James H. McComas

Attorney at Law

and Of Counsel to

Friedman, Rubin & White

1227 W. 9th Avenue, Suite 201

Anchorage, AK 99501

(907) 258-0704

Attorney for xxxxxxxxxxxxxx

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ALASKA

UNITED STATES OF AMERICA, ) NO. xxxxxxxxxxxxxxxx

Plaintiff, )

)

vs. ) MEMORANDUM IN SUPPORT OF

)

xxxxxxxxxxxxxx.,; ) IL-2

xxxxxxxxxxxxx ) Mr. xxxx 2d MOTION IN LIMINE:

xxxxxxxxxxx. ) SETTLEMENT STATEMENTS

xxxxxxxxxxxxxxxxxxxxxxxxx,) MUST BE EXCLUDED.

Defendants. )

______________________________)

xxxxxxxx, by his counsel, respectfully submits the following facts, points, and authorities in support of his IL-2, Motion In Limine: Settlement Statements Must Be Excluded.

STATEMENT OF RELEVANT FACTS ⁽¹⁾

1. In the early 1980s, state and federal bank regulators were critical of the board and Mr. Whitmore over certain practices at Alaska Statebank. A series of examinations and reports by regulators culminated in the FDIC submitting a formal Memorandum of Understanding for board approval. Att. 9. After direct discussions with the FDIC in San Francisco and the Alaska Division of Banking in Juneau, the board submitted a letter on March 29, 1982, explaining its response and proposed course of action as to each of the regulators' criticisms, in lieu of adopting the proposed Memorandum. Att. 10 & Att. 11, ¶ 2. The purpose of the letter was to settle the dispute between the regulators and the bank, without formally agreeing to the Memorandum of Understanding or necessitating the imposition/appeal/litigation of any other formal and more serious regulatory decree or order. Att. 11, ¶2. The regulators were apparently satisfied with this compromise, and took no further corrective action at the time. Evidence and testimony concerning the Memorandum of Understanding, the March 29, 1982, letter, and statements made in preparing/negotiating them are inadmissible pursuant to FRE 401-403 & 408.

2. The director stock loans were made in June 1984. Mr. xxxxx resigned from the ASB Board in late April, 1986. Att. 11, ¶3. In early 1988, state and federal regulators first classified the director stock loans as regulation "O" violations, stating that, while creditworthy when made, "lax" collection efforts rendered their current status preferential. 3. Accordingly, Whitmore and ASB came under increasing pressure from regulators to do something about the Haxby and xxxxx stock loans. (HDS ⁽²⁾-144)

4. Although arranging workouts with Swain and Miklautsch, who were still directors, "with Mr. xxxxx and Mr. Haxby, our [Whitmore and Smith] choice was to sue them." (HDS-145)

5. On May 20, 1988, Mr. xxxxx met with Mr. Smith. Mr. Smith indicated that the loans were "the subject of considerable FDIC attention," and, that if nothing more was done to collect them, "we would get more severe criticism from the FDIC," which might even take over the loans. Att. 1, ¶¶ b. & f.

5.a. Smith offered settlement along the lines of $400,000.00, with half in cash and half in a note to be paid on monthly. Att. 1, ¶ d. Mr. xxxxx countered by proposing an immediate cash payment of $30-40,000.00 and a note for the rest. Id., ¶ h.

5.b. Smith specifically threatened Mr. xxxxx with litigation -- "If an agreement was not reached within a few days, as President of the Bank, I would be forced to initiate a lawsuit to collect the entire amount owed." Att. 1, ¶ e.

5.c. Mr. xxxxx understood this meeting to be the commencement of earnest settlement negotiations between himself and the bank. Att. 11, ¶ 4.c. He and Mr. Smith agreed to meet again soon for further discussions. Id. Evidence and testimony concerning the May 20, 1988, settlement meeting are inadmissible pursuant to FRE 401-403 & 408.

