Free Letter - District Court of Delaware - Delaware

Case 1:07-cv-00248-SLR

Document 51

Filed 05/27/2008

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GILBERT RANDOLPH
LLP

Richard D. Shore
Direct 202.772.2317 Direct Fax 202.772.2319
Emai/ shorer¡ggilbertrandolph.com

May 27,2008

BY ELECTRONIC FILING
The Honorable Sue L. Robinson
U.S. Distrct Court for the Distrct of

Delaware

844 North King Street - Room 4209
Lock Box 18

Wilmington, DE 19801
Re: The American Legacy Foundation v. National Union Fire Insurance Co., Case No. 07-248-SLR
Dear Judge Robinson:
At the discovery conference on May 12, 2008, the Cour instrcted each of

the paries to provide

its best case regarding whether settlement-related "correspondence (with Travelers) that might mention the claims against National Union" is admissible. Hearng Transcript p.23 at lines 2021 (D.!. 48, copy attached as Exhbit A); see also Order (May 13, 2008) (D.L 47). In that regard, we invite the Cour's attention to PharmaStem Therapeutics, Inc. v. Viacell Inc., a 2003 decision of the U.S. Distrct Cour for the Distrct of Delaware. In PharmaStem, the Court granted the
plaintiffs motion in limine to exclude evidence of settlement negotiations with other defendants,

stating flatly and without the tye of care-out National Union seeks here that "to the extent (plaintiff requests the exclusion of settlement negotiations between itself and any of the defendants in this case, that evidence is plainly inadmissible under Rule 408." PharmaStem, No. C.A. 02-148 GMS, 2003 WL 22387038, at *4 (D.Del. Oct. 7,2003) (emphasis in original)
(copy attached as Exhbit B). 1

That being said, based on a preliminar review, while there appear to be a limited number of documents mentioning National Union in settlement-related correspondence between the Foundation and Travelers, none that we have identified so far discusses the validity or invalidity
i Although PharmaStem is not reported in F. Supp. 2d, National Union's counsel, Richards, Layton & Finger, is

familar with the case, havig represented one or more of the defendants there.

Washington, DC . Austin, TX

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The Honorable Sue L. Robinson May 27,2008
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of the Foundation's claims against National Union. The review is continuing, but in any event, based on the case cited above and for the reasons discussed at the discovery conference, the Foundation respectfully submits that all settlement communications with Travelers fall within the protections of

Rule 408.

Ifthe Court would like any further discussion of

these matters, please let us know.

Respectfully submitted,

cc: Clerk of the Cour (by e- file)

Chad M. Shandler, Esq. (byemail) Matthew J. Fink, Esq. (byemail) Laura Davis Jones, Esq. (byemail)

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EXHIBIT A

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512 08 American Legacy v National Union CA No 07-248 (SLR).txt
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IN THE UNITED STATES DISTRICT COURT
IN AND FOR THE DISTRICT OF DELAWARE

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THE AMERICAN LEGACY
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CIVIL ACTION

FOUNDATION,
pl ai ntiff,

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VS.

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NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH , PENNSYLVANIA,

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Defendant.

NO. 07-248 (SLR)

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wi 1 mi ngton, Delaware
Monday, May 12, 2008 1:10 o'clock, p.m.

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BEFORE: HONORABLE SUE L. ROBINSON, U. S. D. C. J .

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APPEARANCES:

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PACHULSKI STANG ZIEHL & JONES LLP BY: LAURA DAVIS JONES, ESQ.

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-and-

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0

Valerie J. Gunning Official Court Reporter
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1 APPEARANCES (conti nued) :
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3 GILBERT RANDOLPH LLP BY: RICHARD SHORE, ESQ. and 4 AUGUST J. MATTEIS, JR., ESQ.
(washi ngton, D. C.)
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Counsel for pl ai nti ff

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RICHARDS, LAYTON & FINGER BY: CHAD M. SANDLER, ESQ.

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-andBATES & CAREY LLP BY: MATTHEW J. FINK, ESQ.

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(chi cago, ill i noi 5)
Counsel for Defendant

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PROCEEDINGS

3 (proceedi ngs commenced 1 n the courtroom,
4 begi nni ng at 1: 10 p. m.)
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THE COURT: Good afternoon.
(Counsel respond, "Good afternoon, your Honor.) Page 2

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5 12 08 American Legacy v National Union CA No 07-248 (SLR) .txt
8 TH E COURT: okay. I take it the re a re some
9 issues si nce you are here, so 1 et me hear what we need to

10 do.
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MR. SHORE: Your Honor, it's Richard Shore, for

the pl ai nti ff, Ameri can Legacy Foundati on, if i may.
THE COURT: Yes. We'll generally start well,
if anyone has i ntroducti ons, we shoul d get that out of the

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way, then plaintiff can go forward first.

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MR. SHANDLER: Thank you, your Honor. Chad
shandl er, from Ri chards Layton & Fi nger. wi th me is Matt
Fi nk, from Bates & carey, in chi cago.
THE COURT: Thank you very much. High. How

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are

you?
Had lots of folks from chi cago in cou rt today.

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MR. FINK: Good afternoon, your Honor. MS. JONES: Your Honor, Laura Davis Jones,
pachulski, Stang, ziehl & Jones.

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Your Honor, i'd like to introduce to the Court

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1 Richard Shore and August Matteis, both of whom, your Honor,

2 i have motions pro hac vice pending for those. i think your
3 Honor may have si gned them.

4 If i may introduce them?
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THE COURT:

Yes.

Thank you very much.

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MS. JONES:
THE COURT:
MR.

Thank you.

All ri ght .
Thank you, your Honor.

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SHORE:

9

Ri chard shore,

for plaintiff,

Ameri can

Legacy

10 Foundati on.

11 Your Honor, si nce the tel ephoni c conference wi th
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Ameri can Legacy v Nati ona 1 Uni on CA NO 07-248 (SLR). txt
the Court in April, the parties have conferred in an effort
to resolve di scovery and schedul i ng issues regardi ng the

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coverage porti on of thi 5 case, and i'd 1 i ke to begi n wi th
what the parti es have agreed on. There are a number of
points where we have not been able to reach agreement, of
which i'd also like to discuss.
Fi rst, your Honor, on the schedul e of di scovery,
the parti es, i bel i eve, have agreed that di scovery shoul d

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run for 120 days from the date of thi 5 conference, whi ch, by

my calculation, would be until september 8th, 2008, and have

a 1 so agreed that deposi ti ons shoul d commence 90 days into
the 120-day peri od.

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As i wi 11 di scuss in a few moments, the
Foundati on has agreed to most of the di scovery sought by
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1 Nati ona 1 uni on regardi ng the coverage porti on of the case.

