The Admissibility of Settlement Evidence in Multi-defendant Tort
Cases
By Daniel J. La Fave
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Trial attorneys and judges need to
carefully consider Anderson by Skow v. Alfa-Laval Agri Inc. in
light of the precedential backdrop in Wisconsin and the developing law
in other jurisdictions to safely navigate the potential evidentiary
minefield surrounding the admissibility of settlement evidence in
multi-defendant tort cases. |
The Wisconsin Court of Appeal's treatment last year in Anderson by Skow v. Alfa-Laval Agri
Inc.1 of the rule governing the
admissibility of settlement evidence interjects uncertainty into the
proper role such evidence can play at trial and signals a more
restrictive approach on the subject than taken in prior Wisconsin
Supreme Court cases and in recent decisions from other jurisdictions.
Because the admissibility of settlement evidence at trial arises
frequently in the context of multi-defendant tort cases, trial attorneys
and judges in these cases need to carefully consider Anderson
in light of the precedential backdrop in Wisconsin and the developing
law in other jurisdictions to safely navigate this potential evidentiary
minefield.
When plaintiffs prosecute tort cases against numerous defendants,
economic constraints and tactical considerations frequently militate in
favor of narrowing the field through settlements to target only select
defendants at trial. In this way plaintiffs may dispose of seemingly
conflicting liability theories or those with little jury appeal.
Judicious settlements also may help fund costly trial presentations
against more promising defendants (for example, a crashworthiness case
against an automobile manufacturer).
Whatever the motivation, nonsettling defendants, who suddenly find
themselves alone in the spotlight, may be left scrambling to retool
their case to accommodate the altered terrain on short notice.
Especially in the case of 11th hour settlements, a ready defensive
response is to seek to introduce evidence of the plaintiffs' settlement
at trial to attack the credibility of plaintiffs' and settling
defendants' witnesses because of the financial interest those witnesses
have in concentrating blame solely on those who refused to settle.
Introducing settlement evidence is a potentially incendiary device, one
that could lead the jury to conclude that the plaintiffs have received
ample compensation from the real malefactors and no further recovery is
necessary.
In Anderson the Wisconsin Court of Appeals took a
restrictive view of the propriety of such defensive tactics that
arguably is at odds with earlier Wisconsin Supreme Court precedent and
the developing law in other jurisdictions, which suggest a broader role
for the use of settlement evidence at trial. Should Wisconsin appellate
courts follow the lead of other jurisdictions (not to mention earlier
state authority) it seems probable that the Anderson court's
restrictive approach will give way to a more liberal approach that vests
considerable discretion in trial courts to balance the competing policy
considerations of promoting settlements versus the equally strong policy
of ensuring that Wisconsin's evidentiary rules are applied to promote
truth finding and just resolutions of disputes.
Wisconsin's "limited" public policy favoring settlements
Wisconsin
Rule of Evidence 904.08, which closely tracks its federal
counterpart, governs the admissibility of settlement evidence. It
provides: "Evidence of furnishing or offering or promising to furnish,
or accepting or offering or promising to accept, a valuable
consideration in compromising or attempting to compromise a claim which
was disputed as to either validity or amount, is not admissible to prove
liability for or invalidity of the claim or its amount. Evidence of
conduct or statements made in compromise negotiations is likewise not
admissible. This section does not require exclusion when evidence is
offered for another purpose, such as proving bias or prejudice of a witness, negativing a
contention of undue delay, proving accord and satisfaction, novation or
release, or proving an effort to compromise or obstruct a criminal
investigation or prosecution."2
The justification for excluding settlement evidence under Rule 904.08
is twofold. First, there are many reasons why people settle; for
example, they may be motivated more for a desire to buy their peace than
from any concession of weakness of position. Second, the rule promotes
"the public policy favoring the compromise and settlement of
disputes."3
However, as a plain reading of its terms reveals, the privilege
embodied in Rule 904.08 is not absolute. Indeed, the Wisconsin Supreme
Court has pointed out that the rule "provides a limited
privilege against disclosure of settlements and offers to settle. Sec.
