United States v. Davis

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 4, 2009 Decided February 26, 2010

No. 07-3100

UNITED STATES OF AMERICA,
APPELLEE

v.

TERRY DAVIS,
APPELLANT

Appeal from the United States District Court
for the District of Columbia
(No. 06cr00193-1)

Tony Axam Jr., Assistant Federal Public Defender, argued
the cause for appellant. With him on the briefs was A. J.
Kramer, Federal Public Defender.

Katherine M. Kelly, Assistant U.S. Attorney, argued the
cause for appellee. With her on the brief were Roy W. McLeese
III, Elizabeth Trosman, and Michael K. Atkinson, Assistant U.S.
Attorneys.

Before: GINSBURG and TATEL, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
 2

Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.

RANDOLPH, Senior Circuit Judge: Terry Davis served as
national treasurer of the Phi Beta Sigma fraternity. Accused of
stealing from the fraternity, he was indicted on ten counts of
bank fraud, one count of first-degree theft, and one count of
first-degree fraud. See 18 U.S.C. § 1344; D.C. CODE § 22-
3211(b)(2); id. § 22-3221(a). The jury acquitted him of two of
the bank fraud counts and convicted him of the remaining
charges. The district court sentenced Davis to 51 months’
imprisonment on each of the bank fraud charges and 24 months’
imprisonment on the theft and fraud charges, all sentences to run
concurrently, and ordered him to pay $217,746.79 in restitution
to the fraternity. There are two evidentiary issues, the first
concerning the court’s refusal to admit testimony from Davis’s
wife, the second dealing with the court’s admission of evidence
regarding settlement talks despite Federal Rule of Evidence 408.
Because the court’s application of Rule 408 warrants reversal,
we do not reach Davis’s constructive amendment argument.

Founded at Howard University in 1914, Phi Beta Sigma has
university and alumni chapters with more than 120,000
members. The fraternity obtains its funds from the annual dues
of its members. When the dues arrive at the fraternity’s
Washington, D.C., headquarters, they are deposited into Phi
Beta Sigma’s general fund bank account and used to pay the
fraternity’s operating expenses.

The Phi Beta Sigma national treasurer is the elected, unpaid
custodian of all fraternity funds. Two main financial controls
cabin the treasurer’s discretion in dealing with the funds. First,
before any expense is paid, the fraternity’s executive director,
national president, and treasurer must each sign a “voucher”
documenting and authorizing the payment. Second, the
 3

president and the treasurer must co-sign each fraternity check.
The executive director is a full-time employee with an office at
the fraternity’s headquarters; neither the president nor the
treasurer have offices. As a result, each check and voucher must
be mailed from one officer to the next until all signatures are
gathered.

Davis disregarded these policies during his tenure as
national treasurer from 1999 to 2003. Some checks he wrote
without obtaining an approved voucher. Many checks contained
only Davis’s signature. On others Davis also signed or stamped
the president’s name. In the spring of 2003, the fraternity
investigated financial irregularities and learned that Davis had
written checks to cash, a violation of another fraternity policy.
That June, the fraternity suspended Davis as treasurer.

The new treasurer, Jimmy Hammock, testified that he asked
Davis to produce the financial records Davis maintained on the
fraternity’s behalf. Davis provided some unused checks and
financial reports but no cancelled checks or bank statements.
Hammock also asked Davis why he had written fraternity
checks payable to cash. Davis explained that he transferred the
funds to the fraternity’s payroll account.

Hammock testified about a second conversation with Davis
regarding these checks. Hammock told Davis the fraternity had
found $29,000 in checks made out to cash, none of which was
deposited in the fraternity’s bank account as Davis had claimed.
Over an objection based on Rule 408 of the Federal Rules of
Evidence, Hammock related the rest of the conversation: “Terry
asked – he said ‘Can we just split this $29,000.00 and make this
situation just go away?’ . . . . I told him that [the] amount was
in excess of a hundred thousand dollars. Terry’s statement to
me at that point was, ‘I can’t afford to pay that amount,’ and
then I told him – I said, ‘Terry, if you want to do some –
 4

negotiate some kind of settlement, you need to talk to our legal
counsel or our international president.”

