                                          Slip Op. 10 - 92

UNITED STATES COURT OF INTERNATIONAL TRADE
____________________________________
                                    :
BP OIL SUPPLY COMPANY,              :
                                    :
                        Plaintiff,  :
                                    :
                  v.                :                 Before: R. Kenton Musgrave, Senior Judge
                                    :                 Court No. 04-00321
UNITED STATES,                      :
                                    :
                        Defendant.  :
____________________________________:


                                     OPINION AND ORDER

[Granting in part and denying in part the defendant’s motion to strike with respect to the plaintiff’s
motion to stay the Court’s scheduling order.]

                                                                             Dated: August 13, 2010

       Galvin & Mlawski (John Joseph Galvin), for the plaintiff.

        Tony West, Assistant Attorney General; Barbara S. Williams, Attorney-In-Charge,
International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department
of Justice (Marcella Powell), for the defendant.


               Musgrave, Senior Judge: On June 15, 2010, Plaintiff BP Oil Supply Company (“BP”)

moved to stay the Court’s scheduling order in this matter for the purpose of interposing on the

defendant certain requests for admission. See Pl.’s Mot. for Order Staying Ct.’s Scheduling Order

to Permit Pl. Time to Interpose Req. for Admis. (“Pl.’s Mot.”). In response, Defendant U.S.

Customs and Border Protection (“CBP” or “the government”) moved to have the entirety of BP’s

motion stricken from the record on the ground that evidence offered therein is inadmissible under
Court No. 04-00321                                                                             Page 2


Rule 408 of the Federal Rules of Evidence (“FRE 408”). See Def.’s Mot. to Strike at 1. For the

reasons set forth below, the government’s motion to strike will be granted in part and denied in part.

                                            Background

               According to the complaint, BP allegedly imported “API Class III” crude petroleum

from various foreign countries, paid duties thereon, exported API Class III Alaskan North Slope

crude petroleum, and filed a claim with CBP for duty drawback, claiming that the latter satisfied the

statutory substitution requirements of the former. Upon denial of that claim and its protest thereof,

BP commenced this action, invoking this Court’s jurisdiction under 28 U.S.C. § 1581(a). After a

brief stint on the Court’s reserve calendar, the first of several scheduling orders was issued on

November 29, 2006, and this matter has been in discovery and/or settlement negotiations since that

time. On March 10, 2010, the court lifted a previously-imposed stay on the scheduling order and

granted BP’s consent motion in what had appeared to be the final amendment to the scheduling order

before trial. Pursuant to that order, discovery was to be completed by March 20, 2010, and

dispositive motions were to be filed with the Court no later than June 15, 2010. However, on June

15, 2010, BP again moved to stay the scheduling order for the limited purpose of serving on the

defendant requests for admission on certain issues. See Pl’s. Mot. at 3.

               BP’s motion, submitted pursuant to Rules 6(b), 7, and 16 of the Court’s Rules, states

that the court should grant its request “for the reasons set forth below.” However what follows that

statement is not reasoning per se, but a short narrative of events concerning the parties’ recent

attempts to resolve which facts are “not in issue” for the purposes of the pending litigation. This

narrative is punctuated with block-quoted emails from government counsel expressing disagreement
Court No. 04-00321                                                                              Page 3


with, inter alia, BP’s proposed stipulation of facts. See Pl.’s Mot. at 1, 2. The motion concludes

without comment, requesting simply that the stay be granted “[i]n view of the foregoing . . . .” Pl.’s

Mot. at 3. As to the substance of the motion, the court notes only that BP appears to be frustrated

by the government’s refusal to concede that three of the imported crude types are “commercially

interchangeable” with the exported crudes in spite of allegedly contrary views expressed by the

government’s own expert witnesses. Pl.’s Mot. at 1. Attached to BP’s motion is (1) a March 25,

2010 letter from BP to government counsel discussing reports prepared by government expert

witnesses; (2) a proposed “Stipulated Judgment on Agreed Statement of Facts”; (3) a June 11, 2010

letter from BP to government counsel debating whether CBP may “reliquidate partial claims”; and

(4) a document entitled “Schedule of Stipu[l]able Partial Claims.” See Pl.’s Mot. at Attach. A, B, C.

