Tanner et al v. Johnston et al

Filing 68

MEMORANDUM DECISION granting 52 Motion to Compel the Settlement Agreement Between Plaintiffs and the Johnston Defendants. Signed by Magistrate Judge Dustin B. Pead on 1/8/13. (ss)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

PATRICIA TANNER,
TJINTA ESTATES,
Plaintiffs,

MEMORANDUM DECISION AND ORDER
Case No. 2:11-cv-00028-TS-DBP

v.

District Judge Ted Stewart

HEATH JOHNSTON, et al.

Magistrate Judge Dustin B. Pead

Defendants.

I. INTRODUCTION
This matter was referred to the Court under 28 U.S.C. § 636(b)(1)(A). Plaintiffs are
Patricia Tanner and Tjinta Estates, the entity in which Ms. Tanner held the bulk of her financial
assets. The Court groups Defendants into two factions. The “Johnston Defendants” consist of
H&S Investments, and its employees Heath Johnston, Craig Lewis, and Timothy Ross, as well as
Justin Johnston. The “NAI Defendants” consist of American Commercial Real Estate Specialists
Group, and its alleged alter ego Utah County Commercial Real Estate Specialists Group, both of
which do business as NAI.
Before the Court is the NAI Defendants’ motion to compel disclosure of Plaintiffs’
settlement agreement with the Johnston Defendants. For the reasons below, the Court GRANTS
the motion. (Docket No. 52.)

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II. BACKGROUND
The following information comes from Plaintiffs’ amended complaint. (Docket No. 20.)
In 2006, all the Defendants allegedly induced Plaintiffs to invest $600,000 in a real estate
development by falsely guaranteeing Plaintiffs a 15% annual return on their investment. This
return was guaranteed by a promissory note, a personal guarantee from the Johnston Defendants,
and a lease agreement. The Johnston Defendants defaulted on their repayment obligations.
Plaintiffs admit that, on January 23, 2012, they signed a confidential settlement
agreement with the Johnston Defendants. (Docket No. 53-2 at 49.) Pursuant to the settled
parties’ stipulation, on January 26, 2012, District Judge Ted Stewart entered a judgment against
the Johnston Defendants on some of Plaintiff’s claims. (Docket No. 51.) District Judge Stewart
dismissed without prejudice Plaintiff’s remaining claims against the Johnston Defendants. (Id.)
III. STANDARD OF REVIEW FOR MOTION TO COMPEL
Where a party refuses to produce discovery, the requesting party may file a motion to
compel a discovery response pursuant to Fed. R. Civ. P. 37(a).
IV. ANALYSIS OF THE NAI DEFENDANTS’ MOTION TO COMPEL
The NAI Defendants move to compel Plaintiffs to disclose the terms of their settlement
agreement with the Johnston Defendants, as well as “an accounting of the proceeds of the
settlement agreement.” (Docket No. 52 at 1-2.) Plaintiffs oppose because they claim this
information is confidential, public policy favors nondisclosure, and the settlement agreement is
irrelevant. (Docket No. 56.)

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A. Confidentiality
Plaintiffs oppose producing their settlement agreement because it is, by its terms,
confidential. (Docket No. 56 at 3.) 1 Conversely, the NAI Defendants cite several district court
decisions refusing to protect confidential information from discovery. (Docket No. 53 at 4.) 2
Indeed, many federal district courts, including some within the Tenth Circuit’s
jurisdiction, maintain that settlement agreements are not shielded from discovery merely because
they are confidential. Pia v. Supernova Media, Inc., No. 2:09-cv-840-CW, 2011 WL 6069271, at
*1 (D. Ut. 2011) (“A general concern for protecting confidentiality does not equate to privilege. .
. . [L]itigants may not shield otherwise discoverable information from disclosure . . . merely by
agreeing to maintain its confidentiality.” (citing DIRECTV, Inc. v. Puccinelli, 224 F.R.D. 677,
684-86 (D. Kan. 2004))).
In light of the above, and in the absence of Tenth Circuit guidance on the issue, this Court
finds Plaintiffs cannot shield their settlement agreement from discovery merely based on its
confidentiality.
B. Fed. R. Evid. 408 Public Policy
Plaintiffs also oppose producing the settlement agreement by relying on Fed. R. Evid.
408(a)(2), which renders inadmissible any conduct or statements “made during compromise