904.08, Stats., 'does not require exclusion when the evidence is offered
for another purpose, such as proving bias or prejudice of a
witness.'"4 Until Anderson,
existing precedent suggested that trial courts would be given
considerable latitude in determining what constituted sufficient grounds
to defeat this "limited privilege."
The Wisconsin precedential prelude to Anderson
In Johnson v. Heintz5 the
Wisconsin Supreme Court's first real explication on the boundaries of
Rule 904.08, a defendant-driver and her insurer sought to introduce
details about a settlement the plaintiff-passenger and her husband had
brokered with one of the third party defendant-insurers before the
retrial of a case arising out of successive automobile accidents. The
trial court had permitted counsel to mention the names of those parties
originally named in the lawsuit who had settled out, but specifically
prohibited any mention of the settlement amount. The supreme court
upheld this ruling, stating that, "We do not think sec. 904.08, Stats.,
allows testimony concerning details of the compromise settlement with
State Farm for the purpose of showing bias or prejudice on behalf of the
plaintiff Emaline Johnson. To allow the admission of details including
the amount of the settlement as an exception to the rule would defeat
the purpose of the rule and render it meaningless."6
However, the Johnson court determined that the trial court
should have permitted counsel to identify which insurance companies were
aligned with which parties and to point out that plaintiffs had settled
with a specific party. The court concluded that any error was not
prejudicial though, because the defense was given every opportunity to
stress any divergence in the plaintiff's testimony. The court explained
that "the error in not allowing the topic to be pursued can in no way be
prejudicial when there are extrinsic guarantees or evidence to refute
the effect of the alleged biasing tendency. Consistent testimony before
and after the existence of the inducement could qualify as such a
situation."7
By contrast, several years later in Hareng v. Blanke the
supreme court concluded that the potential for biased testimony
was enough to admit settlement evidence. There, plaintiffs had settled
prior to trial with two of four original defendants in a medical
malpractice action. In appealing an adverse verdict, plaintiffs claimed
error by the trial court in permitting the jury to learn of these
settlements. The supreme court agreed that evidence of the settlement
was properly admitted to show prejudice on the part of the
plaintiff-patient as a witness because she had a financial interest in
playing down the negligence of the settling physician and emphasizing
the negligence of the nonsettling doctors. "[W]e conclude that evidence
of a settlement can be used, as in this case, to show possible
bias of a witness, although it cannot be used to prove liability or
invalidity of a claim at issue."8 Notable by
its absence was any discussion suggesting that the plaintiff-patient had
in fact changed her testimony in any perceptible way.
Considered together, the supreme court's decisions in
Johnson and Hareng spelled considerable latitude by
trial courts in determining the admissibility of settlement evidence.
Courts could permit the jury to be informed of a settlement when a party
had an incentive to downplay the fault of another party (arguably true
with any settlement), or exclude it without fear of reversible error if
there was no apparent change in testimony by witnesses aligned with the
settlers. Anderson signals a less permissive approach.
The Anderson decision
Anderson involved negligence and product liability claims
arising out of an incident in which a young child ingested an extremely
caustic chemical used to clean milk lines at a dairy farm. The
plaintiffs sued more than a half dozen parties, but, prior to trial,
entered into a Pierringer9
settlement with all but the manufacturer of the milk line cleaning
equipment. The trial court denied the plaintiffs' motion in
limine to exclude references to any settlement with the other
defendants, and informed the jury that a "negotiated resolution" had
been reached between plaintiffs and those defendants originally named in
the caption who were not present at trial.10
The Wisconsin Court of Appeals found that the trial court had erred
in advising the jury of the existence of the settlement between
plaintiffs and the other defendants, but concluded that the error was
harmless.11 The court of appeals disagreed
with the trial court that Hareng authorized (if not mandated)
the disclosure, concluding that Hareng was inapplicable. The
court of appeals reasoned, "There was no contention that the settlement
among the other defendants changed the testimony of any witness or that
the posture of any of the settling defendants was significantly
different as a result of the settlement. While we recognize that under
certain circumstances, it may be necessary to disclose the existence of
a settlement, we conclude that none of the circumstances authorizing
such a disclosure existed in this case."12
The confusion engendered by Anderson is manifold. The court
of appeal's failure to elaborate on the "certain circumstances"
justifying admitting settlement evidence leaves trial courts and
practitioners speculating. This speculation is compounded by the fact
that the court of appeals did not explain why, in its opinion,
Hareng was inapposite.
