C & E Services, Inc. v. Ashland Inc.

• Decision Date: 26 March 2008
• Docket Number: Civil Action No. 03-1857 (JMF).
• Parties: C & E SERVICES, INC., and Carl L. Biggs, Plaintiff, v. ASHLAND INC., Defendant.
• Court: U.S. District Court — District of Columbia

539 F.Supp.2d 316

C & E SERVICES, INC., and Carl L. Biggs, Plaintiff, v. ASHLAND INC., Defendant.

Civil Action No. 03-1857 (JMF).

United States District Court, District of Columbia.

March 26, 2008.

Daniel Marino, Jay M. McDannell, Sarah Elizabeth Kleven, Sutherland Asbill & Brennan, LLP, Washington, D.C., for Plaintiff.

Peter Hugh White, Lucius T. Outlaw, III, Tai Lui Tan, Patricia H. Becker, Mayer, Brown, Rowe & Maw LLP, Paul Desmond Flynn, Crowell & Moring LLP, Washington, D.C., for Defendant.

MEMORANDUM OPINION

JOHN M. FACCIOLA, United States Magistrate Judge.

Before me are Defendant Ashland Inc.'s First Motion In Limine (Testimony and References to Ashland's Settlement with the Government) [# 112] ("First Motion"), Defendant Ashland Inc.'s Second Motion In Limine (To Exclude GSA OIG Draft Audit Reports, Statements Contained Therein, and Arguments that the OIG's Claims were Meritorious) [# 113] ("Second Motion"), Defendant Ashland Inc.'s Third Motion In Limine (To Exclude Evidence of C & E Services, Inc.'s Alleged Damages) [# 114] ("Third Motion"), and Defendant Ashland Inc.'s Fourth Motion In Limine (To Exclude Jimmy J. Jackson's Testimony and Opinions Regarding Damages) [# 115] ("Fourth Motion") (together, the "Motions").

For the reasons stated below, the First Motion, Second Motion, and Third Motion will be denied, and resolution of the Fourth Motion will be deferred.

I. Introduction

A. The Nature of the Lawsuit

The General Services Administration ("GSA") awarded the defendant Ashland Inc. ("Ashland") a Multiple Award Schedule ("MAS") contract in December 1991. A post-award audit of that contract began in April 1996 by the GSA Office of Inspector General ("OIG"). OIG ultimately concluded that Ashland had overcharged government customers in violation of the terms of the MAS contract, and referred the case to the United States Attorney's Office in New Jersey. A False Claims Act investigation was opened that was ultimately resolved by Ashland paying the government over one million dollars (the "Settlement").

Plaintiffs C & E Services, Inc. ("C & E") and Carl L. Biggs ("Biggs") (together, "plaintiffs") allege that this information was withheld from them as part of a scheme by Ashland to place the defectively priced products onto C & E's GSA contract schedule; that placement ultimately led to a suspension of plaintiffs' ability to contract with the government and to an investigation by federal authorities. Ashland in turn seeks damages against plaintiffs for their alleged failure to abide by the terms of the contract between it and C & E.

B. The Motions in Limine

In this action for the damages plaintiffs claim flowed from their use of Ashland's defective prices, Ashland seeks to exclude at trial the use of: (1) the Settlement; (2) the draft audit reports prepared by GSA as part of its investigation of Ashland's MAS contract; (3) several elements of the damages sought by plaintiffs; and (4) the testimony of an expert witness.

II. Analysis

A. The First Motion: Evidence of the Settlement

Ashland seeks in its First Motion to "bar plaintiffs from characterizing a 1997 Settlement Agreement between the United States and [Ashland] and conduct or statements made in the settlement negotiations, as an admission of liability, and to bar any reference at trial to the amount that Ashland paid in settlement." First Motion at 1. Ashland cites Rule 408 of the Federal Rules of Evidence to argue that this information is not admissible to show that the claims against Ashland had any merit, or to use for purposes of impeachment. Defendant Ashland Inc.'s Memorandum in Support of its First Motion In Limine [# 112-1] ("First Memo") at 3-5. Ashland also argues that the amount of the Settlement should be excluded under Rules 402 and 403 because it is irrelevant and unduly prejudicial. Id. at 5-7.

1. Rule 408

Rule 408 of the Federal Rules of Evidence provides that evidence of a settlement is not admissible "to prove liability for, invalidity of, or amount of a claim that was disputed¹ as to validity or amount, or to impeach through a prior inconsistent statement or contradiction." Fed.R.Evid. 408(a). The Rule, however, does "not require exclusion if the evidence is offered 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." Fed.R.Evid. 408(b).