1

To support this, Plaintiffs cite Centillion Data Sys., Inc. v. Ameritech Corp., 193 F.R.D. 550
(S.D. Ind. 1999). However, in that case, the district court denied a motion to compel production
of a settlement agreement because it lacked relevancy, not merely because it was confidential.
Id. at 553.
2
Board of Trs. V. Tyco Int’l. Ltd., 253 F.R.D. 521, 523 (C.D. Cal. 2008); Am. Guar. & Liab.
Ins. Co. v. CTA Acoustics, Inc., No. 05-80-KKC, 2007 WL 1099620 (E.D. Ky. Apr. 10, 2007);
Conopco, Inc. v. Wein, No. 05Civ.9899(RCC)(THK), 2007 WL 1040676 (S.D.N.Y. Apr. 4,
2007).

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negotiations about” claims. (Docket No. 56 at 2.) Plaintiffs emphasize that Fed. R. Evid. 408
reflects a strong public policy favoring nondisclosure of settlement agreements. (Id. at 3.)
While the Court does not question the public policy reasons behind Fed. R. Evid. 408, the
rule, by its own terms, governs the admissibility of settlement material rather than its
discoverability. 3 Thermal Design, Inc. v. Guardian Bldg. Prod., Inc., 270 F.R.D. 437, 438-439
(E.D. Wis. 2010); In re Subpoena Issued to Commodity Futures Trading Comm’n, 370 F. Supp.
2d 201, 211 (D.D.C. 2005); Computer Assoc. Int’l, Inc. v. Am. Fundware, Inc., 831 F. Supp.
1516 (Dist. Colo. 1993) (“Rule 408 is a preclusionary rule, not a discovery rule.”); Bennet v. La
Pere, 112 F.R.D. 136, 139-40 (D.R.I. 1986).
Because Fed. R. Evid. 408 governs admissibility rather than discoverability, this Court
finds Plaintiffs cannot rely on it to prevent the production of their completed settlement
agreement.
C. Relevance Standard Applied to Confidential Settlement Agreements
Based on the analysis above, Plaintiffs’ non-privileged settlement agreement with the
Johnston Defendants is admissible as long as it is relevant. Unfortunately, there is country-wide
discord about the showing of relevance required to justify disclosure of a settlement agreement.

3

Fed. R. Evid. 408, in relevant part, reads:
(a) Prohibited Uses. Evidence of the following is not admissible--on behalf of any
party--either to prove or disprove the validity or amount of a disputed claim or to
impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering--or accepting, promising to accept, or
offering to accept--a valuable consideration in compromising or attempting to
compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim-except when offered in a criminal case and when the negotiations related to a
claim by a public office in the exercise of its regulatory, investigative, or
enforcement authority.
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Plaintiffs primarily rely on Bottaro v. Hatton Assocs., 96 F.R.D. 158 (D.C.N.Y. 1982),
and its progeny, to urge this Court to adapt a heightened relevancy standard for discovery related
to confidential settlement agreements. (Docket No. 56 at 4.) In Bottaro, the district court
“require[d] some particularized showing of a likelihood that admissible evidence will be
generated by the dissemination of the terms of a settlement agreement.” 96 F.R.D. at 160
(emphasis added). See also Doe v. Methacton Sch. Dist., 164 F.R.D. 175 (E.D. Pa. 1995); Lesal
Interiors, Inc. v. Resolution Trust Corp., 153 F.R.D. 552, 562 (D.N.J. 1994). The Bottaro court
required this heightened standard because of “the strong public policy of favoring settlements
and the congressional intent to further that policy by insulating the bargaining table from
unnecessary intrusions.” 96 F.R.D. at 160.
In contrast, the NAI Defendants urge the Court to use the normal relevancy standard
espoused at Fed. R. Civ. P. 26(b). (Docket No. 61 at 3-5.) This rule allows discovery of
anything “relevant to any party’s claim or defense” that “appears reasonably calculated to lead
to the discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1) (emphasis added). See also
Serina v. Albertson’s, Inc., 128 F.R.D. 290, 293 (M.D. Fla. 1989) (declining to decide Botarro’s
applicability); Morse/Diesel, Inc. v. Fid. & Deposit Co., 122 F.R.D. 447, 450 n.4 (S.D.N.Y.
1988) (same); Bennet v. La Pere, 112 F.R.D. at 139 (rejecting Bottaro).
Indeed, many courts refuse to apply a heightened relevancy standard to settlement
agreements, and instead shift the relevancy burdens. For example, some courts require the party
opposing the discovery request to show the settlement agreement is not relevant and not
reasonably calculated to lead to discovery of admissible evidence. In re Initial Public Offering
Sec. Litig., No. 21 MC 92 (SAS), 2004 WL 60290, at *4-5 (S.D.N.Y. Jan. 12, 2004); City of
Wichita v. Aero Holdings, Inc., 192 F.R.D. 300, 302 (D. Kan. 2000) (“Courts, absent obvious

