01 Civ. 8115 (MBM)(FM).
June 12, 2003.
Although fact discovery in this breach of contract action concluded more than one year ago, the parties have continued to raise discovery issues, several of which were resolved in a Discovery Order dated February 19, 2003 (the "2/19 Order"). (See Docket No. 46). In the 2/19 Order, among other rulings, I directed that Research Corp. and Research Technologies Corp. (together, the "Defendants") produce certain "pleadings and transcripts" generated during the course of a related state court action.
The parties now seek resolution of an additional discovery dispute relating to the state court suit. Specifically, plaintiff Johnson Matthey, Inc. ("JM") seeks to compel the production of the Defendants' documents concerning the settlement of the state court suit. JM contends that the production of these documents was requested prior to the close of discovery and is consistent with both the 2/19 Order and the applicable federal rules. The Defendants disagree.
This latest dispute has spawned a series of letters to the Court, the earliest of which is dated April 21, 2003. Following a May 14, 2003 telephone conference, during which the Court heard oral argument, letters continued to arrive. Indeed, each side sent the Court a further letter earlier this week.
The relevant facts are set forth in prior orders in this case. In brief, JM instituted this federal action in an effort to recover additional patent royalties allegedly owed to it pursuant to a December 19, 1978 agreement. See Johnson Matthey, Inc. v. Research Corp., 2002 WL 1728566, at *1 (S.D.N.Y. July 24, 2002). The contractually-required royalties relate to two compounds used to treat cancer which were developed at Michigan State University ("MSU") during the 1970s with the assistance of a JM researcher. Id. The agreement gives JM a 14.167 percent royalty interest in certain revenues resulting from the commercial exploitation of the compounds, but the parties disagree as to the specific revenue base to which this percentage should be applied. Id.
JM was not the only company participating in the MSU research. Engelhard Industries ("Engelhard") also played a role, receiving, in exchange, its own 14.167 percent royalty interest, which, in turn, generated a similar dispute. In an effort to vindicate its rights, in 1998, Engelhard brought a substantially similar breach of contract action against the Defendants in state court. Engelhard Corp. v. Research Corp., No. 601847/98 (Sup.Ct. N.Y. County) ("Engelhard Case"). The Engelhard Case was tried in October 2002, resulting in a jury verdict of nearly $30 million for Engelhard. (See April 21, 2003 letter from Sandra Jeskie, Esq., to the Court ("Jeskie I") at 2 Ex. A). Following the trial, instead of entering a judgment, the parties "resolved the dispute between them without any admission of liability" and asked the state court to vacate the verdict "in view of the settlement reached by the parties and in the interest of justice." (Id. Ex. C.). On March 21, 2003, the state court acceded to that request. (Id. at 2 Ex. C).
On April 8, 2003, after learning of the settlement, JM requested copies of all of the documents relating to the settlement and vacatur of the verdict, alleging that they fell within the scope of JM's original request for documents concerning the Engelhard Case. (Id. Ex. D). The Defendants declined to produce any documents related to the settlement, noting that the 2/19 Order limited their required production to "pleadings and transcripts" only. (Id. Ex. E).
At the outset, the Defendants raise a procedural objection that JM's request to compel discovery constitutes an untimely application for reconsideration of the 12/19 Order. (See May 2, 2003 letter from Stephen S. Madsen, Esq., to the Court ("Madsen I") at 1-6; May 14, 2003 letter from Mr. Madsen to the Court at 2-3). Although the 2/19 Order required that the Defendants produce only "pleadings and transcripts" related to the Engelhard Case, it stretches credulity to suggest that the discovery issue then before the Court extended to the disclosure of documentation concerning an as-yet nonexistent settlement. Accordingly, I reject the Defendants' contention that JM's application should be denied on this procedural ground.
Turning to the merits, pursuant to the recent amendments to the Federal Rules of Civil Procedure, "[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party." Fed.R.Civ.P. 26(b)(1). Additionally, "[f]or good cause, the court may order discovery of any matter relevant to the subject matter involved in the action." Id. Under either alternative, the "[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." Id.
