Goodyear Tire & Rubber v. Chiles Power Supply

• Citation: 332 F.3d 976
• Decision Date: 16 June 2003
• Docket Number: No. 01-3873.,01-3873.
• Parties: The GOODYEAR TIRE & RUBBER COMPANY, Plaintiff-Appellee, v. CHILES POWER SUPPLY, INC., d/b/a Heatway Systems, Defendant, Robert S. Julian, et al., Petitioners-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

332 F.3d 976

The GOODYEAR TIRE & RUBBER COMPANY, Plaintiff-Appellee, v. CHILES POWER SUPPLY, INC., d/b/a Heatway Systems, Defendant Robert S. Julian, et al., Petitioners-Appellants.

No. 01-3873.

United States Court of Appeals, Sixth Circuit.

Argued March 28, 2003.

Decided and Filed June 16, 2003.

G. Jack Donson (argued and briefed), John B. Nalbandian (briefed), Taft, Stettinius & Hollister, Cincinnati, OH, James K. Archibald (briefed), Jeffrey A. Dunn, Venable, Baetjer, Howard & Civiletti, Washington, DC, Deborah A. Neibauer, Goodyear Tire & Rubber Co. Law Department, Akron, OH, Kenneth C. Bass, III (briefed), Sterne, Kessler, Goldstein & Fox, P.L.L.C., Washington, DC, for Appellee.

William W. Maywhort (argued and briefed), Holland & Hart, Greenwood Village, CO, David L. Black (briefed), Joseph W. Halpern (briefed), Holland & Hart, Denver, CO, for Appellants.

Before BOGGS, SUHRHEINRICH, and SILER, Circuit Judges.

OPINION

SUHRHEINRICH, Circuit Judge.

Appellants Robert S. Julian and fifteen other Colorado homeowners ("Julian") intervened in this action and moved the district court to vacate or modify a confidentiality order. Julian now appeals from the district court's June 29, 2001, denial of his petition to vacate the order which prevents either of the named parties in the case of Goodyear Tire & Rubber Co. v. Chiles Power Supply Inc., 7 F.Supp.2d 954 (N.D.Ohio 1998) ("Goodyear I"), from discussing the contents of settlement negotiations. The issue presented on appeal is whether statements made in furtherance of settlement are privileged and protected from third-party discovery. We affirm the decision of the district court and find that they are.

I.

Defendant Chiles Power Supply, Inc. d/b/a Heatway Radiant Floors and Snowmelting ("Heatway") is a national manufacturer of heating and snowmelt systems. Sometime prior to 1995, Heatway purchased a significant amount of "Entran II" rubber hose from Plaintiff-Appellee Goodyear Tire & Rubber Co. ("Goodyear"). Heatway subsequently incorporated the hose into a hydronic radiant heating and snowmelt system, which it then sold to Julian and other homeowners in and around Vail, Colorado.

In 1998, Julian filed suit in federal district court in Colorado against both Goodyear and Heatway after the "Entran II" hose used in Heatway's system failed and caused damage to Julian's property. See Loughridge v. Goodyear Tire & Rubber Co., No. 98-CV-1302 (D.Col. filed June 15, 1998). In that action, Goodyear defends on the ground that the failure of the hose is due to negligent installation and maintenance of the system by the homeowners. Conversely, Heatway argues that the failure is due to a defect in Goodyear's design for the hose. Significantly, Heatway co-founder Daniel Chiles gave a sworn deposition to that effect on October 29, 1997.

Between May 1995 and June 1996, prior to the Colorado lawsuit, Heatway entered into a second contract with Goodyear to obtain Goodyear's newest model rubber hose, presumably for use by Heatway in the same or a similar heating system. However, Heatway refused to pay the $2,093,000 contract price after the "Entran II" failures in Colorado began to surface. On January 21, 1997, Goodyear filed suit against Heatway in Ohio state court for non-payment on the second contract. Heatway removed the case on the basis of diversity jurisdiction to the United States District Court in Akron, Ohio; and counterclaimed, alleging, inter alia, breach of implied warranty of merchantability regarding the hose that had failed in Colorado. The district court granted Goodyear summary judgment on the contract, but denied summary judgment on Heatway's counterclaims, and scheduled the case for jury trial. Goodyear I, 7 F.Supp.2d 954. The district court presided over settlement negotiations for the counterclaims, and admonished that all talks were to remain confidential. The negotiations ultimately proved unsuccessful. On February 4, 2000, the jury returned a verdict for Goodyear on Heatway's counterclaims. Heatway subsequently filed for bankruptcy and did not appeal the decision.

