Teachers' Manual to Green, Nesson & Murray, Problems, Cases and Materials on Evidence, 3rd Edition.

Go to: Teacher's Manual Introduction Chapter 2 Contents Next Section

B. Settlement Offers and Payment of Medical Expenses (144)

The federal rules exclude not only compromises and offers to compromise, but also accompanying conduct and statements when offered to prove liability. This rule represents a departure from the traditional view that statements of fact made during compromise negotiations are admissible unless phrased in a formalistic, hypothetical fashion. See. e.g.. State v. Stevens 248 Minn. 309, 80 N.W.2d 22 (1965).

The same protection that is afforded statements of fact during compromised negotiations is denied to statements made in connection with the furnishing of medical expenses (Rule 409). The Advisory Committee's Note to Rule 409 says that the difference in treatment arises from fundamental differences in nature. Communication is essential if compromises are to be effected, and consequently broad protection of statements is needed. This is not so in cases of payments or offers or promises to pay medical expenses, where factual statements may be expected to be incidental in nature." Most students find this explanation unconvincing.

The rule excluding settlement statements and offers regularly raises a number of troubling issues. One is where the court should draw the line between admissible evidence of business negotiations about a dispute and inadmissible evidence of compromise negotiations. FRE 408 offers little guidance in this regard. The operative language requires only that there be a "claim . . . disputed as to either validity or amount." One court has suggested that the appropriate test is whether "the discussions had . . . crystallized to the point of threatened litigation. " Big O Tire Dealers. Inc. v. Goodyear Tire & Rubber Co. 561 F.2d 1365, 1373 (10th Cir. 1977, cert. dismissed. 434 U.S. 1052 (1978). This interpretation, however, does not seem consistent with the policy promoting settlements which underlies the rule.

Another issue is whether a particular statement constitutes an admission of liability or an offer to compromise. Should this determination be made with reference to the "background" statements accompanying the offer, or by the actual terms of the offer? For a pre-rules suggestion that the crucial element in characterizing the statement as an offer to compromise is a denial of liability, see Tindall v. Mills, 265 N.C. 716, 114 S.E.2d 902 (1967). But if this approach were followed, it would destroy much of the progress made in abolishing the formalistic procedure that had to be followed under the traditional rule. See Waltz and Houston, The Rules of Evidence in Settlement, 5 LITIGATION I 1 (Fall 1978).

Problem - Mister Nice Guy (144)

The point:

Sometimes it is hard to distinguish between an admission and an offer to compromise. Despite attempts to liberalize the rule, it can still be a trap for the unwary.

Answer and Analysis:

Is this a claim that is disputed as to either validity or amount? Is this an attempt to compromise a claim? D's statement, "Maybe we can handle this ourselves," could be interpreted as an attempt at informal dispute resolution; likewise, his comment, "Let's talk this over." Moreover, although he seems to be conceding liability when he states, "Well, maybe it turned on me in the intersection," and "I'm sorry I ran the light," he does seem to be negotiating the amount of his liability. If the purpose of the rule is to promote compromises and to eliminate the necessity of a formal announcement such as, "Now we are in settlement negotiations. . . ," the court should adopt a liberal attitude as to when informal dealings and compromise negotiations begin. On the other hand, this evidence is extremely probative. In fact, admissions are so probative that they get special treatment under the hearsay rule (FRE 801), personal knowledge requirement (FRE 602), and various other rules of evidence (e.g. FRE 1007).

Further complicating this problem is that D's statements might be construed as evidence of offering or promising to pay medical, hospital or similar expenses occasioned by an injury. Although such evidence is not admissible to prove liability, the Advisory Committee's Note to Rule 409 provide that statements not a part of the act are not covered by the rule and hence would be admissible. If Rule 409 is applied, the evidence that D offered $100 for a neck massage might not be admissible, but the statements about the light turning on him in the intersection and his running the light would probably be admissible.

Given the reliability of such statements, and the lack of data showing that parties in this situation will not attempt to informally resolve matters without the protection of an exclusionary rule, such statements probably should be admissible.

D's outburst at deposition also raises the issue of whether the claim is disputed. This is easy, since the claim is undoubtedly disputed in the pleadings and D is negotiating the amount of his liability. This statement, even though an outburst, still seems like more of a compromise negotiation than the informal dealing in the street. Moreover, given the setting, its probativeness is diminished. It is common knowledge that litigants having their deposition taken have a strong incentive to buy peace and that this may be the motivating cause of the offer.

