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Ninth Circuit Upholds Admission of Settlement Offer

By Tiffany M. Williams, Litigation News Associate Editor – March 10, 2011

A decision by the U.S. Court of Appeals for the Ninth Circuit serves as a reminder that settlement offers may not always be inadmissible at trial. In a footnote, the appellate court held that the district court did not abuse its discretion in allowing the admission of evidence relating to a purported settlement offer. Costanich v. Department of Social and Health Services for the State of Washington [PDF]. The district court had concluded that because the settlement offer was not offered as proof of liability, but was presented for another purpose, it was admissible.

The “Settlement Offer”
After Washington state revoked Costanich’s foster care license and instituted guardianship termination proceedings against her, Costanich brought a civil rights claim for deprivation of her due process rights. A state investigation allegedly showed “emotional abuse” of children in Costanich’s care. Officials in Washington’s Department of Social and Health Services (DSHS) allegedly told Costanich that DSHS would not seek termination of her guardianship of two minors if she would not appeal DSHS’s finding of emotional abuse.

Rule 408 [PDF] of the Federal Rules of Evidence generally bars the use of offers of settlement when offered as proof of liability. Rule 408 does, however, permit admission of settlement offers for other purposes, such as to establish bias, prejudice, or undue delay.

At the district court level, Costanich successfully argued for the admission of evidence of DSHS’s offer to refrain from initiating guardianship revocation proceedings against her. The district court admitted the evidence to demonstrate that “DSHS inappropriately pressured [Costanich] to accept its abuse finding.”

The Ninth Circuit held that the district court did not abuse its discretion in admitting the settlement discussions for the limited purpose of demonstrating undue pressure. Although the circuit court acknowledged that DSHS waived the issue by failing to include it in its opening brief, the appellate court held that, even if the issue had been preserved, its decision would not change.

Implications for Litigators
Section leaders do not believe that Costanich compromised Rule 408, but, rather that the decision’s rationale was fact specific. “Young lawyers should become intimately familiar with the progeny of interpretations of Rule 408 to ensure that they can adequately isolate the use of settlement discussions in their specific case consistent with the binding case law in their jurisdiction,” says Damian E. Thomas, Miami, cochair of the ABA Section of Litigation’s Solo and Small Firm Committee.

It is important for litigators to “establish a written agreement—consistent with public policy—with clear parameters about the use of settlement discussions,” suggests Paulette Brown, Madison, NJ, a member of the Section of Litigation’s Council. She notes that it is also important to use motions in limine to limit or preclude evidence of any prior settlement offers or agreements.

“Some states, like California, have robust protections for settlement offers made in the context of mediation,” says Mark B. Helm, Los Angeles, cochair of the Section’s Pro Bono and Public Interest Committee. Helm recommends that parties use such mechanisms for the additional protection they may provide. Alternatively, Helm suggests that private agreements “that clearly establish a confidentiality component barring use of any statements for any purpose be used by the parties in advance.”

Keywords: litigation, Federal Rules of Evidence, Ninth Circuit, settlement


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