Court Finds Zoom Call Between Debtor & Creditor About Bankruptcy Claim Did Not Trigger Exclusionary Rule for Settlement Negotiations
Federal Rule of Evidence 408(a) provides 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.
As the rule makes clear, it only applies to statements made at a time where there was a dispute regarding the validity or amount of a claim. A good example of this limitation can be found in the recent opinion of the United States Bankruptcy Court for the Southern District of Ohio in In re S&G Hospitality, Inc., 2025 WL 3183258 (2025).
In S&G , S&G Hospitality filed for bankruptcy, leading creditors to file an action related to a loan to S&G. Thereafter, a Zoom meeting was “held in April 2020 between the principal of the Debtors and the representative of the servicer of the loan.”
The debtors thereafter moved to have statements during that Zoom meeting deemed inadmissible under Rule 408(a).
The court disagreed, concluding that
Rule 408(a) only excludes offers to compromise or statements made in compromise negotiations….A compromise, or negotiations regarding a compromise, is inherently conditional. An unconditional statement that does not require the opposing party to agree to do, or refrain from doing, anything is not barred by Rule 408 because there is no offer to compromise….For example, an offer by a lender to modify a mortgage loan that was not conditioned on any particular action by the borrower was not subject to Rule 408(a) because the lack of conditions meant that it was not an offer to compromise….
Moreover, “to invoke the exclusionary rule, an actual dispute must exist, preferably some negotiations, and at least an apparent difference of view between the parties as to the validity or amount of the claim.”….It is unclear from the evidence at the Hearing that any of these conditions had been met. Indeed, one of the purposes for the April Zoom Videoconference was so that Mr. Vasani could understand Rialto’s view on what was needed to bring the loans current, so that he could decide whether he disputed it or not.
But even assuming that there was a dispute that had crystalized before the April Zoom Videoconference, the Quoted Statements do not reflect any conditions on Mr. Strickland’s statement that Rialto would stop charging default interest due to the COVID-19 pandemic. In fact, Mr. Strickland went further and affirmatively stated that this decision was unconditional: he said that default interest would not be charged “starting from April or May of this year, during the COVID-19 virus, regardless of how this call goes, regardless [of] if you sue us or anything, we have turned off that default interest and it will not calculate.”…Mr. Strickland thus made it perfectly clear that Rialto was not asking for anything in exchange when he made the Quoted Statements.
Likewise, there is no evidence that at the point in the April Zoom Videoconference when the Quoted Statements were made, the parties were discussing any kind of compromise, and therefore the statements cannot be viewed as having been made during a compromise negotiation. The fact that the framework for a forbearance agreement was proposed and discussed later in the April Zoom Videoconference does not mean that the entire discussion was a compromise negotiation….In fact, there was a notable contrast between the Quoted Statements and the discussions contained in the balance of the call. The latter discussions were explicitly and repeatedly acknowledged by both Mr. Strickland and Mr. Vasani to be conditional, and exploratory. The Quoted Statements, in contrast, were explicitly unconditional.