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requests for irrelevant discovery, are in no position at the discovery stage of litigation to make
uninformed conclusions on what is or is not relevant.”); Bennet, 112 F.R.D. at 139.
Yet other courts place the relevancy burden on the party seeking production of the
settlement agreement. Vardon Golf Co. v. BBMG Golf Ltd., 156 F.R.D. 641, 650 (N.D. Ill.
1994); Fid. Fed. Sav. & Loan Ass’n v. Felicetti, 148 F.R.D. 532, 534 (E.D. Pa. 1993);
Morse/Diesel, Inc. v. Trinity Indus., Inc., 142 F.R.D. 80, 84 (S.D.N.Y. 1992).
The Tenth Circuit has not ruled on the issue. Heartland Surgical Specialty Hosp. v.
Midwest Div., Inc., No. 05-2164-MLB-DWB, 2007 WL 1246216 (D. Kan. Apr. 27, 2007).
However, the Utah District Court previously ruled in line with courts that place the relevancy
burden on the party seeking discovery. Pia, 2011 WL 6069271, at *2 (finding “confidential
settlement agreements are discoverable if a party makes a showing that documents relating to the
settlement negotiations are relevant and likely to lead to the discovery of admissible evidence.”)
(emphasis added). In so ruling, the Utah District Court acknowledged a case applying a
particularized showing standard, but stated the case did not “immunize[ ] settlements on relevant
subjects from discovery.” Id.
Based on the guidance above, this Court finds that Plaintiffs’ confidential settlement
agreement is discoverable so long as the NAI Defendants show the agreement is relevant and
reasonably calculated to lead to discovery of admissible evidence. Fed. R. Civ. P. 26(b)(1).
D. Whether Settlement Agreement is Relevant Under Fed. R. Civ. P. 26(b)(1)
The NAI Defendants argue that Plaintiffs’ settlement agreement with the Johnston
Defendants, including an accounting of the proceeds paid, is relevant to “demonstrate what, if
any, damages” Plaintiffs “may still allege.” (Docket No. 53 at 5.) Specifically, this information
is relevant “(1) to determine how their potential liability will be affected, (2) to assess dispute

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resolution options, (3) and to evaluate the settlement’s impact on witnesses in this case, which
include former defendants that have been released.” (Docket No. 61 at 2.)
1. Relevance Related to the NAI Defendants’ Potential Liability
Of Plaintiff’s fourteen claims, five overlapped against both the Johnston Defendants and
the NAI Defendants. (Docket No. 20.) That is, Plaintiffs accused both sets of Defendants of
concurrently: (1) violating federal securities acts; (2) violating the Utah Securities Act; (3)
committing fraudulent nondisclosure; and (4) committing negligence. (Id. at 23, 27, 37-38.) 4
Plaintiffs also claimed the NAI Defendants bore vicarious liability for Justin Johnston’s actions.
(Id. at 41.) 5 Plaintiffs sought to hold all of the Defendants “jointly and severally” liable for
compensatory damages and attorney’s fees. (Id. at 43.)
Pursuant to the settling parties’ stipulation, District Judge Stewart dismissed these
“overlapping” claims against the Johnston Defendants without prejudice. (Docket No. 60.) 6
Given the confidential nature of the parties’ settlement agreement, Plaintiffs never disclosed
what, if any, amount they settled these overlapping claims for.
As such, the NAI Defendants contend the settlement agreement, including an accounting
of proceeds paid, is relevant to limit their potential liability on these overlapping claims.
4

