Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-6-1995

Affiliated Mfr v Alum Co
Precedential or Non-Precedential:

Docket 94-5529




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                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT

                          ___________

                          No. 94-5529
                          ___________

                AFFILIATED MANUFACTURERS, INC.,
                           Appellant,

                               v.

                  ALUMINUM COMPANY OF AMERICA,

                          ___________

         On Appeal from the United States District Court
                 for the District of New Jersey

               (D.C. Civil Action No. 91-cv-02877)

                           ___________

                     Argued:   March 7, 1995

          BEFORE: HUTCHINSON and ALITO, Circuit Judges,
        and RESTANI, Judge, Court of International Trade*

                  (Opinion Filed June 6, 1995)
                           ____________

Ross A. Lewin, Esquire                   (Argued)
Jamieson, Moore, Peskin & Spicer
300 Alexander Park - CN 5276
Princeton, NJ 08543-5276
          Attorney for Appellant

Stuart Alderoty, Esquire                 (Argued)
Thomas G. Griggs, Esquire
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
One Riverfront Plaza
Newark, NJ 07102-5490
          Attorneys for Appellee



     *    The Honorable Jane A. Restani, Judge, United States
Court of International Trade, sitting by designation.
                           ________________

                         OPINION OF THE COURT
                           ________________


RESTANI, Judge.

             Following a trial in this action brought by

plaintiff-appellant Affiliated Manufacturers, Inc. ("AMI")

alleging additional money was due on a contract, the jury

returned a verdict in favor of defendant-appellee Aluminum

Company of America ("Alcoa") on its counterclaim for failure to

satisfy contract specifications and breach of warranties.       AMI

appeals from the district court's grant of a motion in limine

brought by Alcoa to exclude certain documents and deposition

testimony as evidence of settlement negotiations under Fed. R.

Evid. 408.    For the reasons set forth herein, we affirm the

judgment of the district court.



                                  I.

             AMI originally filed its complaint on June 3, 1991,

against Alcoa in the Superior Court of New Jersey, seeking

payment of invoices amounting to $488,130.      The case was removed

to the United States District Court for the District of New

Jersey on July 2, 1991.     Alcoa filed a motion in limine on

November 5, 1993, and a supplemental submission dated

November 23, 1993, seeking to exclude portions of a total of

fifteen items from admission at trial, including excerpts from

correspondence between AMI and Alcoa, Alcoa internal memoranda

and deposition testimony.    The district court granted this motion
with respect to thirteen of the fifteen items, by memorandum

order dated December 23, 1993.

           The case was tried before a jury from March 1, 1994 to

April 6, 1994.   The jury returned a verdict of $100,000 for Alcoa

on its counterclaim, and rejected all of AMI's claims.    AMI moved

for a new trial, but the motion was denied on July 19, 1994.

This appeal was filed on August 17, 1994.

           The dispute between AMI and Alcoa arose from a contract

for design and fabrication of an automated greenline handling

system ("the system").1   The system built under this contract was

never put into production.   During the construction of the

system, AMI submitted to Alcoa invoices for work not included in

the contract.    Upon receipt, Alcoa processed the invoices for

payment.   The parties disagree concerning one unpaid invoice for

hardware costs (four screen printers) totalling $280,000, and

another unpaid invoice for $208,130 in software costs.    These two

invoices were submitted by AMI at the end of the project, on

April 5, 1990, to the attention of Thomas Pollak ("Pollak"),

Alcoa's procurement manager.

           Pollak consulted with Alcoa employees Earle Lockwood

("Lockwood") and Phil Kasprzyk ("Kasprzyk") concerning the

invoices, because both were closely involved with the project.


     1
      / The system is designed to produce green, unframed
interconnect devices for the electronics industry that are used
to package computer chips. The system is intended to require a
minimum of human intervention and consists of a series of
mechanical components physically integrated and then coordinated
through computer technology. Appellant's Br. at 6.
In memoranda, Lockwood and Kasprzyk each evaluated one of the two

invoices from AMI.    At a meeting between Pollak, Lockwood and

AMI's president, Benson Austin ("Austin"), on May 2, 1990, one

topic of discussion was the issue of unpaid invoices, as

reflected in handwritten contemporaneous notes.     Appellant's App.

at 54-57 ("App.").