Problem - Threatening Letters (146)

The point:

Rule 408 can still be a trap for the unwary. To make sure that the rule applies, one should be careful to state that the claim is disputed as to either validity or amount.

Answer and Analysis:

The legislative history indicates that the House Committee was very concerned that factual admissions might be excluded under the rule. Its amendment to require that parties protect themselves from future use of their statements by couching them in hypothetical form was opposed by the Senate Committee and ultimately rejected in conference. However, as finally enacted, the rule only excludes evidence relating to a claim which is disputed as to either validity or amount. Moreover, the Advisory Committee's Note to this rule states that the rule does not apply "when the effort is to induce a creditor to settle an admittedly due amount for a lesser sum. McCormick 252 . . . ."

Arguably, in this problem, the Delta General Counsel is trying to induce P Technology to accept a lesser sum for an amount that is due. However, P Technology's claim is not the liquidated sum certain type of claim which the Advisory Committee's Note seems to have in mind.

Indeed, exclusion of this evidence seems justified on relevance ground. As the Advisory Committee's Note to Rule 408 states, "the offer may be motivated by a desire for peace rather than from any concession of weakness of position. The validity of this position will vary as the amount of the offer varies in relation to the size of the claim and may also be influenced by other circumstances."

The prudent thing to do in writing such letters is to clearly and unequivocally refer to Rule 408 or to the fact that the offer is a settlement offer or offer to compromise a disputed claim.

Problem - The Plot Thickens (147)

The point:

Rule 408 also excludes evidence of completed compromises when offered against a party thereto, but this result cannot always be defended on relevancy grounds.

Answer and Analysis:

The relevance of this evidence depends upon the amounts at issue in the two suits, particularly the amount at issue in the earlier Q v D lawsuit and the amount of the settlement between Q and D. For example, if Q's lawsuit against D sought $100 damages and 0 seeks $1,000,000 damages, and D settled with Q for $50, the Q-D settlement would not be very probative to prove liability of D to O. In this situation, the most likely explanation for D's settlement with Q would be his desire to buy peace in the more insignificant case so that he can focus his attention on defending the larger suit by O. However, if the situation were reversed, i e., D had settled with Q for hundreds of thousands of dollars, and O sought to introduce that evidence in his lawsuit against D for a few hundred dollars, the D-Q settlement would be more probative.

Exclusion of completed settlements, when offered against the party to the settlement rests more firmly on the ground of promotion of the public policy favoring the compromise and settlement of disputes than it does on notions of relevancy. Regardless of the probativeness of the earlier settlement to the current litigation, the evidence should be excluded on this other ground.

Further discussion:

In a case that preceded the rules, Luis v. Dixie-Portland Flour Mills, 356 F.2d 54 (6th Cir. 1966), the court suggested that the test for exclusion is whether the earlier settlement represented a compromise or constituted full payment of the claim. Given the difficulty in accurately appraising damages, and the general fictions engaged in asserting them, this distinction does not seem very useful.

Problem - Thicker Still (147)

The point:

Even when evidence of completed settlement is not offered against a party, it may be excluded under Rule 408 if offered to prove "invalidity of the claim or its amount."

Answer and Analysis:

In this case, in contrast to Problem - The Plot Thickens, D seeks to introduce evidence of a settlement between himself and the driver (O) of the car in which P was riding, wherein O agreed to pay for damage done to D's vehicle. The inference that D would like the jury to draw from this evidence is that O's payment to D for property damages constitutes an implied admission that O was at fault in the accident. D also seeks to introduce evidence of P's earlier settlement with O, the driver of the vehicle in which P was riding. The inference D would like the jury to draw from this evidence is two-fold -- that O admitted his fault by paying P and that P has already been compensated for his injuries.

The portion of the problem dealing with O's payment of property damages to D is taken from Daly v. Publix Cars, 128 Neb. 403, 259 N.W. 163 (1935). The court excluded the evidence on the grounds that it was hearsay as to plaintiff. In the Dalv case, plaintiff s driver and defendant blamed each other for the accident. Plaintiff sued both of them. The court held that the settlement between plaintiffs driver (O) and defendant was solely between them and could not bind plaintiff in her lawsuit against D. This seems correct. While this evidence does present a hearsay problem, it could also be excluded on relevancy grounds.

