Nominal Damages When Plaintiff Proves Only an Inapplicable Royalty Theory; Federal Rule 68 Preempts Michigan’s Offer-of-Judgment Fee Shifting

I. Introduction

Oldnar Corp. v. Sanyo N. Am. Corp. is the Sixth Circuit’s second pass at a long-running dispute arising from a 2008 collaboration between Nartron Corporation (now Oldnar) and Sanyo Corporation (later subsumed within Panasonic-related entities) to develop an in-car touchscreen system to compete for General Motors business.

The case centers on a Development and Supply Agreement that, among other things, restricted each party’s use of the other’s “intellectual property” (defined broadly) and contemplated product agreements and potential licensing/royalties in certain scenarios. After Sanyo pivoted away from Nartron and ultimately won the GM contract with a redesigned solution (after a costly transition and a new partner), Nartron sued for breach of contract (principally tied to alleged misuse of Nartron’s know-how/IP) and unjust enrichment.

On remand from the prior appeal (Oldnar Corp. v. Panasonic Corp. of N. Am.), the district court found a contract breach through November 2009 but awarded only nominal damages due to the absence of a supported damages model; it also rejected unjust enrichment and denied Sanyo’s request for attorney’s fees despite Sanyo’s settlement offer. The present appeal and cross-appeal required the Sixth Circuit to address (1) whether nominal damages were proper given Nartron’s damages proof, and (2) whether Michigan’s offer-of-judgment rule could shift attorney’s fees in federal court.

II. Summary of the Opinion

The court (per curiam) affirmed. It held:

  • Damages: Nartron failed to prove compensatory damages with reasonable certainty because it offered only one measure—a 10% royalty derived from contract language that did not apply to the product ultimately sold to GM. With no alternative damages theory supported by evidence, nominal damages were appropriate.
  • Scope of review / liability: Because Nartron admitted it had no other damages methodology and would apply the same methodology to any post-November 2009 liability, the court did not need to reach further liability questions (including unjust enrichment) to affirm the nominal-damages disposition.
  • Attorney’s fees: Sanyo could not recover attorney’s fees via Michigan Court Rule 2.405 in federal court. Federal Rule of Civil Procedure 68 controlled the post-offer “costs” question, and Michigan’s fee-shifting offer-of-judgment rule was procedural (not substantive) under Erie principles and conflicted with Rule 68’s scheme.

Judge Bush dissented, concluding that the district court made legal errors regarding contract damages (including availability of royalty damages) and unjust enrichment, and that Nartron had sufficient evidence to proceed on damages.

III. Analysis

A. Precedents Cited

1. Prior appellate history and governing law

  • Oldnar Corp. v. Panasonic Corp. of N. Am.: Provided the first Sixth Circuit decision in the dispute, including contract-interpretation context (sections 9.3, 5.1, 5.2) and the remand posture. The present opinion relies on it for background and the choice-of-law point that Michigan law applies.
  • Chesnut v. United States: Supplied the standard of review for a bench trial—fresh review for legal conclusions, clear-error review for factual findings.

2. Michigan contract damages: certainty and nominal damages

  • Allen v. Mich. Bell Tel. Co.: Quoted for the requirement that damages be proven “with a reasonable degree of certainty.”
  • Barsky v. Katz and 4041-49 W. Maple Condo. Ass'n v. Countrywide Home Loans, Inc.: Cited for the proposition that absent allegation and proof of actual damages, a plaintiff may recover only nominal damages.

These cases anchor the majority’s core holding: even where breach is found, compensatory relief does not follow without a legally applicable and evidentially supported damages measure.

3. Erie / Rules Enabling Act framework for costs and attorney’s fees

  • 28 U.S.C. § 1652 (Rules of Decision Act) and Erie Railroad Co. v. Tompkins: Provide the general architecture—state substantive law applies in diversity, but federal law governs where applicable federal rules control.
  • Albright v. Christensen and Burlington N. R.R. Co. v. Woods: Used for the “direct collision” / “sufficiently broad” inquiry between a Federal Rule and state law.
  • Berk v. Choy and Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.: Provide the modern formulation: ask whether the Federal Rule “answers the question in dispute.”
  • Marek v. Chesny: Defines “costs” under Rule 68 as including attorney’s fees only when the underlying substantive law treats fees as part of costs.
  • Chambers v. NASCO, Inc., First Bank of Marietta v. Hartford Underwriters Ins. Co., Degussa Admixtures, Inc. v. Burnett, and Gen. Elec. Co. v. Latin Am. Imps., S.A.: Support the line between fee rules that embody substantive policy (more likely substantive) and general litigation-conduct-based fee mechanisms (procedural).
  • Alyeska Pipeline Service Co. v. Wilderness Society and People of Sioux County v. National Surety Co.: Invoked by Sanyo but distinguished—those authorities concern fee rules reflecting a substantial state policy or narrow statutory fee shifting, unlike Michigan’s generally applicable procedural rule.