2 The exception to that is discovery that National Union has

3 sought regardi ng the settl ement wi th Travel ers, whi ch
4 previ ousl y was also a defendant in thi 5 case. They have

5 sought both the Travelers settlement agreement itself as
6 well as communi cati ons rel ated to the settl ement

7 negoti ati ons .
8 And, your Honor, i was just informed before the
9 case was called that National Union has agreed to a limited

10 amount of di scovery sought by the Foundati on. speci fi call y, 11 National Union has agreed to provide copies of policies and

12 has agreed to provide a copy of its claim file regarding

13 each of the coverages at issue. 14 unfortunately, your Honor, we have not been able
15 to agree on a method for proceedi ng wi th the di sposi ti ve 16 moti ons. The Court i ndi cated duri ng the tel ephoni c
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51208 American Legacy v National Union CA No 07-248 (SLR).txt 17 conference that each si de may fi 1 e one di sposi ti ve moti on.

18 TO date, just to bri efl y recap the hi story, because it' 5
19 relevant to how we proceed from here on in, National Union

20 has filed a motion for partial dismissal. The Foundation

21 has fi 1 ed a moti on for summary judgment , deal i ng wi th both
22 coverage issues and touchi ng on damages.

23 Nati ona 1 uni on has fi 1 ed a moti on to di smi 55 or
24 stay the Foundati on' 5 moti on for summary judgment, and the

25 Foundati on has fi 1 ed a moti on to conti nue argument on
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1 National Union's motion for partial dismissal to combine it
2 wi th the Foundati on' 5 moti on for summary judgment, whi ch i

3 think, in effect, is what the Court has indicated is going

4 to happen here.

5 The Foundati on thi nks that it woul d make the

6 most sense, be the most orderl y, for the parti es to wi thdraw
7 all of the pendi ng moti ons and for each party to fi 1 e a new
8 di sposi ti ve moti on on an agreed schedul e and to do so

9 simultaneously.

10 i'm not sure i enti rely understand National
11 Uni on' 5' posi ti on on thi 5 issue, but it is not it has not

12 agreed to ours. It seems to be to treat at 1 east the
13 Foundati on' 5 moti on for summary judgment as the operati ve

14 di sposi ti ve moti on, and then to percei ve from there where 15 Nati ona 1 Uni on mi ght have an opportuni ty to fi 1 e a new

16 moti on.

17 We thi nk that it makes the most sense for both
18 parties to file a single dispositive motion following the

19 concl usi on of di scovery and to wi thdraw the pendi ng moti ons

20 for several reasons.
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21 Number one, your Honor, we think that it will
22 avoi d confusi on of the parti es and the Cou rt tryi ng to

23 fi gu re out how to combi ne the exi sti ng moti ons wi th newl y

24 filed material, newly filed motions or briefs.

25 AS a reminder, your Honor, the Foundation's
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1 motion for summary judgment deals with coverage issues,
2 whi ch is now what the Court has instructed us and di rected
3 us to deal wi th in thi 5 phase, but ita 1 so touches on the

4 damages issue, whi ch is now goi ng to be dealt wi th in a
5 subsequent phase shoul d that be appropri ate after the

6 coverage phase of the case.

7 Nati ona 1 Uni on' 5' 5 moti on for parti a 1 di smi ssa 1 ,
8 on the other hand, is quite narrow. It deals with only one
9 of the two coverages at issue here, and, indeed , deals wi th
10 one excl usi on under that coverage. We assume that Nati ona 1

11 uni on wi 11 fi 1 e a di sposi ti ve moti on that is far broader,
12 that deals more broadl y wi th the DNO coverage, whi ch they've

13 already addressed in their motion for partial dismissal, but
14 that also deals wi th the comprehensi ve general 1 i abi 1 i ty

15 umbrella policy that they issued.

16 So what we'll have, if we 1 eave those moti ons
17 pending and file new material, new briefs following 18 di scovery, is the Court and the parti es tryi ng to puzzl e out 19 how to supplement and how to put together all of the

20 di fferent bri efs and all of the di fferent arguments.

21 Treati ng the pri or moti ons as wi thdrawn and
22 fi 1 i ng new moti ons also avoi ds havi ng all of the pendi ng
23 moti ons and bri efs si tti ng out there undeci ded through

24 several months of discovery.

25 And, your Honor, National Union did ask in its
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512 08 American Legacy v National Union CA NO 07-248 (SLR).txt
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moti on to di smi 55 the Foundati on' 5 moti on for summary

judgment, to have that moti on di smi ssed or at 1 east stayed
until after discovery took place. We think this approach is

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consi stent wi th what Nati ona 1 Uni on was ori gi na 11 y aski ng

for.
Our proposal, your Honor, to National Union 15

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that each si de fi 1 e di sposi ti ve moti ons no 1 ater than
30 days after the close of di scovery, responsi ve bri efs

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30 days after that, and repl i es 14 days after that. Our
understandi ng of what Nati ona 1 Uni on is 1 ooki ng for is not

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entirely clear, but I believe that they -- that they are

only looking for a total of four briefs. That is an opening
brief and a response with no reply.
we thi nk that the reply, as frequently is the

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case and traditionally the case, may crystallize the issues

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and allow the parti es to address issues that are rai sed in
the parti es' responsi ve bri efs and woul d be useful to the

Court and appropriate here.
As i've noted, your Honor, on the question of
the scope of di scovery, the Foundati on has agreed to most of

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the di scovery sought by Nati ona 1 Uni on wi th the excepti on of
Travelers settlement-related discovery, including such

thi ngs as copi es of the pol i ci es, underwri ti ng and cl ai m

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fi 1 es, both documents and deposi ti on di scovery.
The Foundati on -- the Foundati on' 5 posi ti on
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1 certai nl y has been and is that no di scovery is necessary for

2 purposes of summary judgment here. Nonetheless, we are
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5 12 08 American Legacy v National Union CA No 07-248 (SLR).txt 3 goi ng to proceed wi th 120, assumi ng the Court orders it,
4 wi th 120 days of di scovery.

5 Nati ona 1 Uni on has taken the posi ti on that
6 di scovery 15 relevant and that they can use the frui ts of
7 di scovery 1 n connecti on wi th thei r bri efs. The Cou rt has

8 not rul ed, and it is not ri pe yet for the Court to rul e on
9 the eight corners rule, that is the scope of any material

10 other than the complaint, underlying complaints and the
11 po 1 i ci es that may be relevant to the parti es' summary

12 judgment motions. The Court has not ruled on that yet.

13 And so for those reasons, we thi nk it' 5
14 appropri ate for both parti es to be abl e to obtai n

15 di scovery.

16 And what we've asked for from National union,
17 your Honor, is really the mirror image or the complement of

18 what they've asked for from us, nothi ng beyond that. We've 19 simply asked for essentially the same thing that they are
20 aski ng for, but, of course, we have not asked for anythi ng

21 regardi ng the Travel ers settl ement.