            Alcoa's original motion in limine sought exclusion of

portions of the Lockwood and Kasprzyk memoranda and a letter from

Austin dated June 26, 1990, as well as portions of the meeting

notes from May 2, deposition exhibits and transcripts that were

not specifically described.     App. at 3-5.   At the request of the

district court, Alcoa supplied an additional submission detailing

twelve items (meeting notes, deposition testimony and letters)

for which Alcoa also sought portions excluded from admission at

trial.     See App. at 17-21.   Each of the thirteen items, for which

the district court ruled portions inadmissible, will be discussed

in turn.

            In particular, the district court excluded portions of

the memorandum by Kasprzyk dated May 1, 1990, and Kasprzyk's

deposition testimony concerning the memorandum.     Affiliated
Mfrs., Inc. v. Aluminum Co. of America, Civ. No. 91-2877, at 7

(D.N.J. Dec. 23, 1993) ("AMI I").     The memorandum stated in part

            AMI's claim of 6251 hours of programming time
            is [un]reasonable when you consider the
            additional 4100 hours that ALCOA personnel
            contributed.

                                . . . .
          Since the original purchase order for the
          line did not thoroughly specify the
          capability of the line, I feel that AMI has a
          legitimate claim to some software
          compensation. I feel that AMI should only be
          compensated for 1/3 of the requested amount
          since the line does not meet the 600 card per
          hour specification . . . .2



App. at 11; see AMI I at 7.   The district court also excluded a

section of the handwritten notes of the May 2, 1990 meeting

between Alcoa and AMI, which contained a mathematical calculation

of numbers, as well as the terms "software proposal" and "above

settlement proposal by Alcoa unacceptable."   AMI I at 12; see
App. at 57.

          The district court further excluded the following

excerpts of Pollak's deposition testimony regarding the purposes

of the May 2 meeting and a subsequent meeting held on January 7,

1991:
          Q: [W]hat was the purpose of the
          visit . . . on May the 2nd, 1990?

          A: To the best of my recollection an attempt
          to reach agreement --

                              . . . .

          Q: So this was about a month after the
          shipment of the equipment that you were there
          with Mr. Lockwood?

          A: Yes.

          Q: Do you recall the purpose of that visit?



     2
      / Parties do not dispute that the word "unreasonable" was
intended.
           A: An attempt to reach agreement to get the
           equipment to perform in accordance with the
           specifications.

                               . . . .

           Q: The only other recorded visit that we have
           was on January 7th, 1991, . . . . [W]hat was
           the purpose of your visit?

           A: My recollection is to reach settlement.



App. at 25-27 (Dep. Tr. of Thomas Pollak at 35-37); see AMI I at

9-10.   The court also excluded portions of Austin's deposition

testimony regarding his discussions with Pollak, particularly the

following statements:
          Q. You were in the process of trying to
          negotiate a settlement?

           A. No.   [Mr. Pollak] was.    I wasn't.   Not at
           all.

           Q. You had presented a demand, ALCOA had made
           a proposal to settle the dispute?

           A. Yes. At this point, he said, I'm not
           going to pay you for any profits. I'm just
           going to pay you for your cost . . ., and I
           told him that I wasn't in business to supply
           products with manufacturing costs. I'm
           sorry. I have to make a profit.

                               . . . .

           A. Well, this had to do with the ALCOA offer.
           They offered what the cost of goods sold,
           $83,382. . . . The ALCOA offer of $101,000,
           which is from this batch, gives us a loss of
           $12,000.

                               . . . .

           A. I, frankly, was very surprised that we see
           such opposition from our, what we thought
           were most reasonable settlements on these,
          because you must remember we were still
          interested in doing more business with
          ALCOA . . . .

                             . . . .

          A. Well, Mr. Pollak accepted both bills, and
          his comment was I will offer you so much on
          the printers now. . . . I will offer you
          this much now, and you change your invoice
          and we will pay it.

                             . . . .

          A. I think that offer was either made in the
          meeting or it was made in the letter, I don't
          which.



App. at 47-52 (Dep. Tr. of Benson Austin at 74, 76-77, 88-90);

see AMI I at 11-12.

