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Mirror, Mirror On The Wall – The Mirror Image Rule And Offers Of Judgment

In the United States, the American Rule applies when it comes to deciding whether a party is entitled to recover attorneys’ fees.  This rule generally provides that unless the contract or a statute allows recovery of attorneys’ fees, a prevailing party may not recover attorneys’ fees.  Absent a contract or law providing for recovery of attorneys’ fees, each party bears their own costs of litigation.  How does this square with offers of judgment under Federal Rule 68?

There are three exceptions to this general rule. First, the Rule 68 offer of judgment explicitly states that attorney’s fees are included in the offer.  In this case, the defendant pays attorney’s fees if the offer is accepted by the plaintiff.  Second, costs may include attorney’s fees when the relevant substantive statute or other authority defines costs to include attorney’s fees.  That is to say, unless the Rule 68 offer of judgment states otherwise, a plaintiff accepting a Rule 68 offer is entitled to attorney’s fees as costs when permitted by applicable law.  Lastly, unless stated otherwise in the offer, a plaintiff may recover attorney’s fees when the relevant statute allows such fees, even when not defined as “costs” in the statute.

In a recent decision involving a settlement offer, a court found that a plaintiff seeking to enforce a settlement failed to accept the offer of judgment by including an entitlement to accrued attorneys’ fees.  The Court held that this violated the “mirror image rule” of contract law and effectively constituted a rejection of the offer of settlement.

In Shealy v. Alabama Council on Human Relations Inc. (In re Shealy), Adv. Pro. No. 16-8037-WRS, (Bankr. M.D. Ala., May 18, 2018) the Court held that a Rule 68 offer of judgment was vague, requiring the Court to apply general contract principles to determine whether the Plaintiff validly accepted the Defendant’s offer of judgment.  The Court held that a Plaintiff’s acceptance of an offer of judgment must not violate the mirror image rule of contract law to be considered a valid acceptance.  In other words, the Court held that the offeree must not change the material terms of the offer; otherwise, the response is deemed to be a rejection and a counteroffer. “Unlike traditional settlement negotiations, in which a plaintiff may seek clarification or make a counteroffer, a plaintiff faced with a Rule 68 offer may only accept or refuse.”  Therefore, any acceptance violating the mirror image rule is a rejection of the offer of judgment.

Sarah Grace Chastain