At trial Davis called his wife, Rhonda Davis, to support his
account of the disputed checks – namely, that “although he had
written checks made payable to cash and deposited those checks
into his personal banking account, he had used funds derived
from those checks to pay fraternity bills and to reimburse
himself for fraternity debts he had paid using personal funds.”
Appellant’s Br. 26. Rhonda testified that she saw her husband
working at home on fraternity business “on a very regular basis
every day, most of [the] time, in some way, shape or form.”
Asked about the “types of things” she saw him doing, she
replied that “I would see him working on his computer with
spreadsheets. I would – I would even help him mail things. I
would see the money orders that had to be processed. I would
wait for the Fed. Ex. man.” Defense counsel later asked Rhonda
to elaborate further: “You talked about seeing Mr. Davis make
payments for fraternity expenses. Can you tell me a specific
instance when you saw him make a payment for a fraternity
expense?” After she responded “Yes, I can,” the prosecutor
objected.

The government’s objection was that Rhonda’s only
personal knowledge of Davis’s fraternity payments was derived
from inadmissible hearsay, and that her only nonhearsay
testimony was that she saw her husband receive bills, write
checks, and purchase money orders. Such limited testimony,
the government argued, should be excluded under Federal Rule
of Evidence 403 as speculative and prejudicial.

The district court thoroughly considered the objection in a
hearing the next day. Both sides then filed written memoranda
and the court and counsel questioned Rhonda out of the jury’s
presence. Rhonda’s responses focused on three types of
 5

documents she saw in her home: checks, money orders, and
fraternity bills.

Rhonda stated that she saw Davis write checks to pay
fraternity bills and expenses. But she could only recall one
check that Davis wrote from his personal checking account to
pay a fraternity bill. Asked how she knew this check was for a
fraternity expense, she said her husband told her the check was
“for fraternity stuff.” The court also asked Rhonda how she
knew Davis was using money orders to pay fraternity bills. She
recalled asking Davis about the money orders “the very first
time” she saw them at their home. He told her he used money
orders to pay fraternity bills because some vendors would not
accept the fraternity’s checks. Rhonda also testified on voir dire
that she and her husband did not use money orders to pay
household expenses, and that she saw bills from The Hartford
and the utility company PEPCO, neither of which served her
household. She did not claim to have seen Davis using money
orders for any particular vendor other than The Hartford.

The district court sustained the government’s objection and
Rhonda briefly concluded her testimony. Davis then took the
stand. Contradicting the testimony of the two national
presidents under whom he served, Davis testified that they had
authorized him to bypass the fraternity’s financial controls. He
admitted that he wrote fraternity checks to cash and deposited
many of the checks in his personal account. Davis testified that
he only used this money to pay the fraternity’s vendors, fund its
payroll account, and reimburse legitimate fraternity expenses –
never to line his own pockets.

To explain the commingling of fraternity and personal
funds, Davis described a circuitous system of financial transfers
that he devised to pay fraternity obligations. He claimed that his
personal account was merely a way station that allowed funds to
 6

remit more quickly to vendors and banks wary of dealing
directly with Phi Beta Sigma. Due in part to the fraternity’s
poor financial history, some vendors allegedly would not accept
a fraternity check. And, according to Davis, the fraternity’s
bank denied access to newly deposited funds while a check
cleared, which delayed payment of the fraternity’s overdue bills.
Davis stated that in order to transfer funds more quickly, he
would write a fraternity check to cash, deposit the check into his
personal account, and either write a personal check or use the
proceeds to purchase a money order.1 Then he would transmit
the check or money order to a vendor, a separate fraternity bank
account, or a fraternity officer due to be reimbursed. The net
effect of the transfers, according to Davis, was to pay the
fraternity’s creditors and reimburse expenses he incurred on the
fraternity’s behalf.