6. On June 1, 1988, ASB president Smith met with Mssrs. xxxxx and Haxby, and stated that either their loans would have "to be paid back or we were going to be very aggressive collectors." (HDS-114)

6.a. Mssrs. xxxxx and Haxby indicated they felt Whitmore had a responsibility to save the directors from suffering financial loss, since their participation had been requested and given in order to help the bank achieve its goal of acquiring/merging with ANBN. Att. 2, ¶¶ 1 & 2.

6.b. In the course of the meeting, Mr. Smith presented Mssrs. xxxxx and Haxby with a settlement proposal of $200,000 cash and a secured $150,000 note each. Att. 2, ¶ 3. Mssrs. Haxby and xxxxx countered that the amount was too high. Haxby indicated agreement with a settlement in the $150,000 range, and Mr. xxxxx favored $40-60,000. Id.

6.c. Smith again threatened "swift and immediate" litigation for "every dollar" of principal, interest, and costs "if a settlement was not reached..." Att. 2, ¶ 6.

6.d. Mr. xxxxx understood this meeting to be the continuation of earnest settlement negotiations between himself and the bank. Att. 11, ¶ 5.d. Smith, Haxby and xxxxx agreed to meet again on Friday, June 3, 1988. Evidence and testimony concerning the June 1, 1988, settlement meeting are inadmissible pursuant to FRE 401-403 & 408.

7. On June 3, 1988, Mssrs. Smith, xxxxx, and Haxby met again. xxxxx and Haxby confirmed to Smith that they were represented by attorney Raymond Royce, since "they felt they should have some legal help and advice." Att. 3. Mr. xxxxx stated, "Any reasonable person hires counsel when threatened with a suit." Att. 3-A. When xxxxx and Haxby asked Smith who ASB's attorney would be, Smith stated they had not picked counsel yet, but that they would find a "negotiating type law firm." Att. 3-A (Haxby's notes).

7.a. Smith told the former directors the parties were "too far apart to negotiate," and presented them with a formal demand letter, giving them ten days to pay in full or else be sued. Att. 3 & 4.

7.b. Smith indicated, in this or a prior conversation, that Rainier Bank was proposing acquisition of ASB on terms which would enable Whitmore to get out, but without much in the way of profit; this confirmed information Mr. xxxxx had previously received. Att. 11, ¶ 7.b. Smith indicated Whitmore was not overly eager about the offer. Mr. xxxxx advised Smith he would be contacting Whitmore concerning some options to resolve the dispute. (HDS-114) Smith stated he was available "day or night, at work or home to discuss or review in order to reach a compromise." Att. 3-A (Haxby notes).

7.c. Mr. xxxxx understood this meeting to be the continuation of earnest settlement negotiations between himself and the bank. The service of the demand letter did not mean that negotiations were over. To the contrary, Mr. xxxxx took that event as being an effort by ASB to appease regulators and posture aggressivxxxxx for purposes of the ongoing settlement talks. Mr. xxxxx knew Whitmore, and Whitmore alone, would make the decisions concerning whether or not to actually file suit, and, if suit were filed, whether to settle or litigate. Evidence and testimony concerning the June 3, 1988, settlement meeting and demand letter are inadmissible pursuant to FRE 401-403 & 408.

8. On June 12, 1988, Mr. xxxxx wrote a letter to Ralph Whitmore. Att. 5. In the letter, Mr. xxxxx calls on Whitmore to do "the honorable and gentlemanly thing" -- sell the bank and pay off the stock loans and other obligations. Id., 2-3. Mr. xxxxx warns that "divisive litigation" will "chill[] any prospective sale of the Bank or FDIC help..." Id., 3-4. Mr. xxxxx points out the numerous sources of evidence which will contradict Whitmore's litigative claims if suit is pursued. Id., 1-2 & 4. Finally, Mr. xxxxx tries to persuade Whitmore to accept his offer of "an honorable exit from Alaska and a nest egg with which to build a new life," instead of pursuing the litigation route, which offers "dishonor, treachery and financial disaster for you and your family." Id., 4.