There is language in Johnson that a change in testimony
could be the litmus test for determining whether there was prejudice in
excluding evidence of a settlement. However, nowhere in
Hareng is there any hint that the party seeking disclosure of
the settlement must prove a perceptible change in a witness's testimony.
In fact, at no juncture in Hareng did the supreme court
identify any change in the plaintiff's testimony. Rather Hareng
recognizes as sufficient to overcome the limited privilege of Rule
904.08 the potential bias and prejudice that can occur when a
party has a financial incentive to downplay the negligence of settling
parties and emphasizing the negligence of the nonsettlers wide
latitude for trial courts indeed.
Decisions of other jurisdictions
What constitutes a significant change in posture of the parties under
Anderson also is a mystery, particularly when one considers
that courts elsewhere have viewed the Pierringer releases at
issue in Anderson as involving precisely the kind of changed
circumstances that justify informing the jury of a settlement.
A Pierringer release is one in which a plaintiff agrees to
satisfy that portion of the total damages attributable to the settling
defendant and to release and discharge that percentage of his or her
total claim for damages against all parties proportionate to the
negligence the jury attributes to the settling defendant. This release
"operates to impute to the plaintiff whatever liability in contribution
or indemnity the settling joint tortfeasor may have to the nonsettling
joint tortfeasor and to bar subsequent contribution or indemnity actions
the nonsettling joint tortfeasor might assert against the settling joint
tortfeasor."13
In Frey v. Snelgrove14 the
plaintiff entered into a Pierringer-type release with two of
three defendants on the sixth day of trial. In addition to the typical
Pierringer language, the plaintiffs stipulated that any
recovery made against the nonsettling defendant up to $700,000 would be
credited to the amount to be paid by the settling defendants. While the
Minnesota Supreme Court held that the trial court's failure to inform
the jury of this settlement was not prejudicial, it stated that, under
such circumstances, when one of the settling defendants was called to
testify by the remaining parties, "the trial court should inform the
jury of the effect of the release, so that they might consider any bias
of the witness."15
The Frey court further noted that "[w]here the settlement
agreement and release is executed during trial, the court should usually
inform the jury that 'there has been a settlement and release' if for no
other reason than to explain the settling tortfeasor's conspicuous
absence from the courtroom"16 even though
the tortfeasor is included on the verdict for the apportionment of
negligence.
The Frey court emphasized the considerable discretion vested
in the trial court on whether to admit details of the agreement, noting
that the jury should be given the facts necessary to arrive at a fair
verdict to all parties, but cautioning that as a general rule the
settlement amount should never be admitted.17
Notably, in the two reported cases following Frey, the
Minnesota Court of Appeals has twice upheld the trial court's decision
to prohibit disclosure of Pierringer settlements to the
jury.18 In so holding, the Minnesota Court
of Appeals has recognized the considerable discretion vested in trial
courts by Frey to weigh the prejudice of disclosing settlement
evidence versus the impact on truth finding by excluding it.
For instance, in Polacec v. Voigt the estate of a passenger,
who died as a result of a head-on car crash, sued both the driver with
whom the decedent had ridden (Voigt) and the driver of the other vehicle
(Polacec). Both drivers cross-claimed against each other. The central
issue in the case was which vehicle was in the passing lane when the
accident occurred. Polacec had no recollection of the accident, and each
party produced expert testimony placing blame on the other. Shortly
before trial the decedent's estate entered into a Pierringer
release with Polacec. However, the trial court refused to inform the
jury of the settlement. Voigt, who the jury found to have been in the
passing lane and therefore 100 percent at fault, claimed the exclusion
was error because it precluded him from impeaching damaging testimony by
the decedent's wife. Voigt argued: 1) the settlement made the decedent's
wife biased as she would only get money if he were found liable; and 2)
consequently, the estate's counsel had been disingenuous when he stated
in closing arguments that the wife "was a neutral party who did not know
what happened and only cared to find the truth."19
Obviously central to the Polacec court's decision was the
fact that the decedent's wife's trial testimony was identical to her
deposition testimony, which had been given long before the settlement.
