Tuesday, April 21, 2015
Virginia’s “Trap for the Unwary”: Loopholes in State Evidence Rules Protecting Settlement Discussions
Modern litigation tactics revolve as much around settling a case as winning it at trial. One critical aspect of these tactics is settlement discussions. In an effort to “promot[e] the public policy favoring the compromise and settlement of disputes,” the federal rules of evidence go to great lengths to prohibit the admission of settlement discussions. The idea is that parties will be more willing to engage in settlement discussions if they know that nothing they say in those discussions can hurt their overall litigation position, should they fail to reach agreement.
For this reason, Congress and the federal rules’ drafters rejected common law exceptions to the inadmissibility of settlement communications (e.g., exceptions for “factual admissions”), explaining:
The exception for factual admissions was believed by the Advisory Committee to hamper free communication between parties and thus to constitute an unjustifiable restraint upon efforts to negotiate settlements--the encouragement of which is the purpose of the rule. Further, by protecting hypothetically phrased statements, it constituted a preference for the sophisticated, and a trap for the unwary.
Now take a look at Virginia Rule of Evidence 2:408:
Evidence of offers and responses concerning settlement or compromise of any claim which is disputed as to liability or amount is inadmissible regarding such issues. However, an express admission of liability, or an admission concerning an independent fact pertinent to a question in issue, is admissible even if made during settlement negotiations. . . . .
Notice that Virginia retains the “trap for the unwary.” Attorneys who fail to couch their (and their clients’) settlement-related statements in hypothetical-ese or qualifying language like “without prejudice,” risk their statements being classified as an “admission concerning an independent fact” or an “express admission of liability” and coming back to bite them in a Virginia trial. Here is further discussion of the issue from my book:
The Virginia rule comes straight from case law, although that case law is conclusory and provides little exposition. See Lyle, Siegel, Croshaw & Beale, P.C. v. Tidewater Capital Corp., 249 Va. 426, 438, 457 S.E.2d 28, 35 (Va. 1995) (stating general rule, but highlighting precedent for proposition that “an admission during settlement negotiations of an independent fact pertinent to a question in issue” and “an express admission of liability made during settlement negotiations” are admissible). The Virginia rule is best understood by tracing its origins to the general common-law rule that permitted the introduction at trial of “admissions of fact” even if made during settlement negotiations. This common-law rule is specifically disparaged in the federal advisory committee notes. See Advisory Committee Note to Fed. R. Evid. 408 (indicating departure from common-law rule’s “inapplicability to admissions of fact, even though made in the course of compromise negotiations, unless hypothetical, stated to be ‘without prejudice,’ or so connected with the offer as to be inseparable from it”). Given this pedigree, it becomes clear that the “independent” facts referred to in the Virginia rule are simply facts stated without qualifying language (e.g., “without prejudice”) and not otherwise directly tethered to the offer of compromise. See Hendrickson v. Meredith, 161 Va. 193, 204, 170 S.E. 602, 606 (Va. 1933) (quoting following discussion with approval: “confidential overtures of pacification, and any other offers or propositions between litigating parties, expressly stated to be made without prejudice, are excluded on grounds of public policy. *** But if it is an independent admission of a fact, merely because it is a fact, it will be received; and even the offer of a sum by way of compromise of a claim tacitly admitted is receivable, unless accompanied with a caution that the offer is confidential.’”) Thus, a pertinent fact uttered during settlement discussions that is not carefully couched in qualifying language is potentially admissible under Rule 2:408.
The Virginia rule also carves out “explicit admission[s] of liability” from its protection. The meaning here is more obscure, but best understood as simply a particularly damaging subset of “independent” fact admissions. See City of Richmond v. A. H. Ewing’s Sons, 201 Va. 862, 869-70, 114 S.E.2d 608, 613 (Va. 1960) (“The recognition of the existence of a binding contract was in the nature of an admission of an independent fact pertinent to the issue of the correctness of the claims…. Upon this principle an express admission of liability made during negotiations for a compromise is admissible.”) Just as a statement of fact uttered during settlement negotiations will be admissible under the Virginia rule, so will an “explicit admission of liability” unless the admission is explicitly qualified or shown from the circumstances to be an integral part of the compromise offer itself.
The lesson here is that it is important to know the state evidence rules of any jurisdiction where your case may end up. It is bad enough to have to tell your client that your efforts to settle the case did not succeed. Even worse is having to inform your client that your unfruitful efforts to settle generated evidence for your opponent to use against you at trial.