Opinion ID: 697279
Heading Depth: 3
Heading Rank: 1

Heading: Evidence of negotiations to settle a disputed claim

Text: 64 AMI contends that the district court erred in its interpretation and application of Rule 408. AMI alleges that the court took an extreme view of the meaning of settlement negotiations as contemplated within the rule. AMI asserts that the district court incorrectly found that even an apparent difference of opinion between the parties could trigger an exclusion under the rule. See AMI I at 6 (citing Alpex Computer Corp. v. Nintendo Co., 770 F.Supp. 161 (S.D.N.Y.1991)). Further, AMI argues that the district court erred in its factual finding that a dispute existed between the parties. 65 The evidentiary exclusion for compromise and offers to compromise reads as follows: 66 Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution. 67 Fed.R.Evid. 408. The application of the rule is limited to evidence concerning settlement or compromise of a claim, where the evidence is offered to establish liability, or the validity or amount of the claim. Additionally, Rule 408 has been interpreted as applicable to an actual dispute, or at least an apparent difference of view between the parties concerning the validity or amount of a claim. 2 Jack B. Weinstein & Margaret A. Berger, Weinstein's Evidence p 408 at 408-12 (1994); Kenneth S. Brown et al., McCormick on Evidence Sec. 266, at 466 (John William Strong ed., 4th ed. 1992). The policy behind Rule 408 is to encourage freedom of discussion with regard to compromise. See Weinstein's Evidence, supra, p 408 at 408-10. 68 AMI argues that the case law clearly delineates distinctions as to what constitutes a claim which was disputed, and characterizes the excluded documents at issue as merely evidencing discussions that had not yet reached the dispute stage for Rule 408 purposes. Thus, AMI maintains that Rule 408 is inapplicable here, arguing that the intended construction of Rule 408 is that there must be a threat or contemplation of litigation, that goes beyond conduct or statements made to resolve differences of opinion as to the validity or amount of a claim. AMI relies chiefly upon the holdings from other circuits to support its view that the district court misinterpreted the term dispute and misapplied the rule. Alcoa responds that AMI has mischaracterized these decisions, as well as the district court's reasoning, in its discussion of relevant precedent. 69 In reaching its conclusion to apply the Rule 408 exclusion, the district court reasoned that the Tenth Circuit's application of Rule 408, in Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir.1977), cert. dismissed, 434 U.S. 1052, 98 S.Ct. 905, 54 L.Ed.2d 805 (1978), was too restrictive in its establishment of the point of threatened litigation [as] a clear cut-off point for application. AMI I at 5 (quoting Big O Tire, 561 F.2d at 1373). Instead, the district court adopted the view articulated by the court in Alpex, 770 F.Supp. at 164-65, finding that the Alpex court considered factors apart from any indicia of threatened litigation. AMI I at 5-6. The district court then proceeded to analyze the facts concerning each document and deposition excerpt that Alcoa had proposed for exclusion. 70 In Big O Tire, a small tire manufacturer that had used the term Big Foot in its business was approached by Goodyear Tire, who wished to use the same term for a national ad campaign for a new product. 561 F.2d at 1368. Both parties participated in a series of discussions about how to proceed, and Goodyear sought assurance from Big O Tire that it would not object to such use. Id. In addition to phone conversations and meetings to discuss the issue further, correspondence indicated that Big O Tire requested that Goodyear conclude its ad campaign as soon as possible, and that Goodyear responded it would use the concept as long as it continued to be a helpful advertising device. Id. The district court in Big O Tire determined that phone and letter communications between the parties prior to litigation concerning use of the trademark did not fall within the Rule 408 exclusion, as the calls and letters were merely business communications. See id. at 1368, 1372-73. The Court of Appeals for the Tenth Circuit concluded that the district court did not commit manifest error in finding the disputed statements were business communications because the discussions at issue had not crystallized to the point of threatened litigation. Id. at 1373. 71 To the extent Big O Tire establishes a strict standard for application of Rule 408, it was rejected by Alpex. See 770 F.Supp. at 164. The plaintiff in Alpex held certain rights relating to a patent for video games and pursued a program to combat infringement by sending letters from counsel offering certain alleged infringers the opportunity to settle what plaintiff viewed as meritorious infringement claims. Id. at 162. In some instances these notices led to extended negotiations, licensing agreements and settlement without litigation, while in other instances litigation was pursued. Id. at 162-63. The Alpex court determined that certain license agreements reached in the absence of litigation fell within the purview of the Rule 408 exclusion. Id. at 165. In its analysis, the Alpex court examined various factors in addition to indicia of threat of litigation, that might call for application of the exclusion. Id. at 164-65. 