Plaintiffs insist that they only intend to use the Settlement at trial for purposes not prohibited by Rule 408. Rather than offering it as proof that Ashland's prices were defective, as alleged by the government, plaintiffs intend to offer the Settlement to establish that Ashland made knowingly false representations about the viability of its prices and the severity of the government's allegations. Plaintiffs' Opposition to Defendant Ashland Inc's First Motion In Limine [# 124] at 11-13. To that end, plaintiffs argue that the amount paid as part of the Settlement is necessary to establish the falsity of Ashland's assertion that it had settled the government's claim for a "low, cost of defense" amount. Id. at 13-15.

Ashland insists that, despite plaintiffs' assurances to the contrary, plaintiffs are in fact attempting to use the settlement as proof of the validity of the government's claim, which is clearly prohibited by the Rule. Moreover, Ashland offers a stipulation — "that a settlement was reached between Ashland and the government under which Ashland was released from all claims without an admission of liability, and that Ashland paid a sum of money in connection with the settlement" — which they argue would suffice. First Memo at 4 n. 1.

a. Separate and Distinct

Plaintiffs rely on two cases to argue that evidence of a settlement should be admitted when "the settlement communications at issue arise out of a dispute distinct from the one for which the evidence is being offered." Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 689 (7th Cir.2005) (citing Towerridge Inc. v. T.A.O., Inc., 111 F.3d 758, 770 (10th Cir. 1997)). Because the Settlement concerned the government's investigation of Ashland and not the present litigation, plaintiffs argue that Rule 408 is inapplicable here.

This limitation suggested by plaintiffs is not supported by the plain language of the Rule and, moreover, there is contrary authority in other circuits. See, e.g., Fiberglass Insulators, Inc. v. Dupuy, 856 F.2d 652 (4th Cir.1988) (citing United States v. Contra Costa County Water Dist., 678 F.2d 90, 92 (9th Cir.1982)); Branch v. Fidelity & Cas. Co., 783 F.2d 1289, 1294 (5th Cir.1986). See also 2 CHRISTOPHER B. MUELLER & LAIRD C. KIRKPATRICK, FEDERAL EVIDENCE § 4.59 at 153 (3d ed. 2007) ("Some modern authority ... hold[] that settlements, and settlement talks, are not excludable when they involve parties to the present dispute negotiating or reaching agreements with persons who are not parties. This result seems hard to square with the terms of Fed.R.Evid. 408 and admitting the proof undermines the purposes of the principle of exclusion."); 2 STEPHEN A. SALTZBURG, MICHAEL M. MARTIN & DANIEL J. CAPRA, FEDERAL RULES OF EVIDENCE MANUAL § 408.02 at 408-13 (9th ed. 2006) ("Rule 408 applies even if the settlement is between a party to the litigation and a nonparty. A party's settlement with another is not admissible to prove the validity or the amount of the claim before the Court. The Rule is drafted to provide every incentive for compromise, and without such a broad rule of exclusion, litigants would be deterred from free-flowing settlement negotiations where multiple suits have been or might be brought.").

Indeed, in our judicial system, lawsuit number one often breeds lawsuit number two; as a magistrate judge who often presides over settlement discussions, I am constantly exposed to the concern of litigants that a settlement may be used by a third party to establish liability. The very policy underlying Rule 408 would be defeated if it did not operate to preclude the admissibility of settlement discussions in a case involving another party or another claim.

b. Other Purposes

Because Rule 408 does apply to this situation, the question becomes whether the evidence that plaintiffs will offer is being offered "to prove liability for, invalidity of, or amount of [the] claim ... or to impeach through a prior inconsistent statement or contradiction." Fed.R.Evid. 408(a). Ashland insists that, despite plaintiffs' assertions otherwise, the Settlement will be used "to establish that the government's defective pricing allegations were well founded." Defendant Ashland Inc.'s Reply Memorandum in Support of Its First Motion In Limine [# 131] ("First Reply") at 7 ("plaintiffs' claims are inextricably intertwined with the question of Ashland's liability to the government for defective pricing"). Ashland cites Trebor Sportswear Co. v. The Limited Stores, Inc., 865 F.2d 506, 510 (2d Cir.1989) for the proposition that when the claim settled and the claim asserted are inextricably intertwined, the exclusion that permits the use of settlement discussions for other purposes cannot apply. Id.

Examination of that case and a recent decision by the Second Circuit that refines it, PRL USA Holdings, Inc. v. U.S. Polo Ass'n, Inc., 520 F.3d 109 (2d Cir.2008), indicates that plaintiffs' evidence may be admitted for the limited purpose of proving that Ashland defrauded plaintiffs because the audit and Settlement may establish that Ashland had information that it misrepresented or did not provide to plaintiffs.

In Trebor, the plaintiffs sued for breach of contract and offered a settlement agreement for the purpose of disproving the defendant's statute of frauds defense. 865 F.2d at 507. The lower court, invoking Rule 408, disregarded the document, and the court of appeals affirmed, stating:

Appellants urge that they sought to introduce the documents only in order to meet the...