The D.C. Circuit issued a decision which serves as a useful reminder that simply because a settlement offer was rebuffed or terminated (“I’m not negotiating with you”), that settlement offer is still protected under Rule 408, Fed. R. Evid., and cannot be introduced into evidence at trial as a back door way to prove liability. In other words, “settlement negotiations” under Rule 408 do not require that both sides be actively “negotiating;” it is sufficient that one side makes an offer, even if the other side does not respond or refuses to respond, or cuts off the negotiations.

The D.C. Circuit held that it was reversible error to allow this testimony at trial, particularly where it was discussed during the closing argument. While this was a criminal case, the underlying settlement offer arose from alleged workplace embezzlement by an employee, and the general principles are equally applicable to settlement offers in civil cases.

Some excerpts follow:

http://pacer.cadc.uscourts.gov/common/opinions/201002/07-3100-1232312.pdf

United States v. Davis, No. 07-3100 (D.C. Cir. Feb. 26, 2010).

Before: GINSBURG and TATEL, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge RANDOLPH.

. . . . Invoking Rule 408, Davis made a motion in limine to bar Jimmy Hammock from testifying about his second conversation with Davis. The defense motion quoted the following portion of an FBI report of an interview with Hammock in January 2004:

Sometime between the National Conclave and August 2003, HAMMOCK had a telephone conversation with DAVIS, during which he confronted DAVIS about the checks made payable to cash and DAVIS’ explanation [that] the money was deposited to the payroll account. DAVIS said the money had been deposited into the payroll account, but HAMMOCK replied “TERRY, I’m telling you, I’ve gone through the records and it didn’t.” DAVIS then unexpectedly said “what will it take to make this go away?” HAMMOCK responded that DAVIS needed to repay “whatever you took.” DAVIS asked “what if I split the $29,000?” HAMMOCK told DAVIS the amount of missing money was in excess of $100,000.00, to which DAVIS responded, “Oh, I can’t pay that much.”

There can be no doubt that Davis offered to compromise a disputed claim. His offer was to split the $29,000 in checks to cash he thought the fraternity had discovered. The claim “was disputed as to validity or amount,” FED. R. EVID. 408(a): Davis did not confess to taking the fraternity’s money; he said that he had deposited the cash checks into the fraternity’s payroll account; and Hammock rejected Davis’s explanation. See Affiliated Mfrs., Inc. v. Alum. Co. of Am., 56 F.3d 521, 527-28 (3d Cir. 1995). It is also clear that the government intended to introduce Davis’s settlement offer in order to prove Davis’s guilt, or in the words of Rule 408(a), his “liability.” Offers to settle are excluded even if no settlement negotiations follow. FED. R. EVID. 408(a)(1); see, e.g., Alpex Comp. Corp. v. Nintendo Co., Inc., 770 F. Supp. 161, 163-64 (S.D.N.Y. 1991). The Rule is meant to promote settlements. See FED. R. EVID. 408 advisory committee’s note (1974). If one party attempts to initiate negotiations with a settlement offer, the offer is excluded from evidence even if the counterparty responds: “I’m not negotiating with you.” See FED. R. EVID. 408 advisory committee’s note (1972 proposed rule). It makes no sense to force the party who initiates negotiations to do so at his peril.

Rule 408 bars not only evidence of settlement offers, but also “statements made in compromise negotiations.” FED. R. EVID. 408(a)(2). Davis’s other statements to Hammock during their second conversation were of that sort. Davis asked what it would take to “make this go away”; Hammock said pay back what you took; Davis countered with his offer to split the $29,000; Hammock countered that the missing funds totaled more than $100,000. That Hammock understood this give and take as a compromise negotiation is confirmed by his trial testimony – not before the court in limine but cited by the government on appeal – that he told Davis to talk to the fraternity’s president or lawyer if he wanted to settle the matter. . . .

. . . . We therefore hold that the district court abused its discretion in permitting Hammock to testify regarding Davis’s offer of settlement and the statements that followed. . . . Each side discussed the Hammock-Davis conversation in closing argument. Whether Hammock’s testimony affected the outcome is not sufficiently clear to warrant our determining harmlessness sua sponte. See id. (citing United States v. Giovannetti, 928 F.2d 225, 227 (7th Cir. 1991)). Accordingly, we vacate the convictions and remand for further proceedings consistent with this opinion.