In 1972, Martin Rauch (defendant) signed a contract with the Ramada Development Company (Ramada) (plaintiff), under which Ramada agreed to build a Ramada Inn Motor Hotel (motel) for Rauch. Rauch took occupancy of the motel in early 1974, but refused to pay the outstanding balance to Ramada. Rauch based his lack of payment on alleged defects in the construction of the motel. In 1974, Ramada commissioned a study (the Goldsmith Report) to investigate the defects that Rauch had alleged. Specifically, Ramada commissioned the Goldsmith Report in order to identify any defects in the construction so that Ramada could have informed settlement discussions with Rauch. Ramada brought suit against Rauch to recover the outstanding balance. At trial, Rauch sought to introduce the Goldsmith Report into evidence. The district court excluded the Goldsmith Report as a settlement offer inadmissible under Federal Rule of Evidence (FRE) 408. The district court found in favor of Ramada. Rauch appealed, arguing that there was no pretrial understanding between the parties that the Goldsmith Report was intended to be used in settlement negotiations.