          Additionally, the district court excluded portions of

four letters from Pollak to Austin dated June 11, August 22,

September 24, and October 31, 1990.    These letters, respectively,

contained the following statements:
          As a compromise, I will split the $7,500
          amortization fee, adding $15,000 to my offer.

App. at 66; AMI I at 13;

          Your letter of 1990 June 26 presented your
          logic for turning down our third proposed
          settlement for the screen printers. . . . I
          suggest we resolve this equipment issue by
          agreeing on my final offer for a
          settlement . . . . Please cancel your
          invoice . . . and issue a new invoice.


App. at 63; AMI I at 13;

          My offer still stands subject to potential
          reductions based on Alcoa's efforts in
          achieving an acceptable production rate.
                                . . . .

             Alcoa will inform AMI of the results of our
             efforts and will make a final settlement
             proposal taking into account all cost
             incurred by Alcoa.


App. at 69; AMI I at 13; and

             We are now at the point where we can make our
             final settlement offer for the equipment
             furnished against our purchase order.

                                . . . .

             In an effort to finally resolve this matter,
             Alcoa proposes that AMI submit an invoice for
             $195,928 for additional hardware costs for
             the 1655 printers and $79,358.00 to cover the
             software costs . . . . Alcoa will pay this
             amount. Of course, Alcoa will expect AMI to
             execute an appropriate release.



App. at 74-75; AMI I at 13-14.    The district court also excluded

a portion of a letter from Austin to Pollak dated June 26, 1990,

in which Austin explains the reasons why he chose to turn down

Alcoa's offer to pay a certain dollar amount for the screen

printers, referring to mathematical calculations concerning the

printer charges.    App. at 14-15; AMI I at 7-8.

          Also, the district court excluded the Lockwood

memorandum dated January 3, 1991, and Lockwood's deposition

testimony concerning the memorandum.      In the memo, Lockwood

discussed Alcoa's proposal to pay "additional money," and

indicated:
          In the interest of getting the line into
          production ALCOA decided to proceed with the
          software optimization on its own. . . . In
          doing so we incurred costs totalling
          approximately $129,000 and informed AMI that
          we would subtract these costs from the amount
          they had requested.



App. at 7-9; AMI I at 6-7.    The deposition testimony excluded

contained references to the January 3 memo, as follows:

          That is the reason the bills were brought to
          my attention, because our costs had
          significantly increased and those just
          increased it even more. . . . I was asked an
          opinion . . . [about disputed billing
          figures].



App. at 34; AMI I at 10.

          Lastly, the district court found excludable a February

15, 1991 letter from Austin to Pollak, stating in part,
          Without going into any further detail, I am
          willing to give an allowance of
          $12,000.00 . . .

          [Y]our letter of August 22, 1990 makes an
          offer to cover AMI's costs . . .

                              . . . .

          Our original billing was for $488,130.00, so
          there is not much of a difference between now
          and then. You did want to know for what we
          would settle, without it going to litigation.
          This offer is being made without prejudice to
          AMI's normal rights in this matter.



App. at 61; AMI I at 12-13.

          AMI challenges the district court's ruling as to the

portions of each of the 13 items excluded from admission at

trial.
                                  II.

          Appellate jurisdiction in this case is based upon

28 U.S.C. § 1291 (1988), as the district court's order was final.

The district court had jurisdiction pursuant to 28 U.S.C. § 1332

and § 1441(a) (1988).

          Abuse of discretion is the standard of review for

denial of a request for a new trial based on the district court's

alleged error in ruling on the admissibility of evidence.        See

Lippay v. Christos, 

, 1496 (3d Cir. 1993).      A

district court's ruling as to admissibility of evidence is

reviewed under an abuse of discretion standard, where the

question presented involves the application of the Federal Rules

of Evidence.   See In re Paoli R.R. Yard PCB Litig., 

,

749 (3d Cir. 1994).      To the extent the district court's ruling

turns upon an interpretation of Rule 408, it is subject to

plenary review.    

trial court has made a factual

finding in determining admissibility of evidence, the clearly

erroneous standard is applied.     United States v. 68.94 Acres of

Land, 

, 392 (3d Cir. 1990); In re Japanese Elec.
Prods. Antitrust Litig., 

, 257 (3d Cir. 1983), cert.

granted in part sub nom. Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 

(1985), rev'd on other grounds, 

(1986).    Under this standard, a finding of fact may be

reversed on appeal only if "it is completely devoid of a credible

evidentiary basis or bears no rational relationship" to the

evidence in support.     American Home Prods. Corp. v. Barr Labs.,
Inc., 

, 370-71 (3d Cir. 1987).
                               III.

