## Facts

- A patient sued a physician and other medical defendants for malpractice, seeking $2 million in damages in federal court.
- Before trial, the claims against the hospital were discontinued; the remaining non-appellant defendants were discontinued on the first day of trial.
- At a pretrial conference about three weeks before trial, the judge directed counsel to pursue settlement and stated the case should settle for $20,000–$30,000.
- The judge warned that if the case settled for a comparable amount after trial began, he would sanction the “dilatory” party.
- The day before trial, the physician offered $5,000; the plaintiff rejected it.
- Plaintiff’s counsel privately told the judge the plaintiff would settle for $20,000 but asked that figure not be disclosed to the defense; the lowest demand communicated to the physician before trial was $50,000.
- After one day of trial, the parties settled for $20,000.
- The district court imposed monetary sanctions only on the physician, ordering payments to plaintiff’s counsel, a medical witness, and the clerk, stating the intent was to “get the attention” of the malpractice carrier.
- The physician appealed the sanctions order.

## Issues

1. Whether Rule 16(f) permits a court to sanction a party for failing to settle pretrial on terms suggested by the judge, when the case later settles during trial for a similar amount.
2. Whether using threatened or imposed sanctions tied to settlement timing or amount constitutes improper judicial coercion and an abuse of discretion.

## Decision

- The court of appeals vacated the sanctions order and remanded with directions to set it aside.
- Rule 16(f) sanctions were held unavailable as a device to penalize a party for not accepting the judge’s settlement valuation or for settling after trial begins.
- The court held that the district judge abused discretion by employing sanctions to pressure settlement and then imposing them when the settlement occurred within the judge’s predicted range.
- The court noted that parties may reassess litigation risk after trial starts and are not sanctionable for changing settlement positions based on developments at trial.

## Legal Principles

- Rule 16 authorizes case-management measures and sanctions for noncompliance with pretrial orders (e.g., failure to appear or participate as required), not for refusing a judge’s preferred settlement terms.
- Courts may encourage settlement and facilitate negotiations, but may not coerce settlement through threats or imposition of sanctions.
- Settlements must remain voluntary; judicial actions that effectively punish a party for declining to settle earlier or for rejecting a judge’s valuation exceed permissible judicial authority.
- A party’s decision to alter its settlement posture after trial begins is not, by itself, misconduct warranting sanctions.

## Conclusion

The court of appeals set aside sanctions imposed under Rule 16(f) because they functioned as coercive pressure to force settlement on the judge’s terms; judicial encouragement of settlement is permitted, but sanctions cannot be used to compel or punish settlement decisions.


Kothe v. Smith, 771 F.2d 667 (2d Cir. 1985)