Consequently, the appellate court concluded that the trial court was
justified in excluding the evidence as the probative value of the
settlement paled when "[w]eighed against the possibility of prejudice
because the jury might believe that an individual who has settled has
admitted liability."20 Apparently, the
estate counsel's potentially misleading statements to the jury did not
factor significantly in the equation, because the court did not address
them.
Significantly, the settlements in Polacec and Quill
occurred before, instead of during trial, as had been the situation in
Frey. Thus, the likelihood of jurors being confused by the
sudden and inexplicable exodus of a party that previously had been
actively participating at trial, did not exist. Also diminished was the
attendant surprise to the nonsettling parties, along with potentially
awkward trial presentation adjustments that would need to be made during
trial itself. At least implicitly in these cases then, the Minnesota
Court of Appeals has not been persuaded that the truth-finding purpose
of a trial has been subject to undue distortion when there is a
Pierringer-type settlement in advance of trial, and absent a
perceptible shift in testimony by potentially biased witnesses.
Secret agreements and distorting
the jury's fact-finding function
More extreme are those cases involving agreements where the settling
parties may actively conspire to produce a given result at trial.
Perhaps most notorious among these are "Mary Carter Agreements," which
are intended to be secret and require that the settling defendant remain
a party and defend itself in court, guarantee that the plaintiff will
receive a certain amount from the settlor regardless of the outcome at
trial, and may call for the settling defendant to assist in increasing
liability on the nonsettling codefendants.21 Because of the manner in which this secretive
realignment of interests can gravely mislead the judge and jury, many
courts routinely disclose them to juries.22
At the other extreme, one court has gone so far as to sanction using
settlement evidence to attack the general credibility of another party's
case in addition to clarifying party alignment. In Brocklesby v.
United States23 the Ninth Circuit
Court of Appeals held that evidence of an indemnity agreement settling
the claims between the defendants was admissible in a suit brought by
the survivors of an airplane crash. The Ninth Circuit found that the
plaintiffs could properly admit the indemnity agreement to show the
relationship between the parties (that is, whether they were adverse)
and to attack the credibility of the defendants' witnesses.24 The Brocklesby court rejected one
defendant's contention that the relationship of the parties was not at
issue, reasoning that "[e]vidence relating to the relationship of the
parties tends to make their respective positions less credible."25 The Brocklesby court also rejected the
same defendant's argument that the indemnity agreement was not used at
trial to impeach the credibility of the defendants' witnesses, pointing
out that "it was not necessary for the plaintiffs to confront each
witness with the indemnity agreement. If the existence of the indemnity
agreement made the defendants' witnesses' testimony less credible, it
was admissible."26
Avoiding jury confusion
While jury confusion does not fall neatly within any of the
illustrative exceptions to Rule 904.08, they are merely that,
illustrative exceptions. Already on one occasion (albeit an unpublished
decision) the Wisconsin Court of Appeals has rejected a contrary view
using basic principles of statutory construction.27 In other jurisdictions that have essentially
identical counterparts to Rule 904.08, other than bias, the prevention
of jury confusion from the absence of certain parties is arguably the
most often invoked reason for admitting evidence of a settlement between
certain parties.28
The New Mexico Supreme Court's decision in Fahrback v. Diamond
Shamrock Inc. is illustrative of these decisions. There plaintiffs
brought a personal injury action against the supplier of propane gas and
others for injuries arising out of a gas explosion at a resort lodge.
Prior to trial the plaintiffs settled with three of the six defendants.
