Those in business know that disputes can lead to lawsuits. And, often during commercial lawsuits a party assumes an item will be kept confidential, but surprisingly, the matter is revealed.
Rule of Evidence 408[i]—Sometimes admissible, and almost always discoverable. As commercial lawyers we know that under both Federal and Texas Rules of Evidence 408 offers of compromise and negotiations, and statements surrounding negotiations are not admissible in court to prove or disprove the validity or amount of a disputed claim. However, we advise our clients that the exceptions to the rule make it clear that words can (and most likely will) be used against you. But potentially more treacherous is the fact that Rule 408 does not prohibit discovery of the compromise negotiations. To protect our clients, we provide advice regarding confidentiality.
Labels—How much protection? When sending correspondence in the midst of negotiations it’s generally standard operating procedure to label material, “Confidential Settlement Negotiations.” But blanket labels are in no way dispositive of whether evidence is privileged. There is plenty of room for the courts to broaden or narrow the definition of what is not included (and therefore, not protected) in “compromise negotiations.” Courts will consider issues such as:
- When do the negotiations begin, and when do they end?
- What documents are protected as part of the negotiations?
- What is the difference between business negotiations and settlement negotiations?
Experienced commercial lawyers must keep clients guarded at all times during communications.
Permissible Uses—Five ways your words can be used against you. Rule 408 provides commercial attorneys with more than five exceptions to use the opposing party’s statements or actions in the course of a trial. When you consider compromise negotiation evidence is admissible to prove a party’s bias, prejudice or interest, the exception covers a wide array of fact patterns. Some of the most seemingly innocent and polite comments can come back to haunt a party.
A few reminders to help you steer clear of the 408 traps include:
- Do not rush to communicate. Review all communication. Do not send correspondence (print, email, instant messenger, social media conversations) without double checking the content. Consider having a second pair of eyes review communications prior to sending for both stray remarks, and to include self-serving language.
- Embrace formality. The more formal you keep your communication and attitude, the less likely you’ll be to stray from message. Do not get casual in your dealings and conversations with opposing counsel, the other party or any witness.
- Keep communications clear and concise. Never miss an opportunity to capitalize on precise language. Consider how people with differing viewpoints will interpret your message. Be clear and concise. Now’s not the time for small talk, pleasantries, or over-communicate.
- Do use warning labels. As soon as possible, counsel and party should determine the rules for labelling communications as “Confidential Settlement Negotiations.” Is everything during the process going to be labelled? Or, are there certain documents and correspondence that obviously aren’t privileged that might be better without a label? We strongly encourage the parties agree to a “Protective Order” to handle these issues.
- Remind. Remind. At the start of possible negotiations, commercial lawyers should remind parties (and some witnesses) about the rules. Give clients examples of innocent mistakes made when communicating, and the impact of such statements. We do not assume clients or witnesses know or remember prior warnings. We remind clients and witnesses before each critical meeting, hearing, or other commercial lawsuit matter of the implications under rule 408.
- Discover documents. Sometimes it doesn’t pay to be the first to settle. Use discovery to get as much evidence of other settlement negotiations and compromises as you can.
A breach of contract attorney’s rule of thumb is: Guard up. Mouth shut. Pens down.
Mark A. Alexander
5080 Spectrum, Suite 850E
Addison, Texas 75001
Fax: 972. 421.1500
“Texas Rules of Evidence 408. Compromise Offers and Negotiations
(a) Prohibited Uses. Evidence of the following is not admissible either to prove or disprove the validity or amount of a disputed claim:
(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 statements made during compromise negotiations about the claim.
(b) Permissible Uses. The court may admit this evidence for another purpose, such as proving a party’s or witness’s bias, prejudice, or interest, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.”