Oregon Cannabis: Why Won’t OLCC Treat Settlement Negotiations as Inadmissible?

We regularly represent Oregon marijuana licensees in administrative proceedings commenced by the Oregon Liquor Control Commission (OLCC).  As anyone with a license knows, the OLCC regulates medical and recreational cannabis in Oregon. This includes enforcing the administrative rules against licensees when the OLCC believes a licensee has violated the administrative rules found in Chapter 845, Division 25.

When the OLCC believes a licensee has violated a rule, it issues a “charging document.” (See What to Do If You Receive an OLCC Notice of Proposed License Cancellation or Other “Charging Document.) The charging documents is akin to a complaint in civil litigation, or an indictment in a criminal proceeding, in that the OLCC recites the facts leading to its conclusion that one or more rules have been violated, cites the particular rules at issue, and the proposed sanction.

If the licensee disputes the charges, the licensee can request an administrative hearing which is essentially a trial before an administrative law judge. But the evidentiary and procedural rules for administrative hearings differ from ordinary civil litigation. (See here re discovery.) Generally speaking, the usual rules of evidence do not apply, instead the admissibility of evidence is governed by a more liberal reliability standard.

A critical difference is that Rule 408 of the Oregon Evidence Code does not plainly apply to OLCC administrative proceedings.

What is Rule 408?

Rule 408 provides all civil litigants two important protections. First – Rule 408 provides that evidence of conduct or statements made in compromise negotiations are not admissible.  Put differently, a party in civil litigation cannot admit statements at trial, or at any other hearing, made in the context of settlement. Second – Rule 408 provides that evidence of furnishing or promising to furnish, or promising to accept, consideration in compromising or attempting to compromise a dispute claims is not admissible to prove liability. In simpler terms, a party cannot prove its case at trial – i.e. that the other side is liable – by admitting settlement offers.

(There are limits, of course, to the protections provided by Rule 408 but I won’t go into those here).

Why does Rule 408 matter?

The importance of Rule 408 in modern civil litigation cannot be understated. Nearly every civil case ends in a settlement and every jurisdiction in the United States, to my knowledge, has adopted some version of Rule 408. A principal reason is that thanks to Rule 408, parties and their counsel can engage in frank and open discussions with their opponents without the risk that “anything they say can and will be used against them.” Indeed, Rule 408 was adopted to encourage settlement, which would be discouraged if evidence of negotiations and offers were admissible.

The reality is that without Rule 408, attorneys could not reasonably engage in meaningful settlement negotiations. Practically every frank discussion on resolving a dispute begins with a lawyer saying something along the lines of “This is a communication made under Rule 408.” By doing so, the lawyers and the parties can freely discuss ways to resolve the case without the fear of an offer to settle or the statements made in the course of settlement discussions coming back to haunt them at trial.

What about the OLCC and Rule 408?

Like civil litigation, nearly all proceedings commenced by an OLCC charging document are resolved through settlement. But the OLCC has taken the position (informally) that Rule 408 does not apply. As a result, anything a licensee or their attorney says to the OLCC in an effort to resolve the proceeding may later be used by the OLCC against the licensee.

This is a terrible policy position in my opinion. That is because it strongly disincentives attorneys and licensees from engaging in frank and open discussions with the OLCC on resolving an alleged rule violation. On the one hand, the OLCC claims to seek “willing partners” in the cannabis industry. But on the other hand, the OLCC (informal) policy sends a strong message that “anything you say can and will be used against you.”

In light of this policy, the safe bet is for licensees to say very little, or nothing at all, when it comes to settlement negotiations with the OLCC. By declining to treat settlement negotiations as inadmissible, whether generally or in any particular matter, the OLCC is taking an incredibly adversarial position towards its licensees. And the OLCC is encouraging licensees to take a very adversarial stance toward the OLCC for any alleged rule violation since a licensee cannot engage in frank and open discussion.

Although the OLCC cannot unilaterally decide to adopt Rule 408, the OLCC can agree to treat settlement discussions and offers of compromise as confidential and inadmissible. The OLCC should do so.

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Litigation, Oregon