defendant having to defend against plaintiff's theory of liability and damage claim.” ¹³ Specifically, “a causal nexus [must] be established between the services performed by the attorney and the particular party's rejection of the case evaluation.” ¹⁴

Van Elslander rejected the case evaluation necessitating the first trial. Although the outcome of the first trial was sufficiently favorable to Van Elslander to preclude an award of sanctions for rejection of the case evaluation, that holding was appealed and this Court determined error necessitating reversal of the jury's verdict and remanded the matter to the trial court to conduct a second trial on a limited issue. There can be no reasonable dispute that the outcome of the second trial, which resulted in a jury verdict of no cause of action, was more favorable to the Follises, meeting the threshold criteria of the court rule.¹⁵

Van Elslander contends that because the issues varied significantly between the two trials and the intervening appeal, the case evaluation award did not constitute a proper basis for comparison. Effectively, Van Elslander asserts that the favorable outcome he obtained at the conclusion of the first trial should preclude an award of fees and costs incurred for that proceeding. Such an outcome, however, would be contrary to and serve to “frustrate” the court rule's stated “purpose of imposing the burden of litigation costs on the party that rejects the mediation evaluation and elects to go to trial by allowing him to escape sanctions and burden defendant because of an error of law ... of the trial court.” ¹⁶ This Court has repeatedly ruled that “it is the ultimate verdict that the parties are left with after appellate review is complete that should be measured against the mediation evaluation to determine whether sanctions should be imposed on a rejecting party pursuant to MCR 2.403(O).” ¹⁷ In analyzing circumstances similar to those presented in this case, other panels of this Court have found that the “fees generated in connection with both trials were ‘necessitated by the rejection’ of the mediation evaluation because they arose after the rejection.” ¹⁸ This interpretation of the court rule has been deemed “harmonious with its purpose, which is to impose the burden of litigation costs upon the rejecting party [,]” as “[t]he cost of two trials was part of the...