Evidence of Negotiations May Be Admissible When the Evidence Is Not Inconsistent with the Executed Agreement and Is Offered to Rebut Trial Testimony

Abstract

A party to an agreement introduced email correspondence at trial concerning the negotiation of the terms of the agreement. The court found that the use of evidence relating to prior negotiations was permissible because the evidence (1) did not contradict or negate any express term in the agreement, and (2) was offered to rebut testimony presented at trial.

Background

TRUSTID, Inc. is a caller-authentication and anti-spoofing provider. Spoofing occurs when a caller falsifies information transmitted with a telephone call to disguise the caller’s true identity. In 2016, it entered into a Referral Agreement with Next Caller Inc., another provider of caller verification services, for assistance in marketing TRUSTID’s services. The Agreement did not include an express non-competition provision, but it provided that Next Caller should use “all commercially reasonably efforts” to promote TRUSTID’s services to customers. During negotiation of the Agreement, emails between TRUSTID and Next Caller showed that the parties discussed including a non-competition clause in the Referral Agreement but decided against it.

In 2019, after Next Caller came out with its VeriCall™ product, TRUSTID sued Next Caller, asserting misappropriation of trade secrets, intentional interference with prospective economic advantage, and breach of contract. The case was tried to a jury, and at the conclusion of the evidence, the jury returned a verdict in favor of Next Caller on all claims.

TRUSTID moved for a new trial, asserting that it was prejudiced by the use at trial of email correspondence discussing the parties’ negotiations because, according to TRUSTID, the emails contradicted the terms of the Referral Agreement.

The TrustID-Next Caller Decision

When interpreting a written agreement, courts typically apply the “parol evidence rule,” which precludes the use evidence outside of the agreement’s terms to interpret the agreement unless (1) the terms are ambiguous or (2) there has been a mistake or fraud. TRUSTID argued that Next Caller violated the parol evidence rule by introducing emails at trial to modify the terms of the Agreement and establish that the two companies never agreed to refrain from direct competition.

Next Caller, however, argued that it offered the emails to rebut the testimony of TRUSTID’s CEO. At trial, TRUSTID’s CEO testified that he did not think the two companies were direct competitors before the Agreement, and it was only after the Agreement was fully executed that he realized Next Caller was truly a competitor. In response, Next Caller used the emails during cross‑examination to establish that the companies agreed they were “similar enough” that non‑competition language in the Agreement didn’t make sense. Next Caller insisted that it couldn’t offer the emails to modify the Agreement’s terms because the Agreement did not contain any non-competition provision.

The Court agreed with Next Caller. It found that because the Agreement did not include a non-competition provision, the email evidence could not contradict or negate any express term in the Agreement. Thus, the parol evidence rule did not apply. Moreover, since TRUSTID elicited testimony from its CEO regarding his understanding of whether the companies competed, the Court determined that Next Caller should be allowed to offer rebuttal evidence, such as the emails in question.

Strategy and Conclusion

While evidence of the parties’ negotiations may not be admissible to modify the terms of an agreement, parties may introduce evidence of those negotiations at trial so long as they are not inconsistent with the terms of the agreement and are offered to rebut testimony regarding the parties’ intent. Thus, parties should always be mindful of what they say and do during negotiations and what they present at trial.

Parties that want to keep their negotiations confidential should consider agreeing that the negotiations are for purposes of settlement and that information may not be used in any other way, including but not limited to litigation and dispute resolution. Parties often agree instead that their negotiations are subject to Federal Rule of Evidence 408. However, such an agreement does not fully limit the use of such information in court.

Further Information

The TRUSTID decision can be found here.