                      A. Fed. R. Evid. 408

     1. Evidence of negotiations to settle a disputed claim

          AMI contends that the district court erred in its

interpretation and application of Rule 408.   AMI alleges that the

court took an extreme view of the meaning of "settlement

negotiations" as contemplated within the rule.   AMI asserts that

the district court incorrectly found that even an "apparent

difference of opinion between the parties" could trigger an

exclusion under the rule.   See AMI I at 6 (citing Alpex Computer

Corp. v. Nintendo Co., 

(S.D.N.Y. 1991)).

Further, AMI argues that the district court erred in its factual

finding that a dispute existed between the parties.

          The evidentiary exclusion for compromise and offers to

compromise reads 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 merely 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.
Fed. R. Evid. 408.   The application of the rule is limited to

evidence concerning settlement or compromise of a claim, where

the evidence is offered to establish liability, or the validity

or amount of the claim.   Additionally, Rule 408 has been

interpreted as applicable to an actual dispute, or at least an

apparent difference of view between the parties concerning the

validity or amount of a claim.    2 Jack B. Weinstein & Margaret A.

Berger, Weinstein's Evidence ¶ 408[01] at 408-12 (1994); Kenneth
S. Brown et al., McCormick on Evidence § 266, at 466 (John

William Strong ed., 4th ed. 1992).    The policy behind Rule 408 is

to encourage freedom of discussion with regard to compromise.

See Weinstein's Evidence, supra, ¶ 408[01] at 408-10.

           AMI argues that the case law clearly delineates

distinctions as to what constitutes "a claim which was disputed,"

and characterizes the excluded documents at issue as merely

evidencing discussions that had not yet reached the "dispute"

stage for Rule 408 purposes.     Thus, AMI maintains that Rule 408

is inapplicable here, arguing that the intended construction of

Rule 408 is that there must be a threat or contemplation of

litigation, that goes beyond conduct or statements made to

resolve differences of opinion as to the validity or amount of a

claim.   AMI relies chiefly upon the holdings from other circuits

to support its view that the district court misinterpreted the

term "dispute" and misapplied the rule.    Alcoa responds that AMI
has mischaracterized these decisions, as well as the district

court's reasoning, in its discussion of relevant precedent.

             In reaching its conclusion to apply the Rule 408

exclusion, the district court reasoned that the Tenth Circuit's

application of Rule 408, in Big O Tire Dealers, Inc. v. Goodyear

Tire & Rubber Co., 

(10th Cir. 1977), cert.

dismissed, 

(1978), was too restrictive in its

establishment of "the point of threatened litigation [as] a clear

cut-off point" for application.     AMI I at 5 (quoting Big O 

).     Instead, the district court adopted the view

articulated by the court in 

,

finding that the Alpex court "considered factors apart from any

indicia of threatened litigation."    AMI I at 5-6.   The district

court then proceeded to analyze the facts concerning each

document and deposition excerpt that Alcoa had proposed for

exclusion.

             In Big O Tire, a small tire manufacturer that had used

the term "Big Foot" in its business was approached by Goodyear

Tire, who wished to use the same term for a national ad campaign

for a new 

.   Both parties participated

in a series of discussions about how to proceed, and Goodyear

sought assurance from Big O Tire that it would not object to such

use.   

to phone conversations and meetings to

discuss the issue further, correspondence indicated that Big O

Tire requested that Goodyear conclude its ad campaign as soon as

possible, and that Goodyear responded it would use the concept as

long as it "continued to be a helpful advertising device."      

court in Big O Tire determined that phone and letter

communications between the parties prior to litigation concerning

use of the trademark did not fall within the Rule 408 exclusion,

as the calls and letters were merely "business communications."

See 

1372-73.    The Court of Appeals for the Tenth

Circuit concluded that the district court did not commit manifest

error in finding the disputed statements were business

communications because the discussions at issue "had not

crystallized to the point of threatened litigation."     

