Patrick D. Breeden (argued), New Orleans, LA, for Basha.

Stephen Craig Carleton (argued), Andree Michelle Francois, Simoneaux, Carleton, Dunlap & Olinde, Baton Rouge, LA, for Mitsubishi Motors Credit of America Inc.

Scott Parker Yount (argued), Darrin Louis Forte, Preston & Cowan, New Orleans, LA, for Royal Imports Inc. and MIC Property & Cas. Ins. Co.

Wayne M. Babovich (argued), Babovich, Spedale & Chauvin, Metairie, LA, for First Credit Service Inc.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before JONES and CLEMENT, Circuit Judges, and FELDMAN,* District Judge.

Joseph Basha leased a 1998 Mitsubishi Montero Sport from Royal Imports, Inc. When the assignor of the lease, Mitsubishi Motor Credit of America, Inc. (MMCA), refused to let Basha store the car in Puerto Rico, Basha stopped payment on the lease, and MMCA repossessed the car.

Basha sued MMCA, Royal, and MIC Property & Casualty Insurance Co. in Louisiana state court, asserting a variety of claims under state and federal law.1 After the lawsuit was removed to federal court, Basha joined defendant Account Receivable Technologies, Inc.2

Basha eventually accepted an offer of judgment from MMCA, Royal, and MIC pursuant to Federal Rule of Civil Procedure 68. The district court entered judgment, holding that the offer settled all of Basha's claims against the three defendants, including those for attorney's fees.3

The fourth defendant, Account Receivable, made a separate Rule 68 offer of judgment. Although Basha accepted the offer, the district court refused to enter judgment, finding that offer to be invalid for failing to quantify an amount of actual damages. We affirm the district court.

An interpretation of Rule 68 is an issue of law, and is reviewed de novo. See, e.g., Louisiana Power & Light Co. v. Kellstrom, 50 F.3d 319, 333 (5th Cir.1995). De novo review is appropriate to determine whether defendant's offer of judgment, plaintiff's acceptance or rejection of offer, and the judgment following the trial satisfied the requirements of Rule 68. See Simon v. Intercontinental Transp. (ICT) B.V., 882 F.2d 1435, 1439 (9th Cir.1989). The district court's findings regarding the factual circumstances under which Rule 68 offers and acceptances are made, however, are reviewed under the clear error standard. See, e.g., In re Liljeberg Enterprises, Inc., 304 F.3d 410, 439 (5th Cir.2002); Herrington v. County of Sonoma, 12 F.3d 901, 906 (9th Cir.1993) ("[I]ssues involving construction of Rule 68 are reviewed de novo, [while] disputed factual findings concerning the circumstances under which the offer was made are usually reviewed for clear error.").

A. MMCA's Offer of Judgment Included Attorney's Fees

Appellant contends that the district court clearly erred by finding that MMCA's offer of judgment included attorney's fees. We disagree. The offer states:

Defendant, Mitsubishi Motor Credit of America, Inc. (MMCA), offers to waive its counterclaim (in the amount of $5,669.04, along with judicial interest by contract and all allowable attorney fees, as well as all costs of expenses) associated with this action against plaintiff, Joseph Basha. In addition, Defendants MMCA, Royal Imports, Inc. d/b/a Royal Mitsubishi and MIC Property & Casualty Insurance Company offer to pay plaintiff $2,000.00.

(Emphasis added).

Courts apply general contract principles to interpret Rule 68 offers of judgment. See, e.g., Mallory v. Eyrich, 922 F.2d 1273, 1279 (6th Cir.1991); Radecki v. Amoco Oil Co., 858 F.2d 397, 400 (8th Cir.1988). Although the MMCA offer does not expressly address attorney's fees, we agree with the district court that the circumstances surrounding the offer, if not the text itself, strongly support the view that the parties intended to settle all claims, including those for attorney's fees.

For example, counsel for MMCA sent a letter to Basha's lawyer one week before the offer was accepted stating that the defendants agreed to "pay an additional $2,000 in exchange for a full settlement of this matter with prejudice against these entities and a defense and indemnification as to any remaining parties to this lawsuit." Moreover, several days after Basha accepted the offer, MMCA's counsel notified Basha by letter that the offer of judgment would "conclude this case as to our clients."4

These two letters, and Basha's active role in preparing the offer, show that MMCA's offer was a reflection of the parties' efforts to secure a settlement and dismissal of the entire claim.5 Thus, the court did not commit clear error when it found that MMCA's offer of judgment included attorney's fees.

B. Account Receivable's Offer of Judgment Was Invalid

Appellant also contends that the district court erred by finding that Account Receivable's offer of judgment was invalid. That offer of judgment states:

Judgment shall be entered in the amount of One Thousand and no/100 Dollars ($1,000.00), as against Account[] Receivable Technologies, Inc. In addition, Plaintiff's reasonable cost[s] and reasonable attorney's fees now accrued in connection with the above referenced suit, specifically incurred for any claims alleged against Account[ ] Receivable Technologies, Inc., are to be added to the Judgment as against Account Receivable Technologies, Inc. in an amount to be determined by the Court. In addition, Plaintiff Joseph Basha has alleged that he has suffered "actual damages." Accordingly, this Offer of Judgment envisions the attorneys for the parties agreeing upon reasonable compensation for Plaintiff's claimed "actual damages," and that said amount is added to this Offer of Judgment.

(Emphasis added). The court held that the offer was invalid because it failed to properly quantify damages.6

The plain purpose of Rule 68 is "to encourage settlement and avoid litigation." Marek v. Chesny, 473 U.S. 1, 7, 105 S. Ct. 3012, 87 L. Ed. 2d 1 (1985). The Rule prompts both parties to a suit to evaluate the risks and costs of litigation, and to balance them against the likelihood of success on the merits. See id. Thus, Rule 68 offers must provide "a clear baseline from which plaintiffs may evaluate the merits of their case relative to the value of the offer." Thomas v. National Football League Players Ass'n, 273 F.3d 1124, 1130 (D.C.Cir.2001) (quoting Gavoni v. Dobbs House, Inc., 164 F.3d 1071, 1076 (7th Cir.1999)).

Because the offer purported to settle all claims, yet failed to quantify damages, we agree with the district court that mutual assent did not exist between the parties. Moreover, such a vague offer of judgment did not provide Basha with a clear baseline to evaluate the risks of continued litigation. To hold otherwise would be to strip Rule 68 of its purpose. We thus affirm the district court's refusal to enter judgment against Account Receivable.7

We affirm the district court's finding that MMCA's offer of judgment included attorney's fees and its refusal to enter judgment against Account Receivable. We further find this appeal to be frivolous.8 AFFIRMED.