The first issue presented in Davis’s appeal is whether the
district court properly excluded Rhonda’s proposed testimony as
hearsay. The Federal Rules of Evidence define hearsay as an
out-of-court statement offered for its truth and generally bar its
admission into evidence. FED. R. EVID. 801(c), 802. The Rules
also prohibit a witness from testifying unless he has personal
knowledge of the subject of his testimony. FED. R. EVID. 602.
These provisions intersect if a witness satisfies Rule 602’s
personal knowledge requirement by relying on the truth of an
out-of-court statement. “If the testimony of the witness
purports to repeat an out-of-court statement, hearsay is the
proper objection. If the testimony on its face purports to be
based on direct perception of the facts described but is actually

1
Davis said he sometimes wrote “payroll transfer” or “payroll tax
transfer” on the memo line of the fraternity checks made out to cash.
He said that on other occasions he wrote checks to cash and
purchased money orders with the proceeds, without ever depositing
the money in his personal account.
 7

based on an out-of-court statement about those facts, the
objection should be lack of personal knowledge.” 27 C.
WRIGHT & V. GOLD, FEDERAL PRACTICE AND PROCEDURE:
EVIDENCE § 6022, at 214-15 (2d ed. 2007); see also 2
MCCORMICK ON EVIDENCE § 249, at 137 (6th ed. 2006).2

The district court properly required Rhonda to demonstrate
personal knowledge of the personal checks, money orders, and
fraternity bills about which she proposed to testify, and to do so
without relying on hearsay statements she read or heard. See,
e.g., Pelster v. Ray, 987 F.2d 514, 525 (8th Cir. 1993); United
States v. Brown, 548 F.2d 1194, 1205 (5th Cir. 1977). As to
personal checks, it became clear during voir dire that Rhonda
could recall seeing only one check that Davis wrote on his own
account to pay a bill to the fraternity. It also became clear that
Rhonda only learned that this check was for a fraternity bill
when her husband said it was for “fraternity stuff.” The district
court therefore correctly sustained the government’s hearsay
objection to her proposed testimony about personal checks.

As to money orders and bills, defense counsel pointed out
that she read the bills and saw the money orders in her home.
The court also heard Rhonda’s voir dire testimony that the
Davises did not use money orders and that The Hartford and
PEPCO did not serve their household. The government insisted
that because the bills and money orders amounted to hearsay,
Rhonda’s testimony about them would also be hearsay.

2
Because the distinction between the two objections is based only on
the form of the testimony, an objection invoking either rule is
sufficient. 27 C. WRIGHT & V. GOLD, FEDERAL PRACTICE AND
PROCEDURE: EVIDENCE § 6026, at 252-54 (2d ed. 2007); 2 MCCORMI-
CK ON EVIDENCE § 247 (6th ed. 2006); see, e.g., Elizarraras v. Bank
of El Paso, 631 F.2d 366, 374 (5th Cir. 1980).
 8

Davis is correct that like checks, money orders are not
hearsay. They are legally operative documents with a meaning
independent of the truth of the words they display. See 30B M.
GRAHAM, FEDERAL PRACTICE AND PROCEDURE: EVIDENCE
§ 7005, at 46 n.2 (2006); see also United States v. Pang, 362
F.3d 1187, 1192 (9th Cir. 2004) (collecting citations). As
“verbal acts,” their significance “lies solely in the fact that [they
were] made, [so] no issue is raised as to the truth of anything
asserted.” FED. R. EVID. 801(c) advisory committee’s note. A
$100 money order made out to The Hartford instructs a financial
institution to disburse $100 to The Hartford. It would make no
sense to ask whether the money order was true. Such an
“instruction is, by its nature, neither true nor false and thus
cannot be offered for its truth.” United States v. Shepherd, 739
F.2d 510, 514 (10th Cir. 1984). Just as a check is not a
“statement” that can falsely influence federally insured lending
institutions, see Williams v. United States, 458 U.S. 279, 284-85
(1982), neither is a money order a “statement” as defined by
Rule 801(a).

