Commercial Litigation and Arbitration

Rule 408 Exclusion of Attorney Conversation Erroneous Where There Was No Pending Dispute — Note Importance of Announcing Intent to Maintain Settlement Offers Confidential

MCI Commc’ns Servs., Inc. v. Hagan, 641 F.3d 112; 2011 U.S. App. LEXIS 9699 (5th Cir. 2011):

This case arises from a January 20, 2006 incident in which an underground cable owned by plaintiff-appellant MCI was allegedly severed. MCI filed suit against defendants-appellees Wayne Hagan and James Joubert, alleging that Joubert was negligently excavating on a backhoe in violation of the Lousiana Damage Prevention Act (Louisiana Underground Utilities and Facilities Damage Prevention Law), LA. REV. STAT. ANN. §§ 40:1749.11 et seq., and that Hagan was vicariously liable because Joubert was acting as his agent at the time. The underground cable at issue was buried in part under land owned by Hagan. After a trial in the United States District Court for the Eastern District of Louisiana, the jury found for Hagan and Joubert. ***

A. Exclusion of Evidence under Federal Rule of Evidence 408

MCI contends that on the day after the cable was allegedly severed, MCI employee Robert Bergeron received a call from Andre Coudrain, an attorney who had at some point represented defendant Hagan. MCI contends that Coudrain told Bergeron that Hagan had been installing a boat ramp and asked what the damage to the cable would cost. MCI attempted to call Robert Bergeron to testify about this conversation at trial, but the district court ruled that the conversation was a settlement discussion and excluded it under Federal Rule of Evidence 408.

We review a district court's decision to admit or exclude evidence for abuse of discretion. United States v. Sosa, 513 F.3d 194, 199 (5th Cir. 2008). We have previously held that Rule 408 "protects only conduct or statements made in compromise negotiations regarding a claim that was disputed as to validity or amount." Lyondell Chem. Co. v. Occidental Chem. Corp., 608 F.3d 284, 295 (5th Cir. 2010) (internal quotation marks and citations omitted). This rule "is designed to encourage settlements by fostering free and full discussion of the issues." Ramada Dev. Co. v. Rauch, 644 F.2d 1097, 1106 (5th Cir. 1981). "[T]he question under the rule is whether the statements or conduct were intended to be part of the negotiations toward compromise." Id. (internal quotation marks omitted). Litigation does not need to have commenced for Rule 408 to apply, but there must be "an actual dispute or a difference of opinion." Lyondell, 608 F.3d at 295, n. 38 (internal quotation marks omitted).

Defendant Hagan claims that after he arrived at the incident site on the day following Joubert's use of the backhoe, an employee of a contractor enlisted by MCI to conduct the repairs informed Hagan that the down time on the cable was costing $20,000 a minute. Hagan then called Coudrain, who then telephoned Bergeron and allegedly made the statement at issue.

We find that it was likely error for the district court to exclude Bergeron's testimony under Rule 408. At the point in time the call was placed, there was not yet an actual dispute or a difference of opinion about who caused the damage to MCI's cable and how much the damage was costing MCI. Coudrain may have intended the call to begin the process of settlement discussions, but because there was not yet an actual dispute his statement likely cannot qualify as a negotiation toward compromise.

Even so, this court "may not disturb the district court's exclusion of the evidence . . . if that ruling can be upheld on other grounds." Brazos River Auth. v. GE Ionics, Inc., 469 F.3d 416, 423 (5th Cir. 2006) (internal quotation marks omitted). Coudrain's statement as introduced by Bergeron is an out of court statement offered for the truth of the matter. At the time he called Bergeron, Coudrain was operating as Hagan's agent, so under Federal Rule of Evidence 801(d)(2)(D), the statement is not hearsay. However, there is no evidence that Coudrain was Joubert's agent and thus Bergeron's testimony would have been inadmissible against Joubert. Because the two defendants were tried together, we find that the district court did not abuse its discretion in excluding Bergeron's testimony. The testimony could have been excluded on other grounds given that it was inadmissible hearsay against Joubert, and thus we decline to remand for a new trial on this ground.

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