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Lawyers’ Corner: Arbitration Award in Davis v State Farm

There are many strategic reasons why a plaintiff’s lawyer may recommend an auto accident case go to arbitration rather than a jury. But before you recommend this alternative to your no-fault clients, make sure your arbitration award will cover all of your available relief.

Arbitration can be a beneficial, cost effective way to resolve a no-fault claim. A decision by a panel of experts is sometimes more predictable and preferable to a jury verdict. But before you and your auto accident clients decide whether to sign an arbitration agreement, make sure you know that all of your remedies are covered, including case evaluation sanctions.

In Davis v State Farm Mutual Automobile Ins Co, the Michigan Court of Appeals considered how arbitration awards and case evaluation sanctions intersect. Davis had suffered an auto accident in 2011 and was seeking first-party no-fault benefits. The parties attended case evaluation, and received a recommended settlement of $30,000. Davis accepted the case evaluation award, but State Farm rejected it.

As the case proceeded toward trial, the parties agreed to submit the matter to binding arbitration instead. The arbitration agreement said that the plaintiff’s claim for “benefits, interest, costs and attorney fees” would be submitted to arbitration and that the circuit court case would be “dismissed with prejudice and without costs to either party.” The court retained jurisdiction “for issues consistent with this agreement.” The arbitration agreement also said:

“The decision of the arbitrators will represent a full and final award and extinguish Defendant’s liability for all No-Fault claims for past and present PIP benefits, and past and present No-Fault costs, interest and attorney fees. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.”

The court case was dismissed by stipulated order and the matter went before the arbitration panel. The plaintiff was awarded $37,500 in full satisfaction of no-fault benefits, interest, costs, and attorney fees. But the plaintiff’s proposed judgment was for $37,500 plus “interest, costs, fees, and Case Evaluation costs and sanctions….” Because that didn’t match the arbitration award, the court refused to enter the judgment.

Entry of Judgment Based On an Arbitration Award

The Court of Appeals reviewed the decision base on the Uniform Arbitration Act. In particular, MCL 691.1702 states:

“After a party to an arbitration proceeding receives notice of an award, the party may move the court for an order confirming the award at which time the court shall issue a confirming order unless the award is modified or corrected . . . or is vacated . . . .”

MCL 691.1705 states:

“On granting an order confirming . . . an award, the court shall enter a judgment that conforms with the order.”

The court of appeals found that the plaintiff’s proposed order did not conform to the arbitration award because it added on interest, costs, fees, and Case Evaluation costs and sanctions. The court did not have authority to enter a judgment in an amount other than that of the arbitration award. Therefore, the judgment could not be entered.

Arbitration Awards and Case Evaluation Sanctions

After determining that the proposed judgment was invalid, the court next decided whether Davis was entitled to any case evaluation sanctions. MCR 2.403(O)(1) says:

“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. However, if the opposing party has also rejected the evaluation, a party is entitled to costs only if the verdict is more favorable to that party than the case evaluation.”

Had Davis obtained a judgment or jury verdict in the amount of $37,500, this court rule would have meant he would have been entitled to case evaluation sanctions.

However, the court found that this case did not “proceed to a verdict.” MCR 2.403(O)(2) defines a verdict as:

“(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 case evaluation.”

Here, and in most cases where a matter is referred to arbitration, the court action was dismissed prior to arbitration. The court of appeals determined that the resulting judgment was not “a court’s final determination of the rights and obligations of the parties in a case.” Instead, it was the implementation of the arbitration panel’s findings. Because the court or jury had not rendered a verdict, the court held that case evaluation sanctions could not attach to the decision.

Arbitration Agreements After Davis

This decision seems to be in conflict with the language of MCR 2.403(O)(2)(c). The panel seemed to ignore the possibility for case evaluation sanctions to attach to a “judgment entered as as a result of a ruling on a motion after rejection of the case evaluation.” Plaintiff’s counsel filed just such a motion following the arbitration award. However, the court somehow determined without explanation that this judgment was not a verdict under the court rule.

For plaintiffs’ attorneys, this means that future arbitration agreements and their related stipulated dismissals will need to explicitly preserve the court’s right to award case evaluation sanctions on top of any arbitration award. Alternatively, the issue of case evaluation sanctions could be submitted to the arbitration panel to award along with interests, costs, and attorney fees. Either way, what is clear is that plaintiffs lawyers will need to take extra steps to preserve their clients’ right to full relief.

David Christensen is an auto accident attorney for Christensen Law in Southfield, Michigan. He has fought auto insurance companies for over 25 years. If your client is facing a difficult no-fault claim, contact Christensen Law today for a referral.