Rule 68 Preempts Michigan’s Offer-of-Judgment Fee Shifting; Unsupported Royalty Theories Yield Only Nominal Contract Damages

Introduction

Oldnar Corp. v. Sanyo N. Am. Corp. (6th Cir. May 12, 2026) is the second Sixth Circuit decision arising from a failed collaboration between Nartron Corporation (now Oldnar), a touchscreen-interface company, and Sanyo Corporation (now within Panasonic), a digital user-interface systems company. In 2008 the parties executed a “Development and Supply Agreement” (DSA) to jointly develop an in-car touchscreen that Sanyo would pitch to General Motors (GM). After an initially promising prototype, Sanyo switched away from Nartron’s proprietary microchip and completed the product with a new partner, ultimately winning GM’s contract.

The litigation centered on (1) whether Sanyo breached the DSA by using Nartron’s intellectual property/know-how (particularly under § 9.3), (2) whether Nartron could recover damages beyond nominal damages, (3) whether Nartron could recover in unjust enrichment after the DSA period, and (4) whether Sanyo—after offering to settle for $100,000—could recover attorney’s fees under Michigan’s offer-of-judgment mechanism in federal court.

Summary of the Opinion

The Sixth Circuit (per curiam) affirmed the district court on two decisive points:

  1. Damages: Even assuming contract liability at least through November 2009, Nartron failed to prove compensable damages “with a reasonable degree of certainty” because it advanced only one damages theory—a presumptive 10% royalty derived from DSA § 5.2—that the court found inapplicable to the factual and contractual posture of the case. With no alternative damages methodology supported by evidence, only nominal damages ($1) were appropriate.
  2. Attorney’s fees: Sanyo could not recover attorney’s fees via Michigan Court Rule 2.405 in federal court because it conflicts with Federal Rule of Civil Procedure 68 and is procedural (not substantive) under Erie Railroad Co. v. Tompkins. Rule 68 allows recovery of “costs” after an unaccepted offer of judgment, but attorney’s fees are recoverable only when the underlying substantive law defines fees as part of costs; Nartron’s claims (breach of contract and unjust enrichment) did not supply such a substantive fee-shifting basis.

Judge Bush dissented, arguing that royalty damages were available, that the district court made legal errors in rejecting Nartron’s theory, and that the unjust-enrichment claim required separate analysis.

Analysis

Precedents Cited

1) The prior Sixth Circuit appeal framing liability and the DSA

Oldnar Corp. v. Panasonic Corp. of N. Am., 766 F. App’x 255 (6th Cir. 2019) supplied the contractual map: § 9.3’s prohibition on using the other party’s intellectual property; § 5.1’s “Product Agreement” structure; and § 5.2’s licensing/royalty framework when GM selects a jointly developed product but Sanyo does not select Nartron as supplier. The 2026 panel relied on that earlier decision to describe the agreement’s architecture and to reinforce that Michigan law governs.

2) Standard of review after bench trial

Chesnut v. United States, 15 F.4th 436 (6th Cir. 2021) provided the familiar appellate posture: legal conclusions reviewed de novo, factual findings reviewed for clear error. Importantly, the panel avoided expanding factual disputes about post-November 2009 use because it treated Nartron’s damages failure as dispositive.

3) Michigan law on proving contract damages and nominal damages

The court grounded the nominal-damages award in Michigan doctrine:

  • Allen v. Mich. Bell Tel. Co., 232 N.W.2d 302 (Mich. Ct. App. 1975): the plaintiff bears the burden to prove damages “with a reasonable degree of certainty.”
  • Barsky v. Katz, 216 N.W. 382 (Mich. 1927): absent allegation and proof of actual damages, only nominal damages are recoverable.
  • 4041-49 W. Maple Condo. Ass’n v. Countrywide Home Loans, Inc., 768 N.W.2d 88 (Mich. Ct. App. 2009) (per curiam): reinforces the availability of nominal damages when actual damages are not proven.

4) Erie, direct collision, and Rule 68’s scope

The attorney-fee question turned on Erie and the “direct collision” framework:

  • Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938): federal courts apply state substantive law and federal procedural law.
  • Albright v. Christensen, 24 F.4th 1039 (6th Cir. 2022) (quoting Burlington N. R.R. Co. v. Woods, 480 U.S. 1 (1987)): asks whether a Federal Rule is sufficiently broad to “control the issue” and thus collide with state law.
  • Berk v. Choy, 146 S. Ct. 546 (2026), and Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010): refine the inquiry to whether the Federal Rule “answers the question in dispute.”

Applying these, the panel held that Rule 68 answers the question of what post-offer “costs” are recoverable after an unaccepted offer of judgment—leaving no room for Michigan’s broader cost/fee regime.

5) What “costs” means under Rule 68

Marek v. Chesny, 473 U.S. 1 (1985) was the key interpretive bridge: Rule 68 “costs” include all costs properly awardable under the relevant substantive authority, including attorney’s fees only when the substantive law defines them as costs (as in Marek’s construction of 42 U.S.C. § 1988). Because Nartron’s claims did not rest on any such fee-shifting statute or rule of decision, Rule 68 did not independently supply attorney’s fees.

