Rule 408 (Settlements and Offers to Compromise) Flashcards
Settlements and Offers to Compromise
Stuart is a veterinarian who worked for Fuzzy Paws Pet Clinic. Fuzzy Paws provides veterinary services to pets and sells medicines to complement those services. When Stuart was hired, he signed a contract with a no-compete clause that barred him from starting any competing business within thirty miles of Fuzzy Paws if he ever left the clinic.
After two years with Fuzzy Paws, Stuart left the clinic and immediately set up PetMed, an online company that allows clients to purchase medication for their pets over the internet. Fuzzy Paws’s attorney sent Stuart a letter demanding that he stop selling medication to any customers that lived within thirty miles of Fuzzy Paws, and threatening a lawsuit if Stuart did not immediately cease and desist.
Stuart believed that the no-compete clause did not cover his new business, but in order to avoid trouble, he sent a letter back to Fuzzy Paws, stating that he would be willing to pay the company $2,000 per year for the right to sell to those customers. Fuzzy Paws rejected the offer, and eventually sued Stuart. At trial, Fuzzy Paws tries to introduce Stuart’s letter into evidence. Stuart claims the letter is barred by Rule 408.
The letter is probably admissible. The fact that Fuzzy Paws hired a lawyer and threatened a lawsuit almost certainly makes this a “claim,” even though no lawsuit has yet been filed, but there is no evidence of a “dispute.” The dispute only appears to be in Stuart’s mind. Unless Stuart indicated in the text that he disputed the claim made by Fuzzy Paws, Rule 408 will not apply.
Once a complaint and an answer are filed, courts will automatically hold that a disputed claim exists.
Agnes suffered serious injuries when the legs broke on a chair she was using. She sued both Global Imports, which sold her the chair, and Talon Designs, the chair’s manufacturer. Before trial, Agnes settled with Global for $100,000. The settlement agreement required Agnes to pursue her claim against Talon and, if she won that lawsuit, to refund $50,000 of the initial settlement to Global. At trial, Agnes called a Global salesperson to testify that the chair’s legs were dangerously wobbly. Talon then moved to introduce evidence of Agnes’s settlement with Global. Does Rule 408 bar the evidence?
No, it appears that Talon is offering evidence of the settlement to show that the Global representative has an incentive to testify in Agnes’s favor; Talon undoubtedly will argue that is the purpose of introducing evidence of the settlement.
Rule 408 does not prohibit use of a settlement for this purpose. Indeed, the rule explicitly recognizes “bias” as “another purpose” supporting introduction of this case.
However, Agnes does deserve a limiting instruction in this case, which will inform the jurors that they can only consider the settlement between Agnes and Global as evidence that the Global representative may have a bias in the case, the jurors cannot consider the settlement as evidence of the amount of damages that Agnes deserves for the accident.
Now suppose that Agnes held settlement discussions with Talon as well as Global. During the discussion with Talon, the company’s product manager said, “I know the chair legs were weak. I tried to persuade the designer to strengthen the legs but you know those designers – appearance is everything.” Despite this candor, the parties failed to settle the claim and the case proceeded to trial. At trial, the same product manager testifies for the company and asserts “This chair is the strongest, most durable one we have ever produced. I worked closely with the designer on it. We were all confident that this chair was both beautiful and strong.”
Can Agnes introduce evidence of the product manager’s contrary statement during the settlement discussions?
No, Rule 408 prohibits this use. Bias is allowed, but impeachment is not. The drafters of the Rule concluded that it was more important to protect candor during settlement negotiations than to trap inconsistent witnesses in court. Agnes’s counsel will have to try to undermine the manager’s statements through other means.
Sam crashed his car into Quincy’s antique shop on the way home from a bar. Quincy smelled beer on Sam’s breath and sued him for negligence, claiming he was driving drunk. Sam denied any intoxication. While the lawsuit was pending, Sam’s attorney met with Quincy’s attorney and said: “Listen, I talked to the bartender who was on duty that night and it turns out my client did order quite a few beers before the accident occurred. I concede he might have been a little intoxicated. Given that, I’ll offer you $500,000 – I don’t think a jury will give you more than that.”
Quincy rejected the offer and tracked down the bartender. At trial, Quincy calls the bartender to testify about the beers that Sam consumed. Is the testimony admissible under Rule 408?
Answer:
Yes, the bartender’s testimony is admissible. Rule 408 bars Quincy from admitting the statement that Sam’s lawyer made, but it does not prevent parties from following up on evidence mentioned during settlement talks. The bartender’s testimony is pre-existing evidence. Parties may introduce that type of evidence at trial, even if they first learn of it during compromise negotiations
