Of Purposes Not Prohibited: New Federal Rule of Evidence 408(b)

• Publication year: 2022

40 Creighton L. Rev. 679. OF PURPOSES NOT PROHIBITED: NEW FEDERAL RULE OF EVIDENCE 408(B)

Creighton Law Review

Vol. 40

GREGORY B. COLLINS AND ANDREW F. HALABY(fn*)

INTRODUCTION

The recent amendment of Federal Rule of Evidence 408 provides a good opportunity to revisit the rule's fundamental principles - principles the amendment was intended to affirm - regarding the circumstances under which settlement communications may be admitted into evidence. While many lawyers think of Rule 408 simply as the "one can't use a settlement communication against its maker" rule, that notion is overbroad and wrong because, sometimes, one can. Now, as before, Rule 408 embodies a careful balancing of the policy interests of truth-seeking and settlement promotion. But courts have struggled to apply Rule 408 in cases at the intersection of these policy interests - an intersection embodied in what was the Rule's final sentence:

This rule . . . does not require exclusion when the evidence is offered for another purpose [besides those excluded], 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.(fn1)

Courts have inconsistently delineated the boundary between impermissible purposes and "other purposes" when applying Rule 408. New laws and new legal issues compound their difficulty.

This Article describes how courts generally have applied the "another purpose" clause now embodied in the "Permissible Uses" provision of Rule 408(b). It demonstrates that, properly applied, an expansive genus of compromise evidence should qualify for admission under Rule 408(b). With a view to identifying several species within that genus, the Article then describes how Rule 408 has been or might be applied in several different contexts. The Article concludes that, if faithfully applied, Rule 408 appropriately reconciles the Rule's competing policy interests of promoting (or at least not discouraging) settlement-conducive conduct while also serving the courts' fundamental truth-seeking function.

BACKGROUND

Until December 1, 2006, Federal Rule of Evidence 408 provided,

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.(fn2)

The Rule reflected both a codification and a modification of the common law as it stood in 1975 when the Rule was adopted. The Rule's first sentence codified the common law,(fn3) excluding from evidence offers of compromise and completed compromises.(fn4) Even before Rule 408's adoption, most courts held that offers of compromise were inadmissible, either because they were irrelevant,(fn5) or because admitting offers of compromise would discourage settlement.(fn6) Those relying on the irrelevance ground did so because, they maintained, offers of compromise are made "merely to secure peace and avoid the incidents of a legal contest," not as admissions of strength or weakness of a party's case.(fn7) Those relying on the settlement promotion rationale did so because, as one court put it, "If every offer to buy peace could be used as evidence against him who presents it, many settlements would be prevented, and unnecessary litigation would be produced and prolonged."(fn8) Regardless of rationale, courts excluded only the amount offered in settlement, not the statements of fact that often accompanied such offers.(fn9)

Rule 408 modified the common law by excluding statements made and conduct occurring in the course of compromise - whether inchoate or completed.(fn10) Before the Rule's adoption, courts generally admitted statements of fact made in the course of a settlement discussion, as United States v. Tuschman(fn11) illustrates. The Internal Revenue Service ("IRS") assessed income tax, interest, and civil fraud penalties against Tuschman in the amount of $131,580, obtained a tax lien against his property, and sued to enforce its lien.(fn12) At trial, Tuschman testified that his son owned the majority of a $120,000 bond held in his name.(fn13) To refute this testimony, the IRS sought to admit a letter from Tuschman that documented his total assets and stated that he owned the entire bond.(fn14) At the end of the letter, however, Tuschman made an offer to settle his tax liability, which the IRS declined.(fn15) The district court held the letter inadmissible as an offer of compromise, and refused to allow the IRS to impeach the debtor's testimony regarding his son's ownership of the bond.(fn16) On appeal, the Sixth Circuit held that the district court erred in refusing to admit the letter.(fn17) The letter made "material representations as to the ownership of the bond" and, therefore, it was admissible "despite the fact that the documents were offered in an effort to effect a compromise of enforcement of the tax liens."(fn18)

Before Rule 408 was adopted, to prevent Tuschman-like statements from being admitted into evidence, lawyers insulated their settlement conversations by speaking hypothetically.(fn19) A lawyer might say, for example, "Hypothetically, if Tuschman owned the entire bond, would you accept the bond in settlement of his tax liability?" This practice created a "trap for the unwary."(fn20) Rule 408 was adopted to end this practice.(fn21)

The Supreme Court proposed Rule 408 when it sent the original version of the Federal Rules of Evidence to Congress for approval.(fn22) The proposed Rule met stiff opposition from many government agencies such as the IRS,(fn23) which was concerned that debtors would refuse to speak candidly with it until the onset of formal settlement discussions.(fn24) The IRS likely was concerned that the proposed Rule would change the result in cases like Tuschman.(fn25) It also was concerned that the proposed Rule would do nothing to stop a debtor from lying to the agency during settlement discussions.(fn26) In response to these concerns, the House rejected the Rule's proposed second sentence.(fn27)

The Senate sympathized with the IRS, but dealt with its concerns differently. Before the Senate, the Advisory Committee argued that the public policy of promoting settlements required the exclusion of factual statements made by parties; therefore, the Senate should accept the Rule as originally drafted.(fn28) In large part, the Senate agreed and reverted to the Rule's original version.(fn29) To placate the IRS, however, the Senate added what became the Rule's third sentence: "This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations."(fn30) The conference committee adopted the Senate's version of the Rule.(fn31)

While both the Senate and the House addressed the IRS's concern that once formal settlement discussions began, a debtor's statements regarding his or her assets would be inadmissible, neither the Senate nor the House addressed the agency's concern that taxpayers could lie during settlement discussions.(fn32) The Advisory Committee's comments offered little guidance on that issue.(fn33) As a result, one of the most litigated aspects of Rule 408 was whether it allowed impeachment of a witness with statements made during settlement negotiations.(fn34)

NEW RULE 408

In September 2005, the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States recommended that Rule 408 be amended.(fn35) The Committee's proposed amendment, which became effective December 1, 2006,(fn36) provides,

Rule 408. Compromise and Offers to Compromise

(a) Prohibited uses. Evidence of the following is not admissible on behalf of any party, when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction: (1) furnishing or promising to furnish, or accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise the claim and, (2) conduct or statements made in compromise negotiations regarding the claim, except when offered in a criminal case and the negotiations related to a claim by a public office or agency in the exercise of regulatory, investigative, or enforcement authority.

(b) Permitted uses. This rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a). Examples of permissible purposes include proving a witness's bias or prejudice, negating a contention of undue delay, and proving an effort to obstruct a criminal investigation or prosecution.(fn37)

The amendment clarified that settlement communications may not be used to impeach. It also...