The Admissibility of Settlement Evidence
in Multi-defendant Tort Cases

By Daniel J. La Fave

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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.

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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.