8.a. Mr. xxxxx's letter was plainly intended to explore pre-litigation resolution of the dispute between him and ASB, by urging Whitmore to take an apparently available opportunity to sell the bank and part on honorable terms. Att. 11, ¶ 8.c. Indeed, Mr. xxxxx sent a copy of the letter to Neal Petersen, Whitmore's long-time attorney and adviser. ⁽³⁾ Att. 5, 4. Because, according to Smith, ASB had not yet picked counsel for the threatened suit, Mr. xxxxx communicated directly with the real party in interest. Evidence and testimony concerning the June 12, 1988, settlement letter are inadmissible pursuant to FRE 401-403 & 408.

9. On July 29, 1988, ASB filed suit against Mr. xxxxx to collect the amounts owing on the notes underlying the director stock loans.

10. On August 18, 1988, Raymond Royce, in his capacity as attorney for Mssrs. xxxxx and Haxby, sent a letter to attorney Richard Riordan, Jr., who was representing ASB in the collection suit. Att. 6.

10.a. By its terms, the letter's discussion of facts "is for purposes of settlement only. The contents of this letter will not be admissible in any court of law as evidence of liability or an admission." Att. 6, 1.

10.b. The Royce letter goes on to elaborate on, and restyle into a legal theory of defense (accommodation endorsements without consideration), the subjects raised in the prior discussions between Smith, xxxxx and Haxby, and in the xxxxx letter to Whitmore. Att. 6, 1-2. ⁽⁴⁾

10.c. In the letter, Mr. Royce responds to the June 2, 1988, demand letter by offering to settle on the following terms: the bank cancels the notes, relinquishes any further claim against Mssrs. xxxxx and Haxby, and dismisses its complaints; each side bears its own costs and attorney's fees. Att. 6, 3.

10.d. The letter includes a warning that the defense may raise counterclaims and third-party complaints against ASB's holding companies and Whitmore personally if litigation continues. Att. 6, 3. Finally, the letter ends with a pitch to settle instead of engaging in "[a]n expensive, public cat fight... the benefit of which will be primarily to sell newspapers." Id., 3. Evidence and testimony concerning the August 18, 1988, settlement letter, and the counterclaims predicated upon it, are inadmissible pursuant to FRE 401-403 & 408.

11. On February 3, 1989, regulators closed ASB. The FDIC, as receiver for ASB, assigned its claims, including the ongoing note collection litigation against Mr. xxxxx, to the FDIC in its corporate capacity. (A89-368 Civil)

11.a. Mr. xxxxx understood that the FDIC, in some form, would fill ASB's shoes in the collection suit against him. Accordingly, on February 23, 1989, he summarized and forwarded the August 18, 1988, Royce letter to David Offsinger, an FDIC agent who had spoken with him on February 9, 1989, shortly after the bank was closed. Att. 7. Mr. xxxxx asked that his suggestions be "passed on" to those in control of the FDIC involvement with ASB and the pending litigation; he further offered his and Haxby's cooperation in a "further investigation" of their alleged liability on the notes underlying the director stock loans. Att. 7, 2. Mr. xxxxx thus renewed with the new party-opponent the settlement overture made by Royce 6 months earlier.

11.b. Mr. xxxxx's purpose in writing this letter, and forwarding Royce's letter, was to take advantage of the change in parties and, undoubtedly, attorneys, in order to restart the dialogue and negotiations which Whitmore had previously terminated. Mr. xxxxx's hope was to get in early, and open a door for further consideration of the merits of the note collection suit, so that ultimatxxxxx a settlement he could afford might be reached. Att. 11, ¶ 11.b. Evidence and testimony concerning the February 23, 1989, letter and enclosures are inadmissible pursuant to FRE 401-403 & 408.

12. On May 26, 1989, Mr. xxxxx filed a Proof of Claim with the FDIC, asserting entitlement to a set-off for legal services rendered against the moneys sought by ASB/FDIC in the note collection action. Att. 8. ⁽⁵⁾ This filing was intended as a follow-up on Mr. xxxxx's February 23, 1989, letter. The point was to persuade the FDIC that settlement, as suggested in the forwarded Royce letter, not continuing litigation of the note collection suit, was desirable. Att. 11, ¶ 12. Evidence and testimony concerning the proof of claim, and the counterclaim to which it gave rise, and statements made in negotiations concerning them, are inadmissible pursuant to FRE 401-403 & 408.

