Friday, November 6, 2020
United States District Court for the District of Utah Notes Split Over Whether Settlement Statements About Mitigation of Damages Are Admissible
Federal Rule of Evidence 408 reads as follows:
(a) Prohibited Uses. Evidence of the following is not admissible — on behalf of any party — either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering — or accepting, promising to accept, or offering to accept — a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim — except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.
(b) Exceptions. The court may admit this evidence for another purpose, such as proving a witness’s bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.
So, does Rule 408(b) allow for the admission of evidence of statements during settlement negotiations to prove that a party failed to mitigate its damages? This was the question of first impression addressed by the United States District Court for the District of Utah in Nutraceutical Corporation v. Nutrachamps, Inc., 2020 WL 6382042 (D. Utah. 2020).
As noted in the court's opinion,
Nutraceutical Corporation and NutraMarks, Inc. (“Plaintiffs” or “Nutraceutical”) and NutraChamps, Inc. (“Defendant” or “NutraChamps”) are each in the business of selling dietary supplement products to the public. Plaintiffs claim that Defendant has “brazen[ly] infringe[d]” on Nutraceutical's trademarks and trade dress rights, including: (i) Nutraceutical's trademark in its Hairfluence product, (ii) Nutraceutical's trademark in its Boost Elite product, and (iii) Nutraceutical's trade dress rights in the packaging of the Zhou nutritional supplement products (“Zhou Trade Dress”), which include the Calm Now, DriftOff, Neuro Peak, Resveratol, Turmeric, K2+D3, Energy Focus, N.O. Pro, Horny Goat Weed, Hairfluence, Iron Beard, Tart Cherry, and Boost Elite products (“Zhou Products”).
And, as the court went on to note,
Defendant's Third Affirmative Defense is that Plaintiffs failed to mitigate their damages. To succeed under this defense, Defendant must prove that Plaintiffs could have reasonably avoided all or part of their claimed damages.....As evidence of Plaintiffs’ failure to mitigate, Defendant asserts that Plaintiffs rejected Defendant's offer to remove the illustration of the clenched fist from the Tribulus product label as a business compromise. However, Rule 408 of the Federal Rules of Evidence prohibit this settlement offer from being used here as evidence of Plaintiffs’ failure to mitigate damages.[FN3]
[FN3] Defendant contends that evidence of its offer to remove the illustrated fist is admissible as “evidence for another purpose” under Rule 408(b). See Fed. R. Evid. 408(b). The Tenth Circuit has not addressed this exception to Rule 408 in the context of proving or disproving mitigation of damages, but other circuits have weighed in on either side of this issue. See Urico v. Parnell Oil Co., 708 F.2d 852, 854-855 (1st Cir.1983) (settlement evidence admissible regarding mitigation of damages); Bhandari v. First Nat'l Bank of Commerce, 808 F.2d 1082, 1103 (5th Cir.1987) (same); Orzel v. Wauwatosa Fire Dep't, 697 F.2d 743, 757 n. 26 (7th Cir.1983) (same); but see Pierce v. F.R. Tripler & Co., 955 F.2d 820, 827-29 (2d Cir.1992) (settlement evidence inadmissible regarding mitigation of damages as it goes to “amount” of the claim); Stockman v. Oakcrest Dental Ctr., P.C., 480 F.3d 791, 797-798 (6th Cir.2007) (same).
While no binding authority yet exists for the court to follow, "the Tenth Circuit has stated that 'when the issue is doubtful, the better practice is to exclude evidence of compromises or compromise offers.'"
So, clearly there's a split among jurisdictions over whether statements during settlement negotiations about mitigation of damages are admissible under Rule 408(b).