22 Your Honor, we'd also point out that because
23 thi 5 is di scovery for purposes of the coverage porti on of

24 this case, not necessarily only for summary judgment, in the

25 event that the Court does not grant summary judgment, that
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1 there are issues that are sti 11 pendi ng after thi 5 round of
2 di sposi ti ve moti ons, di scovery may be rel evant at that

3 stage, and although we although we conti nue to hold that

4 under the ei ght corners rul e, none of that is rel evant and
5 none of that would be admissible, again, the Court has not

6 rul ed on the ei ght corners rul e as of yet.

7 So we thi nk it' 5 most effi ci ent to si mpl y
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5 12 08 Ameri can Legacy v Nati ona 1 uni on CA No 07-248 (SLR). txt
8 proceed wi th all of that di scovery now, fi 1 e the summary

9 judgment moti ons, and then, if -- we won't have any -- we

10 won't have the si tuati on that we have to come back to the
11 Court and ask for additional rounds of discovery.

12 Your Honor, the fi nal poi nt is that the
13 Foundation does not agree that National Union is entitled to 14 discovery regarding the Travelers settlement negotiations or
15 the Travel ers settl ement agreement. Those negoti ati ons and

16 the agreement are confidential by agreement of the parties
17 as, in fact, settl ement negoti ati ons wi th Nati ona 1 Uni on

18 were at an earlier stage of this case. 19 The Travelers settlement information 15 also
20 inadmissible under Federal Rule of Evidence 408. indeed, 21 that evi dence and the confi denti a 1 i ty -- confi denti a 1 i ty of
22 it rea 11 y goes to the core of what Secti on 408 is about.

23 Secti on 408 addresses the use of a settl ement
24 with one party in order to prove the validity or invalidity 25 of the cl ai m agai nst that party or the other party in the
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1 case, and it addresses the use of communi cati ons in the

2 course of settlement discussions to establish the validity
3 of a cl ai m agai nst one of the parti es in the case or to be

4 used for purposes of impeachment.

5 The policy underlying Rule 408 is to foster

6 settl ement. That is also a pol i cy that 15 consi stent wi th
7 the public policy of Delaware and other states.

8 So our vi ew is that under Rul e 408, under the
9 agreement of the parties, anything regarding the Travelers

10 settlement is confidential, is inadmissible, and, in
11 addi ti on, shoul d not be di scovered, because it wi 11 put the
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5 12 08 American Legacy v National Union CA No 07-248 (SLR) .txt 12 party through an exerci se of di scovery whi ch is not 13 reasonably calculated to lead to the discovery of admissible

14 evi dence.

15 Than k you, you r Hono r .
16
THE COURT: All right. Thank you.

17 Starti ng off wi th the 1 ast poi nt fi rst, it 15 my
18 policy not to allow discovery as to settlement agreements,

19 so 1 et' 5 start off wi th that presumpti on, and Travelers
20 would be put to the burden of telling me why this case is
21 different from all others on my docket.

22 You may si t down.
23

MR. SHORE: Thank you.
THE COURT: This is a question for Travelers:
1 i ng reason woul d there be for there to be need

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25 What compel

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1 for di scovery of settl ement agreements, whi ch I can't

2 remember ever allowing in my 17 years on the bench?
3

MR. FINK: Thank you, your Honor. Matthew Fink,

4 for National Union.

5 Your Honor, not only the settlement agreement.

6 We're rea 11 y 1 ooki ng for the correspondence 1 eadi ng up to
7 the settlement with Travelers. This is -- we're dealing
8 wi th the settl ement between Travel ers and Ameri can Legacy.

9 In thi 5 case, Ameri can Legacy ori gi na 11 y cl ai med
10 that those Travelers who, they allege in their complaint,

11 was Travelers had the duty to defend the claim. National 12 Union has the umbrella policy above the Travelers policy.

13 And so it' 5 very rel evant as to what correspondence they
14 were having with Travelers as to the position that American 15 Legacy was taki ng, as to whether they had a duty to defend 16 and the posi ti ons that Travel ers was taki ng. And for them
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5 12 08 Ame ri can Legacy v Nati ona 1 uni on CA No 07-248 (SLR). txt
17 just to cloak everything into a settlement or to say,

18 initial position, we don't know what -- whether it is
19 actually a settlement document or whether it' 5 just a demand
20 1 etter to Travel ers, whi ch woul d not even be protected, 408

21 has to do wi th admi ssi bi 1 i ty of documents, not 22 di scoverabi 1 i ty of documents.

23 THE COURT: But-24 MR. FINK: And we shoul d be enti tl ed to 25 THE COURT: But does it really matter? if you
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1 are aski ng me to deci de whether there' 5 a duty to defend

2 under the document, does it really matter what Travelers and
3 Ameri can Legacy sai d about it? i mean, thei r

4 interpretation? Anything about what they say, is it really

5 relevant at all?
6 MR. FINK: i think it is relevant, your Honor,
7 as to what Ameri can Legacy is sayi ng about the Travel ers

8 policy and the breadth of the Travelers policy, and they're

9 now taking different positions in front of your Honor and
10 in bri efs as to the scope of the Travel ers pol i cy and as

11 to the scope of the cl ai ms that were bei ng made in

12 the underlying case were. i think that's relevant for
13 your Honor to see the di fferent posi ti ons that they were

14 taki ng. 15 THE COURT: So basi call y you're aski ng for
16 somethi ng aki n to admi ssi ons agai nst interest?

17 MR. FINK: Yes, you r Honor. It woul d be
18 admissions against interest. And, again, i don't think 19 those should be able to be cloaked 1n any settlement 20 di scussi ons, whi ch may not even be settl ement di scussi ons.
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21 They coul d be demands for them to make payments under the

22 pol i cy, whi ch are not even settl ement payments. I thi nk

23 we're at 1 east enti tl ed to look at the correspondence.

24 If it' 5 an admi ssi on of admi ssi bi 1 i ty, that
25 could be dealt with later, but for them to say they're not
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1 goi ng to produce anythi ng, and they get to choose
2 essenti all y the scope of what they consi der to be the
3 settl ement negoti ati ons, well too broad.

4
5

THE COURT: interesti ng poi nt.

MR. FINK: As well, your Honor, 408 only

6 protects any sort of negoti ati ons between and any cl ai ms

7 bei ng made between Travel ers and Ameri can Legacy. So,

8 again, if there any admissions about coverage of National
9 uni on in any of that correspondence, that cannot be cloaked
10 by RU 1 e 408.