Citing Bottaro v. Hatton Assocs., 96 F.R.D. 158, 160 (E.D.N.Y. 1982), the Defendants argue that the public policy favoring settlements, as memorialized in Rule 408 of the Federal Rules of Evidence, mandates that the terms of a settlement agreement be disclosed only when the requesting party has made a "particularized showing of a likelihood that admissible evidence will be generated." (See Madsen I at 6-7). As the Defendants correctly observe, a number of judges in this District have applied the heightened Bottaro standard to requests for the production of settlement agreements to which the requestor is not a party. See, e.g., A.I. Trade Finance v. Centro Internationale Handelsbank, A.G., 1996 WL 732635, at *1 (S.D.N.Y. Dec. 20, 1996) (Eaton, M.J.); Riddell Sports, Inc. v. Brooks, 1995 WL 20260, at *1 (S.D.N.Y. Jan. 19, 1995) (Francis, M.J.); Weissman v. Fruchtman, 1986 WL 15669, at *19-*20 (S.D.N.Y. Oct. 31, 1986) (Buchwald, M.J.). Other judges, however, have disagreed. See, e.g., U.S. v. Barrier Industries, Inc., 1997 WL 97842, at *2 n. 2 (S.D.N.Y. Mar. 5, 1997) (Jones, J.) ("To the extent that [Bottaro] requires a heightened showing of relevance where settlement information is sought in discovery, courts have not uniformly embraced the decision."); S.E.C. v. Downe, 1994 WL 23141, at *6 (S.D.N.Y. Jan. 27, 1994) (Leisure, J.) (collecting cases).
In Bottaro, Judge Neaher reasoned that the adoption of Rule 408 of the Federal Rules of Evidence expressly overruled a preexisting common law exception which allowed a party to introduce evidence at trial concerning factual admissions relating to damages found in a settlement agreement. Bottaro, 96 F.R.D. at 160. Accordingly, to give effect to the public policy underlying the Rule, the judge imposed a higher burden on parties seeking the discovery of information regarding a settlement. As several judges have since observed, however, Rule 408 governs only the admissibility of evidence at trial. See Fed.R.Evid. 1101. A party's entitlement to pretrial disclosure of information concerning a settlement consequently must instead be weighed against the requirements of Rule 26(b)(1). See ABF Capital Mgt. v. Askin Capital Mgt., 2000 WL 191698, at *1 (S.D.N.Y. Feb. 10, 2000) (Sweet, J.) ("Prevailing authority within this Circuit holds that the discovery of settlement-related information is governed by [Rule 26(b)(1)], and that no heightened showing of relevance need be made in order to justify the disclosure of a settlement agreement.");Griffin v. Mashariki, 1997 WL 756914, at *1 (S.D.N.Y. Dec. 8, 1997 (Chin, J.) ("settlement agreements are governed by [Fed.R.Civ.P. 26] and are discoverable without a heightened showing of relevance"); Bank Brussels Lambert v. Chase Manhattan Bank, N.A., 1996 WL 71507, at *3 (S.D.N.Y. Feb. 20, 1996) (Ellis, M.J.) ("Chase misperceives the policy underlying Rule 408. The rule is not designed to lock away settlement documents, forever shielding them from view by those not a party to the agreement."); Downe, 1994 WL 23141, at *6 (Leisure, J.) ("[Rule 408] only applies to the admissibility of evidence at trial, not to discovery. . . . Discovery is governed, instead, by Fed.R.Civ.P. 26(b)"); Bennett v. LaPere, 112 F.R.D. 136, 139-40 (R.I. 1986) ("[Rule 408] addresses the admissibility of compromise negotiations and the like into evidence; the Rule cannot be read so broadly as to bar discovery in the same sweeping fashion.").
Rule 26(b)(1) requires a showing of relevance. Where the discovery sought is relevant to a claim or defense, no special showing must be made. When the disclosure is relevant only to the subject matter of the litigation, the Rule requires a showing of "good cause." This, however, is hardly an insurmountable burden. See Fed.R.Civ.P. 26(b)(1) advisory committee note ("The good-cause standard warranting broader discovery is meant to be flexible."); Hill v. Motel 6, 205 F.R.D. 490, 492 (S.D.Ohio Oct. 31, 2001) ("The good cause standard is meant to be flexible, but the party seeking such discovery should ordinarily be able to articulate a reason for believing it is warranted.") (citation omitted).
In this case, JM contends that the documents concerning the settlement of the Engelhard case are "highly relevant" to its own claims against the Defendants because they are likely to contain information regarding the payment of royalties under a virtually identical contract. (Jeskie I at 4). Although JM and Engelhard admittedly have substantially similar interests, it does not necessarily follow that the manner in which Engelhard and RC chose to resolve their dispute is relevant to a claim in this case. The Court need not resolve this question, however, because information concerning the settlement agreement plainly is relevant to the subject matter of this action. Moreover, in its various submissions, JM has made the limited showing of "good cause" necessary to secure discovery concerning theEngelhard settlement.
Rule 26 nevertheless requires a court to balance the probative value of proposed discovery against its potential burden. See Fed.R.Civ.P. 26(b)(2). In this case, I am mindful that the discovery deadline expired long ago. Moreover, Rule 408 suggests that the settlement documents will, in fact, be of limited, if any, value at trial. For these reasons, among others, it seems appropriate to limit the documents to be produced to the actual settlement agreement and any exhibits thereto.
For the foregoing reasons, the Defendants are ordered to produce to JM within one week the settlement agreement in the Engelhard case and any exhibits thereto.