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Univ. of South Carolina School of Law

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Thursday, November 12, 2009

Settling For This: Eastern District Of Pennsylvania Finds Settlement Evidence Inadmissible In Criminal Case Under Rule 403, Not Rule 408

If you want a primer on recently amended Federal Rule of Evidence 408, you should read the recent opinion of the United States District Court for the Eastern District of Pennsylvania in United States v. Davis, 2009 WL 3646459 (E.D. Pa. 2009). In Davis, Lee Davis, Jr. was charged with five counts of wire fraud and one count of mail fraud, relating to a scheme to defraud. One of the entities which Davis allegedly defrauded was Regency Oaks. Before trial, Davis brought a 

motion in limine for exclusion of a settlement agreement between [himself] and...Regency Oaks. The document, entitled "Payment Agreement," addresse[d] workers' compensation insurance claims made against Regency Oaks in the absence of insurance coverage, which had been promised by [Davis] but was not actually secured. As part of the settlement, [Davis] agreed to compensate Regency Oaks for attorneys' fees, medical bills, and other statutory penalties in connection with claims for injuries allegedly suffered by employees of Regency Oaks and its clients. In the prefatory clauses laid out at the beginning of the agreement, [Davis] ma[de] several admissions regarding his liability in the matter.

The Eastern District of Pennsylvania thus had to decide whether to exclude this settlement evidence under Federal Rule of Evidence 408.

The court noted that before 2006, there was a circuit split over whether Federal Rule of Evidence 408, which deems evidence connected to settlement negotiations inadmissible for certain purposes, applied in criminal cases. That split, though, was resolved with the 2006 amendment to Rule 408, which added the following italicized language to the Rule:

(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.  

According to the Eastern District of Pennsylvania, two things convinced it that this amendment made it clear that Rule 408 applies in criminal cases. First, the Advisory Committee Note to the amended Rule indicated that "statements made during compromise negotiations of other disputed claims are not admissible in subsequent criminal litigation, when offered to prove liability for, invalidity of, or amount of those claims." Second, even several courts which had previously found Rule 408 inapplicable in criminal cases before the 2006 amendment have now changed their tunes, with some noting that the creation of the partial exemption in subsection (2) in criminal cases "would be nonsensical unless the rule pertains to both civil and criminal cases."

And, according to the court, the problem for the prosecution was that the subject settlement evidence in Davis was evidence of settlement negotiations between private parties, meaning that the partial exception in subsection (2) was inapplicable. The prosecution, however, argued that it was offering this settlement evidence to prove permissible purposes under Rule 408

(1) to show lack of mistake, in that defendant frequently attempted to blame others for his failure to purchase insurance or bonds with premiums paid by victims, and (2) to show that defendant's motive for defrauding subsequent clients was, in part, to obtain money to repay Regency Oaks under the agreement.

The court agreed that these were permissible purposes but still found that the evidence was inadmissible under Federal Rule of Evidence 403 because its probative value was substantially outweighed by the danger of unfair prejudice. According to the court,

on the present state of the record, the probative value of the Regency Oaks agreement is substantially outweighed by the danger of unfair prejudice. This ruling is based on the risk that a jury will view the agreement as a confession of liability and guilt, regardless of the purpose for which the evidence is received. As the Fifth Circuit observed in United States v. Hays, "the potential impact of evidence regarding a settlement agreement with regard to a determination of liability is profound. It does not tax the imagination to envision the juror who retires to deliberate with the notion that if the defendant[] had done nothing wrong, [he] would not have paid the money back."...Measured against the government's need for the challenged evidence-particularly in light of the other evidence of the scheme to defraud-this potential prejudicial effect weighs heavily....Even a carefully crafted limiting instruction might not eliminate the prejudicial effect of the agreement. Thus, the defendant's Motion in Limine is granted as to the Regency Oaks settlement agreement, and the government is precluded from presenting evidence of the agreement at trial.

-CM

http://lawprofessors.typepad.com/evidenceprof/2009/11/if-you-want-a-primer-on-recently-amendedfederal-rule-of-evidence-408-you-should-read-the-recent-opinion-of-the-united-states-1.html

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