The federal securities act claim overlapped against the NAI Defendants and H&S Investments,
Heath Johnston, Craig Lewis, and Timothy Ross. (Docket No. 20 at 23.) The Utah Securities
Act claim overlapped against the NAI Defendants and H&S Investments, Heath Johnston, and
Craig Lewis. (Id. at 27.) The fraudulent nondisclosure and negligence claims overlapped
against the NAI Defendants and Justin Johnston. (Id. at 37-38.)
5
Plaintiffs sought judgment against all of the Defendants, “jointly and severally,” for
compensatory damages in excess of $600,000.00, and for attorney’s fees. (Docket No. 20 at 43.)
Plaintiffs also sought a judgment that the NAI Defendants were vicariously liable for damages
caused by Justin Johnston. (Id. at 44.)
6
Pursuant to the parties’ stipulation, District Judge Stewart found the Johnston Defendants liable
on three claims unrelated to the NAI Defendants, and ordered the Johnston Defendants to pay
Plaintiffs $940,850.00 on these claims, and an additional $50,000.00 in attorney’s fees. (Docket
No. 51 at 4.)
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(Docket No. 61 at 3.) Given the overlap, “Plaintiffs’ recovery from the other defendants has a
direct impact on the Plaintiffs’ remaining case against the NAI Defendants.” (Id. at 3.) The NAI
Defendants fear becoming “a source of double recovery for the Plaintiffs if the settlement
agreement shows that the Plaintiffs have been made whole on some, all, or parts of their claims.”
(Id.)
To counter the NAI Defendants’ request, Plaintiffs refer to several district court cases
where information about damages was found irrelevant “to any issue at trial.” (Docket No. 56 at
5-6) (citing Bottaro, 96 F.R.D. 158; Methacton, 164 F.R.D. 175; Lesal Interiors, 153 F.R.D. 552;
Centillion Data Sys., Inc. v. Ameritech Corp., 193 F.R.D. 550 (S.D. Ind. 1999)). Pursuant to
these cases, Plaintiffs assert that “when a final judgment is entered against NAI it will be a
simple, ministerial matter for this Court to determine whether NAI has any right of set-off or
contribution from the Johnston [D]efendants.” (Docket No. 56 at 8.) However, the Court finds
the cases Plaintiff cites distinguishable.
Bottaro applied a heightened relevancy standard to find a defendant’s request to access a
settlement agreement “solely on the hope that it will somehow lead to admissible evidence on the
question of damages” was insufficient. 96 F.R.D. at 159. See also Methacton, 164 F.R.D. at 176
(applying a heightened relevancy standard to find a non-settling defendant’s “broad assertion[s]”
that a settlement agreement was relevant to damages lacked “any detail or analysis.”).
In contrast, this Court refuses to apply this heightened relevancy standard, and finds the
NAI Defendants provided a detailed analysis about the relevancy of the settlement agreement.
(See Docket No. 61 at 3-6.) Moreover, even the Bottaro court acknowledged “discovery into
negotiations can be based on the reasonable belief that it may produce information on the

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question of damages that can be brought into evidence independent of the settlement context.”
96 F.R.D. at 159.
Along the same lines, Lesal Interiors and Centillion are inapposite because they required
a particularized showing of relevance, and denied litigants access to settlement negotiations
where those negotiations took place between their opponents and non-parties. Lesal Interiors,
153 F.R.D. at 562 (ruling a plaintiff lacked standing to conduct discovery of settlement
negotiations in a lawsuit to which it was not a party); Centillion, 193 F.R.D. at 552 (finding
plaintiff’s settlement agreement with entities from an earlier, separate case could not be assumed
“relevant to the issues of liability or damages” in plaintiff’s case against a new defendant).
Clearly, the NAI defendants have standing to request discovery of Plaintiffs’ and their codefendants’ settlement agreement where Plaintiffs originally accused both sets of defendants of
joint wrongdoing.
The Court is more persuaded by the NAI Defendants’ argument that settlement
agreements about overlapping claims are relevant, and therefore discoverable. (Docket No. 61 at
3.) See White v. Kennet Warren & Son, Ltd., 203 F.R.D. 364, 366-367 (N.D. Ill. 2001) (holding
a settlement agreement between plaintiff and a settling defendant was relevant to the non-settling
defendant because “an overlap of claims” against both defendants stemming from their
undervaluing musical instruments could reduce the non-settling defendant’s “potential
liability.”). See also In re Enron Corp. Sec., Derivative & ERISA Litig., 623 F. Supp. 2d 798,
836 (S.D. Tex. 2009) (concluding a settlement agreement was discoverable to non-settling
defendant because plaintiff could not be compensated twice for the same injury under Texas
law); Heartland, 2007 WL 1246216, at *4 (deeming a settlement agreement relevant where
plaintiff made a conspiracy claim that sought “to impute the acts of each defendant against all