The trial court elected to advise the jury of the settlement prior to
voir dire, reasoning that jurors find it confusing to allocate liability
among tortfeasors when they are inexplicably not present in court. In
asserting error to this ruling plaintiffs argued, among other things,
that "the jury could have inferred that the parties who were primarily
responsible had settled with and compensated plaintiffs and that no
further compensation was appropriate."29
The Fahrback court found no error and reasoned that
determining the admissibility of settlement evidence for purposes not
expressly excluded by the rule was "within the trial court's authority
to manage the trial and rule on evidentiary matters. Whether the
evidence is admissible shall be determined by rules concerning relevancy
and possible outweighing prejudice. ... [T]his approach ... provides the
trial court the flexibility to address unusual circumstances within
familiar limitations. It neither creates unlimited discretion nor
authorizes conduct that is unreviewable as a practical matter."30 The court concluded that under the
circumstances, "the trial court properly attempted to eliminate what it
reasonably perceived as unnecessary confusion."31
Limiting instructions to minimize
inappropriate jury inferences
If the trial court concludes that settlement evidence is admissible,
a limiting instruction should be given: 1) to minimize the potential for
the jury to misuse the evidence for the party on the losing end; and 2)
to better insulate the ruling from second guessing by the appellate
courts for the proponent of the evidence especially in the
uncertain climate created by Anderson.32 Another practical reason for the first is that
an appellate court may be less sympathetic with the complaining party if
he or she has failed to request a limiting instruction.33 As to the second, especially if it appears to be
a "close ruling," the appellate court may be less inclined to infer
misuse and prejudicial error if a neutrally worded limiting instruction
is given that effectively tracks Rule 904.08.
At a minimum, to ensure the jury understands the adversity of the
parties so that the jury can properly assess witness bias, the
instruction should clearly identify the parties to the settlement but
avoid any mention of the amount paid, which is in keeping with the
Wisconsin Supreme Court's direction in Johnson. The instruction
also should make it clear that the jury is not permitted to rely upon
settlement evidence to prove liability for or invalidity of the claim or
its amount; however, jurors may consider settlement evidence in
assessing the credibility of any of the witnesses. Whether any
additional detail in such an instruction would be appropriate, such as
explaining the effect of the settlement when there is a
Pierringer-type release, will depend upon the unique
circumstances in a given case. If the trial court has a well-reasoned
justification for including a given detail, it seems more remote that
prejudicial error will be ascribed to it.
|
Daniel J. La Fave, Northwestern 1992, is a
trial lawyer with the Milwaukee office of Quarles & Brady. He
concentrates his practice in products liability and personal injury
defense. |
As the Minnesota decisions suggest, one circumstance that may be
integral to determining whether settlement evidence should be disclosed
is the timing of the settlement and the promptness of its disclosure to
the nonsettling defendants. Such reasoning finds ready support in recent
Wisconsin case law. In the context of reviewing the propriety of
excluding an expert's testimony on the basis of a last minute pretrial
settlement, the Wisconsin Supreme Court in Magyar v. Wisconsin
Health Care Liability Ins. Plan34
recognized that surprise, coupled with the danger of prejudice and
confusion of issues, plays a proper role in informing a trial court's
discretion when making evidentiary rulings.35
Conclusion
Although the Anderson court was unwilling to find
prejudicial error from the disclosure of settlement evidence to the
jury, it nevertheless found error. The court's ruling seems to signal a
more restrictive approach to admitting settlement evidence by promoting
a line-in-the-sand test of requiring changed testimony to establish the
existence of actual witness bias as a condition precedent to informing
the jury of a settlement. Yet the decision also engenders confusion
through its cryptic reference to changed positions of parties and other
"certain circumstances" that may justify admission of such evidence.
In its limited discussion on the issue, Anderson fails to
give much needed guidance to lower courts and practitioners on how to
properly handle this explosive evidence. Hopefully, when Wisconsin
appellate courts next consider the issue, they will provide a more
detailed examination of the subject. Should Wisconsin appellate courts
follow the lead of other jurisdictions, the state's trial courts will be
charged with considerable discretion to weigh the competing public
policies of promoting settlements while protecting the truth-seeking
function of a trial, an approach that has a ready foundation in earlier
decisions by the Wisconsin Supreme Court, and that recognizes among the
permissible purposes the utility of advising juries of settlements to
avoid jury confusion. Until that time, practitioners and trial judges
can be certain of only one thing the amount of a settlement is
taboo.
Endnotes
1 Anderson by Skow v. Alfa-Laval Agri
Inc., 209 Wis. 2d 337, 564 N.W.2d 788 (Ct. App. 1997).
2 Wis. Stat.
§ 904.08.
