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Univ. of South Carolina School of Law

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Wednesday, April 29, 2009

It's Settled: Sixth Circuit Finds Rule 408 Doesn't Bar Settlement Negotiation Evidence From Being Used To Prove Minimum Contacts

In order for a forum state (and thus its federal courts) to have personal jurisdiction over a nonresident defendant even though the defendant was not personally served within the forum state, the defendant must, inter alia, have minimum contacts with the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Meanwhile, Federal Rule of Evidence 408 states:

(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 offering 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

In SunCoke Energy, Inc. v. MAN Ferrostaal Aktiengesellschaft, 2009 WL 1034990 (6th Cir. 2009), the Sixth Circuit had to address the question of whether evidence of settlement negotiations is admissible to establish the aforementioned minimum contacts. The Sixth Circuit found that it is, and I agree.

In SunCoke EnergySunCoke brought an action for injunctive relief in federal district court in Tennessee, seeking the return of confidential trade information generated and provided by it to MAN Ferrostaal, a German engineering and construction company. That court, however, found that it lacked personal jurisdiction over MAN Ferrostaal after precluding SunCoke from presenting evidence of settlement negotiations between MAN Ferrostaal and it in Knoxville, Tennessee before the action was brought to establish that MAN Ferrostaal had the requisite minimum contacts with Tennessee.

In so doing, the district court cited to Nationwide Mutual Insurance Co. v. Tryg Intern. Ins. Co., Ltd., 91 F.3d 790 (6th Cir. 1996), where the Sixth Circuit had found in dicta that

attributing significance (for the purposes of determining whether personal jurisdiction exists) to a single entry into the state in order to negotiate a resolution of a prior dispute would create a disincentive for foreign corporations to pursue a resolution in what may be the most efficient manner possible, namely, travelling to an adversary's headquarters and negotiating there.

Now, frankly, in reading this passage, I don't get the sense that the Sixth Circuit was applying Federal Rule of Evidence 408 to preclude evidence of settlement negotiations from the minimum contacts analysis, but the Sixth Circuit read it that way after SunCoke appealed and found that there is no

rational basis for the dicta in the Nationwide Mutual Insurance case that in effect converts Federal Rule of Evidence 408 (“conduct or statements made in compromise negotiations” may not be used “to prove liability for, invalidity of, or amount of a claim”) into a rule of personal jurisdiction under the Due Process clause. Why should these contacts be discounted for the entirely separate question of constitutional contacts? We should not constitutionalize this rule of evidence.

One dissenting (in part) judge disagreed, concluding that "[u]nder Nationwide Mutual Insurance Co....,the parties' settlement negotiations cannot be used as a contact to establish personal jurisdiction on the 2001 contract."

Now, unfortunately, nether side explained itself especially well, but it seems clear to me that the the dissenting judge was incorrect. Federal Rule of Evidence 408 makes clear that evidence of settlement negotiations, etc. is inadmissible only "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." Using evidence of settlement negotiations to prove minimum contacts/personal jurisdiction is neither using that evidence to prove any of these impermissible purposes nor even using that evidence to prove anything related to the merits of the case. 

-CM      

http://lawprofessors.typepad.com/evidenceprof/2009/04/408-pjsuncoke-energyinc-v-man-ferrostaal-aktiengesellschaft----f3d------2009-wl-1034990ca6-tenn2009.html

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