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other defendants, and to hold them jointly liable for the alleged antitrust and tortious interference
claims.”); Atchison Casting Corp. v. Marsh, Inc., 216 F.R.D. 225, 227 (D. Mass. 2003) (ruling
that plaintiff insured’s settlement agreement with defendant insurer was relevant to plaintiff’s
action against defendant insurance broker where the settlement agreement showed the amount
insurer refused to pay, and the plaintiff sought the difference in coverage from the insurance
broker); Bennet, 112 F.R.D. at 138 (ordering disclosure of settlement agreement between
plaintiff patients and defendant physicians because the damages plaintiffs could collect from
defendant hospital would “depend to some extent on the terms, amount, and value of the
[p]hysician’s settlement.”).
Based on the analysis above, the Court finds terms of Plaintiffs’ settlement agreement
with the Johnston Defendants, including an accounting of proceeds, that are related to the
overlapping claims, are relevant to the NAI Defendants’ defenses. Therefore, the Court
GRANTS the NAI Defendants’ motion to compel on this limited ground. (Docket No. 52.) The
terms and proceeds relating to the overlapping claims are reasonably calculated to lead the NAI
defendants to discover admissible evidence about the extent of their liability for Plaintiffs’
damages on these claims. Conversely, the Court does not believe settlement information
unrelated to these overlapping claims is relevant to the NAI Defendants where it does not impact
their potential liability or damages.
2. Relevance Related to Witness Bias
The NAI Defendants also argue the settlement agreement is relevant because it will help
them evaluate the “potential bias, interest and credibility” of Heath Johnston and Justin Johnston
as witnesses “based on the nature of the release they obtained and the nature of the consideration

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they gave.” (Docket No. 61 at 4.) 7 See White, 203 F.R.D. 364 (permitting discovery of
settlement agreement to allow parties to explore issues related to witness bias); Transp. Alliance
Bank, Inc. v. Arrow Trucking Co., No. 10-CV-016-GFK-FHM, 2011 WL 4964034, at *2 (N.D.
Okla. Oct. 19, 2011) (finding settlement agreement between plaintiff and settling defendant was
“relevant for discovery purposes” to the non-settling defendant to establish the settling
defendant’s witness bias and credibility); Allen Cnty v. Reilly Indus., 197 F.R.D. 352, 354 (N.D.
Ohio 2000) (implying a settlement agreement could be relevant to show witness bias). Indeed,
even Fed. R. Evid. 408(b) renders admissible any conduct or statements made during
compromise negotiations so long as such evidence is limited to proving witness bias or
prejudice.
Based on the case law above, the Court finds the terms of the settlement agreement and
accounting of the proceeds related to the overlapping claims are relevant to establish the witness
credibility and bias of Heath Johnston and Justin Johnston. As such, the Court GRANTS the
NAI Defendants’ motion to compel in this respect. (Docket No. 52.)
3. Relevance Related to Dispute Resolution
The NAI Defendants also claim the settlement agreement is relevant “because it could
promote dispute resolution” if they can “properly estimate the Plaintiff’s current alleged
damages.” (Docket No. 61 at 3.) See White, 203 F.R.D. at 367 (reasoning that, in a situation
involving overlapping claims against multiple defendants, the amount some parties settled for
“has great strategic significance to the remaining defendants” because it could “promote
settlement of the remaining claims . . . .”).
7