3 Federal Advisory Committee's
Notes reprinted in Wisconsin Rules of Evidence, 59 Wis. 2d R92;
Connor v. Michigan Wisconsin Pipe Line Co., 15 Wis. 2d 614,
619-21, 113 N.W.2d 121 (1962).
4 Hareng v. Blanke, 90
Wis. 2d 158, 168, 279 N.W.2d 437 (1979) (emphasis added).
5 Johnson v. Heintz, 73
Wis. 2d 286, 243 N.W.2d 815 (1976).
6 Id. at 300, 243 N.W.2d
815.
7 Id. at 301, 243 N.W.2d
815 (citation omitted).
8 Hareng, 90 Wis. 2d at
168, 279 N.W.2d 437 (emphasis added).
9 Pierringer v. Hoger, 21
Wis. 2d 182, 124 N.W.2d 106 (1963).
10 Anderson, 209 Wis. 2d
at 343, 564 N.W.2d at 791.
11 Id. at 349, 564
N.W.2d at 793.
12 Id. at 350, 564
N.W.2d at 794.
13 Brander v. Allstate Ins.
Co., 181 Wis. 2d 1058, 1077, 512 N.W.2d 753 (1994) (quoted source
omitted).
14 Frey v. Snelgrove,
269 N.W.2d 918 (Minn. 1978).
15 Id. at 923.
16 Id.
17 Id.
18 Polacec v. Voigt, 385
N.W.2d 867, 869 (Minn. Ct. App. 1986); Quill v. Trans World Airlines
Inc., 361 N.W.2d 438, 444 (Minn. Ct. App. 1985).
19 Polacec, 385 N.W.2d
at 869.
20 Id.
21 See Booth v. Mary Carter
Paint Co., 202 So. 2d 8 (Fla. Dist. App. 1967).
22 See, e.g., Quick v.
Crane, 111 Idaho 759, 727 P.2d 1187, 1206 (1986) (collecting
authority).
23 Brocklesby v. United
States, 767 F.2d 1288 (9th Cir. 1985), cert. denied, 474
U.S. 1101 (1986).
24 Id. at 1292-93.
25 Id. 1293 n.2.
26 Id. at n.3.
27 Field Enter. v. Peter
Gresser, 1987 WL 267347, Case No. 86-0054 (Wis. Ct. App. Sept. 1,
1997) at *2.
28 See, e.g., Fahrback v.
Diamond Shamrock Inc., 122 N.M. 543, 928 P.2d 269, 275 (1996)
("trial court properly attempted to eliminate what it reasonably
perceived as unnecessary confusion" in informing jury of plaintiffs'
prior settlement with several defendants); Owens-Corning Fiberglass
Corp. v. American Centennial Ins. Co., 74 Ohio Misc. 2d 272, 660
N.E.2d 828, 831 (Ct. Com. Pl. 1995) (court admitted settlement evidence
in order to avoid "confusion and speculation by the jurors, resulting in
unfair prejudice"); Kennon v. Slipstreamer Inc., 794 F.2d 1067,
1070 (5th Cir. 1986) ("In a case such as this one, where the absence of
defendants previously in court might confuse the jury, the district
court may ... inform the jury of the settlement in order to avoid
confusion.").
29 Fahrback, 928 P.2d at
273.
30 Id. at 274.
31 Id. at 275.
32 See D.L. by Friederichs v.
Huebner, 110 Wis. 2d 581, 608, 329 N.W.2d 890 (1983) ("The adequacy
of the limiting instruction is a factor the circuit court can take into
account in exercising its discretion under sec. 904.03."); Stoppleworth v. Refuse Hideaway Inc.,
200 Wis. 2d 512, 524, 546 N.W.2d 870 (1996) (any potential for prejudice
from identifying the position of a named party is "aptly addressed by
use of [a] curative instruction").
33 See, e.g., Fahrback,
928 P.2d at 275 ("In the absence of a request for a limiting instruction
... we cannot say the trial court erred in phrasing its remarks.").
34 Magyar v. Wisconsin Health Care Liability Ins.
Plan, 211 Wis. 2d 296, 564 N.W.2d 766 (1997).
35 See id., 564 N.W.2d
at 769-71.
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