All of these pol i ci es are very i ntertwi ned. In 12 other words, if they are wri ti ng 1 etters and havi ng
11

13 conversations with Travelers and taking positions as to how 14 the National union policy applies or does not apply and how
15 Travelers should be picking this all up and National Union

16 really doesn't provide coverage for this and it's really
17 Travelers that should be providing coverage for this, if
18 those are admi ssi ons that they're maki ng, 408 does not
19 protect any statements they're maki ng about Nati ona 1 Uni on' 5

20 coverage. It's only to protect the of any validity of any
21 sort of claims between Travelers and American Legacy, and
22 they can't cloak any admissions about our, National Union's

23 coverage, under 408.

24 Your Honor, we're not seeki ng at thi 5 poi nt
25 we'd like to see the settlement agreement, we think it's
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re 1 evant, but we're rea 11 y 1 ooki ng for more the
correspondence dealing with the settlement. Actually, the settlement agreement itself is very relevant. We'll get
to the damages issue and setoff, how much they pai d, because

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5

the National Union policy only accepts at certain levels, so
that -- but that becomes relevant, but I understand put the

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damage issue asi de at thi 5 poi nt.
THE COURT : All ri ght. I wi 11 look forward to

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heari ng a response to parti cul arl y the request for any i nformati on contai ned in the correspondence and settl ement
papers, however one defi nes that. I don't know how you
defined your -- how you define the scope of your request,
that basically mention your client.

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MR. FINK: Your Honor, our request was provide
all correspondence between the parties, being National union
and Ameri can Legacy and Travel ers. It' 5 Ameri can Legacy

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who' 5 taki ng posi ti on that we'll produce all the
correspondence but anythi ng rel ated to settl ement. So they

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are the ones sort of carvi ng thi 5 area out, so we don't know
how broad they're carvi ng it out, whi ch is part of the

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problem.
They shoul dn' t be arbi ters to carve out how
broad they consi der to be the settl ement negoti ati ons from the fi rst demand 1 etter, whi ch we woul d consi der to be. I

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think they should have to -- again, this is discovery. They

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1 shoul d have to produce it. They can argue about it.

2 THE COURT: obviously, you have to draw a line
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3 before you have a judge address whether the 1 i ne is drawn 1 n

4 the appropri ate fashi on, so that' 5 ki nd of a fri vol ous 5 argument. But I wi 11 1 et that go.
6 Te 11 me about the schedul e, because it J 5
7 certainly, with everything we have on our plate, I don't
8 need multiple motions hanging around for different periods

9 of time that have to be supplemented and addressed. Again,
10 it makes absolute sense to me to start wi th a cl ean 51 ate

11 and to have thi 5 di scovery, however it i 5 defi ned, and then
12 to have a round of summary judgment.

i3 So -14
MR. FINK: I will just tell you our thought,

15 your Honor. As you recall, this came up when American

16 Legacy fi 1 ed thei r comprehensi ve moti on for summary
17 judgment. Their motion for summary judgment addresses both

18 the DNO policy and the umbrella policy.

19 We filed response to that along with the 56(f)
20 affi davi t sayi ng we needed 1 i mi ted di scovery. We had the 21 conference. we've set out what the limited discovery we 22 need. we were qui te surpri sed that they sai d they needed
23 di scovery then, because they had fi 1 ed the summary judgment

24 sayi ng there' 5 no questi ons of fact. Regardl ess of that, we
25 said, fine. we'll produce our claims file. That's what you
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1 thi nk you need. We agreed to do that.

2 But I guess our thought, your Honor, our moti on
3 to dismiss would be withdrawn, because we understand your
4 Honor does not want to rul e on that. But as far as thei r

5 motion for summary judgment, they filed it. Our thought was
6 that we woul d be now doi ng di scovery and we woul d be

7 respondi ng to it. We'd both have a moti on for summary
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5 12 08 Ameri can Legacy v Nati ona 1 Uni on CA NO 07-248 (SLR). txt

8 judgment on fi 1 e. They fi 1 ed it, sayi ng there are no
9 questi ons of fact. I don i t see what supp 1 ementati on they

10 would need. And then we believe that it should only be one 11 response bri ef, so we don't have si x bri efs.

12 THE COURT: undoubtedly, it will be a reportable
13 moti on for me in September, because the schedul e proposed
14 does not have you fi 1 i ng anythi ng, and i'm not goi ng to be

15 deci di ng these, one now and 13 months 1 ater.

16 So as a matter of admi ni strati ve ease, I J m goi ng
17 to ask that it be withdrawn, and that, certainly, they can

18 simply refile it, renew it, but I suspect that with the
19 benefi t of di scovery, they mi ght want to add a few thi ngs. 20 But my job is to deci de these issues on the best record you
21 can gi ve me to make the best deci si on I can, so 1 et' 5 do it

22 that way.
23
DO you have any problem with the schedule that
they set out? That is, the moti on -- 1 et me see. Di scovery
to be compl eted by september 8th. Moti ons for summary

24
25
o

18

1 judgment fi 1 ed on October 8th. Answeri ng bri efs due on

2 November 8th and reply bri efs due on November 24th.

3 MR. FINK: Our only disagreement, your Honor, we 4 have no di sagreement wi th the di scovery or the open1 ng bri ef
5 and the response brief. We just don't believe it's
6 necessary to have a response bri ef when you both have

7 cross-motions for summary judgment and then simultaneously

8 fi 1 ed and then both wi 11 fi 1 e a response bri ef. It' 5 not
9 necessary to have a repl y bri ef. if you woul d 1 i ke si x

10 bri efs rather than four, we're happy to do it.
11 THE COURT: The only problem is half the time
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5 12 08 American Legacy v National Union CA No 07-248 (SLR).txt
12 you all are shi ps crOSS1 ng in the ni ght and someti mes the

13 only time frame that crystallizes is a reply. I certainly 14 don't want any more papers than I can handl e. But, agai n,
15 most of these cases i nvo 1 ve cross-moti ons, and I allow them,

16 so we'll follow my standard practice.
17 18

MR. FINK: okay.
THE COURT: All right. NOw, let me just talk

19 about the settl ement, the correspondence between the
20 parti es, and Ameri can Legacy carved out of that anythi ng

21 havi ng to do wi th settl ement. And I guess what I want to
22 fi nd out from counsel for Ameri can Legacy is what they mean

23 by that and we'll have a di scussi on. It seems to me as
24 though there wi 11 be some di scovery i nvo 1 ved in that. The

25 question is how much. So let's go back to him and then I
o

19

1 wi 11 address you agai n.
2
3

MR. FINK: Thank you, your Honor.
THE COURT: Thank you, Mr. Fink.
MR. SHORE: Your Honor, I guess one possible

4

5 place to draw the line on where settlement discussions began

6 would be with the filing of this case, since we're talking 7 about efforts to settl e thi 5 di spute.

