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In the present case, we conclude that the
district court abused its discretion insofar
as it based its decision to exclude the IRS
settlement upon its conclusion that Rule 408
barred the evidence of the IRS settlement from
Manko's criminal trial. Despite Manko's
assertions to the contrary, however, we cannot
conclusively determine on this record that a
new trial is warranted. On remand, the
district court must first determine whether,
but for its misinterpretation of Rule 408, it
would have admitted the relevant evidence of
the settlement. In this regard, the district
court should consider whether it would have
admitted or excluded the evidence under Rule
403 of the Federal Rules of Evidence, taking
into account any need by the government to
explain how a settlement for less than the
full amount of the claim might be consistent
with its view that the defendant was
criminally responsible for the amount of the
fraud alleged in the criminal prosecution.
Thus, if the district court determines that
the government knew, or should have known, of
Kletnick's January 21, 1988 letter that
indicated the falsity of his testimony, the
suppression of the letter by the government
was constitutional error if there is a
"reasonable probability" that, had the letter
been disclosed to the defense, the result of
the proceedings would have been different.
Kyles v. Whitley, ___ U.S. ___, ___, 115 S.Ct.
1555, 1566, 131 L.Ed.2d 490 (1995); see
Wallach, 935 F.2d at 456. To this end, the
district court must ask whether "the
Government's evidentiary suppression
'undermines confidence in the outcome of the
trial.'" Kyles, ___ U.S. at ___, 115 S.Ct. at
1566 (quoting United States v. Bagley, 473
U.S. 667, 678, 105 S.Ct. 3375, 3381, 87
L.Ed.2d 481 (1985)). If, on the other hand,
the district court concludes that the
prosecution was unaware of the letter and its
failure to disclose it was inadvertent, a new
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