13. Mr. xxxxx's defenses and counterclaims having been held inapplicable to the FDIC in its corporate capacity, the collection suit was ultimatxxxxx decided in favor of the FDIC. Judgment against Mr. xxxxx was entered on April 1, 1992. Att. E to D-4 Memo (R. 227)

14. In 1992, the FDIC again sued Mr. xxxxx in federal court, this time with other ASB officers and directors. (A92-060 CIV)

14.a. In November-December 1994, the FDIC and Mr. xxxxx settled Mr. xxxxx's portion of the director/officer liability suit. Atts. H,I, & J to D-4 Memo (R. 227). Evidence and testimony concerning the settlement agreement, and statements made in negotiating it, are inadmissible pursuant to FRE 401-403 & 408.

15. The defense has attempted to identify as many FRE 408 statements/events as possible. Given the size of discovery, however, it is conceivable that the government will attempt to offer evidence not specified herein which nonetheless implicates Rule 408. This motion is intended to apply to all evidence and testimony concerning any and all settlements, compromises, offers/counteroffers of settlement and compromise, and all statements, however communicated, made in discussions and negotiations of offers, counteroffers, settlements, and compromises.

LEGAL ANALYSIS

I. FRE 408's EXCLUSIONARY RULE.

A. Rule 408 And Its Rationales

Fed.R.Evid. 408 provides as follows:

Evidence of (1) furnishing or offering or promising to furnish, or (2) 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 rule does not require the exclusion of any evidence otherwise discoverable merxxxxx because it is presented in the course of compromise negotiations. This rule also 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.

(Emphasis added.)

The Advisory Committee's Note identifies two independent policies supporting this exclusionary rule. First, "[t]he evidence is irrelevant, since the offer may be motivated by a desire for peace rather than from any concession of weakness of position." Federal Criminal Code & Rules, at 233 (West Publ. 1995)(hereinafter "FCC&R"); see Ecklund v. U.S., 159 F.2d 81, 84 (6th Cir. 1947). Second, "[a] more consistently impressive ground is promotion of the public policy favoring the compromise and settlement of disputes." Id., at 234. The Ninth Circuit has recognized the significance of these policies. See U.S. v. Contra Costa Co. Water Dist., 678 F.2d 90, 92 (9th Cir. 1982).

Professors Louisell and Mueller articulate a third rationale, which, if applied to a criminal case like this, implicates the accused's due process rights -- "it would be unseemly and perhaps unfair to allow, over the objection of a party, proof that he behaved in a socially responsible manner in seeking to resolve privatxxxxx his differences with another." Louisell & Mueller, 2 Federal Evidence, § 171, at 453.

B. Broad Scope Of Evidence Excluded By FRE 408.

Rule 408 was explicitly expanded to encompass not only offers of settlement and completed settlements, but also "evidence of conduct and statements made in compromise negotiations..." FCC&R, 234.

Moreover, the rule was specifically intended to abrogate the common law exception to exclusion for "admissions of fact." FCC&R, 234. Because such an exception creates "[a]n inevitable effect [] to inhibit freedom of communication with respect to compromise, even among lawyers," Rule 408 prohibits introduction of factual statements made in settlement negotiations. Id. "The Rule reaches even unqualified factual statements made during negotiations, extending generous protection in this setting. It protects a party against receipt of his own statements not only to his opponent, but to third persons as well." Louisell & Mueller, 2 Federal Evidence, § 171, at 452 (Rev. Ed. 1985). "The purpose is to protect the bargaining and discussions which usually precede settlement offers, in recognition that communication between parties lies at the heart of the settlement process... [Thus,] all factual statements made during compromise negotiations are inadmissible..." Id., § 171, at 455. Kritikos v. Palmer Johnson, Inc., 821 F.2d 418, 421-23 (7th Cir. 1987) (letters by "owner's representative" "detail[ing] a possible solution" and conceding fault inadmissible).