          To the extent Big O Tire establishes a strict standard

for application of Rule 408, it was rejected by Alpex.      

.   The plaintiff in Alpex held certain rights

relating to a patent for video games and pursued a program to

combat infringement by sending letters from counsel offering

certain alleged infringers the opportunity to settle what

plaintiff viewed as meritorious infringement claims.     

In some instances these notices led to extended negotiations,

licensing agreements and settlement without litigation, while in

other instances litigation was pursued.    

  The

Alpex court determined that certain license agreements reached in

the absence of litigation fell within the purview of the Rule 408

exclusion.   

   In its analysis, the Alpex court

examined various factors in addition to indicia of threat of

litigation, that might call for application of the exclusion.

           We believe that AMI has oversimplified the Big O Tire

and Alpex holdings.   Regarding the issue of when a "dispute"

between parties exists, the Alpex court acknowledged that

litigation need not have commenced for Rule 408 to apply.     770 F.

Supp. at 164; see North Am. Biologicals, Inc. v. Illinois

Employers Ins., 

, 841 (11th Cir. 1991) (finding

letter written prior to suit excludable under Rule 408 as offer

of settlement).   Parties here concede this point.   Further, Big O

Tire is consistent with Alpex on this point.    

.   Because of the applicable standard of review, it is not

entirely clear how the Tenth Circuit would view exclusion, rather

than inclusion, of negotiations made prior to "the point of

threatened litigation".    Furthermore, the Alpex court did not, as

AMI asserts, adopt in toto the view that a dispute must

"crystallize[] to the point of threatened litigation" before

evidence of settlement negotiations are excludable.    Rather,

Alpex and other courts make clear that the Rule 408 exclusion

applies where an actual dispute or a difference of opinion

exists, rather than when discussions crystallize to the point of

threatened litigation.    See 

; Dallis v.
Aetna Life Ins. Co., 

, 1307 (11th Cir. 1985) (citing

Weinstein's Evidence, supra, ¶ 408[01]) (affirming admission of

testimony involving settlement of similar claim between party to

action and third party, where no evidence that validity or amount

of payment had been in dispute).

          Accordingly, we hold that the district court's

construction of Rule 408 did not constitute legal error.    As a
matter of interpretation, the meaning of "dispute" as employed in

the rule includes both litigation and less formal stages of a

dispute, and this meaning "is unchanged by the broader scope of

Rule 408."    Weinstein's Evidence, supra, ¶ 408[01] at 408-12.

The district court properly interpreted the scope of the term

"dispute" to include a clear difference of opinion between the

parties here concerning payment of two invoices.

           The facts of each case bear upon the trial court's

exercise of discretion to apply the exclusion.     See Alpex, 770 F.

Supp. at 164-65; Bradbury v. Phillips Petroleum Co., 

, 1364 (10th Cir. 1987) (holding if application of Rule 408

exclusion doubtful, better practice is to exclude evidence of

compromise negotiations).    Admittedly, it can be difficult to

discern whether an "offer" was made to attempt to "compromise a

claim."    The existence of a disputed claim as well as the timing

of the offer are relevant to making this determination.       Pierce

v. F.R. Tripler & Co., 

, 827 (2d Cir. 1992).       The

district court here found that inherent in each of the documents

presented for exclusion was the parties' disagreement or dispute

as to the amount and the validity of the invoice presented for

payment.   AMI I at 6-14.
             The district court found that when viewed in context,

the April 5, 1990 letter from Austin at AMI was evidence of a

dispute concerning the printer design and software programming.

See 

6.     As this letter was not among the disputed

documents, we need not consider whether a dispute arose as early

as April 5.     Following receipt of the April 5 letter and
invoices, Kasprzyk described to Pollak in his May 1, 1990

memorandum his evaluation of the amount billed by AMI for

software and his assessment of the merits of AMI's claim.       App.

at 11.    This is the earliest document in dispute.   In this

memorandum, Kasprzyk concluded that
          [s]ince the original purchase order for the
          line did not thoroughly specify the
          capability of the line, I feel that AMI has a
          legitimate claim to some software
          compensation. I feel that AMI should only be
          compensated for 1/3 of the requested amount
          since the line does not meet [certain
          specifications]. I also feel that this is
          appropriate due to the AMI's overall inferior
          performance on system software.

this memorandum as an "evaluation,"

implying that it did not evidence a dispute under Rule 408.      See

Appellant's Br. at 11.   We also need not reach the question of

whether the mere existence of an internal evaluation such as this

memorandum provides evidence of a dispute.   In his deposition

Pollak stated that "[i]n preparation for [a May 2 settlement]
meeting, I asked Phil Kasprzyk, an Alcoa engineer familiar with

the project, his view of the disputed invoices."3     App. at 79.