Yet even if money orders are not hearsay, it does not
necessarily follow that Rhonda actually relied upon the money
orders – rather than other hearsay statements – to conclude
Davis used these financial instruments to pay fraternity
expenses. When asked during voir dire how she knew Davis
used money orders to pay fraternity bills, Rhonda mentioned
three things. She and her husband did not use money orders for
household expenses; on several occasions she saw money orders
her husband wrote to a vendor, The Hartford, that did not serve
the Davis household; and the first time she saw Davis writing
money orders she asked him what they were for, and he told her
he was paying fraternity bills. To the extent Rhonda’s
knowledge derived from what Davis told her, rather than from
the practice of her household or the words written on money
 9

orders, the district court properly excluded her proposed
testimony regarding the money orders.

Whatever more Rhonda could have added on this subject
could not have amounted to much. Rhonda had already testified
– without objection – that she “saw the money orders that had to
be processed” by her husband in connection with his work for
the fraternity. Her testimony thus informed the jury that Davis
used money orders to pay fraternity bills. The only additional
fact defense counsel sought to elicit over the government’s
objection was that Davis used the money orders to pay the
fraternity insurance bill from The Hartford. Even if the district
court abused its discretion in excluding this testimony, it is hard
to see how this prejudiced the defense.

With respect to the fraternity bills, Davis argues that the
bills were not hearsay because they did not assert the truth of
anything; they simply instructed the fraternity to pay a debt. Yet
the documents did contain assertions, in the form of sender and
recipient labels. These simple labels in effect stated: “This
document is a message from The Hartford, and its contents
pertain to Phi Beta Sigma.” See 31 C. WRIGHT & V. GOLD,
FEDERAL PRACTICE AND PROCEDURE: EVIDENCE § 7141, at 251-
53 (2000); cf. United States v. Vigneau, 187 F.3d 70, 74 (1st Cir.
1999). And unlike words written on money orders, the labels
asserted facts that can be characterized as true or false. This
appears to be how the district court treated Rhonda’s proposed
testimony about the bills. As the court put it, she was prepared
to make assertions – based on her reading of the documents –
“that these bills were, in fact, bills that were sent to the fraternity
on behalf of these various vendors.”

Davis also contends that the bills, even if they contained
assertions, were not hearsay because Rhonda’s testimony was
not offered to show the truth of those assertions. Rather,
 10

Rhonda’s “testimony about the bills was offered to show that
[Davis] was on notice of instructions to pay, not that the
fraternity had taken actions to incur the debt.” Appellant’s Br.
28. Davis is correct that documents “may be admitted for a
material purpose other than the verity of [their] assertions.”
United States v. Watkins, 519 F.2d 294, 297 (D.C. Cir. 1975);
see FED. R. EVID. 801(c) advisory committee’s note; 30B M.
GRAHAM, FEDERAL PRACTICE AND PROCEDURE: EVIDENCE §
7005 (2006). Davis is also correct that decisions of this circuit
have treated names written on bills and receipts as non-hearsay.
But in those cases, the documents were offered to link the
person whose name was written with the location where the
document was found. United States v. David, 96 F.3d 1477,
1481 (D.C. Cir. 1996); United States v. Patrick, 959 F.2d 991,
999 (D.C. Cir. 1992).3 The documents’ relevance did not
depend on their truth; their mere presence made the connection
more likely. Rhonda’s testimony, on the other hand, relied on
the truth of the sender and recipient labels – not their location –
to identify the documents as fraternity bills. Given defense
counsel’s failure to articulate a justification for Rhonda’s
proposed testimony independent of the labels’ truth, the court
did not abuse its discretion by excluding it.4

