Official Publication of the Minnesota State Bar Association

Vol. 62, No. 10 | November 2005
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Protecting Settlement Communications from Discovery
By June Pineda

Your client was dismissed as a codefendant in a federal case after reaching a settlement with the plaintiff, and the remaining defendant now seeks discovery of your client’s settlement communications with the plaintiff. Can you withhold this information? Or, perhaps you represent a plaintiff in federal court who seeks to depose the defendant about statements made during settlement communications in a different but factually related case. Can you compel this testimony?

Federal Rule of Evidence 408 protects settlement communications, but that protection is limited.  Rule 408 makes evidence of settlement negotiations inadmissible at trial if offered to prove liability for or invalidity of the claim or its amount.  Thus, the rule allows evidence of settlement negotiations if offered for other purposes, such as impeaching a witness. More importantly, Rule 408 applies only at trial and not during discovery. 

The rule that applies during discovery is Federal Rule of Civil Procedure 26.  It allows discovery of any relevant matter that is not privileged; the relevant matter need not be admissible at trial so long as it appears reasonably calculated to lead to the discovery of admissible evidence. The broad scope of Rule 26 reflects Congress’s belief that the truth-seeking function of discovery is best served when both parties have knowledge of all relevant facts. Thus, settlement communications, although generally not admissible at trial, may nevertheless be discoverable so long as they are not privileged and appear reasonably calculated to lead to the discovery of admissible evidence.

"Settlement Privilege"

A ground-breaking 2003 decision by the 6th Circuit created a new “settlement privilege” that protects settlement communications from discovery.  In Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc.,1 the 6th Circuit found that the settlement privilege promotes the public policy underlying Rule 408: preserving the secrecy of settlement communications promotes settlements, which lessens the burden on the judicial system.

Goodyear Tire is a remarkable case.  It stands as the only federal appellate court decision to recognize the settlement privilege.  It also represents the rare occasion of a federal appellate court exercising its power to create a new privilege pursuant to Federal Rule of Evidence 501.  Rule 501 authorizes federal courts to determine new privileges by examining “common law principles … in light of reason and experience.”

The 6th Circuit’s decision, however, stands in stark contrast against the majority of federal district courts that refuse to acknowledge the settlement privilege.  According to these district courts, the only federal rule to address settlement materials, Rule 408, is a rule about admissibility and not discoverability.  These courts also reason that settlement communications are necessarily discoverable — indeed, Rule 408 allows their use at trial for purposes other than proving the liability for or invalidity of the claim or its amount.

Competing Standards

While the majority of federal district courts do not recognize the settlement privilege, some district courts apply a stricter standard, requiring a “particularized showing” in determining whether to allow discovery of settlement communications. This higher standard is applied out of deference to the policy of promoting settlements underlying Rule 408.  A frequently cited case is Bottaro v. Hatton Associates2 where the Eastern District of New York required a “particularized showing” of the likelihood that disclosure of settlement communications would lead to admissible evidence. 

But courts are split on the meaning of “particularized showing.”  Some interpret “particularized showing” as merely placing the burden of showing relevance on the party seeking disclosure, rather than placing the burden of establishing privilege on the party withholding the information.3 But other courts interpret “particularized showing” as requiring a heightened showing of relevance or need.4 Under this view, the requesting party must articulate with some specificity the kind of information it reasonably expects to find and how that information will lead to other admissible evidence.

Other courts reject the “particularized showing” standard in favor of the liberal relevancy test in Rule 26. A frequently cited case is Bennett v. La Pere where the District of Rhode Island criticized the “particularized showing” standard as “out of kilter with the spirit and philosophy of the Federal Rules.”5 The court reasoned that Rule 26 imposes only a modest threshold and does not condition discovery upon the likely admissibility of the information at trial.

Mixed Picture in Minnesota

The settlement privilege has not been fully decided in Minnesota.  In Multi-Tech Systems, Inc. v., Inc.,6 U.S. Magistrate Judge Raymond Erickson compelled the disclosure of settlement negotiation materials after finding that they passed the modest relevancy threshold of Rule 26. On appeal, the U.S. District Court for the District of Minnesota recognized the competing standards for discovery among courts, i.e., “particularized showing” versus Rule 26. The court affirmed the magistrate judge’s order because it was not contrary to existing case law, but it did not decide which standard for discovery was correct. The court also decided Multi-Tech Systems prior to the 6th Circuit’s decision in Goodyear Tire.  Thus, it remains to be seen whether courts in Minnesota will recognize the settlement privilege or, if they reject the privilege, what standard they will use in determining discoverability. Until then, counsel should be aware of the competing arguments regarding the privilege.

1. 332 F.3d 976 (6th Cir. 2003).

2. 96 F.R.D. 158 (E.D.N.Y. 1982).

3. See, e.g., Morse/Diesel Inc. v. Trinity Indus., Inc., 142 F.R.D. 80 (S.D.N.Y. 1992).

4. See, e.g., Doe v. Methacton Schl. Dist., 164 F.R.D. 175, 176 (E.D. Pa. 1995).

5. 112 F.R.D. 136, 139 (D.R.I. 1986).

6. No. 00-1540, 2002 U.S. Dist. LEXIS 309 (D. Minn. 01/08/02).

JUNE PINEDA is an associate at Gray Plant Mooty.  Her practice is focused on business and general litigation.