That Kasprzyk's evaluation was written in order to prepare Pollak

for a meeting to discuss a possible compromise necessarily

      3
      / In an affidavit, Austin denied Pollak's statement that
one purpose of the May 2 meeting was to attempt settlement of the
dispute. App. at 86. As we previously indicated, however, the
notes of the May 2 meeting contained mathematical calculations,
as well as the terms "software proposal" and "above settlement
proposal by Alcoa unacceptable." App. at 57.
demonstrates that at least as of May 1 there was a dispute.     We

cannot say that the district court erred in concluding that a

dispute existed as of May 1 and that the documents at issue

evidenced attempts to compromise the dispute.



                2. Exclusion of internal memoranda

          AMI's second argument is that the district court erred

in applying the Rule 408 exclusion to internal memoranda that

were a part of the fifteen items offered for exclusion under Rule

408.   AMI argues that the rule only protects conduct and

statements during negotiations, and does not protect internal

memoranda, or deposition testimony concerning these memoranda.

Alcoa responds that such an interpretation and application of

Rule 408 would contradict the rule's purpose, serving instead to

discourage open settlement discussions.

          The district court found both the Lockwood and Kasprzyk

memoranda, and testimony concerning these documents, to be

eligible for exclusion under Rule 408.    AMI I at 8-9.   The

district court declined to adopt the reasoning in Blue Circle
Atl., Inc. v. Falcon Materials, Inc., 

, 522 (D.

Md. 1991), aff'd without op., 

(4th Cir. 1992), which

interpreted Rule 408 to require communication of internal

memoranda to an opposing party, and instead relied upon the

holding in Ramada Dev. Co. v. Rauch, 

(5th Cir.

1981).   The Court of Appeals for the Fifth Circuit in Ramada

upheld the district court's exclusion of an internal report "made

in the course of an effort to compromise."    

  The
Fifth Circuit quoted the text of Rule 408, that "[e]vidence of

conduct or statements made in compromise negotiations is likewise

not admissible."    

  In construing this language, the

district court here determined that the
          failure of Alcoa to communicate the internal
          memoranda to AMI is not dispositive in the
          context of a Rule 408 analysis; rather, any
          statements prepared by Alcoa representatives
          that function as the basis for compromise
          negotiations demonstrate 'evidence of
          conduct' in compromise negotiations.



AMI I at 8-9.   The district court further found that the

memoranda served as a basis for calculation of compromise

figures.    Thus, the court concluded that the Rule 408 exclusion

applied.    

            First, AMI argues that the legislative history of Rule

408 suggests a different result and that the district court has

incorrectly broadened the language of the rule.     Second, AMI

asserts that the district court should have followed Blue Circle,

and that the court disregarded an important fact in Ramada that
narrows its application.

            Under the common law, offers of compromise were

excluded from evidence, but the exclusion did not extend to

"admissions of fact, even though made in the course of compromise

negotiations, unless hypothetical, stated to be 'without

prejudice,' or so connected with the offer as to be inseparable

from it."    10 James Wm. Moore, Moore's Federal Practice

§ 408.01[9] (Daniel R. Coquillette et al. eds., 2d ed. 1995)

(Advisory Committee's Note on Proposed Rule 408).    Thus, AMI
argues, Rule 408 was intended to remedy the common law rule by

expanding it merely to include evidence of conduct or statements,

but not internal memoranda.     

408 was specifically

designed to cover admissions of fact, its language is

considerably broader than that necessary to accomplish this

change.

          Next, in Ramada, the report sought to be excluded was

generated by an architect hired for the purpose of preparing an

analysis of defects in the construction of a motel that plaintiff

had contracted to have 

, 1106.    Testimony

in Ramada indicated that the architect was "commissioned by

Ramada to prepare a report that would function as a basis of

settlement negotiations regarding the alleged defects in the

motel."   