The problem of the admissibility of the settlement between P and O is taken from Sharp v. Hall, 482 F. Supp. 1 (E.D. Okla. 1978). In Sharp, defendant alleged that the accident was caused by the sole negligence of plaintiffs driver. Plaintiff had earlier settled her claim against her driver and signed a covenant not to sue. Complicating the case, it was indicated by the pre-trial conference order that plaintiffs driver would be a witness in her lawsuit against the defendant called on behalf of plaintiff. Plaintiff did not wish the jury advised of the covenant not to sue. Defendant wanted the settlement and the amount brought to the attention of the jury. The trial court decided that the fact of settlement between plaintiff and her driver could be divulged to the jury but not the amount. The trial court found no federal rule applicable to the situation and a variance of treatment in state courts. The court, however, did. refer to Rule 408's provision that the rule does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness. In Sharp the fact that the plaintiff s driver was a relative and was being called to testify by the plaintiff made the fact of a settlement between the plaintiff and her driver relevant to the weight and credit to be given to her anticipated testimony.

Interestingly, while holding that the question was within the discretion of the trial court, the Sharp court was concerned that its approach be consistent with Oklahoma law. This raises the question of whether in diversity actions the rule regarding the admission of compromise offers should be a matter of state rather than federal law.

Problem - Even Thicker (148)

The point:

Rule 408's exceptions to the exclusion of evidence of compromises are exemplary rather than exclusive. Where evidence is offered for another purpose, other than proving liability or validity of the claim or its amount, it may be admissible.

Answer and Analysis:

In this case, evidence of the settlement between Smith and Jones and the plaintiffs in the primary case is offered on the issue of whether they have been "successful on the merits" within the meaning of the applicable state law. Interpretations of the state law is a matter for the state court. However the statute is defined, the evidence of the settlements between Jones and Smith and the plaintiffs in the primary case may be relevant to that determination.

In this case, the state policy in applying the provisions of its corporate indemnification law may conflict with the policy underlying Rule 408 in promoting the settlement of disputes. In this situation, the state concerns seem stronger and the court should be receptive to the argument that the evidence is offered for a purpose not barred by the rule.

In the case on which this problem is based, B&B Investment Club v. Kleinert's, Inc., 472 F. Supp. 787 (E.D. Pa. 1979), the court held that the evidence relating to the earlier case and the affidavit relating to the compromise negotiations was not barred by Rule 408 because the rule excludes evidence of a compromise only on the issues of the amount or validity of the claim which is the subject of the compromise. Since the "claims" in the primary case and in the indemnification case are distinct, the compromise negotiations were being used for "another purpose," and were not inadmissible under Rule 408.

Problem - Mediation (149)

The point:

The limited protection afforded statements in settlement negotiations might not suffice for all situations.

Answer and Analysis:

Conventional Rule 408 analysis would support admissibility of Husband's outburst either under the theory that it was not a 'statement made in connection with negotiations', or that it would admissible merely for the purpose of disclosing the Husband's state of mind as inconsistent with the degree of cooperation necessary for joint custody.

There are some negotiation situations calling for an exceptional degree of candor by the participants. Mediators feel that one of the prerequisites to success in mediation is the shared understanding that statements made during mediation cannot be used against the maker. But Rule 408 may not be sufficiently protective to support this expectation. Its blurry lines and limited scope of protection are inconsistent with great comfort in the give and take of mediation, especially in emotional matters such as divorce. For this reason mediators in many jurisdictions have sought (and in some cases obtained) a "privilege" protecting statements made in mediation. In other jurisdictions Rule 408 has been modified to give more sweeping protection to statements made in various kinds of mediations.

Problem - Civil Settlements and Criminal Cases (165)

The point:

Evidence of civil settlements offered in related criminal proceedings may be irrelevant because of different standards of liability in the civil and criminal contexts.

Answer and Analysis:

Criminal liability requires willfulness. Civil liability exists for merely negligent violations. Even if D's offer to refund the overcharge could be constituted as an admission of civil liability, it would only constitute an admission of negligent supervision of S. This is not relevant in a criminal case where willfulness must be shown. Thus, not only are all of the policy reasons of Rule 408 present, there is the additional relevancy problem caused by the difference in standards of liability in the civil and criminal cases. Moreover, the general public policy reason underlying Rule 408 is stronger when it encourages settlement of civil cases without prejudice to possible criminal violations. In the reverse situation, the existence of the nolo contendere plea reflects this policy. See FRE 410(2).

In the case on which this problem is based, Ecklund v. United States, 159 F.2d 81 (6th Cir. 1947), the court held that the evidence should be excluded. Indeed, the court held that evidence of the settlement of a civil case should be received in a criminal prosecution only where the civil settlement is part of an effort to stifle the criminal prosecution.

Go to: Teacher's Manual Introduction Chapter 2 Contents Next Section