8 i will say that it is possible, and so what I
9 woul d say 15, anythi ng after a fi 1 i ng of thi 5 case
10 that does not deal with simple scheduling issues, but that

11 goes to -12
THE COURT: And how about if correspondence

13 between you and Travelers mention National Union? Do you
14 thi nk that is -- or, for some reason, anythi ng that was sai d

15 somehow woul d commi t you to a certai n i nterpretati on of

16 contract? DO you thi nk that' 5 put out of the way by your
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5 12 08 American Legacy v National Union CA No 07-248 (SLR) .txt
17 calling it a settlement discussion?

18 MR. SHORE: I don't thi nk it' 5 put out of the
19 way by calling it a settlement discussion. I think it's put 20 out of play by Rule 408. I don't think that under Rule 408,
21 your Honor, it makes a di fference whether the communi cati on

22 that they seek to di scover or to ul ti matel y introduce as 23 evi dence rel ated to the Travel ers pol i cy or rel ated to the

24 National Union policy.

25 The policy underlying 408 is to permit candid
o

20

1 di scussi ons in the course of settl ement negoti ati ons 1 n

2 order to foster settlement. The plain language of Rule 408
3 i think applies to either communications regarding
4 Travelers' obligations or communications regarding National

5 Union's-6 THE COURT: I guess my concern is, though,
7 that you've drawn thi 5 1 i ne and maybe thi 5 is one of those

8 cases where I shoul d have an in-camera i nspecti on, because

9 i'm not confi dent that every pi ece of correspondence that

10 you send to another party that ultimately ends up settling 11 can be deemed protected under Rul e 408. And that just seems
12 broad.

13 Now, it might not be 1n your case.
14 MR. SHORE: Ri ght.
15 THE COURT : All the correspondence mi ght

16 actua 11 y, from start to fi ni sh , tal k about efforts to
17 settl e, but how do any of us know that except by your sayi ng

18 i'm drawing this line and it might be artificial, but i'm
19 drawing it. i mean, i'm not sure.

20 MR. SHORE: i understand that issue, your
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5 12 08 Ameri can Legacy v Nati ona 1 Uni on CA No 07-248 (SLR). txt 21 Honor, and in sayi ng that we coul d use the date of fi 1 i ng
22 of the case, that was si mpl y in order for me to draw a

23 simple and clear line. I think what is protected by 408

24 15 any communi cati on in the cou rse of, in support of, in 25 connecti on wi th settl ement negoti ati ons. So if we sai d
o

21

1 something about the Travelers policy or about the National
2 Uni on pol i cy, about how they apply in connecti on wi th 3 efforts to settl e wi th Travel ers, or if Travel ers sai d

4 something about the Travelers policies, the Travelers
5 coverage, the National union coverage, in connection with
6 efforts to settl e, that is the core of what Secti on 408 is

7 desi gned to protect.
8

THE COURT: Ri ght. But there is lots of

9 correspondence that goes back and forth between the

10 parties. The parties ultimately settle. There's lots
11 of correspondence that can flow between the two parti es
12 that don't necessari 1 y have anythi ng to do wi th settl ement

13 per se. I mean, you coul d be tal ki ng about how to narrow

14 the scope of discovery. i mean, ultimately, it helps to
15 settl e the case, but are you i ncl udi ng that type of
16 correspondence?
17

MR. SHORE: No, your Honor. If what we were

18 talking about was narrowing the scope of discovery, or if
19 what we were tal ki ng about was an extensi on on the deadl i ne

20 for Travelers to answer, i don't think -- I mean, you could 21 make an argument that those are settlement-related. I don't
22 thi nk that those are what we' re tal ki ng about here.

23 What we are talking about here and what I
24 understand Nati ona 1 Uni on to be 1 ooki ng for are

25 communi cati ons in the course of settl ement di scussi ons. You
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512 08 American Legacy v National Union CA No 07-248 (SLR).txt
o

22

1
2
3

know, when I travel to New York --

THE COURT: No. The way I understood it was,
they wanted all correspondence. You're the ones that said
we'll gi ve you everythi ng except that whi ch relates to the

4
5

settl ement. You are the one that drew the 1 i ne.
My questi on is: How do I know, and how does

6
7
8

defendant' 5 counsel know that thi 5 correspondence actua 11 y
does relate to settlement because, I mean, especially if you

9

say thi 5 i 5 all correspondence from the date of the fi 1 i ng
of the complaint, which I think is the second thing you
sai d.

10 11
12 13

MR. SHORE: That was just an effort to fi nd kind of a simple date and also knowing what has happened

14
15

here. I mean, the discussions with Travelers since the

date of fi 1 i ng the case have deal t wi th extensi ons on thei r
deadline to answer, and we sat down with them several times
in an effort to settl e thi 5, where we were havi ng

16
17
18

substanti ve di scussi ons, and those are the di scusses that we
understand Nati ona 1 Uni on to be seeki ng.

19 20

And the reason, what Nati ona 1 Uni on has
requested in the course of our conferri ng about the scope of

21
22
23

di scovery, it was a speci fi c request for a copy of the
Travel ers settl ement agreement, whi ch I now understand that
they proceeded from, and communications in the course of, in

24
25
0

connecti on wi th settl ement negoti ati ons.
23

1 So they are rea 11 y the ones who have raised
2 thi 5, who have sought thi 5, who have put it at issue. What
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5 12 08 Ameri can Legacy v Nati ona 1 uni on CA No 07-248 (SLR). txt
3 we sai d is, it' 5 what you ordi nari 1 y do when a party seeks

4 di scovery, is you make a judgment about what is responsi ve

5 and what is not responsi ve, and we J re tal ki ng about doi ng
6 the same thi ng here. They have asked for communi cati ons 1 n
7 connecti on wi th the Travel ers settl ement negoti ati ons,

8 i ncl udi ng, for exampl e, notes of telephone conversati ons 1 n

9 the cou rse of those negoti ati ons, and we woul d do the same

10 thi ng here we woul d do in response to any di scovery request,
11 whi ch is revi ew all of the documents.

12 if there are documents that i nvo 1 ve
13 correspondence or communi cati on wi th Travel ers that are not

14 related to settlement negotiations or the settlement
15 agreement, we would produce them, because they're

16 responS1 ve. If the Cou rt agrees wi th us that Rul e 408 17 precl udes the admi ssi bi 1 i ty and, indeed, i ndi rectl y
18 discovery of settlement-related communications, then we

19 woul d not produce those, just as we woul d not produce thi ngs
20 that are otherwi se not wi thi n the scope of what Nati ona 1

21 Uni on is seeki ng.

22 It's always in the course of discovery a
23 judgment by the produci ng party what' 5 wi thi n and what' 5 not

24 wi thi n the scope.
25
o

THE COURT: But at thi 5 poi nt, I take it you

24

1 have -- I mean, have you produced any correspondence at all
2 or thi 5 is forward thi nki ng? You're sayi ng that -- well, I

3 don't know.
4

MR. SHORE: NO, we have not gotten to the part

5 on ei ther si de of actua 11 y produci ng anythi ng.

6
7

THE COURT: All ri ght.