  Thus, the Fifth Circuit determined that

because the report had been prepared as a tool for settlement

negotiations, it fell within the scope of Rule 408.      

to Ramada, the District Court of Maryland

in Blue Circle interpreted Rule 408 as inapplicable to internal

memoranda, unless they were communicated to the other side in an

attempt at 

, citing 23 Charles

Alan Wright & Kenneth W. Graham, Jr., Federal Practice and
Procedure § 5303 (1980)).    We reject this interpretation of Rule

408 as too broad, and find that the district court in Blue Circle

overstated the meaning of the treatise citation.4

     4
      / The treatise states that "[o]f course, the mere fact that
information may be useful in compromise negotiations does not
mean that it is privileged where it was never communicated to the
opponent." Federal Practice and Procedure, supra, § 5303, at 179
          AMI argues that the decision in United States v. 320.0

Acres of Land, 

(5th Cir. 1979), also should have

guided the district court, and that Ramada is distinguishable

from the case at hand.   In fact, it is 320.0 Acres that is

distinguishable from both Ramada and the case at hand.   In 320.0

Acres, the Fifth Circuit elected not to exclude a governmental

report discussing evaluation of fair market value to be paid to a

condemnee, on the basis that appraisals were not offers, but

rather were "statements of the amount which the Government

believes the landowner is constitutionally entitled to should

negotiations fail and condemnation proceedings be initiated."

  These statements of amount made by the government

were not compromise offers and were required by statute, a

situation quite different from those of the Alcoa memoranda.


(..continued)
n.26 (citing United States v. Reserve Mining Co., 

, 711-12 (D.C. Minn. 1976)). In Reserve Mining, a party
facing Rule 37 sanctions raised as a last defense the argument
that numerous economic and technological feasibility studies
withheld from discovery fell within the Rule 408 

. The district court in Reserve Mining
determined that the party to be sanctioned could not shield from
discovery all documents that represented factual matters that
might be or were incorporated in a settlement proposal. 

          Reserve Mining does not define clearly a rule for
treatment of internal memoranda, as Blue Circle implies. Rather,
the Reserve Mining court noted that the party's request for Rule
408 exclusion, if granted, would permit the exclusion of studies
done long before any dispute arose. 

.
Such is not the case here, as the Kasprzyk memorandum was written
immediately before, and in preparation for, the first meeting in
which the settlement of the dispute over invoices was discussed.
The Lockwood memorandum was formulated after a number of
correspondence concerning settlement figures.
          The court notes that the Eleventh Circuit's decision in

Blu-J, Inc. v. Kemper C.P.A. Group, 

, 642 (11th Cir.

1990), reinforces the reasoning in Ramada.   In Blu-J, the

Eleventh Circuit upheld the exclusion of evidence of an

accountant's evaluation "prepared by mutual agreement of [the

parties] as part of their settlement negotiations."     

This independent evaluation in Blu-J was found to fall within the

Rule 408 exception, and the holding in Ramada, because although

the parties disagreed as to whether "an offer was on the table"

during "negotiations," both parties agreed that the evaluation

was done to promote settlement of a dispute.    

   Here,

the district court found the Alcoa memoranda was prepared as a

basis for compromise negotiations, particularly because the

memoranda appeared to be intended to assist in calculation of

compromise figures discussed subsequently.     AMI I at 9.   The

district court's analysis is consistent with the view of Rule 408

expressed in the Ramada and Blu-J decisions of our sister

circuits, which we find persuasive.   Thus, we hold that the

district court did not abuse its discretion in excluding internal

memoranda prepared for use in discussion of settlement of AMI

invoice amounts.5



                              IV.



     5
      / Our conclusion that the district court properly excluded
evidence under Rule 408 eliminates the need to reach the issue of
whether the district court's decision resulted in harmless error.
            The district court properly interpreted and applied the

Rule 408 exclusion to suppress portions of the documents and

testimony discussed herein.    Further, the court's factual finding

as to the existence of a dispute between the parties was not

clearly erroneous.    Thus, the district court did not err in its

denial of the motion for new trial on the basis of its rulings as

to evidentiary exclusions.    The judgment of the district court is

affirmed.