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| Protecting Settlement
Communications from
Discovery 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. 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. The settlement privilege has not been fully decided in
Minnesota. In Multi-Tech
Systems, Inc. v. Dialpad.com, 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. NOTES 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. |
