August 19, 2009

Rule 408 of the Federal Rules of Civil Procedure bars the introduction of settlement discussions at trial where such evidence is offered to prove the merit, or lack of merit of a claim, and/or the value of a disputed claim. While Rule 408 specifically provides that evidence of settlement discussions is not precluded when offered for some other purpose, the Rule does not include a comprehensive list of examples of such “purposes not prohibited.” Consequently, many exceptions to the general prohibition of Rule 408 have been developed via federal common law. Most recently, in Lohman v. Duryea Borough, the Third Circuit held, in a case of first impression, that Rule 408 does not prohibit a trial court from considering settlement discussions between the parties for purposes of calculating an award of attorney’s fees.

In the Lohman case, plaintiff, a former employee of defendant, Duryea Borough, filed suit against defendant for wrongful discharge. Only one of plaintiff’s three First Amendment retaliation claims survived pre-trial motions and proceeded to trial. During the trial, defendant offered plaintiff $75,000 to settle the case. Plaintiff rejected the offer, and the jury ultimately awarded plaintiff $12,205 in lost wages. Thereafter, plaintiff sought an award of attorney’s fees in the amount of $112,883.73. The trial court, however, awarded plaintiff only $30,000. In calculating this figure, the trial court was required to consider, among other factors, the degree of plaintiff’s success in the litigation. In evaluating this factor, the trial court noted the pre-trial dismissal of three of plaintiff’s causes of action. Additionally, with respect to plaintiff’s fourth claim, the trial court compared the jury’s award of $12,205 with defendant’s pre-verdict offer of $75,000 and the fact that plaintiff had rejected this offer. Plaintiff filed an appeal with the Third Circuit, and, relying upon Rule 408, argued that the trial court had improperly considered settlement discussions between the parties in calculating the attorney’s fees award. The Third Circuit affirmed the trial court, holding that its consideration of such discussions was for the purpose of evaluating plaintiff’s degree of success in the litigation, and, therefore, fell outside the scope of the prohibition set forth in Rule 408.

Denise M. Bowman is an associate of Hill Wallack LLP in the Yardley office where she is a member of the Business & Commercial Practice Group and the Litigation Division. Ms. Bowman concentrates her practice in the representation of corporate entities and partnerships, buying and selling businesses and real estate and also the representation of individuals and businesses in insurance, commercial litigation, bankruptcy and general business matters.