California Split: Retaliatory Termination Case Reveals Split Between California And Federal Rules Of Evidence On Settlement Evidence

November 17, 2009

In relevant part, Federal Rule of Evidence 408 provides that

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 (emphasis added).

In other words, for evidence relating to settlement negotiations to be deemed inadmissible under the federal rule, those negotiations must come after a claim, which means a lawsuit or at least actions from which the two sides could reasonably anticipate litigation. As the recent opinion of the Court of Appeal, Sixth District, California, in Mangano v. Verity, Inc., 2009 WL 3807485 (Cal.App. 6 Dist. 2009), makes clear, California’s counterpart is not so constrained.

In Mangano, Thomas Mangano brought an action for retaliatory termination in violation of California’s Fair Employment and Housing Act (FEHA) against respondent Verity, Inc. after Verity terminated his employment.

At the time it terminated Mangano’s employment, Verity presented Mangano with a letter proposing “terms of the separation agreement…which Verity…is offering to you to aid in your employment transition.” In the proposed separation agreement, Verity offered to pay Mangano a lump sum equivalent to 17 weeks of salary in exchange for Mangano’s agreement to a “Nonsolicitation” clause, a “Nondisparagement” clause, a “Release” clause, an “ADEA Waiver” clause, a “Section 1542 Waiver” clause, and a “No Voluntary Adverse Action” clause.

Mangano declined the proposed separation agreement and sought to present evidence of the agreement at trial. The trial court, however, excluded this evidence. Mangano thereafter appealed, relying upon a Ninth Circuit case which had allowed for the admission of evidence of a similar separation agreement based upon similar facts. But the problem for Mangano, according to the court, was that the Ninth Circuit case was decided pursuant to Federal Rule of Evidence 408. In other words, the agreement in that case was deemed admissible because there was not yet a claim that was disputed as to validity or amount.

Conversely, Mangano’s case was being heard under the California Evidence Code, and California Evidence Code Section 1152 provides in relevant part that

Evidence that a person has, in compromise or from humanitarian motives, furnished or offered or promised to furnish money or any other thing, act, or service to another who has sustained or will sustain or claims that he or she has sustained or will sustain loss or damage, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove his or her liability for the loss or damage or any part of it.

According to the court, this was fatal to Mangano’s claim because Federal Rule of Evidence 408,

unlike Evidence Code Section 1152, expressly applies only where a “claim” was “disputed” at the time of the offer. Evidence Code Section 1152, on the other hand, says nothing about any claim, does not require the preexistence of a dispute, and expressly applies to a prospective loss. The trial court did not abuse its discretion in concluding that the proposed separation agreement fell within Evidence Code Section 1152‘s broad scope.

-CM