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Wednesday, March 3, 2010

Let's Compromise: Court Reverses Convictions Of Fraternity's Former National Treasurer's Under Rule 408

Federal Rule of Evidence 408 provides:

(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 United States v. Davis, 2010 WL 668879 (D.C. Cir. 2010), the United States Court of Appeals for the District of Columbia reversed the convictions of a former national treasurer of the Phi Beta Sigma fraternity for bank fraud, first-degree fraud, and first-degree theft based upon the alleged improper admission of evidence in violation of Federal Rule of Evidence 408. I disagree.

In DavisTerry Davis served as national treasurer of the Phi Beta Sigma fraternity. 

The Phi Beta Sigma national treasurer is the elected, unpaid custodian of all fraternity funds. Two main financial controls cabin the treasurer's discretion in dealing with the funds. First, before any expense is paid, the fraternity's executive director, national president, and treasurer must each sign a "voucher" documenting and authorizing the payment. Second, the president and the treasurer must co-sign each fraternity check. The executive director is a full-time employee with an office at the fraternity's headquarters; neither the president nor the treasurer have offices. As a result, each check and voucher must be mailed from one officer to the next until all signatures are gathered.

Davis disregarded these policies during his tenure as national treasurer from 1999 to 2003. Some checks he wrote without obtaining an approved voucher. Many checks contained only Davis's signature. On others Davis also signed or stamped the president's name. In the spring of 2003, the fraternity investigated financial irregularities and learned that Davis had written checks to cash, a violation of another fraternity policy. That June, the fraternity suspended Davis as treasurer.

Thereafter, the new treasurer, Jimmy Hammock, 

asked Davis to produce the financial records Davis maintained on the fraternity's behalf. Davis provided some unused checks and financial reports but no cancelled checks or bank statements. Hammock also asked Davis why he had written fraternity checks payable to cash. Davis explained that he transferred the funds to the fraternity's payroll account.

At trial,

Hammock testified about a second conversation with Davis regarding these checks. Hammock told Davis the fraternity had found $29,000 in checks made out to cash, none of which was deposited in the fraternity's bank account as Davis had claimed. Over an objection based on Rule 408 of the Federal Rules of Evidence, Hammock related the rest of the conversation: “Terry asked-he said ‘Can we just split this $29,000.00 and make this situation just go away?’.... I told him that [the] amount was in excess of a hundred thousand dollars. Terry's statement to me at that point was, ‘I can't afford to pay that amount,’ and then I told him-I said, ‘Terry, if you want to do some-negotiate some kind of settlement, you need to talk to our legal counsel or our international president."

After he was convicted, Davis appealed, claiming that Hammock's testimony was improperly received in violation of Federal Rule of Evidence 408. The United States Court of Appeals for the District of Columbia agreed, finding that 

There can be no doubt that Davis offered to compromise a disputed claim. His offer was to split the $29,000 in checks to cash he thought the fraternity had discovered. The claim "was disputed as to validity or amount," FED.R.EVID. 408(a): Davis did not confess to taking the fraternity's money; he said that he had deposited the cash checks into the fraternity's payroll account; and Hammock rejected Davis's explanation....It is also clear that the government intended to introduce Davis's settlement offer in order to prove Davis's guilt, or in the words of Rule 408(a), his "liability." 

So, why do I disagree with the court? I don't think that there was a "claim" at the time that Davis made his offer. It is well established that there is only a "claim" for Federal Rule of Evidence 408 purposes when there is an "existing dispute[]." Cassiano v. Reichhold Chemicals, Inc., 817 F.2d 1338, 1343 (9th Cir. 1987). For instance, in Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1373 (10th Cir. 1977), the Tenth Circuit found that there was not yet a claim when "discussions had not crystallized to the point of threatened litigation, a clear cut-off point...."

At the point when Davis made his offer, there was no litigation, i.e., no lawsuit, and I don't think that there was threatened or anticipated litigation. If and when Davis eventually talked with Phi Beta Sigma's counsel or international president, I think it would be safe to say that there was anticipated litigation. But at the point where Davis and Hammock were just having preliminary conversations, I think that the conversations were just that, preliminary. Therefore, I don't think that the court should have found that Federal Rule of Evidence 408 was applicable.

-CM 

http://lawprofessors.typepad.com/evidenceprof/2010/03/408us-v-davis----f3d------2010-wl-668879cadc2010.html

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