6) Substantive vs. procedural fee shifting in federal court

The panel differentiated “substantive-policy” fee shifting from “litigation-conduct” fee shifting:

  • Chambers v. NASCO, Inc., 501 U.S. 32 (1991): recognizes that some fee shifting embodies substantive policy (e.g., prevailing-party fee statutes in defined classes of litigation).
  • First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501 (6th Cir. 2002), along with Degussa Admixtures, Inc. v. Burnett, 277 F. App’x 530 (6th Cir. 2008), and Gen. Elec. Co. v. Latin Am. Imps., S.A., 127 F. App’x 157 (6th Cir. 2005): treat broadly applicable fee shifting tied to litigation conduct—rather than merits-based substantive policy—as procedural.

The court placed Michigan Court Rule 2.405 in the “procedural” bucket because it applies across case types and operates as a settlement-pressure mechanism based on offer/rejection dynamics, rather than embodying a targeted substantive policy.

7) Authorities the panel used to underscore the Rule 68 displacement conclusion

The court cited supportive circuit authority and treatise support: Gil de Rebollo v. Miami Heat Ass’ns, Inc., 137 F.3d 56 (1st Cir. 1998); Aceves v. Allstate Ins. Co., 68 F.3d 1160 (9th Cir. 1995); and 12 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3001.2 (3d ed. 2025).

8) The court’s rejection of Sanyo’s reliance on older Supreme Court dicta/cases

The panel narrowed Sanyo’s appeal to:

  • Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975): dicta about following state fee rules in diversity only when they reflect a “substantial policy” of the state; the court held MCR 2.405 does not.
  • People of Sioux County v. National Surety Co., 276 U.S. 238 (1928): applied a Nebraska fee statute targeted at suits against insurance companies—unlike Michigan’s across-the-board procedural rule.

9) Dissent’s damages and unjust-enrichment authorities (and how they frame the disagreement)

Judge Bush’s dissent invoked Michigan contract and restitution principles to argue that Nartron’s damages should go to a factfinder:

  • Anderson v. Westwood Cmty. Sch. Dist., 212 N.W.2d 232 (Mich. Ct. App. 1973): damages can accrue after the contract ends if breach occurred during the contract period.
  • Corl v. Huron Castings, Inc., 544 N.W.2d 278 (Mich. 1996): expectancy damages aim to place plaintiff where it would have been if contract complied with.
  • Health Call of Detroit v. Atrium Home & Health Care Servs., Inc., 706 N.W.2d 843 (Mich. Ct. App. 2005) (special panel): the “certainty” requirement relaxes once harm is established.
  • Decker v. Pierce, 157 N.W. 384 (Mich. 1916) and Liparoto Const., Inc. v. Gen. Shale Brick, Inc., 772 N.W.2d 801 (Mich. Ct. App. 2009): addressed liquidated-damages policing and the enforceability of bargains even if they seem “foolish.”
  • Klapp v. United Ins. Grp. Agency, Inc., 663 N.W.2d 447 (Mich. 2003): contracts should be construed to avoid surplusage (used to support reading “any variants made” language as expanding royalty coverage).
  • El-Khalil v. Oakwood Healthcare, Inc., 934 N.W.2d 665 (Mich. 2019): cited for preponderance standard / contractual proof framing.
  • Wright v. Genesee Cnty., 934 N.W.2d 805 (Mich. 2019) and Bellevue Ventures, Inc. v. Morang-Kelly Inv., Inc., 836 N.W.2d 898 (Mich. Ct. App. 2013): restitution focuses on defendant’s benefit and inequity, not plaintiff’s damages measure.

The dissent also cited party-presentation/waiver principles—Lovins v. Parker, 712 F.3d 283 (6th Cir. 2013); United States v. Sineneng-Smith, 590 U.S. 371 (2020); and Clark v. Sweeney, 607 U.S. 7 (2025) (per curiam)—to argue the majority affirmed on a rationale Sanyo did not press.

Legal Reasoning

A. Why only nominal damages for the proven contract breach

The panel’s damages holding is less about whether Sanyo breached § 9.3 (the district court found a breach through November 2009) and more about remedial proof. Under Allen v. Mich. Bell Tel. Co. and Barsky v. Katz, Nartron needed a non-speculative, legally applicable damages model supported by evidence.

Nartron offered one model: apply § 5.2’s presumptive 10% royalty. The panel rejected this because, in its view of the DSA’s structure, the 10% royalty is tied to the sale price of the “Parties System”—a jointly developed system sold to an OEM—and the record did not support that Nartron’s intellectual property formed part of the system ultimately sold to GM. Further, § 9.3 itself contemplated royalty payments “as set forth in [a] license agreement as identified in the Product Agreement,” and no such license agreement was ever executed. With the only advanced model deemed inapplicable, the district court could not “fill the gap” with a judicially invented number; nominal damages followed.

