Offer to compromise in Federal Court

An offer to compromise in Federal Court is the topic of this blog post.

An offer to compromise in Federal Court is governed by Rule 408 of the Federal Rules of Evidence.

Rule 408 of the Federal Rules of Evidence states that,

“Compromise Offers and Negotiations

(a) Prohibited Uses. 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 — except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.

(b) Exceptions. The court may 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.”

The provisions of Rule 408 prevent any party from offering evidence of any offer to compromise a claim as an admission of either the validity or invalidity of a claim.

The exclusion required by Rule 408 is based on two grounds.

The first ground is that the evidence is irrelevant, since the offer may be motivated by a desire for peace rather than from any concession of weakness of position. The validity of this position will necessarily vary as the amount of the offer varies in relation to the size of the claim and may also be influenced by other circumstances.

The second ground for exclusion is promotion of the public policy favoring the compromise and settlement of disputes.

The provisions of Rule 408 even prevent a party from admitting their own settlement offer or statements made in settlement negotiations.

One United States Circuit Court of Appeal stated that if a party were to reveal its own statement or offer, this could itself reveal the fact that the adversary entered into settlement negotiations. The protections of Rule 408 cannot be waived unilaterally because the Rule, by definition, protects both parties from having the fact of negotiation disclosed to the jury. Moreover, proof of statements and offers made in settlement would often have to be made through the testimony of attorneys, leading to the risks and costs of disqualification. See Pierce v. F.R. Tripler & Co., 955 F.2d 820, 828 (2d Cir. 1992) (settlement offers are excluded under Rule 408 even if it is the offeror who seeks to admit them; noting that the “widespread admissibility of the substance of settlement offers could bring with it a rash of motions for disqualification of a party's chosen counsel who would likely become a witness at trial”).

However there are some situations where the provisions of Rule 408 do not apply.

The provisions of Rule 408 do not apply when the “claim” that is the subject of the settlement discussion is undisputed.  To use one extreme example, Rule 408 will not prevent the admission into evidence of a debtor’s admission to its creditor that “we owe you $10 million, but you’ll have to sue us for it unless you’re willing to settle for much less.”

And Rule 408 does not prevent admission of settlement-related evidence to be used for reasons other than proving the nature and amount of the “claim” or to impeach a witness. Courts have used this exception to allow into evidence many types of settlement information, although they have sometimes included limiting instructions. Examples include the following:

A settlement agreement was admitted to show that a settling party understood certain reporting requirements contained in the agreement, and hence that the party’s later alleged violation of those same requirements was intentional.

A defendant removing a case to federal court was allowed to introduce evidence of its opponent’s settlement offers to establish the “amount in controversy” for federal diversity purposes.

A defendant could introduce evidence of its prior settlements with witnesses who the plaintiff intended to call to testify at trial, where the settlements tended to show the witnesses’ bias.

A party seeking to enforce a settlement could introduce evidence regarding settlement negotiations when necessary to explain the meaning of certain ambiguous terms in the parties’ agreement.

Prior settlement negotiations between a plaintiff and another party could be introduced by a defendant to establish for statute of limitations purposes the date that plaintiff understood the cause of his injuries.

Evidence regarding the fact of settlement between the defendant and other plaintiffs would be permitted when necessary to avoid jury confusion.

Sample offer to compromise in Federal Court in Word format.

Attorneys or parties that would like to view a sample offer to compromise in Federal Court in Word format created by the author of this blog post can see below.

Sample Settlement Offer Under Federal Rule of Evidence 408 by Stan Burman on Scribd


The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995 and has created over 300 sample legal documents for sale.

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