Lawyers, of course, are well aware of Rule 408, and "rxxxxx upon it daily." Louisell & Mueller, §170, at 443. Indeed, the position paper by Mr. Royce specifically invoked the exclusionary principle. Att. 6, at 1. But awareness is not a prerequisite to application. Rule 408 equally excludes settlement statements made by likxxxxx litigants, as well as their attorneys. Louisell & Mueller, §170, at 443-44.

While conscious reliance on the rule is not required, an actual dispute is the necessary trigger to the exclusionary sanction. Obviously, if suit has been filed, the parties settlement discussions come within Rule 408. But the rule applies earlier -- covering negotiations between parties who recognize the existence of an actual dispute, and likelihood of litigation, but who have not yet filed their claims in court.

A sufficient Rule 408 controversy exists when the disputants "disagree on either the fact or amount of liability." Louisell & Mueller, §171, at 462. In such circumstances, "there is no point in withholding the protection of the Rule until suit is filed, or until one of the parties has formally rejected the position of another." Id. The Ninth Circuit has so held. Mundy v. Household Finance Corp., 885 F.2d 542, 547 (9th Cir. 1989) (affirming exclusion of settlement offer made prior to filing of age discrimination claim). ⁽⁶⁾ Accord Pierce v. F.R. Tripler & Co., 955 F.2d 820, 826-27 (2d Cir. 1992); EEOC v. Gear Petroleum, Inc., 948 F.2d 1542, 1544-45 (10th Cir. 1991); Kritikos v. Palmer Johnson, Inc., 821 F.2d, 423 (7th Cir. 1987).

Once such a controversy is shown, the ambit of exclusion is broadly defined. For instance, a threat made by an antitrust defendant's attorney was excluded under Rule 408, notwithstanding the claim that the initial settlement discussion had turned into a futile post-discussion argument when the threat was made. Aspen Title & Escrow, Inc. v. Jeld-Wen, Inc. 677 F.Supp. 1477 (D.Or. 1987). The court reasoned that full and frank discussions would be obstructed if negotiators had to constantly ask themselves whether the discussion had passed the point of futility. 677 F.Supp., 1485. Accord Blu-J, Inc. v. Kemper C.P.A. Group, 916 F.2d 637, 641-42 (11th Cir. 1990) (reports, depos, and materials related to independent accounting valuation of financial statements, prepared in settlement negotiations, properly excluded from fraud trial); Trans Union Credit Information Co. v. Associated Credit Services, Inc., 805 F.2d 188, 192 (6th Cir. 1986) (oral repudiation of service agreement excluded); In re First Software Corp., 107 B.R. 417, 425 (D. Mass. 1989)(excluding letter from creditors' committee counsel offering reduction and threatening litigation); Fiarman v. Western Pub. Co., 107 F.R.D. 110, 111 (E.D. Mich. 1985) (plaintiff's interrogatory responses on degree of damage not admissible since amount could reflect desire to settle, not concession); Zenith Radio Corp. v. Matsushita Elec. Industrial Co., Ltd., 505 F.Supp. 1125, 1181-83 (E.D. Pa. 1980) (acceptance of, or acquiescence in, regulatory consent decree excluded), rev'd on other grounds sub nom In re Japanese Electronic Products Antitrust Litigation, 723 F.2d 238, 275 (3d Cir. 1983), rev'd on other grounds sub nom, Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574 (1986).