4. The dissent’s authorities (and what they sought to establish)

  • Anderson v. Westwood Cmty. Sch. Dist. (timing of damages relative to contract period) and Corl v. Huron Castings, Inc. (expectation damages concept): Used to argue that post-2009 damages could still be recovered if the breach occurred during the agreement’s life, and that damages should put Nartron in the position it would have occupied had Sanyo complied.
  • Health Call of Detroit v. Atrium Home & Health Care Servs., Inc.: Cited to argue Michigan relaxes certainty as to amount once harm is established.
  • Decker v. Pierce and Liparoto Const., Inc. v. Gen. Shale Brick, Inc.: Used to argue the district court wrongly treated the royalty as if it were an unenforceable liquidated-damages penalty; “bad bargains” are still enforceable.
  • Lovins v. Parker, Clark v. Sweeney, and United States v. Sineneng-Smith: Used to argue the majority improperly affirmed on an unpresented theory (party-presentation principle).
  • Brown v. Marshall: Used to argue the appellate court should not supply factual findings that the district court did not make.
  • Klapp v. United Ins. Grp. Agency, Inc. (avoid surplusage) and El-Khalil v. Oakwood Healthcare, Inc. (contract formation standards): Used to support a reading of contract language (“any variants made”) and the evidentiary sufficiency of expecting a license/royalty arrangement.
  • Wright v. Genesee Cnty. and Bellevue Ventures, Inc. v. Morang-Kelly Inv., Inc.: Used to argue unjust enrichment measures benefit retained, not plaintiff’s loss.
  • Grendell v. Ohio Supreme Ct.: Cited for the dissent’s view that deciding the offer-of-judgment issue would be advisory if damages were retried.

B. Legal Reasoning

1. Why nominal damages were affirmed

The majority treated the appeal as a damages-problem, not a breach-problem. Applying Michigan’s requirement of reasonably certain damages proof (Allen v. Mich. Bell Tel. Co.), the court emphasized Nartron’s key concession: it offered “one, and only one” damages model—a 10% royalty tied to section 5.2’s presumptive royalty structure.

The court then held the model failed as a matter of contractual fit and evidentiary support:

  • Section 9.3 referenced royalties “set forth in [a] license agreement” identified in a Product Agreement; no such license agreement existed, so Nartron could not use section 9.3 as a plug-in royalty calculator.
  • Section 5.2’s 10% royalty was tied to the “sale price to a customer” of the “Parties System,” defined as the system to be sold by the parties to an OEM. On the majority’s view, the product actually sold to GM was not the jointly developed “Parties System” (and Nartron conceded its IP was not part of the final system), making the 10% measure inapposite and overcompensatory.
  • Deposition testimony about “expectations” of payment and the general business practice of success-contingent licensing did not supply a rate, a base, or a methodology tethered to the value of what was used.

Because Nartron offered no alternative damages theory—despite discovery—the court concluded any compensatory figure would be speculative and judicially invented. Michigan law allows nominal damages in that posture (Barsky v. Katz; 4041-49 W. Maple Condo. Ass'n v. Countrywide Home Loans, Inc.).

2. The court’s Erie / Rule 68 displacement analysis

Sanyo sought attorney’s fees through (a) Michigan Court Rule 2.405 (which defines “costs” to include attorney’s fees in the offer-of-judgment setting) and (b) Federal Rule of Civil Procedure 68.

The Sixth Circuit proceeded in two steps:

  1. Does Rule 68 answer the relevant question? Yes: it specifies that if the judgment finally obtained is not more favorable than the rejected offer, “the offeree must pay the costs incurred after the offer was made.” This is the “question in dispute” under Berk v. Choy and Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co..
  2. What does “costs” include? Under Marek v. Chesny, costs include attorney’s fees only where the substantive law defines fees as costs. Here, no Michigan substantive rule provided such fee shifting for breach of contract or unjust enrichment absent a contract clause or specific statute.

Michigan Court Rule 2.405 would expand recoverable items beyond Rule 68 by adding attorney’s fees as costs. The court found a conflict and held Rule 68 controls. It further held MCR 2.405 is procedural—not substantive—because it is generally applicable and keyed to litigation conduct rather than a targeted substantive policy, relying on Chambers v. NASCO, Inc. and Sixth Circuit authority including First Bank of Marietta v. Hartford Underwriters Ins. Co., Degussa Admixtures, Inc. v. Burnett, and Gen. Elec. Co. v. Latin Am. Imps., S.A.. It also distinguished Alyeska Pipeline Service Co. v. Wilderness Society (state policy caveat) and People of Sioux County v. National Surety Co. (narrow statute tied to a specific class of cases).