                By way of response, the government has filed a motion to strike BP’s motion on the

ground that it used “confidential settlement communications” in a manner specifically prohibited by

FRE 408. According to the government, BP impermissibly offered evidence of “confidential

settlement communications both as a justification for its request to reopen discovery and as a basis

for obtaining admissions,” and asserts that “[t]he underlying premise of [BP’s] motion is that its

request to reopen discovery is justified because the confidential settlement negotiations demonstrate

the merits of its claims . . . .” Def’s. Mot. at 5. Accordingly, states the government, the court should

strike BP’s motion in its entirety and order that it be refiled without the prohibited evidence.

                BP disagrees with the government’s characterization of its motion, arguing that

neither the letters accompanying the motion nor the emails quoted therein constitute “confidential

settlement communications.” Pl.’s Resp. at 4. BP asserts that the communications contain no offers
Court No. 04-00321                                                                                Page 4


of compromise and that all of the materials “rely upon or reference” testimony of the government’s

experts. Id. BP contends further that, even if the disputed evidence were found to be settlement

communications, it would not be excluded by FRE 408 because the materials (1) only contain

“otherwise discoverable” evidence; and (2) were included in the motion for the sole purpose of

“negat[ing] any contention of undue delay on plaintiff’s part.” Id.

                                             Discussion

               FRE 408 provides:

       Rule 408. Compromise and Offers to Compromise

         (a) Prohibited uses. Evidence of the following is not admissible on behalf of any
       party, when offered to prove liability for, invalidity of, or amount of a claim that was
       disputed as to validity or amount, or to impeach through a prior inconsistent
       statement or contradiction:

                 (1) furnishing or offering or promising to furnish--or accepting or offering
               or promising to accept--a valuable consideration in compromising or
               attempting to compromise the claim; and

                 (2) conduct or statements made in compromise negotiations regarding the
               claim, except when offered in a criminal case and the negotiations related to
               a claim by a public office or agency in the exercise of regulatory,
               investigative, or enforcement authority.

         (b) Permitted uses. This rule does not require exclusion if the evidence is offered
       for purposes not prohibited by subdivision (a). Examples of permissible purposes
       include proving a witness's bias or prejudice; negating a contention of undue delay;
       and proving an effort to obstruct a criminal investigation or prosecution.

Fed. R. Evid. 408.

               The rationale underlying Rule 408 is twofold: First, the rule promotes the settlement

of disputes prior to litigation by recognizing that compromises are more likely to result when parties

are free to speak openly during settlement negotiations and are not inhibited by the fear that
Court No. 04-00321                                                                                Page 5


statements made therein may later be used against them. Goodyear Tire & Rubber Co. v. Chiles

Power Supply, Inc., 332 F.3d 976, 980 (6th Cir. 2003). Second, the rule seeks to exclude irrelevant

or unreliable evidence, recognizing that parties will often settle disputes for reasons completely

unrelated to the merits of a claim. Goodyear, 332 F.3d at 981.

                Significantly, FRE 408 permits the use of evidence of settlement negotiations “for

purposes not prohibited by subdivision (a),” i.e., for a purpose other than to prove or disprove the

validity of the claims that the offers were meant to settle. Examples of uses “permitted” by the rule

include proving “ a witness’s bias or prejudice”; “negating a contention of undue delay”; or proving

that a party had breached the settlement agreement. Fed. R. Evid. 408(b); 2006 Amendment Adv.

Com. Note.

                Hence, the two questions that must be resolved on the instant motion are (1) whether

the evidence set forth in BP’s motion constitutes “confidential settlement communications,” and (2)

if so, whether that evidence is being offered for an improper purpose, e.g., “to prove liability for . . .

or amount of” the claims at issue in this dispute. Further, the court may consider whether admitting

the evidence would be contrary to “the public policy of encouraging settlements and avoiding

wasteful litigation.” Trebor Sportswear, Starter Corp. v. Converse, Inc., 170 F.3d 286, 293 (2d Cir.

1999).