Exclusion does not depend upon the nature of the subsequent trial in which prior negotiations are offered. Fiberglass Insulators, Inc. v. Dupuy, 856 F.2d 652, 654-55 (4th Cir. 1988)(negotiations during prior litigation excluded). "[S]tatements made by a person allegedly guilty of a criminal act in an effort to compromise civilly with the victim of the alleged crime should be excludable from any subsequent criminal prosecution." Louisell & Mueller, §171, at 466. "Plainly the Rule makes this evidence excludable in subsequent litigation, regardless whether civil or criminal in nature, and whether arising out of the same transaction or some other." Louisell & Mueller, § 172, at 474-75. Accord U.S. v. Hays, 872 F.2d 582, 588-89 (5th Cir. 1989)(conviction reversed; evidence of civil settlement and depo excerpts on reasons for settling improperly admitted); U.S. v. Meadows, 598 F.2d 984, 988-89 (5th Cir. 1979) (assuming applicability of FRE 408 "to govern the admission of related civil settlement negotiations in a criminal trial"); Ecklund v. U.S., 159 F.2d 81, 83-85 (6th Cir. 1947) (pre-FRE 408; evidence of effort to compromise in civil case not admissible to show knowledge or liability in related criminal case).

Nor does the rule require identity of parties. Rule 408 applies to situations where the party seeking to introduce settlement evidence was not even involved in the original negotiations or compromise. Hudspeth v. C.I.R., 914 F.2d 1207, 1213 (9th Cir. 1990); Kennon v. Slipstreamer, Inc. 794 F.2d 1067, 1069-70 (5th Cir. 1986); Fidelity & Deposit Co. of Maryland v. Hudson United Bank, 493 F.Supp. 434, 444-45 (D. N.J. 1980), rev'd on other grounds, 653 F.2d 766 (3d Cir. 1981).

C. Analysis of Exceptions to FRE 408.

Negotiation/settlement evidence only avoids the exclusionary rule if it is actually relevant for some purpose other than inferring a party's culpability or the value of damages caused. For example, in Hudspeth v. C.I.R., 914 F.2d 1207 (9th Cir. 1990), the court held that an expert witness' valuation of timber -- based on data obtained and used in negotiating a prior settlement for other taxpayers -- was not admissible under FRE 408 to prove the value of the timber in question.

Admitting the [prior] valuation data to prove the Taxpayers' valuation of the timber would undermine the policies underlying Rule 408. Settlements by the Commissioner would be inhibited if the Commissioner would have to review whether a settlement could be binding in subsequent cases.

Hudspeth, 914 F.2d, 1214.

However, given the "wide disparity" in timber valuation figures arrived at by the same expert concerning "similarly situated" taxpayers, the court concluded the valuation data "was relevant to the issue of whether there was bias" on the part of the expert. 914 F.2d, 1214. ⁽⁷⁾

In contrast, civil deposition testimony of two bank examiners -- explaining why they settled with an S&L -- was erroneously admitted in their criminal trials. U.S. v. Hays, 872 F.2d 582, 588-89 (5th Cir. 1989). The court found that the putative purpose of the evidence -- to show "the breadth of the conspiracy" -- "stands at direct odds with the clear mandates of Rule 408." 872 F.2d, 589.

Similarly, a party's offer of settlement/negotiation evidence does not evade Rule 408 exclusion when offered "to show its state of mind" in a case where that state of mind goes to "liability for or invalidity of the claim" in question. Pierce, supra, 955 F.2d, 828-29; Ecklund, supra, 159 F.2d, 83-85 (evidence of effort to compromise in civil case not admissible to show accused's knowledge or guilt).

For the same reasons, when issues of witness "credibility" are inextricably bound up with issues of causation and culpability, the exclusionary principle of Rule 408 controls. Stacey v. Bangor Punta Corp. v. Waitt, 620 F.Supp. 636, 637 (D.Me. 1985), citing McInnis v. AMF, Inc., 765 F.2d 240 (1st Cir. 1985). The rubric of "impeachment" is generally not an "other purpose" which warrants admission. EEOC v. Gear Petroleum, supra, 948 F.2d, 1545-46; M. Graham, Federal Rules of Evidence, at 116 (2d ed. 1987); Saltzburg & Redden, Federal Rules of Evidence Manual, at 286 (4th ed. 1986).

II. FRE 401-403 BAR EVIDENCE ARGUABLY RELEVANT

UNDER FRE 408's "OTHER PURPOSE" EXCEPTION.