MR. SHORE: I thi nk what we are sayi ng we woul d
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5 12 08 American Legacy v National Union CA No 07-248 (SLR).txt

8 do, your Honor, is we would take all of the requests that
9 Nati ona 1 Uni on has made, and there are speci fi c wri tten

10 requests that they've gi ven to us that we have agreed to, 11 and we wi 11 produce documents that are responsi ve to each of

12 those requests. 13 We're aski ng the Cou rt to rul e that they are not
14 entitled to discover, they are not entitled to discovery 1n

15 connection with their requests for settlement-related
16 communi cati ons and so we woul d not produce those, if the

17 Court so rul es.
18 THE COURT : All ri ght. Thank you very much.

19 MR. SHORE: Thank you, your Honor.

20 MR. FINK: i'd just like to address, your Honor,
21 sort of the scope of Rule 408. i don't think counsel

22 necessari 1 y addressed that head-on.

23 408 does not just protect blanketly settlement,
24 anythi ng closed wi th a settl ement. i mean, it speci fi call y 25 has prohibited use for evidence that is not admissible
o

25

1 when offered to prove the validity of the claim that's

2 at di spute, and then, in parti cul ar, it prohi bi ts 3 conduct or statements made in negoti ati ons regardi ng that
4 claim.

5 so, 1n other words, i mean, it could protect
6 these statements between Travel ers and Ameri can Legacy

7 with respect to the validity of American Legacy's claim

8 against Travelers, but it can't cloak any statements

9 Ameri can Legacy woul d make about its cl ai m agai nst Nati ona 1
10 Union if it makes a statement about its claim against

11 National Union to Travelers. Even if that's within
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5 12 08 American Legacy v National Union CA No 07-248 (SLR) .txt 12 settlement discussions with Travelers, that doesn't get

13 protected under Rul e 408.

14 specifically, it only protects the validity of
15 the cl ai m that' 5 bei ng made between those two parti es.

16 Anything else is of permitted use under 408.

17 Again, so they're being the arbiter of drawing
18 this line, and I think they are drawing it at the time of

19 the complaint now, which, to me, seems very early. Again,
20 that' 5 sort of the di fference between a demand and

21 settlement negotiations. The complaint is a demand for them
22 to pay, not necessari 1 y the begi nni ng of actual settl ement

23 negotiations.

24 So that gives me pause as well as to where they
25 are drawing the line here, because we would request, your
o

26

1 Honor, and I think Rule 408 has to deal with admissibility.
2 They shoul d produce correspondence to us other than the
3 settl ement agreement, and if there are issues as to the use
4 of the documents, then that coul d be addressed wi th the

5 Court at the time of the admissibility of the document, or 6 if your Honor wants to look at it in-camera, trying to save 7 your Honor time from doing that, I don't think that there's
8 probably

a large universe of documents here, but I don't

9 thi nk they shoul d be sort of the arbi ter of cl oaki ng all 10 these documents in settl ement.

11 Thank you.
12
THE COURT : All ri ght. Fi rst of all, settl ement

13 is an important part of the Court's continuing function, so

14 it is, I think, most all of our's interests in making sure
15 that peopl e conti nue to want to settl e because they bel i eve
16 that thei r settl ement di scussi ons are confi denti a 1 . Page 22

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51208 American Legacy v National Union CA No 07-248 (SLR).txt 17 However, i'm not sure i've ever come across a request, as I

18 understand it, in its narrowest form. I think you actually
19 want more than this, but in its narrowest form, National

20 Uni on is aski ng for that correspondence or that part of
21 correspondence that mi ght menti on the cl ai ms agai nst

22 National Union at its narrowest.

23 And I guess wi th respect to that proposi ti on, if
24 i understand it correctly, I will give you each a week or

25 two weeks, howeve r long you want to take, to fi nd me you r
o

27

1 best case that supports your posi ti on that ei ther that sort
2 of kind of admission against interest is admissible, even if
3 it' 5 in it' 5 ki nd of thi rd-party i nformati on contai ned 1 n

4 a settl ement di scussi on, whether Ameri can Legacy shoul d be

5 protected, or whether, in fact, the cloak of settl ement

6 shoul d not protect that ki nd of i nformati on. 7 So why don't we just say two weeks. I just 8 want a case. You don't even have to di scuss it because I

9 can actua 11 y read, but just 1 i ke a one-page 1 etter case, 10 bri ef di scussi ons, and in the meanti me, I wi 11 craft and
11 issue a scheduling order consistent with our discussion

12 today.

13 Are there any other issues that we shoul d
14 address?

16 (pause.)

15 MR. FINK: Just one second.

17 MR. FINK: You r Honor, I guess there' 5 one other
18 lssue that has been rai sed, is the scope of di scovery that

19 Ame ri can Legacy is seeki ng from Nati ona 1 Uni on.

20 We di d agree to produce the cl ai ms fi 1 e.
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5 12 08 Ame ri can Legacy v Nati ona 1 Uni on CA No 07-248 (SLR). txt
21 Ameri can Legacy al so had requested that we produce the

22 underwriting file, which we don't see any relevance for.
23 They call it a mirror image, but it's not a mirror image of
24 what we're aski ng for. I mean, what we J re aski ng for is the

25 underwriting files for the Travelers policies, which has
o

28

1 relevance to our claim, but we don't see the relevance of
2 what possibly they could want the underwriting files of from

3 our National Union policy.

4 Agai n, they J ve fi 1 ed a moti on for summary

5 judgment, sayi ng the pol i ci es are unambi guous as a
6 matter of law, you can interpret the policy, so we don't

7 see what gOl ng to the underwri ti ng fi 1 es has any rel evance

8 for.
9

THE COURT : All ri ght. Let' 5 hear about that.

10

MR. SHORE: Your Honor, what we are looking for

11 15 really precisely the mirror image or the complement that

12 they want, of what Nati ona 1 uni on wants. That is, they
13 woul d 1 i ke to look at the underwri ti ng fi 1 e and some other

14 thi ngs wi th respect to the Travel ers pol i cy in order, they
15 hope, to be abl e to make the arguments about what was

16 intended at the ti me the pol i cy was issued, et cetera. But

17 they do not want, it appears, the Court to have the same
18 i nformati on before it when it deci des the summary judgment

19 moti ons about Nati ona 1 Uni on' 5 own pol i cy.

