## Facts

- Rauch contracted with Ramada to design, furnish, and construct a 160-unit Ramada Inn and restaurant in Venice, Florida, funded through progress payments disbursed by Rauch’s lender.
- By January 25, 1974, the project was considered “substantially complete” under the contract specifications, meaning sufficiently complete to permit occupancy.
- Rauch occupied most of the motel, rented rooms, and operated the restaurant; remaining items were identified as punch-list defects.
- Final payment was due upon substantial completion, but Rauch refused to make (and to endorse) the final payment check, citing dissatisfaction with the work.
- After Rauch raised complaints, Ramada commissioned an engineer (Goldsmith) to study alleged defects to inform settlement discussions.
- Ramada’s punch-list representative left the project on February 19, 1974, leaving completion to subcontractors as the payment dispute intensified.

## Issues

1. Whether an engineering report commissioned after a dispute arose to facilitate settlement discussions was inadmissible under Federal Rule of Evidence 408 when offered to prove construction defects.
2. Whether the evidence supported the jury’s finding that Ramada substantially performed and was entitled to the contract balance, subject to offsets for defects.
3. Whether asserted instructional and evidentiary errors warranted reversal.

## Decision

- The Fifth Circuit affirmed the judgment largely in Ramada’s favor.
- The court held the district court properly excluded the Goldsmith Report under Federal Rule of Evidence 408 as conduct or statements made during compromise negotiations.
- The court upheld the jury’s determination that Ramada substantially performed and could recover the contract balance, reduced by the setoff awarded to Rauch for proven defects.
- Other alleged trial errors were rejected as unpreserved or nonreversible.

## Legal Principles

- Federal Rule of Evidence 408 bars using conduct or statements made during compromise negotiations to prove or disprove the validity or amount of a disputed claim.
- Rule 408 may apply to investigative or expert materials generated in the course of settlement efforts when offered to establish liability or damages.
- In construction contracts, substantial performance permits recovery of the contract price less offsets for remaining defects; beneficial occupancy is strong evidence supporting substantial completion.
- Appellate review generally defers to a properly instructed jury’s fact findings where supported by record evidence.

## Conclusion

The court affirmed a substantial-performance verdict for the contractor and approved exclusion of a settlement-motivated engineering report under Rule 408, treating the report as part of compromise negotiations rather than admissible proof of defects.


Ramada Dev. Co. v. Rauch, 644 F.2d 1097 (5th Cir. 1981)