Bankcard America, Inc. v. Universal Bancard Systems, Inc.

Rule of Law:

Federal Rule of Evidence 408, which generally bars the admission of statements made during settlement negotiations, does not prohibit such evidence when it is offered for a purpose other than proving liability, such as to explain a party's state of mind or rebut the opposing party's claim of breach.

Facts:

• In late 1991, Universal Bancard Systems, Inc. (Universal), a sub-Independent Sales Organization (sub-ISO), contracted with Bankcard America, Inc. (Bankcard), an ISO, to sign up merchants for credit card processing services.
• Universal alleged that Bankcard began delaying merchant applications and underpaying residuals (commissions) that were due under the contract.
• Bankcard terminated the contract in March 1993.
• The contract contained a restrictive covenant prohibiting Universal from transferring merchants it had signed up for Bankcard to a competitor for one year post-termination.
• Following the termination, Universal began transferring a number of accounts to a competitor, United Jersey Bank.
• Bankcard alleged this transfer was a breach of the restrictive covenant.
• Universal contended that it only transferred the accounts because it was led to believe during discussions with Bankcard's legal counsel that a settlement had been reached which permitted the transfers.

Procedural Posture:

• Bankcard sued Universal in U.S. District Court for breach of contract.
• Universal filed a counterclaim against Bankcard for breach of contract and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
• After the first trial, a jury found for Universal on all claims, awarding $1,115,000 for the breach of contract and a total of $7.8 million after the trebling of RICO damages.
• Following the verdict, the case was reassigned to Chief Judge Richard A. Posner, sitting as a district judge by designation.
• Judge Posner granted Bankcard's motion for a new trial, vacating the entire jury verdict due to what he identified as prejudicial errors in the first trial.
• At the conclusion of a second trial, the jury found for Bankcard on the RICO claims but again found for Universal on the breach of contract claim, awarding $4.1 million in damages.
• Judge Posner then granted Bankcard's motion for judgment as a matter of law, nullifying the second contract verdict on the grounds that Universal's evidence of damages was insufficient.
• Universal, as appellant, appealed the district court's post-trial orders to the U.S. Court of Appeals for the Seventh Circuit, with Bankcard as the appellee.