The NAI Defendants raised the issue of witness bias for the first time in their reply brief.
(Docket No. 61.) Although it is not a direct rebuttal to Plaintiffs’ opposition, which centered
mostly on damages (Docket No. 57), it is tangentially related to Plaintiffs’ broader argument on
relevance. Therefore, the Court will address this issue.
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On the other hand, Plaintiffs claim the NAI Defendants’ desire to “access . . . the
confidential settlement information to better evaluate whether [they] should settle this case, or to
help [them] refine [their] litigation or negotiation strategies . . . does not render the information
relevant or discoverable.” (Docket No. 56 at 5.) See ABF Capital Mgmt. v. Askin Capital, Nos.
96 Civ. 2978 (RWS), 2000 WL 191698, at *2 (S.D.N.Y. Feb. 10, 2000) (noting that “relevance,
not simply promotion of settlement, must be the touchstone” for determining whether discovery
of a settlement agreement is permitted); Centillion, 193 F.R.D. at 552 (“[I]nformation is not
relevant or discoverable . . . because it might assist a party’s evaluation of whether to settle or try
a case or help a party prepare negotiating strategies.”).
After reviewing the cases cited by the parties, the Court agrees with Plaintiffs that
evaluating settlement options is related less to relevance, than to policy reasons favoring
disclosure of settlement agreements. As such, the Court rejects the NAI Defendants’ argument
that the settlement agreement is relevant because it may alter their settlement negotiation
strategy.
V. PROTECTIVE ORDER
Given the confidential nature of the settlement agreement, the NAI Defendants
“are willing to consider entering into a properly negotiated and executed protective order.”
(Docket No. 53 at 5.) See also Pia, 2011 WL 6069271, at *1-2 (imposing a protective order on
the disclosure of a confidential settlement agreement because the information “should likely not
be made public . . . .”); Thermal Design, Inc., 270 F.R.D. at 438 (“Most cases find that a
settlement agreement is discoverable despite a confidential designation, especially where there is
a protective order in place to prevent unauthorized disclosure.”).

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The Court is mindful of Plaintiffs’ concerns regarding the confidentiality of their
settlement agreement. Therefore, the Court directs the parties to submit an agreed upon
protective order as outlined below. See DIRECTV, 224 F.R.D. at 687 (granting a motion to
compel settlement materials, but instructing the parties to submit a protective order).
VI. ORDERS
For the reasons set forth above, the Court issues the following orders:
IT IS ORDERED that the NAI Defendants’ motion to compel the settlement agreement
between Plaintiffs and the Johnston Defendants, which includes an accounting of the proceeds
paid under the settlement agreement, is GRANTED. (Docket No. 52.)
IT IS FURTHER ORDERED that the only portions of the settlement agreement and
accounting of proceeds subject to discovery are those related to the five overlapping claims of:
(1) violating federal securities acts; (2) violating the Utah Securities Act; (3) committing
fraudulent nondisclosure; (4) committing negligence; and (5) the NAI Defendants’ vicarious
liability for Justin Johnston’s actions.
IT IS FURTHER ORDERED that, by January 22, 2013, the parties shall confer and
submit an agreed upon protective order prohibiting: (1) the disclosure of this information and
documents to non-parties; and (2) the use of such information/documents outside of this lawsuit.
If the parties are unable to reach an agreement, the Court will allow Plaintiffs seven (7) days
thereafter to move for a protective order. Defendants shall have seven (7) days thereafter to file
a response to the motion for a protective order. Plaintiffs shall have five (5) days thereafter to
file a reply to their motion. 8

8

The Court recognizes that these deadlines go beyond the fact discovery cut-off of February 1,
2013. (Docket No. 66.) However, the Court feels this limited extension solely for the purpose of
the protective order is warranted.
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IT IS FURTHER ORDERED that no reasonable expenses be awarded to the NAI
Defendants pursuant to Fed. R. Civ. P. 37(a)(5)(A)(ii). Plaintiffs’ nondisclosure was
substantially justified given the unsettled state of the law relating to discovery of confidential
settlement agreements.
DATED this 8th day of January, 2013.

Dustin B. Pead
United States Magistrate Judge

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