20 And if they thi nk what they are gOl ng to fi nd in
21 the underwri ti ng fi 1 e is somethi ng that says, oh, yes, the 22 Travelers policies apply and the National Union policies
23 don't apply, which we don't have any reason to think would

24 be there, we ought to be abl e to test that by seei ng 25 whether, in the National union underwriting file, there 15
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o

29

1 somethi ng that says that it' 5 the Nati ona 1 Uni on pol i ci es

2 that woul d appl y in thi 5 sort of ci rcumstance, or whether

3 there is other relevant information about the National Union

4 policies, which, after all, are the policies now at issue
5 that woul d allow us to counter arguments that they mi ght

6 want to make based on the di scovery they get wi th respect to

7 Travelers.

8 So it really is on multiple different points a
9 complement. It's allowing us to be able to present, since 10 we don't know -- I mean, again, we would argue that none of
11 thi 5 is admi ssi bl e, but we don J t know yet what the Court 15

12 goi ng to deci de on that 1 ssue. It woul d allow us to test
13 any factual contenti ons that Nati ona 1 uni on mi ght make on

14 the basi 5 of whatever di scovery they seek and not requi re us

15 to proceed wi thout bei ng abl e to present the full pi cture to 16 the Cou rt . 17 THE COURT: I ag ree. It seems to me if
18 underwri ti ng fi 1 es are presented wi th one, they shoul d be

19 revi ewed .

20 So, all right. Anything else? Thank you for
21 your time, counsel.

22 MR. SHORE: Thank you.

23 (court recessed at 1:52 p.m.)
24
25

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EXHIBIT B

Case 1:07-cv-00248-SLR
WestlavV:

Document 51-3

Filed 05/27/2008

Page 2 of 5

Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.)
(Cite as: Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.))

Page i

H
PharmaStem Therapeutics, Inc. v. Viacell Inc. D.Del.,2003. Only the Westlaw citation is currently available. United States District Court,D. Delaware. PHARMASTEM THERAPEUTICS, INC., Plaintiff,
v.

Inc. ("Stembanc"), and to preclude PharmaStem's

CELL INC., Cryo-Cell International, Inc., Corcell, Inc., Stemcyte, Inc., Cbr Systems, Inc. f/k/a Cord Blood Registry, Inc., Birthcells Technology, Inc., Nustem Technologies, Inc., and Bio-Cell, Inc., Defendants. No. C.A. 02-148 GMS.
VIA

expert, Russell Parr, from relying on those licenses as a factor in determining a reasonable royalty rate. On August 15,2003, PharmaStem filed a reply. The court conducted a pretrial conference on September 8, 2003 in which it heard oral argument from the parties on PharmaStem's motion. Upon consideration of the arguments raised at the pretrial conference and in the parties' briefs, the court will grant
PharmaStem's motion in limine to exclude from

evidence all discovery relating to settlement negotiations regarding the Anthrogenesis and Stembanc licenses and with any of the defendants in this case.
The court will also grant Viacells cross-motion in

limine to exclude from evidence the Anthrogenesis
Oct. 7, 2003.
Philip A. Rovner, Potter Anderson & Corroon,

and Stembanc license agreements themselves and to

preclude Mr. Parr from relying on those licenses as

LLP, Wilmington, DE, for Plaintiff.

a factor in determining a reasonable royalty rate.
The court bases its ruling on the following reasons.
II. DISCUSSION

Jeffrey L. Moyer, David Allan Felice, Richards, Layton & Finger, Robert F. Stewart, Jr., Dilworth, Paxson LLP, Richard D. Kirk, Morris, James,
Hitchens & Williams, Wilmington, DE, for Defendants.
MEMORANDUM AND ORDER

SLEET, J.

i. INTRODUCTION

*1 On August 5, 2003, PharmaStem Therapeutics,
Inc. ("PharmaStem") filed a motion in limine to ex-

After the commencement of the present litigation, PharmaStem licensed the patents-in-suit to two, non-defendant companies, Anthrogenesis and Stembane. PharmaStem entered into licensing agreements with Anthrogenesis and Stembanc in the context of settling a claim of infringement against each of those companies. PharmaStem also has held settlement negotiations with several of the defendants.
In all instances, PharmaStem and the various

clude from evidence all discovery relating to settlement negotiations regarding patent licensing agreements. On August l2, 2003, Viacell Inc., Cryo-Cell

parties entered into a negotiation agreement containing the following clause:
All offers, promises, conduct and statements,

International, Inc., Corcell, Inc., Stemcyte, Inc.,
CBR Systems, Inc. f/k/a Cord Blood Registry, Inc., Birthcells Technology, Inc., Nustem Technologies,

Inc., and Bio-Cell, Inc. (collectively "Viacell") filed an answer requesting that PharmaStem's motion be denied. Alternatively, Viacell moved to exclude from evidence the license agreements

whether oral or written made in the course of negotiations relating to the Patents by either of the parties, their attorneys, agents or representatives are
"Confidential Statements." Confidential Statements

may not be disclosed by the receiving party without the consent of the disclosing party. Confidential
Statements are subject to Rule 408 of the Federal

between PharmaStem and third parties, Anthrogenesis Corporation ("Anthrogenesis") and Stembanc,

Rules of Evidence may not be used by the receiving

(Q 2008 Thomsonlest. No Claim to Orig. U.S. Govt. Works.

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Page 2

Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.)
(Cite as: Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.))

party in litigation for any purpose including,

Supply Co., 853 F.2d i 568, 1576 (Fed.Cir. i 988)). It
is well established that a patent holder's license

without limitation, impeachment. However, evidence that is otherwise admissible or discoverable

agreements with third parties are permissible considerations in a reasonable royalty calculation. See,

shall not be rendered inadmissible or non-

discoverable as a result of its presentation or use in connection with this Agreement.
PharmaStem claims that evidence related to the negotiations underlying the Anthrogenesis and Stembane license agreements is inadmissible under Rule 408 of the Federal Rules of Evidence. PharmaStem
maintains, however, that the Anthrogenesis and

e.g., Georgia-Pacific Corp. v. u.s. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y.1970). However,

notwithstanding their relevance to a reasonable roy-

alty calculation, the court may exclude license agreements between a patent holder and third parties under Rule 408 of the Federal Rules of
Evidence.

Stembanc license agreements themselves are ad-

Rule 408 states in pertinent part:
Evidence of (i) furnishing or offering or promising to furnish, (2) accepting or offering or promising to
accept, a valuable consideration in compromising

missible to establish the appropriate reasonable royalty calculation. Accordingly, PharmaStem's damages expert, Russell Parr, relied on the license

agreements in reaching his opinion that PharmaStem is entitled to a high royalty rate for the patentsin-suit.

*2 Conversely, Viacell takes an "all-or-nothing" position, arguing that if the underlying negotiations are inadmissible because of Rule 408, then the license agreements themselves are also inadmissible for the same reason. If Mr. Parr is nonetheless permitted to rely on the Anthrogenesis and Stembanc licenses, Viacell argues that it then should be permitted to introduce the underlying negotiations to

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 compromising negotiations is likewise not admissible.

