EvidenceProf Blog

Editor: Colin Miller
Univ. of South Carolina School of Law

Tuesday, August 25, 2009

S-U-C-C-E-S-S: Third Circuit Finds Settlement Offers Admissible As Evidence Of Degree Of Success Obtained For Fees And Costs Analysis

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 Lohman v. Duryea Borough, 2009 WL 2183056 (3rd Cir. 2009), the Third Circuit resolved an issue of first impression under the Rule, the issue of "whether and to what extent the trial court may consider settlement negotiations when awarding fees."

In Duryea Borough

Nicholas Lohman brought an action asserting numerous claims relating to his discharge from employment with Duryea Borough. Only three First Amendment retaliation claims survived summary judgment and proceeded to trial. Defendants made three settlement offers after trial commenced, including one for $75,000.00. Lohman rejected each of these offers. The jury found for Lohman on one of the three claims, and awarded him $12,205.00 in lost wages and nominal damages. Lohman moved for attorney's fees and costs of $112,883.73.  

The district court thereafter "granted the motion in part, awarding $30,000.00 in attorney's fees and $4,251.77 in costs." In awarding an amount of attorney's fees and costs that was substantially lower than what Lohman requested, the court relied upon the settlement offers to determine "the degree of success obtained" by Lohman. According to the court, the fact that Lohman recovered substantially less at trial than he would have recovered under the settlement offers meant that he had a low degree of success, thus reducing the amount of fees and costs he should recover.

Lohman subsequently appealed, claiming, inter alia, that the evidence of settlement offers should have been deemed inadmissible under Federal Rule of Evidence 408. The Third Circuit disagreed, finding that 

While evidence of settlement negotiations is inadmissible to prove the merit or lack of merit of a claim, the use of such evidence as bearing on the issue of what relief was sought by a plaintiff does not offend the clear terms of Rule 408. Such evidence can be relevant when comparing what a plaintiff “requested” to what the plaintiff was ultimately "awarded."  

This part of the opinion makes sense to me because it seems clear that the evidence of settlement offers was not used for a precluded purpose under Rule 408. The court went on to note, however, that the admission of the evidence of the settlement offers did not go against the public policy goal of encouraging settlements served by Rule 408 because

the thought that settlement discussions will not now occur because an attorney could be penalized if he or she achieves less than was demanded makes little sense. In fact, permitting settlement negotiations to be considered would encourage reasonable and realistic settlement negotiations. In addition, there has been no argument made that a plaintiff's naming or rejection of a number is anything other than an indication of what the plaintiff is seeking. It comports with established law to consider what was sought as compared to what was awarded. Accordingly, the policy considerations asserted by Lohman lack a solid footing in any real policy.  

I disagree with this conclusion because it seemingly implies that Rule 408 should not apply when parties make unreasonable or unrealistic statements or offers during settlement. It seems to me, though, that the very purpose of Rule 408 is to make unreasonable or unrealistic statements or offers during settlement inadmissible. When party makes reasonable or realistic statements or offers during settlement, there would (often) be little to no damage if these statements or offers were introduced into evidence because they would likely be consistent with the party's claim at trial. Usually, it would only be unreasonable or unrealistic statements during settlement that would contradict a party's claim at trial, which is why they should be deemed inadmissible under Rule 408

Nonetheless, because the settlement offers in Duryea Borough were not offered for a precluded purpose under Rule 408, I think that the Third Circuit reached the correct conclusion.



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