A notable move in the per curiam opinion is its practical linkage of liability and remedy: even if Nartron had proven additional post-2009 liability (contract or unjust enrichment), Nartron represented that it had no other damages methodology beyond the same 10% approach. Thus, the panel treated damages failure as dispositive and avoided re-litigating the temporal boundary of liability.

B. Why Michigan’s MCR 2.405 attorney-fee shifting does not apply in federal court

The court framed the “question in dispute” as: after an unaccepted offer of judgment, what “costs” may the offeror recover when the final judgment is less favorable to the offeree? It held Fed. R. Civ. P. 68 answers that question, creating a direct conflict with MCR 2.405, which defines costs to include attorney’s fees.

Under Marek v. Chesny, Rule 68 incorporates attorney’s fees only if the underlying substantive law makes fees part of costs. Because Nartron’s contract and unjust-enrichment causes of action supplied no such substantive fee right (and the contract itself had no fee provision), MCR 2.405 would be doing the work of converting non-fee-shifting claims into fee-shifting ones. The panel deemed that conversion procedural (a generalized settlement device), not substantive policy, and therefore inapplicable in federal court under Erie.

Impact

1) Offer-of-judgment practice for Michigan cases in federal court

The decision reinforces a clear operational rule for litigants: in Michigan-governed disputes in federal court, MCR 2.405 cannot be used to obtain attorney’s fees via an offer-of-judgment mechanism when Rule 68 controls and the substantive claim does not define fees as costs. Practically, defendants must (a) rely on Rule 68 for post-offer taxable costs, (b) locate an independent substantive fee-shifting basis (statute/contract), or (c) negotiate fees explicitly in settlement.

2) Damages proof discipline in IP/know-how misuse within contract frameworks

The case underscores that proving breach (even of an IP-use restriction) does not automatically yield compensatory damages. Where a plaintiff anchors damages to a contractual royalty concept, it must show (i) the royalty clause actually applies to the breach scenario, and (ii) the evidentiary record supports the valuation link the clause presupposes (here, the “Parties System” sale price of a jointly developed product). If the plaintiff chooses a single theory and it fails, courts may default to nominal damages rather than construct an alternative measure.

3) Strategic lesson about pleading and proving alternative remedies

The majority’s approach makes remedy strategy outcome-determinative: a party that expects to recover for “development-stage” value (e.g., enabling a bidder to advance in a procurement process) should typically develop alternative damages models (reasonable royalty tied to the misused know-how; avoided costs; incremental value; restitutionary benefit for unjust enrichment). The dissent highlights this as an area where the record could support a factfinder, but the majority’s holding signals skepticism toward royalties that are not tightly aligned with contract-defined triggers.

Complex Concepts Simplified

  • Nominal damages: A token sum (often $1) awarded when a legal wrong is proven but the plaintiff fails to prove a concrete, compensable amount of loss with adequate certainty.
  • “Reasonable degree of certainty” (Michigan damages proof): The plaintiff must provide evidence allowing the court to estimate damages based on facts, not guesswork. Uncertainty about the amount may be tolerated once harm is shown, but a court still needs a legally valid measure grounded in the case record.
  • Rule 68 offer of judgment: A federal mechanism encouraging settlement. If the plaintiff rejects an offer and then wins less than the offer, the plaintiff must pay certain post-offer “costs.” Attorney’s fees count only if the substantive law makes them recoverable as “costs.”
  • Erie (substantive vs. procedural): In diversity (or state-law) cases, federal courts apply state substantive law but federal procedural rules. A state rule that mainly governs litigation mechanics (like broad offer-of-judgment fee shifting) is typically procedural; if it embodies a targeted policy for a class of claims, it is more likely substantive.
  • Royalty clause vs. liquidated damages clause: A royalty clause sets compensation for permitted use (often percentage-based). A liquidated damages clause pre-sets damages for breach. The dissent argued the district court improperly evaluated Nartron’s claimed royalty as if it were a penalty-like liquidated damages term; the majority instead treated the royalty as contractually inapplicable to the final product sold.
  • Unjust enrichment: A restitution doctrine focusing on the defendant’s benefit and the inequity of retaining it—not necessarily the plaintiff’s out-of-pocket loss. The dissent emphasized this distinction to argue the unjust-enrichment claim required independent analysis.

Conclusion

This Sixth Circuit opinion solidifies two practical rules for Michigan-law disputes litigated in federal court. First, Michigan Court Rule 2.405’s attorney-fee component does not apply in federal court when it collides with Federal Rule 68; absent an independent substantive fee-shifting basis, post-offer recovery will not include attorney’s fees. Second, proof of breach without a legally applicable and evidentially supported damages model yields only nominal damages, even in high-stakes commercial collaborations involving valuable know-how and downstream revenue. The dissent underscores that alternative readings of the DSA and alternative remedial frames (especially restitution) might have supported a trial on damages, but the majority’s decision makes remedial rigor—and the fit between contract language and the claimed measure—decisive.