3
Both decisions recognized that the documents were hearsay to the
extent they were introduced to prove the matter asserted: that the
defendant resided at the address listed on the document. See David,
96 F.3d at 1480-81; Patrick, 959 F.2d at 1000.
4
The policy underlying the best evidence rule, embodied in Federal
Rule of Evidence 1002, appeared to animate the district court’s
judgment regarding Rhonda’s proposed testimony. In requiring
litigants to prove the contents of a writing by introducing the writing
itself, the rule guards against inaccuracy, fraud, and incompleteness.
See 31 C. WRIGHT & V. GOLD, FEDERAL PRACTICE AND PROCEDURE:
EVIDENCE § 7162 (2000). Rhonda’s testimony regarding documents
not introduced at trial would have raised these concerns. But the best
 11

While the court’s evidentiary ruling barring Rhonda’s
testimony may not be entirely free from doubt, the court’s
application of Rule 408 is another matter entirely. Rule 408,
which is set out in the margin,5 excludes evidence of settlement
offers and negotiations when the evidence is “offered to prove

evidence rule also affords litigants an opportunity to demonstrate that
admission of secondary evidence is necessary because the writing
itself is unavailable. FED. R. EVID. 1004. Because the government
never made a best evidence objection, Davis was not called upon to
produce the bills, checks, and money orders, although the court
suggested that he should have done so.

5
(a) Prohibited uses. – Evidence of the following is not admissible on
behalf of any party, when offered to prove liability for, invalidity
of, or amount of a claim that was disputed as to validity or
amount, or to impeach through a prior inconsistent statement or
contradiction:

(1) furnishing or offering or promising to furnish – or
accepting or offering or promising to accept – a valuable
consideration in compromising or attempting to
compromise the claim; and

(2) conduct or statements made in compromise negotiations
regarding the claim, except when offered in a criminal
case and the negotiations related to a claim by a public
office or agency in the exercise of regulatory,
investigative, or enforcement authority.

(b) Permitted uses. – This rule does not require exclusion if the
evidence is offered for purposes not prohibited by
subdivision (a). Examples of permissible purposes include
proving a witness’s bias or prejudice; negating a contention of
undue delay; and proving an effort to obstruct a criminal
investigation or prosecution.
 12

liability for, invalidity of, or amount of a claim.” FED. R. EVID.
408(a).

Invoking Rule 408, Davis made a motion in limine to bar
Jimmy Hammock from testifying about his second conversation
with Davis. The defense motion quoted the following portion of
an FBI report of an interview with Hammock in January 2004:

Sometime between the National Conclave and August
2003, HAMMOCK had a telephone conversation with
DAVIS, during which he confronted DAVIS about the
checks made payable to cash and DAVIS’ explanation
[that] the money was deposited to the payroll account.
DAVIS said the money had been deposited into the
payroll account, but HAMMOCK replied “TERRY,
I’m telling you, I’ve gone through the records and it
didn’t.” DAVIS then unexpectedly said “what will it
take to make this go away?” HAMMOCK responded
that DAVIS needed to repay “whatever you took.”
DAVIS asked “what if I split the $29,000?”
HAMMOCK told DAVIS the amount of missing
money was in excess of $100,000.00, to which DAVIS
responded, “Oh, I can’t pay that much.”

There can be no doubt that Davis offered to compromise a
disputed claim. His offer was to split the $29,000 in checks to
cash he thought the fraternity had discovered. The claim “was
disputed as to validity or amount,” FED. R. EVID. 408(a): Davis
did not confess to taking the fraternity’s money; he said that he
had deposited the cash checks into the fraternity’s payroll
account; and Hammock rejected Davis’s explanation. See
Affiliated Mfrs., Inc. v. Alum. Co. of Am., 56 F.3d 521, 527-28
(3d Cir. 1995). It is also clear that the government intended to
introduce Davis’s settlement offer in order to prove Davis’s
guilt, or in the words of Rule 408(a), his “liability.” Offers to
 13

