The “Conditional Dismissal” – A New Tool For Settlements In Michigan

Effective May 1, 2018, the Michigan Court Rules were amended to create the new rule MCR 2.602(C). The rule describes a procedure for entering a “conditional dismissal” of an action once a settlement is reached, but before the settlement is complete. The rule addresses the long-standing problem of what happens when parties to litigation decide to settle the action by exchanging settlement payments over time in exchange for a dismissal of the litigation; where the parties want the case to be dismissed but want the right to re-open the case if the payments are not made.  Previously, the court rules did not have a clear mechanism for re-opening a closed case; and courts have always been hesitant to stay a case indefinitely, without a dismissal, until the settlement payments are complete (a process that can, sometimes, take years).  The new rule addresses the problem by recognizing the right to enter a conditional dismissal that may be set aside if there is a default under the settlement agreement so that a consent judgment can be entered in its place.

The consent order of dismissal must: (1) be signed and approved by all of the parties; and (2) clearly state the terms for reinstatement of the case and entry of judgment.  If there is a later default under the terms of the settlement agreement, then the non-defaulting party must file an affidavit of default with the court and serve it on the opposing party.

At that point, the court can enter an order reinstating the case and enter the consent judgment, if the conditional dismissal order states that the judgment may be entered without notice and without further process. If the conditional dismissal order does not provide for immediate entry of the judgment, then the non-defaulting party must send notice of entry of the judgment to the defaulting party.  The defaulting party then has 14 days to object to the entry of the judgment.  The objection must include a verified statement asserting specific reasons why the judgment should not be entered.  If an objection meets the rule’s requirements, then the court must resolve the objection on a hearing before deciding whether to enter the judgment.

The new rule further specifies that any and all statutes of limitation are suspended during the time of the dismissal (the claim is considered to be filed on the date of the original filing of the original complaint).  Additionally, the rule provides that the parties have an affirmative duty to inform the court of any change of address occurring before the terms of the settlement agreement are satisfied (given that the parties are required to serve notices on one another, they need to know where to serve those notices).

MCR 2.602(C) provides a clear, concise, and standard procedure for dismissing a case with the specific right to reopen the case to enter a consent judgment if there is a default on the terms of a settlement agreement. This represents a new tool that should quickly become familiar to state court litigators and a standard practice for years to come.