In March 2000, Chiles gave an interview to Contractor, a Cleveland, Ohio trade paper. The subsequent article quotes Chiles as saying, in regard to the Ohio litigation:

[T]he day before this trial began, Goodyear made us an offer. They said, we'll do away with this litigation, we'll give you cash, we'll indemnify you against lawsuits from homeowners and all you have to do is sign this paper and agree that the fault is with homeowners and contractors.

Robert P. Mader, Goodyear Stunner, CONTRACTOR MAGAZINE, Mar. 1, 2000, at 1. On March 14, 2000, after a hearing, the Ohio district court determined that Chiles had improperly disclosed confidential statements made during the course of negotiations, and ordered Chiles not to make any more statements about the settlement discussions. In a written order, the court noted that "the content of settlement discussions are always confidential" and may never be disseminated, even after a case is closed. Moreover, to correct Chiles' misstep, the district court gave Goodyear permission to make a statement "in whatever form or fashion it chooses, in response to the statement of Dan Chiles published in Contractor Magazine." On May 1, 2000, Contractor published Goodyear's response:

Dan Chiles' statement was false. Heatway knows that where systems using Entran II as a component part had problems, those problems invariably are the result of improper system design, installation, operation or maintenance — not the result of any defect in the hose. Heatway failed to get sufficient information on system installation, operation or maintenance to installers and system users, leading directly to the limited problems that have occurred with systems in the field. Heatway's attacks on the hose are a cynical effort to misdirect installers, users and the public away from the real problems — problems that Heatway itself in large part created. In settlement negotiations, Heatway indicated it was willing to begin telling system installers and users the truth about the real cause of the problems — but only if Goodyear would make payments to Heatway. Goodyear refused to pay Heatway to tell the truth — something Heatway should have done (and should do) regardless.

Goodyear Responds to Chiles' Comments, CONTRACTOR MAGAZINE, May 1, 2000, at 23.

The Colorado case, Loughridge, was by then, and is now still, pending. On May 1, 2001, having learned about Chiles' accusations, Julian filed a motion with the Colorado district court seeking to compel Chiles to testify about Goodyear's alleged offer to "buy" Chiles' testimony. On May 15, 2001, without addressing whether settlement communications are always confidential, the Colorado court denied the motion to compel. The court simply held that it lacked jurisdiction to overrule another court's order.

On June 25, 2001, pursuant to Fed.R.Civ.P. 24, Julian joined the instant Ohio case and petitioned the Ohio district court to vacate or modify its confidentiality order and to permit discovery of any statements Goodyear made during settlement talks. Julian argued that any communications should be discoverable, notwithstanding the confidentiality order, because the communications are not privileged and are relevant to Julian's Colorado claim. On June 29, the district court denied the motion, and again found that the content of settlement talks are always confidential. The court relied on the prevailing public policy favoring secrecy in negotiations:

Public policy favors the settlement of lawsuits, a policy embodied in Rule 408 of the Federal Rules of Evidence. See, e.g., [Fed.R.Evid. 408, advisory committee note]; Affiliated Mfrs., Inc. v. Aluminum Co. of Am., 56 F.3d 521, 526 (3d Cir.1995) ("[t]he policy behind Rule 408 is to encourage freedom of discussion with regard to compromise"). The integrity of the mediation process depends on the confidentiality of discussions and offers made therein. Because parties are generally entrenched in their adversarial roles, negotiations often include specific, creative recommendations by the Court on how to resolve disputes.

Order Re: Denying Petition to Vacate or Modify Confidentiality Order, at 3. Julian filed a notice of appeal on July 30, 2001, and this matter is timely before this Court under Fed. R.App. P. 4(a)(1)(A).

II.

We review the district court's decision on Julian's motion to vacate the confidentiality order for an abuse of discretion. See, e.g., First Tech. Safety Sys. v. Depinet, 11 F.3d 641, 647 (6th Cir.1993). The question of whether communications made in furtherance of settlement negotiations are discoverable by litigants in another action is a matter of first impression in this Circuit.

Rule 408 of the Federal Rules of Evidence provides that "[e]vidence of conduct or statements made in compromise negotiations is ... not admissible." Fed.R.Evid. 408. However, Rule 408 "does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution." Id. Julian argues that the proscriptive portions of Fed.R.Evid. 408 apply only to admissibility at trial, and that statements made in furtherance of settlement negotiations are necessarily discoverable because Rule 408 provides for their use in some aspects of trial.

Rule 26(b)(1) of the Federal Rules of Civil Procedure provides that "[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party...." Fed. R.Civ.P. 26(b)(1) (emphasis added). Accordingly, the right to discovery is not absolute. We must therefore first address whether settlement communications are privileged.

In Jaffee v. Redmond, 518 U.S. 1, 116 S.Ct. 1923, 135 L.Ed.2d 337 (1996), the Supreme Court discussed at length the parameters of any...