3. The dissent’s competing framework

The dissent’s through-line was that the district court (and, in the dissent’s view, the majority) committed category mistakes:

  • Treating the lack of a license agreement as defeating royalties, even though the alleged breach was using know-how without signing/paying under the contemplated licensing structure.
  • Treating the royalty as needing to reflect the abstract value of the know-how (akin to liquidated damages scrutiny), rather than the parties’ ex ante bargain and the expectation measure (Corl v. Huron Castings, Inc.; Liparoto Const., Inc. v. Gen. Shale Brick, Inc.).
  • Viewing “speculation” as barring recovery despite established harm, contrary to Health Call of Detroit v. Atrium Home & Health Care Servs., Inc..
  • On unjust enrichment, focusing on plaintiff damages rather than defendant benefit (Wright v. Genesee Cnty.; Bellevue Ventures, Inc. v. Morang-Kelly Inv., Inc.).

C. Impact

1. Contract damages: proof discipline and “single-theory” risk

Even though unpublished, the decision underscores a practical rule with sharp consequences: a plaintiff who proves breach but advances only one damages methodology—and that methodology is contractually inapplicable or untethered to the actual use—risks being confined to nominal damages. The court’s emphasis on Nartron’s litigation choice (offering no alternative measure after discovery) encourages damages plaintiffs to plead and support multiple, legally coherent measures (e.g., reasonable royalty based on comparable licenses, cost savings, incremental profits, or value-of-use evidence) rather than rely on a contract clause that does not match the proved facts.

2. Offer-of-judgment practice in Michigan federal courts

The fee-shifting holding has concrete litigation-management consequences: parties in Michigan federal court cannot assume MCR 2.405’s attorney-fee leverage will apply after an offer of judgment. Rule 68 may shift “costs,” but attorney’s fees ride along only if substantive law makes them “costs” (Marek v. Chesny). This reduces a common settlement-pressure tool available in Michigan state court and reinforces the need to analyze fee exposure through (i) contract clauses, (ii) targeted fee-shifting statutes, or (iii) sanction mechanisms—rather than through MCR 2.405.

3. Unjust enrichment claims when contract damages fail

Although the majority did not separately resolve unjust enrichment on the merits, the dissent highlights a recurring future battleground: whether a plaintiff who cannot prove expectation damages can nonetheless obtain restitution measured by the defendant’s benefit. Litigants should expect sharper briefing on remedy separation—contract loss versus restitutionary gain—especially when a court views the contract damages model as inapplicable or unproven.

IV. Complex Concepts Simplified

  • Nominal damages: A token amount (here, $1) awarded when a legal wrong occurred but the plaintiff did not prove actual, compensable loss with the required certainty.
  • Reasonable certainty in damages: The plaintiff must provide evidence allowing a factfinder to compute damages without guessing. Proving “some harm” is not enough if the amount is unsupported.
  • Royalty / reasonable royalty: Compensation for using intellectual property or know-how. A “reasonable royalty” often requires market or comparable-license evidence; a contractual royalty applies only within its defined trigger and scope.
  • Unjust enrichment (restitution): Not about the plaintiff’s loss; it is about the defendant’s unjust benefit retained. The measure is typically the value of the benefit conferred and inequitably kept.
  • Erie doctrine: In federal court (especially diversity cases), state substantive law governs rights and liabilities, but federal procedural rules apply. When a Federal Rule directly answers the question and conflicts with a state rule, the Federal Rule generally controls.
  • Rule 68 offer of judgment: A settlement device: if a plaintiff rejects an offer and then wins less than the offer at judgment, the plaintiff must pay certain post-offer “costs.” Attorney’s fees count only if substantive law defines fees as costs.

V. Conclusion

Oldnar Corp. v. Sanyo N. Am. Corp. delivers two salient lessons. First, proving breach without proving a legally applicable, evidence-backed damages model can yield only nominal damages under Michigan law—even when the defendant’s conduct is blameworthy. Second, in Michigan federal court, fee shifting under the state offer-of-judgment rule (MCR 2.405) does not apply where it conflicts with Federal Rule 68, and attorney’s fees are recoverable under Rule 68 only when substantive law makes fees part of “costs” (Marek v. Chesny). The dissent underscores unresolved tensions—particularly the line between contract-based royalty expectations and restitutionary recovery—but the majority’s disposition signals that damages theory selection and evidentiary development will often decide the case.