Washington Fed. Savings and Loan v. Cheung

Under OEC 408, evidence of settlement communications is inadmissible if used to prove or show liability of a claim or its amount.

Plaintiff bank lent an Oregon construction company money to build homes. Cheung was the guarantor of the loan. The company defaulted and Cheung foreclosed and sold the properties. Bank sued Cheung for the difference between the amount of the loan and that Cheung received from the sale. Cheung defended himself by asserting he was entitled to either a credit for the sale price or the fair value of the properties. The trial court found that the fair value of the properties was $2.6 million. The court found in favor of the bank and awarded damages in the amount of the loan minus the $2.6 million credit. Cheung appealed the decision with four assignments of error. Part of his argument was that settlement communications and irrelevant evidence were erroneously allowed into evidence, which prejudiced the jury against him. Cheung objected to the admission of multiple emails used to calculate the fair value of the properties, some of which were also settlement communications and were not used for an admissible purpose. The bank did not deny these emails were settlement communications but argued they were used to show market conditions. The Court held that the evidence was admitted to show the value of the properties, the truth of the matter asserted. The court therefore held the emails were inadmissible under OEC 408. The court concluded that the admission of this evidence prejudiced Cheung. Reversed and remanded.