Even if some putative non-culpability purpose is articulated in support of an offer of settlement/negotiation evidence, FRE 401 and 402 still impose a materiality requirement, and FRE 403 precludes introduction of such evidence when its substantial purpose or effect is really to show culpability or amount of damage.

So important is the policy of encouraging out-of-court settlement, "and so highly regarded the exclusionary rule, that in practice settlement evidence is more often than not excluded altogether." Louisell & Mueller, §170, at 443. The non-liability, non-value purposes for which such evidence may legitimatxxxxx be offered are "relativxxxxx narrow." Id. And, "the risks of prejudice and confusion entailed in receiving settlement evidence are such that often [Fed.R.Evid.] 403 and the underlying policy of Rule 408 require exclusion even when a permissible purpose can be discerned." Id.

Courts consistently exclude, under FRE 403 & 408, theoretically relevant settlement/negotiation evidence due to the very real risk of unfair prejudice arising from jury confusion of issues and misuse of such evidence on the question of culpability. See, e.g., EEOC v. Gear Petroleum, supra, 948 F.2d, 1546 (excluding compromise letter offered for "impeachment" -- "a thinly veiled attempt to get the 'smoking gun' letters before the jury"); U.S. v. Christo, 614 F.2d 486, 494-95 (5th Cir. 1980) (reference to Cease and Desist orders in criminal prosecution is reversible error); In re First Software Corp, supra, 107 B.R., 425 (excluding letter from creditors' committee counsel offering reduction and threatening litigation); Fiarman, 107 F.R.D., 111-12 (excluding answers to interrogatories concerning value). See also Weinstein & Berger, Weinstein's Evidence, ¶ 408[05], at 408-31, 408-34 (1991)("almost unavoidable impact" of unfair prejudice from admission); McCormick on Evidence, § 274, at 813 (Cleary 3d ed. 1984).

Of course, where trial is to a judge, the risk of unfair prejudice is reduced, due to the court's experienced and professional ability to accept evidence for limited purposes and to guard against unfairly prejudicial impacts on his or her thinking. It is no coincidence that the Ninth Circuit cases finding no error in the admission of settlement/negotiation evidence for some "other purpose" often involve bench trials. See, e.g., U.S. v. Pend Oreille Public Utility Dist. No.1, 926 F.2d 1502, 1505, 1507 n.4 (9th Cir. 1991); Hudspeth v. C.I.R., 914 F.2d 1207, 1214-15 & n.12 (9th Cir. 1990). ⁽⁸⁾ Here, trial is to the jury.

III. APPLICATION OF FRE 401-403/408 TO PRESENT CASE.

Application of the foregoing legal principles to the statements, documents, and events specified in the Relevant Facts section establishes that exclusion is required.

There can be no question but that evidence of the formal settlement of the D&O suit, and all related discussions or writings, Facts, supra, ¶¶ 14 & 14.a., are inadmissible pursuant to the literal terms of the first sentence of FRE 408 -- "Evidence of (1) furnishing or offering or promising to furnish, or (2) 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." See, e.g., U.S. v. Contra Costa Co. Water Dist., 678 F.2d 90, 92 (9th Cir. 1982). Proof of the de facto settlement of regulatory criticisms between the ASB Board and FDIC in 1982, Facts, supra, ¶ 1, is also prohibited. See, e.g., Christo, 614 F.2d, 494-95 (reference to Cease and Desist orders in criminal prosecution is reversible error); Zenith Radio Corp., supra, 505 F.Supp. 1125, 1181-83 (FRE 408 excludes negotiations of and acquiescence in regulatory consent decrees or their foreign equivalents). Similarly, Mr. xxxxx's proof of claim, and all deposition testimony, pleadings, and proceedings based on it, Facts, supra, ¶ 12, are inadmissible under the same rationale. Fidelity & Deposit Co. of Maryland, supra, 493 F.Supp., 444-45 (evidence of proof of claim, pleading and proofs, default judgment and acceptance of moneys in related action excluded).

