District of Minnesota Broadly Construes the Term “Claim” For Purposes of Applying Rule 408
Federal Rule of Evidence 408(a) provides that
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 (emphasis added)
So, when is there a “claim” sufficient to trigger Rule 408? Let’s take a look at the recent opinion of the United States District Court for the District of Minnesota in Steffen v. Northway Resource Development, LLC, 2022 WL 228243 (D.Minn. 2022).
Steffen involves a dispute between Dr. Eric Steffen and Northway Resource Development, LLC regarding how much Steffen’s interest in the overall practice was worth. In finding that two letters sent by Steffen’s previous counsel to Northway’s counsel in June 2018, the court held that
The statements in these letters are not admissible. Evidence of “a statement made during compromise negotiations about [a disputed] claim” is “not admissible—on behalf of any party—either to prove or disprove the validity or amount of [that] disputed claim or to impeach by a prior inconsistent statement or a contradiction.” Fed. R. Evid. 408(a), (a)(2).
Rule 408 applies only to “compromise evidence relating to a ‘claim’ that was disputed when the settlement negotiations … took place.” Weems v. Tyson Foods, Inc., 665 F.3d 958, 965 (8th Cir. 2011). But “a dispute need not ‘crystallize to the point of threatened litigation’ for the 408 exclusion rule to apply.”…Rather, a dispute exists if “there is ‘an actual dispute or difference of opinion’ regarding a party’s liability for or the amount of the claim.”…For example, in Weems (an employment-discrimination case), the Eighth Circuit found that the trial court had committed reversible error in admitting into evidence a proposed separation agreement that the defendant employer had sent to the plaintiff employee after she was removed from her position and after she expressed concerns about her removal to a human-resources officer….The Eighth Circuit held that Rule 408 barred admission of the proposed agreement even though the employee had not threatened or even “contemplat[ed] legal action at the time.”…
Here, when the letters between Steffen’s counsel and Northway’s counsel were sent, there was a clear disagreement between the parties about how much Steffen’s interest in the overall practice was worth. The letters themselves provide evidence of that disagreement….Thus, there was a claim in dispute for purposes of Rule 408. And all of the letters were sent in the course of negotiations regarding that disputed claim.10
Northway contends that Rule 408 does not bar the June 14, 2018, letter because the letter “does not offer to compromise on the disputes in this litigation.”…Northway says that the letter predates Steffen’s litigation in state court and was sent nearly two years before Steffen first told Northway that he disputed the valuation date for the Northway buyout….But a court applying Rule 408 does not slice litigation so finely. Rule 408 is intended to promote “the public policy favoring the compromise and settlement of disputes.”…And a court must apply Rule 408 “in light of its underlying purpose.”….Settlement negotiations would be chilled if courts broke those negotiations into fragments and insisted that each fragment directly relate to an actually disputed issue in order for Rule 408 to apply. Parties would be discouraged from taking any position on any issue—even issues that they do not (yet) consider to be in dispute—lest they be stuck with those positions in later litigation.
-CM