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

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

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

If the OLCC believes that a licensee has broken a rule, it issues a “billing document”. (See What To Do If You Receive an OLCC Notice of Proposed License Cancellation or Other “Billing Document.”) The debiting documents are similar to a civil or criminal complaint in which the OLCC sets out the key facts In his conclusion that one or more rules have been violated, the rules in question and the proposed sanction are listed.

If the licensee denies the charges, the licensee can request an administrative hearing, which is essentially a trial before an administrative judge. However, the rules of evidence and procedural rules for administrative hearings are different from normal civil litigation. (See here for rediscovery.) In general, the usual rules of evidence do not apply; instead, the admissibility of evidence is governed by a more liberal reliability standard.

One critical difference is that rule 408 of the Oregon Evidence Code does not clearly apply to OLCC administrative procedures.

What is rule 408?

Rule 408 provides two important safeguards for all civil litigators. First – Rule 408 states that evidence of conduct or statements in compromise negotiations are not permitted. In other words, a party in civil litigation cannot admit testimony at the trial or at any other hearing in the context of the settlement. Second – Rule 408 provides that proof of delivery or promise, consideration in compromising, or attempting to compromise, make or accept a dispute settlement is not allowed to prove liability. In simpler terms, one party cannot prove its case in court – that is, the other side is liable – by allowing settlement offers.

(The protection provided by rule 408 is limited, of course, but I won’t go into that here.)

Why is rule 408 important?

The importance of rule 408 in modern civil litigation cannot be underestimated. Almost every civil lawsuit ends in settlement, and to my knowledge every jurisdiction in the United States has adopted a version of Rule 408. One main reason is that, thanks to Rule 408, the parties and their lawyers can have open and frank discussions with their opponents without the risk that “anything they say can and will be used against them”. In fact, rule 408 was passed to encourage settlement, which would be discouraged if evidence of negotiations and offers were allowed.

The reality is that without rule 408, attorneys would not be able to conduct reasonable settlement negotiations. Virtually every open discussion about how to resolve a dispute begins with an attorney saying something along the lines of “This is a Rule 408 Notice.” In this way, attorneys and parties can freely discuss how the case can be resolved without fear of an offer of settlement or of statements made during settlement meetings coming back for prosecution in court.

What about the OLCC and rule 408?

As with civil litigation, almost all proceedings initiated with an OLCC settlement document are settled by settlement. However, the OLCC has (informally) taken the position that rule 408 does not apply. As a result, anything a licensee or his attorney tells the OLCC to resolve the proceeding can later be used by the OLCC against the licensee.

I think that is a terrible political position. This is because attorneys and licensees are strongly discouraged from having open and frank discussions with the OLCC about resolving an alleged rule violation. On the one hand, the OLCC claims to be looking for “willing partners” in the cannabis industry. On the other hand, the (informal) OLCC guideline sends a strong message that “everything you say can and will be used against you”.

Given this policy, it is certain that licensees will say very little or nothing when negotiating settlement with the OLCC. By refusing to treat settlement negotiations generally or in a specific matter as inadmissible, the OLCC has taken an incredibly controversial position with its licensees. And the OLCC encourages licensees to take a very controversial stance towards the OLCC when there is an alleged violation of the rules because a licensee cannot have an open and frank discussion.

Although the OLCC cannot unilaterally decide to accept rule 408, the OLCC can agree to treat settlement talks and compromise offers as confidential and inadmissible. The OLCC should do this.