72 We believe that AMI has oversimplified the Big O Tire and Alpex holdings. Regarding the issue of when a dispute between parties exists, the Alpex court acknowledged that litigation need not have commenced for Rule 408 to apply. 770 F.Supp. at 164; see North Am. Biologicals, Inc. v. Illinois Employers Ins., 931 F.2d 839, 841 (11th Cir.1991) (finding letter written prior to suit excludable under Rule 408 as offer of settlement). Parties here concede this point. Further, Big O Tire is consistent with Alpex on this point. See 561 F.2d at 1373. Because of the applicable standard of review, it is not entirely clear how the Tenth Circuit would view exclusion, rather than inclusion, of negotiations made prior to the point of threatened litigation. Furthermore, the Alpex court did not, as AMI asserts, adopt in toto the view that a dispute must crystallize[ ] to the point of threatened litigation before evidence of settlement negotiations are excludable. Rather, Alpex and other courts make clear that the Rule 408 exclusion applies where an actual dispute or a difference of opinion exists, rather than when discussions crystallize to the point of threatened litigation. See Alpex, 770 F.Supp. at 163; Dallis v. Aetna Life Ins. Co., 768 F.2d 1303, 1307 (11th Cir.1985) (citing Weinstein's Evidence, supra, p 408 (affirming admission of testimony involving settlement of similar claim between party to action and third party, where no evidence that validity or amount of payment had been in dispute). 73 Accordingly, we hold that the district court's construction of Rule 408 did not constitute legal error. As a matter of interpretation, the meaning of dispute as employed in the rule includes both litigation and less formal stages of a dispute, and this meaning is unchanged by the broader scope of Rule 408. Weinstein's Evidence, supra, p 408 at 408-12. The district court properly interpreted the scope of the term dispute to include a clear difference of opinion between the parties here concerning payment of two invoices. 74 The facts of each case bear upon the trial court's exercise of discretion to apply the exclusion. See Alpex, 770 F.Supp. at 164-65; Bradbury v. Phillips Petroleum Co., 815 F.2d 1356, 1364 (10th Cir.1987) (holding if application of Rule 408 exclusion doubtful, better practice is to exclude evidence of compromise negotiations). Admittedly, it can be difficult to discern whether an offer was made to attempt to compromise a claim. The existence of a disputed claim as well as the timing of the offer are relevant to making this determination. Pierce v. F.R. Tripler & Co., 955 F.2d 820, 827 (2d Cir.1992). The district court here found that inherent in each of the documents presented for exclusion was the parties' disagreement or dispute as to the amount and the validity of the invoice presented for payment. AMI I at 6-14. 75 The district court found that when viewed in context, the April 5, 1990 letter from Austin at AMI was evidence of a dispute concerning the printer design and software programming. See id. at 2-3, 6. As this letter was not among the disputed documents, we need not consider whether a dispute arose as early as April 5. Following receipt of the April 5 letter and invoices, Kasprzyk described to Pollak in his May 1, 1990 memorandum his evaluation of the amount billed by AMI for software and his assessment of the merits of AMI's claim. App. at 11. This is the earliest document in dispute. In this memorandum, Kasprzyk concluded that 76 [s]ince the original purchase order for the line did not thoroughly specify the capability of the line, I feel that AMI has a legitimate claim to some software compensation. I feel that AMI should only be compensated for 1/3 of the requested amount since the line does not meet [certain specifications]. I also feel that this is appropriate due to the AMI's overall inferior performance on system software. 77 Id. 78 AMI characterizes this memorandum as an evaluation, implying that it did not evidence a dispute under Rule 408. See Appellant's Br. at 11. We also need not reach the question of whether the mere existence of an internal evaluation such as this memorandum provides evidence of a dispute. In his deposition Pollak stated that [i]n preparation for [a May 2 settlement] meeting, I asked Phil Kasprzyk, an Alcoa engineer familiar with the project, his view of the disputed invoices. 3 App. at 79. That Kasprzyk's evaluation was written in order to prepare Pollak for a meeting to discuss a possible compromise necessarily demonstrates that at least as of May 1 there was a dispute. We cannot say that the district court erred in concluding that a dispute existed as of May 1 and that the documents at issue evidenced attempts to compromise the dispute.