The Law @ Work

Massachusetts Federal Court Allows Jury To Hear Evidence of Settlement Negotiations

by Erica E. Flores

If you’ve never given a thought to whether your settlement discussions could end up before a jury, now is the time to begin doing so.  Recently, a federal court in Massachusetts allowed a jury to hear plaintiff’s exorbitant, pre-litigation settlement demands, and the jury ultimately returned a verdict in favor of the employer.  The decision raises fresh questions about whether and when settlement discussions are admissible at trial.

Here’s what happened:  in December 2008, Boston-based law firm Ropes & Gray, LLP informed Attorney John H. Ray, III that he would be terminated at the end of a six-month severance period.  In May 2009, after denying several prior requested extensions, Ropes offered Ray a two-month extension in exchange for a release of any claims against the firm.  Ray responded that he would file a charge of discrimination with the EEOC unless Ropes extended the severance period indefinitely or paid him $8.5 million.  Ropes terminated his employment the very next day, and Ray made good on his promise to file a charge.

The dispute ended up in Massachusetts federal court where Judge Stearns ruled that the jury could hear evidence of Ray’s $8.5 million settlement demand.  The Court acknowledged that the Federal Rules of Evidence bar the use of a settlement offer as an admission of liability, but Ropes’ theory was that Ray’s settlement demand was not being offered to show liability but instead to show that Ray had attempted to extort money from Ropes, an issue that was relevant to Ropes’ reason for terminating Ray’s employment.  As a result, the court ruled that Ray’s settlement demand was admissible under the Federal Rules.

In presenting its defense, however, Ropes was allowed to introduce evidence, not just of Ray’s initial $8.5 million settlement demand, but also of the entire history of the parties’ settlement negotiations.  Jurors learned, in particular, that Ray’s demand had jumped to $10 million, then to $12.5 million and ultimately to $40 million by May 2011, based on a series of e-mails that were admitted into evidence.  The trial concluded on November 20, 2013 with a quick jury verdict in favor of the employer.

To the average lawyer, the Court’s willingness to admit this evidence is terrifying, and contrary to the widely-accepted view that Rule 408 places a protective force field around all settlement negotiations.  The reality, however, is that Rule 508 is much narrower.  The Rule states, in pertinent part, as follows:

“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 . . . .”

In simpler terms, the Rule does forbid the admission of settlement demands and related negotiations, but only if that information is offered to prove or disprove the validity or amount of the claim, or to impeach the other party’s credibility.  The Rule does not forbid the admission of such evidence for any other purpose and, in fact, expressly allows courts to “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.”

Ray’s attorney has expressed disagreement with Judge Stearns’ decision to admit his client’s settlement demands as evidence at trial and has promised to appeal the ruling to the First Circuit.  In the meantime, we recommend that employers consult with counsel before engaging in any type of settlement discussion or negotiation, whether written or verbal.  A quick e-mail or voice message could end up in the hands of a jury and, worse, could contribute to an unfavorable verdict.

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