Fed.R.Evid. 408. Specifically, a license agreement

may be excluded from evidence under Rule 408
where it (i) was reached under a threat of litigation,
(2) arose in a situation where litigation was threatened or probable, or (3) was negotiated

show that the final agreements were not the product of a freely negotiated, bargained-for exchange. Indeed, Viacells damages expert, David E. Yurkerwich, relied on evidence of the underlying negotiations to reach his conclusion that the reasonable

against a backdrop of continuing litigation infringement. See Century Wrecker, 898 F.Supp. at 1340

(citing Studiengesellschaft Kahle, Mb.H. v. Dart
Indus., Inc., 862 F.2d 1564, 1572 (Fed.Cir.1988)

royalty rate should be much lower than the one Mr. Parr calculated. The court agrees that PharmaStem is not permitted to have it both ways.

(synthesizing the teachings of Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d i 152,
l164 n. i i (6th Cir.l978), Rude v. Westcott, 130

U.S. l52, 164, 9 S.Ct. 463, 32 L.Ed. 888 (1889),

"(T)he methodology for determining a 'reasonable royalty' is consigned to the district court's discretion and is reviewed only for abuse of that discretion."Century Wrecker Corp. v. E.R. Buske Mfg.

Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d
i 075, 1078-79 (Fed.Cir. i 983), and Deere & Co. v.
Int'l Harvester Co., 710 F.2d 1551, 1557

(Fed.Cir. i 983), respectively)). The court must look

Co., Inc., 898 F.Supp. 1334, 1336 (N.D.Iowa 1995) (citing Wang Labs., Inc. v. Toshiba Corp., 993 F.2d
858, 869 (Fed.Cir. i 993); SmithKline Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d i 161, 1164

carefully at the context in which the license agreement was reached to determine whether it meets
any of these requirements. See Dart Indus., 862

F .2d at i 572; Century Wrecker, 898 F .Supp. at
1340.

(Fed.Cir.1991); Fromson v. Western Litho Plate &

iÇ 2008 Thomson/est. No Claim to Orig. U.S. Govt. Works.

Case 1:07-cv-00248-SLR

Document 51-3

Filed 05/27/2008

Page 4 of 5
Page 3

Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.)
(Cite as: Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.))

*3 The license agreements between PharmaStem
and third parties Anthrogenesis and Stem

mandate PharmaStem's conclusion that the Anthrogenesis and Stembanc licenses are automatically

bane arose

in a context where litigation was threatened or at
least probable. PharmaStem in fact states, "With respect to Anthrogenesis and Stembanc, discovery

admissible because Mr. Parr used them to calculate a reasonable royalty.

obtained unambiguously refers to the amounts contemplated to settle PharmaStem's claim of infringement against them."(PharmaStem Therapeutics, Inc's Motion In Limine to Exclude All Discovery Relating to Settlement Agreement Negotiations Regarding Patent License Agreements, at 3). Addi-

The court is not required to allow otherwise inadmissible settlement agreements into evidence

simply because one party's expert relies on them in reaching a reasonable royalty. This is particularly true where other options, such as excluding the li-

censes altogether, are available to the court. The
purpose of Rule 408 is "to encourage full and frank disclosure between parties in order to promote set-

tionally, PharmaStem's negotiation agreements with Anthrogenesis and Stembanc specifically reference Rule 408, indicating that the parties involved must
consider the licenses to have arisen out of settle-

tlements, rather than protracted
litigation."SeeFed.R.Evid. 408 (citing Olin Corp. v.
Ins. Co. of N. Am., 603 F.Supp. 445, 449

ment negotiations over the validity or amount of an infringement claim. A "dispute" under Rule 408 in-

cludes "both litigation and less formal states of a
dispute. "In view of the term's broad construction, it is clear that the Anthrogenesis and Stembanc li-

(S.D.N.Y.1985)). Given its discretion to determine the methodology for calculating a reasonable royalty, the court finds that it is the better practice to

exclude the Anthrogenesis and Stembanc licenses
in view of the policy considerations behind Rule

cense agreements arose from a dispute within the
meaning of Rule 408.
Both PharmaStem and Viae

408. See Bradbury v. Philips Petroleum Co., 815

ell cite Century Wreck-

er in support of their respective positions. In Century Wrecker, the court admitted evidence of license agreements between the plaintiff and third
parties, which arose out of the threat of litigation.

F.2d 1356,1364 (10th Cir.1987) ("(W)hen the issue is doubtful, the better practice is to exclude evidence of compromises or compromise offers.").
*4 Finally, although Viacell does not appear to seek
the introduction of such evidence, to the extent

Although the court noted that the agreements were inadmissible under Rule 408, it nonetheless allowed
the defendants to introduce the agreements into

PharmaStem requests the exclusion of settlement negotiations between itself and any of the defendants in this case, that evidence is plainly inadmissible under Rule 408. SeeFed.R.Evid. 408

evidence because the plaintiffs expert had relied on
them in his reasonable royalty calculations. The

("Evidence of conduct or statements made in compromising negotiations is likewise not admiss-

court reasoned that the defendants were entitled to use the settlement agreements to challenge the basis
ofthe plaintiffs expert's conclusions.

ible.").

Century Wrecker, however, is not binding precedent on this court. Moreover, Century Wrecker held

II. CONCLUSION
Because the agreements arose in a context where

only that the actual settlement agreements were admissible to challenge the basis of the expert's opinion. The case, therefore, does not dictate Viacell's
position that evidence of negotiations underlying

litigation was threatened or at least probable, the court will exclude all evidence relating to negotiations of the Anthrogenesis and Stembanc licenses, including the license agreements themselves.
Therefore, IT IS HEREBY ORDERED that:

the license agreements must be admitted to challenge Mr. Parr's report. Nor does Century Wrecker

(Q 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Case 1:07-cv-00248-SLR

Document 51-3

Filed 05/27/2008

Page 5 of 5
Page 4

Not Reported in F.Supp.2d Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.)
(Cite as: Not Reported in F.Supp.2d, 2003 WL 22387038 (D.Del.))

I. PharmaStem Therapeutics, Inc.'s motion in
limine to exclude from evidence all discovery relating to settlement negotiations regarding the Anthrogenesis and Stembanc licenses and with any of the defendants in this case is GRANTED.

2. Viacell's cross-motion in limine to exclude from evidence the Anthrogenesis and Stembanc license agreements and to preclude Russell Parr from relying on those licenses as a factor in determining a

reasonable royalty rate is GRANTED.

3. The parties' experts may not rely on the Anthrogenesis and Stembanc licenses or any documents or

other evidence pertaining to negotiations of the
those licenses to calculate a reasonable royalty rate
or to challenge the opposing party's calculation of a

reasonable royalty rate.
D.Del.,2003. PhannaStem Therapeutics, Inc. v. Viacell Inc.

Not Reported in F.Supp.2d, 2003 WL 22387038
(D.Del.)

END OF DOCUMENT

(Ç 2008 Thomson/est. No Claim to Orig. U.S. Govt. Works.