The second sentence of FRE 408 provides that "[e]vidence of conduct or statements made in compromise negotiations is likewise not admissible." Thus, testimony and evidence concerning post-filing settlement offers, counter-offers and negotiations -- including those described in Facts, supra, ¶¶ 10, 10.a.-d., 11, 11.a.-b. & 12 -- are inadmissible. Blu-J, Inc., supra, 916 F.2d, 641-42 (reports, depos, and materials related to independent accounting valuation of financial statements, prepared in settlement negotiations, properly excluded from fraud trial); Kritikos, supra, 821 F.2d, 421-24; Aspen Title & Escrow, Inc., supra, 677 F.Supp., 1485.

Moreover, where, as here, a controversy likxxxxx to lead to litigation exists, Rule 408 applies to negotiations and statements -- like those in Facts, supra, ¶¶ 5., 5.a. & b., 6., 6.a.-d., 7., 7.a. & b., 8 & 8.a. -- made prior to the filing of a lawsuit. Mundy v. Household Finance Corp., 885 F.2d 542, 547 (9th Cir. 1989); Pierce, supra, 955 F.2d, 828-29; EEOC v. Gear Petroleum, supra, 948 F.2d, 1544-45.

It is predictable that the government will try to argue that it offers the settlement statements not to show culpability, but for some "other purpose." But, it is clear, given the central connection between intent and liability in this case, that such mislabelings may not be invoked to circumvent the rule. See Pierce, 955 F.2d, 828-29; Hays, 872 F.2d, 588-89; Stacey v. Bangor Punta Corp. v. Waitt, 620 F.Supp., 637. See also Hudspeth v. C.I.R., 914 F.2d 1207, 1214 (9th Cir. 1990).

Additionally, and independently, the probative value of such evidence is nil, given the understandable desire of the beleaguered Mr. xxxxx to settle the civil suits, and the absence of any indication that criminal prosecution would be forthcoming until the summer of 1994. Thus, the materiality of settlement statements under FRE 401 & 402 is dubious at best. See Ecklund, supra, 159 F.2d, 84.

Additionally, and independently, even if some hypothetical "other purpose" relevance could be postulated, the above-described evidence must be excluded because of the virtual certainty that the lay jury will misuse it for improper purposes -- such as to infer the accused's culpability or as substantive evidence of damaging admissions. Admission of the evidence would divert jury attention to issues like Mr. xxxxx's state of mind at the time of civil litigation, instead of focusing it on his intent at the time of the alleged offenses. It would necessitate a long detour as lawyers on both sides of already resolved disputes testify in an effort to explain or refute litigation tactics and legal theories in the civil cases. And, at the end of the day, the jury will undoubtedly misuse the evidence to infer that the utterances were true in a fact, and that innocent people neither explore, nor enter into, settlements of related civil cases.

Rule 403, and due process fairness principles, protect against such a result, by requiring that the evidence be excluded. Louisell & Mueller, §170, at 443. See, e.g., EEOC v. Gear Petroleum, supra, 948 F.2d, 1545-46 (excluding compromise letter offered for "impeachment" -- "a thinly veiled attempt to get the 'smoking gun' letters before the jury"); In re First Software Corp., supra, 107 B.R., 424-25; Fiarman, 107 F.R.D., 111-12. See also Weinstein & Berger, Weinstein's Evidence, ¶ 408[05], at 408-31, 408-34 (1991); McCormick on Evidence, § 274, at 813 (Cleary 3d ed. 1984).

CONCLUSION

WHEREFORE, Mr. xxxxx asks the Motion IL-2 be granted.

Dated this ___ day of January, 1996.

Respectfully submitted,

ROBERT xxxxx, Defendant

JAMES H. McCOMAS

Attorney for Mr. xxxxx

____________________________

James H. McComas

1.

⁰Factual representations contained herein are verified by the accompanying affidavits (Atts. 11 & 12) and supported by the accompanying documentary exhibits (Atts. 1-10).