settle are excluded even if no settlement negotiations follow.
FED. R. EVID. 408(a)(1); see, e.g., Alpex Comp. Corp. v.
Nintendo Co., Inc., 770 F. Supp. 161, 163-64 (S.D.N.Y. 1991).
The Rule is meant to promote settlements. See FED. R. EVID.
408 advisory committee’s note (1974). If one party attempts to
initiate negotiations with a settlement offer, the offer is
excluded from evidence even if the counterparty responds: “I’m
not negotiating with you.” See FED. R. EVID. 408 advisory
committee’s note (1972 proposed rule). It makes no sense to
force the party who initiates negotiations to do so at his peril.

Rule 408 bars not only evidence of settlement offers, but
also “statements made in compromise negotiations.” FED. R.
EVID. 408(a)(2). Davis’s other statements to Hammock during
their second conversation were of that sort. Davis asked what
it would take to “make this go away”; Hammock said pay back
what you took; Davis countered with his offer to split the
$29,000; Hammock countered that the missing funds totaled
more than $100,000. That Hammock understood this give and
take as a compromise negotiation is confirmed by his trial
testimony – not before the court in limine but cited by the
government on appeal – that he told Davis to talk to the
fraternity’s president or lawyer if he wanted to settle the matter.

Although one-half of $29,000 has value – $14,500 worth to
be exact – the government argues that Davis did not offer
“valuable consideration” as the Rule requires. See FED. R.
EVID. 408(a)(1). The government’s argument apparently is that
Davis’s offer of $14,500 was not “valuable” because he owed
a lot more. Under that theory, only a settlement offer exceeding
the full amount of the disputed claim is an offer of valuable
consideration. The framers of Rule 408 could not have intended
any such thing. The policy embodied in the Rule is to foster
compromises. And the very nature of compromise is that the
parties settle their differences by making concessions.
 14

The government also tells us that Hammock’s testimony
properly came in pursuant to the portion of Rule 408(b) stating
that exclusion is not required “if the evidence is offered for
purposes not prohibited by” Rule 408(a), including, for
example, “proving an effort to obstruct a criminal investigation
or prosecution. The “purposes” set forth in Rule 408(a) are
proving “liability for, invalidity of, or amount of a” disputed
claim. FED. R. EVID. 408(a). If evidence is introduced for some
other purpose, Rule 408 is no bar. See United States v. Technic
Servs., 314 F.3d 1031, 1045 (9th Cir. 2002); Carney v.
American Univ., 151 F.3d 1090, 1095-96 (D.C. Cir. 1998). The
problem for the government is that it wanted to use Hammock’s
testimony as evidence of Davis’s knowledge of his own guilt,
which is to say his “liability.”

There is, as the government points out, a sentence in the
1972 advisory committee note to Rule 408 stating that an “effort
to ‘buy off’ the prosecution or a prosecuting witness in a
criminal case is not within the policy of the rule of exclusion.”
FED. R. EVID. 408 advisory committee’s note (1972 proposed
rule). But it would be a mistake to read much into that remark,
particularly in cases in which the defendant’s actions give rise
to potential civil and criminal liability. The 2006 amendment
to Rule 408, which made clear that the rule applied to both civil
and criminal proceedings,6 drew a distinction between civil
disputes involving the government and civil disputes involving

6
The circuits had been split on the issue. Compare United States v.
Arias, 431 F.3d 1327, 1338 (11th Cir. 2005), United States v. Bailey,
327 F.3d 1131, 1146 (10th Cir. 2003), and United States v. Hays, 872
F.2d 582, 589 (5th Cir. 1989) (applying Rule 408 in criminal cases),
with United States v. Logan, 250 F.3d 350, 367 (6th Cir. 2001), United
States v. Prewitt, 34 F.3d 436, 439 (7th Cir. 1994), and United States
v. Baker, 926 F.2d 179, 180 (2d Cir. 1991) (declining to apply Rule
408 in criminal cases).
 15

private parties. Under amended Rule 408, a defendant’s
statements in settlement negotiations with government agencies
may be admitted in a criminal case. FED. R. EVID. 408(a)(2).
But if the civil dispute was with a private party, the defendant’s
offer of settlement and statements in negotiation may not be
admitted in a criminal prosecution when “offered to prove
liability for, invalidity of, or amount of a claim.” FED. R. EVID.
408(a).