                As to the letters of March 25, 2010 and June 11, 2010, the court agrees that they do

not fall within the prohibition of FRE 408. Although the letters are communication that occurred

within the context of “compromise negotiations,” the information contained in the letters is

admissible on other grounds. The March 25, 2010 letter contains only BP’s brief summary of the
Court No. 04-00321                                                                              Page 6


reports generated by the government’s expert witnesses. Expert witness reports are independently

admissible (in fact, required) by USCIT R. 26 and cannot be excluded by their use in settlement

negotiations. The June 11, 2010 letter appears to be nothing more than BP’s views on a purely legal

question. Accordingly, these letters are not excluded by FRE 408.

                Of more concern, however, is BP’s direct quotation of emails sent by government

counsel in response to certain of BP’s proposals. The emails divulge the government’s position

regarding which concessions it was willing and unwilling to make, particularly as to the commercial

interchangeability of certain crudes. Although the emails may be related to government expert

reports, the discussion therein is focused on the government’s disagreement with BP on several

issues, including BP’s proposed stipulation of material facts. And although the emails contain no

express offers to compromise, the statements therein certainly appear to be “made in compromise

negotiations regarding the claim.” Fed. R. Evid. 408(a)(2).

                Finally, although the exact extent of the dispute is not entirely clear at this point in

the litigation, BP’s proposal of stipulated facts (and related documents) is in the nature of a proposed

settlement as applied to certain crudes and appears to be precisely the type of communication

described in FRE 408(a). If used for a prohibited purpose, proposals of this nature are inadmissible

even if offered by the party making the proposal. See Pierce v. F.R. Tripler & Co., 955 F.2d 820,

828 (2d Cir. 1992).

                In that regard, the court must reject BP’s contention that the sole purpose of the

evidence was to “negate any contention of undue delay” that could have been levied against BP for

requesting the stay. The use of the word “negate”in FRE 408 is an indication that although
Court No. 04-00321                                                                               Page 7


settlement-negotiation evidence may be used to rebut a claim that a party engaged in undue delay,

the evidence is inadmissible “unless the door is first opened by a party raising the issue of undue

delay.” Stockman v. Oakcrest Dental Ctr., P.C., 480 F.3d 791, 808 (6th Cir. 2007). See Charles

Alan Wright and Kenneth W. Graham, Jr., 23 Fed. Prac. & Proc. § 5312 (2010) (noting that “the

offeror cannot himself raise the issue of delay as a justification for the admission of the evidence”).

                Finally, the court is compelled to observe that, although unstated, the evidence

provided in BP’s motion to stay the scheduling order presumably is being offered, at least in part,

for the purpose of convincing the court to grant the motion, i.e., that it somehow speaks for itself of

“good cause” pursuant to USCIT R. 16. Settlement-negotiation evidence might be permissible for

that purpose under certain circumstances, but the evidence encompassed by this motion does not

pertain solely, or even necessarily, to demonstrating “good cause” under USCIT R. 16. Rather, the

evidence appears in large measure as “proof” of BP’s position on the issue of the commercial

interchangeability of certain crudes.

                The burden is on the plaintiff to prove its case. In the legal course thereof, the

government has every right, within reason, to dispute a fact as to its legal conclusion, in this instance

as to those crudes’ commercial interchangeability. Prudence therefore dictates that it would be

exceedingly unwise for the court to give any consideration to these materials or to allow them to

become part of the record. The emails, proposed stipulation of facts, and documents related to that

proposal are therefore inadmissible on this motion pursuant to FRE 408 and its underlying policies.

In the interests of judicial economy, however, these items will be disregarded by the court rather than

stricken from the record.
Court No. 04-00321                                                                          Page 8


                                            Conclusion

               Upon consideration of the foregoing, the government’s motion to strike is granted in

part and denied in part, and the disputed evidence contained in BP’s motion will be treated in

accordance with the court’s findings as discussed above. The government shall therefore either

consent to BP’s motion to stay the scheduling order or submit its response to the motion not later

than 10 days from the date of this order.

               SO ORDERED.



                                                       /s/ R. Kenton Musgrave
                                                   R. KENTON MUSGRAVE, Senior Judge

Dated: August 13, 2010
       New York, New York
