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Question: Are settlement negotiations and offers ever admissible? Answer: Too often.
Any trial attorney involved in negotiations needs to know that while Civil Rule of Evidence 408 excludes settlement negotiations and offers to compromise from evidence if used to prove liability or the validity of the amount of the claim, Rule 408 provides for the use of statements made in settlement negotiations to prove most other matters.1 Written documents generated in the course of settlement negotiations deserve close scrutiny in the light of Rule 408. The following article covers the uses of which an attorney may make of statements contained in settlement offers and the actual offers and compromises themselves. These are the areas which counsel must watch during settlement negotiations to protect themselves at trial.
"LEGITIMATE" USES OF SETTLEMENT NEGOTIATIONS:
1. To show bias, prejudice or interest of parties or witnesses. This is why Mary Carter settlements are admissible before the jury.2 For the same reason, the Mary Carter negotiations and offers should be admissible.3
2. To show notice of a claim or waiver of notice of a claim.4 "We'll settle for $4,000.00 because our client failed to give notice" cannot be used to show the value of the claim, but it may be admitted before the jury to show that the client failed to give notice. The reverse is also true. Negotiations may be used to show that a party waived (did not require or mention) notice until their attorney thought about it while drafting pleadings.
3. To show statements made by parties, including prior statements that are actionable fraud, representations of partnership status, and misrepresentations made or repeated in negotiations.5 Fraudulent conduct in settlement negotiations is not protected merely by being "part of a settlement" and partnership status affirmations can be binding inside of settlement negotiations as well as in "public." More to the point, a mis-representation made in the course of negotiations can be used to prove that the misrepresentation had been made before.
4. To rebut false claims of lack of notice or lack of awareness of issues -- especially in default judgment proceedings.6, 7 A bill of review to reopen a default following settlement negotiations will invariably run up against any settlement negotiations that preceded the default and a claim of surprise at trial can open the door to the admission of settlement talks or negotiations that raised the issue at an earlier time.
5. To show admissions made by a party opponent.8, 9, 10 This use can be devastating. Any admission made in settlement, even just "in the spirit of co-operation to move things along" can come back to life in full force at trial. Never admit a weakness in your case in settlement negotiations unless you are prepared to concede that point at trial. A seemingly harmless "I have to agree, you are right on that point" can turn into a binding admission later.
6. To negate a contention of undue delay.11 Negotiations thus become admissable during dismissal dockets when a file otherwise looks neglected.
7. To prove an effort to obstruct a criminal investigation or prosecution.12 Criminal defense is just as open to Rule 408 as civil procedings. In addition, through the use of Rule 404(b), criminal activity and obstruction can enter into civil evidence.
These seven specific areas and the general language of the rule means that Rule 408 protects settlement offers only against use as proof of liability and allows the offer of settlement (and settlements themselves) to prove facts other than liability.13 This is important since before the "new" Rules of Evidence, statements such as "for the sake of settlement" or "without prejudice" were an almost magic bar to use of any statement sheltered by those phrases. That is no longer the case.14 The new rules have destroyed the old protective formula.
At any time "evidence otherwise discoverable"15 comes up in settlement negotiations, the negotiations themselves may be used to prove the point -- even if the party later attempts to hold back the facts or to deny the point admitted or disclosed in settlement.16,17 The only protection against the use in evidence of settlement negotiations is the Tex.Civ.R.Evid. safeguard of Rule 403 that excludes evidence "if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues or misleading the jury." In other words, your settlement negotiations will probably come before the jury.
1. Tex.R.Civ.Evid. 408.
2. General Motors Corp v. Simmons, 558 S.W.2d 855, 857-858 (Tex. 1977).
3. See the rule. "in compromising or attempting to compromise a claim" [emphasis added].
4. Graham v. San Antonio Machine and Supply Corp., 418 S.W.2d 303, 311 (Tex.Civ.App. -- San Antonio 1967, writ ref'd n.r.e.).
5. Portland Sav. & Loan Ass'n v. Bernstein, 716 S.W.2d 532, 537 (Tex.App. -- Corpus Christi 1985, writ ref'd n.r.e.).
6. The following State and Federal citations are relevant as the Texas Rule differs only in punctuation.
7. Breuer Elec. Mfg. Co. v. Toronodo Systems of America, 687 F.2d 182, 185 (7th Cir. 1982). Includes good general language as well.
8. Hiram Ricker and Sons v. Students Intern. Meditation Soc., 501 F.2d 550, 553 (1st Cir. 1974). Gives wide leeway favoring admissibility into evidence.
9. Megarry Bros. Inc. v. U.S. for the Use of Midwestern Elec. Const. Inc., 404 F.2d 479, 485-486 (8th Cir. 1968). Draws a fine line as to what can and cannot be used.
10. Nau v. Commissioner of Internal Revenue, 261 F.2d 362, 364-365 (6th Cir. 1958).
11. Rule 408, Id.
12. Rule 408, Id., See also Tex.R.Civ.Evid. 404(b).
13. Miller v. Component Homes, Inc. 356 N.W.2d 213, 215-216 (Iowa 1984). Contains a good policy discussion.
14. S. Leo Harmony, Inc. v. Binks Mfg. Co., 597 F.Supp. 1014, 1023 (D.C.N.Y. 1984), affirmed 762 F.2d 990, 990 (2nd Cir. 1985).
15. Rule 408, Id.
16. In re B.D. Intern. Discount Corp., 701 F.2d 1071, 1074 (2nd Cir. 1982), certiorari denied 464 U.S. 830, 104 S.Ct. 108, 78 L.Ed.2d 110.
17. Stainton v. Tarantino, 637 F.Supp. 1051, 1081 (E.D. Pa. 1986).
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