This still leaves the example in Rule 408(b) allowing the
use of a defendant’s settlement offer and statements in
negotiation in order to prove the defendant’s attempt to obstruct
a criminal investigation. This example, and the statement in the
1972 advisory notes, are easy enough to understand when
obstruction is one of the criminal charges. 18 U.S.C. §§ 1501
et seq.; see, e.g., Technic Servs., 314 F.3d at 1045. But even in
such cases there may be difficulties. One problem is that
settlement evidence, like other evidence, may be introduced for
multiple purposes, some prohibited under Rule 408(a), some
permitted under Rule 408(b). See Old Chief v. United States,
519 U.S. 172, 187, 190 (1997). Another problem is whether the
“obstruction” illustration applies only to pending criminal
investigations or also to potential investigations. In Davis’s
case, for instance, there was no date identifying the beginning
of a criminal investigation and there was no evidence indicating
that Davis knew of any criminal investigation when he talked to
Hammock. There may be other difficulties in some cases. One
might suppose that if – as in this case – the same acts give rise
to potential civil and criminal liability, any settlement of the
civil dispute could forestall or influence potential criminal
proceedings. Yet to hold that offers of settlement and
negotiations in that context amount to obstruction would be
contrary to the purpose of Rule 408, see 23 C. WRIGHT & K.
GRAHAM, FEDERAL PRACTICE AND PROCEDURE: EVIDENCE
 16

§ 5313, at 278 (1980), and would contradict the notes of the
advisory committee in 2006.7

Davis was not charged with obstructing a criminal
investigation or attempting to do so. We can say with some
assurance that when he offered to split the difference on
$29,000, he was not trying to bribe Hammock. All indications
are that Davis was proposing to pay the money to the fraternity.
It may be that an offer of settlement, excessive in amount, could
be seen as an attempt to “buy off” a complaining party. But
Davis’s offer obviously was not of that sort, which is why
Hammock rejected it out of hand.

The most important consideration is that the government
did not introduce the Hammock-Davis conversation for the
purpose of “proving an effort to obstruct a criminal
investigation.” FED. R. EVID. 408(b). When asked at oral
argument whether this was the government’s purpose, counsel
for the government candidly admitted it was not. She
explained, as the prosecutor had argued to the jury, that the
conversation revealed Davis’s consciousness of guilt. But that
is one of the prohibited purposes in Rule 408(a). Consciousness
of guilt proves “liability” for a disputed claim under Rule
408(a).

We therefore hold that the district court abused its
discretion in permitting Hammock to testify regarding Davis’s
offer of settlement and the statements that followed. The
government did not argue that if the court erred, the error was
harmless. Although we have discretion to determine sua sponte
whether an error is harmless, see United States v. Pryce, 938

7
The notes state that if settlement offers and negotiations between
private parties were admissible, this would be contrary to the policy
of Rule 408 to avoid chilling such negotiations.
 17

F.2d 1343, 1347-48 (D.C. Cir. 1991), we decline to do so here.
Each side discussed the Hammock-Davis conversation in
closing argument. Whether Hammock’s testimony affected the
outcome is not sufficiently clear to warrant our determining
harmlessness sua sponte. See id. (citing United States v.
Giovannetti, 928 F.2d 225, 227 (7th Cir. 1991)). Accordingly,
we vacate the convictions and remand for further proceedings
consistent with this opinion.