Federal Evidence Review

“The spirit of the Rule” supported exclusion of compromise evidence “even if not communicated to the other party,” in Equal Employment Opportunity Commission v. UMB Bank, 558 F.3d 784 (8th Cir. March 13, 2009) (No. 07-2901)

FRE 408 excludes evidence regarding offers to compromise a dispute when used “to prove liability for or invalidity of the claim or its amount” and excludes “[e]vidence of conduct or statements made in compromise negotiations.” Does the rule cover settlement papers that are not communicated to the other party? The Eighth Circuit recently considered this issue.

In the case, plaintiff Graves, a quadriplegic since high school, and the Equal Employment Opportunity Commission filed a discrimination claim under the Americans with Disabilities Act against defendant UMB Financial Corporation. The company claimed they were unable to employ Graves because he required voice-activation software. He also declined a sales and service agent position. Graves disputed the “need for voice-activation software” as “a pretextual explanation to hide a discriminatory motive.” Graves, 558 F.3d at 787.

At trial, plaintiff Graves challenged the admission of an exhibit containing handwritten notes, claiming it was inadmissible settlement evidence under FRE 408 (generally barring “evidence of . . . conduct or statements made in compromise negotiations regarding the claim”) and 42 U.S.C. § 12117(a) (incorporating by reference 42 U.S.C. § 2000e-5(b) (“Nothing said or done during and as a part of such informal endeavors may be made public by the Commission, its officers or employees, or used as evidence in a subsequent proceeding without the written consent of the persons concerned.”)). The exhibit, which was not provided to UMB Financial Corporation, was made by a job counselor based on her discussion with Graves after the EEOC investigator asked for information about his settlement position. The handwritten notes on the exhibit were:

“difficult to read; words and phrases are written in lines that run into one another; and a number appears with commas inserted in an improper and confusing manner. The document states, on an approximate line-by-line basis: ‘3/26/04 Rodney,’ ‘EEOC,’ ‘file a case,’ ‘against UMB,’ ‘restablish [sic] new law,’ ‘determination letter,’ ‘$7–8,00,000 [sic] general economic loss,’ ‘pension benefit, 20 year interest,’ ‘medical benefit,’ and ‘compensatory – 300,000 cap.’ There also appears to be reference to a percentage written near the phrase ‘20 year interest.’”

Graves, 558 F.3d at 790. The trial court concluded the exhibit did not contain a settlement offer, but the reference to the $300,000 statutory cap was inadmissible under 42 U.S.C. § 1981a(c)(2) (“[T]he court shall not inform the jury of the limitations described in subsection (b)(3) of this section.”).

During the cross-examination of the job counselor, she identified her handwriting and the exhibit was shown to the jury on a projection device. The plaintiff failed to object to the salary cap reference when the document was displayed to the jury. The trial court excluded three other exhibits, entitled “Economic General/Compensatory Damages Proposal,” provided an estimate of lost salary damages, totaling about $3.1 million. Graves provided the exhibits to a job counselor and then gave it to an EEOC investigator. Defendant UMB Financial Corporation did not receive a copy. These exhibits were excluded as settlement evidence under FRE 408. The jury returned a verdict for the company and concluded there was no discrimination liability. On appeal, plaintiff Graves challenged the admission of the handwritten notes.

The Eighth Circuit initially addressed the issue whether FRE 408 applied to “documents not communicated to the opposing side.” The circuit concluded that “[t]he spirit of the Rule, as recognized by several circuits and as set forth in the commentary to the Rule, supports the exclusion of certain work product, internal memos, and other materials created specifically for the purpose of conciliation, even if not communicated to the other party.” Graves, 558 F.3d at 791. The circuit cited the following authorities as “persuasive”:

• FRE 408 ACN (noting the rule applies beyond offers “to include evidence of conduct or statements made in compromise negotiations, as well as the offer or completed compromise itself”; noting “[t]he protections of Rule 408 cannot be waived unilaterally because the rule, by definition, protects both parties from having the fact of negotiation disclosed to the jury”)
• Affiliated Mfrs., Inc. v. Alum. Co. of Am., 56 F.3d 521, 528-30 (3d Cir. 1995) (“The policy behind Rule 408 is to encourage freedom of discussion with regard to compromise.”; applying FRE 408 to internal memoranda concerning compromise negotiations which were not shared with the opposing party)
• Blu-J, Inc. v. Kemper C.P.A. Group, 916 F.2d 637, 641-42 (11th Cir. 1990) (excluding “reports, depositions and other materials relating to a Michigan accounting firm's independent evaluation of whether Kemper followed generally accepted accounting methods in preparing the financial statements” prepared for the purpose of compromise negotiations; “We conclude that the evidence at issue was intended to be part of negotiations toward compromise and was properly excluded by the district court.”) (footnote omitted)
• Ramada Dev. Co. v. Rauch, 644 F.2d 1097, 1106-07 (5th Cir. 1981) (excluding internal report made “in the course of an effort to compromise” under FRE 408; “Goldsmith was commissioned by Ramada to prepare a report that would function as a basis of settlement negotiations regarding the alleged defects in the motel. The report was to identify arguable defects that could then be discussed in monetary terms in the negotiations. The Goldsmith Report, as described by Mr. Gilbert, thus represents a collection of statements made in the course of an effort to compromise, and the district court properly held it inadmissible under the main provision of rule 408.”) (footnote omitted)

The circuit declined to consider whether any exceptions to FRE 408 applied since any error in admitting the exhibit was harmless since the jury determined the company was not liable for any alleged discrimination.

In sum, the circuit concluded the spirit of FRE 408 to bar settlement evidence “to prove liability for or invalidity of the claim or its amount” supported a broad application of the rule. Thus, evidence which was prepared for compromise but not communicated to the opposing party was excluded.