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To Pay or Not to Pay? Compensation of Fact Witnesses

To Pay or Not to Pay? Compensation of Fact Witnesses. Tianna H. Raby. Public Policy Arguments. For Compensation . Against Compensation. Civic duty Incentive to perjure or color testimony Appearance that justice can be purchased. Value of witness ’ s time Fairness to witness

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To Pay or Not to Pay? Compensation of Fact Witnesses

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  1. To Pay or Not to Pay?Compensation of Fact Witnesses Tianna H. Raby

  2. Public Policy Arguments For Compensation Against Compensation Civic duty Incentive to perjure or color testimony Appearance that justice can be purchased • Value of witness’s time • Fairness to witness • Subpoena power not sufficient to obtain quality testimony

  3. Governing Authority

  4. Federal Anti-Bribery Statute Title 18 United States Code • 18 U.S.C. § 201(b)(3)it is a crime to “corruptly” give, offer, or promise “anything of value” to a person to influence the testimony of that person in a “trial, hearing, or other proceeding.”

  5. Federal Anti-Bribery Statute Title 18 United States Code • 18 U.S.C. § 201(c)(2) provides that “whoever” • (2) directly or indirectly, gives, offers, or promises anything of value to any person, for or because of the testimony under oath or affirmation given or to be given by such person as a witness upon a trial, hearing, or other proceeding, before any court, … authorized by the laws of the United States to hear evidence or take testimony, or for or because of such person’s absence therefrom; … shall be fined under this title or imprisoned for not more than two years, or both.

  6. Federal Anti-Bribery Statute Title 18 United States Code • 18 U.S.C. § 201(d) has exceptions for payment of witness fees “provided by law,” or payment of the reasonable expenses or the reasonable value of time lost by a witness. It provides in full: • (d) Paragraphs (3) and (4) of subsection (b) and paragraphs (2) and (3) of subsection (c) shall not be construed to prohibit the payment or receipt of witness fees provided by law, or the payment, by the party upon whose behalf a witness is called and receipt by a witness, of the reasonable cost of travel and subsistence incurred and the reasonable value of time lost in attendance at any such trial, hearing, or proceeding, or in the case of expert witnesses, a reasonable fee for time spent in the preparation of such opinion, and in appearing and testifying.

  7. Model Rules of Professional Conduct Rule 3.4: FAIRNESS TO OPPOSING PARTY AND COUNSEL A lawyer shall not: . . . falsify evidence, counsel or assist a witness to testify falsely or offer an inducement to a witness that is prohibited by law; . . . Comment . . . [3] With regard to paragraph (b), it is not improper to pay a witness’s expenses or to compensate an expert witness on terms permitted by law. The common law rule in most jurisdictions is that it is improper to pay an occurrence any fee for testifying and this it is improper to pay an expert witness a contingent fee. MODEL RULESOF PROF’L CONDUCT R. 3.4 (2003).

  8. Model Rules of Professional Conduct • In a 1996 opinion, the ABA concluded that Model Rule 3.4(b) permits a lawyer to “compensate a non-expert witness for time spent in attending a deposition or trial or in meeting with the lawyer preparatory to such testimony,” and for travel and lodging expenses.

  9. Model Rules of Professional Conduct • ABA issued the following caveats: • If the law of the jurisdiction of the lawyer forbids or restricts payment to occurrence witnesses, a lawyer must comply with that law. • The lawyer must make it “clear to the witness that the payment is not being made for the substance or efficacy of the witness’s testimony, and is being made solely for the purpose of compensating the witness for the time the witness has lost in order to give testimony in litigation in which the witness is not a party[.]” • The amount of any compensation “must be reasonable, so as to avoid affecting, even unintentionally, the content of a witness’s testimony. ABA Standing Comm. on Ethics and Professional Responsibility, Formal Op. 96-402 (1996).

  10. States that Follow ABA Interpretation of Model Rule 3.4 • California Ethics Opinion No. 2997-149 • Appropriate to compensate a witness for preparation for or testifying at deposition or trial, as long as the compensation is reasonable, does not violate applicable law, and is not contingent on testimony or outcome of the case. Applies whether witness is employed, unemployed, retired or suspended.

  11. States that Follow ABA Interpretation of Model Rule 3.4 • Massachusetts Ethics Opinion 1991-3 • Noted that the former employee had to spend a fair amount of time reviewing documents and generally refreshing his recollection of the events involved in the case for his testimony to have any value. Determined that in the specific factual circumstances presented, there was nothing improper about compensating the former employee.

  12. States that Follow ABA Interpretation of Model Rule 3.4 • New York Ethics Opinion 714 • Like other witnesses, lawyers may receive reasonable compensation for time spent preparing and testifying as a witness. Reasonable, and therefore permissible, for the lawyer to receive an amount equal to the lawyer’s customary hourly fee.

  13. States that Interpret 3.4 to Disfavor Payment of Witnesses • Alabama State Bar Ethics Opinion 81-549. • In the case of a hybrid witness, urged the attorney to exercise caution not to pay the expert “more than his usual and customary fee or pay him for more time than he actually expended in preparing and providing his expert testimony, since any excess or unusual fee could be construed as payment for his testimony as a fact witness.”

  14. States that Interpret 3.4 to Disfavor Payment of Witnesses • Pennsylvania Bar Association Ethics Opinion 95-126. • Although not expressly prohibited by Rule 3.4 or PA Witness Compensation Statute, interpreted both to “disfavor compensation to non-expert witness for the time invested in preparing for testimony.” Further stated that “cannot say with certainty that compensating a non-expert for preparation time is not without risk of disciplinary enforcement action.”

  15. States that Interpret 3.4 to Disfavor Payment of Witnesses • Maryland State Bar Association Ethics Opinion 83-38. • [A]ny agreement by the attorney to pay the “informant” for his testimony as a witness would be unethical, unless limited to reimbursement for expenses and financial loss incident to his being a witness.

  16. Historically, at common law, there was uniform acceptance of the notion that fact witnesses could not be compensated in any manner. Hamilton v. Gen. Motors Corp., 490 F.2d 223 (7th Cir. 1973). It’s Your Civic Duty

  17. Hamilton, a pioneer in the development of the diesel locomotive industry, was a retired GM executive. When the U.S. lodged antitrust claims against GM, Hamilton came out of retirement and for approximately 10 years assisted GM in defense against the claims. During this time, he only received his retirement benefits. Following his death, after learning that he had not been compensated for his services, his widow and daughter sought to obtain payment for Hamilton’s services. The 7th Circuit affirmed the Illinois District court’s ruling found that Hamilton was not due compensation for his services. It’s Your Civic Duty “Although Hamilton may have been one of the foremost experts in regard to some of the matters to which he had first-hand knowledge and although he may have devoted as much if not more time than an ordinary expert witness would have spent in the preparation of his anticipated testimony, the fact was that he was testifying to matters of his own personal knowledge” and “strong public policy considerations” dictate that the only amounts that can be paid to a fact witness are those fore “‘reasonable cost of travel and subsistence incurred and the reasonable value of time lost in attendance.’”

  18. Rocheux Int’l of New Jersey, Inc., v. U.S. Merchants Fin. Group, Inc., et al., 2009 WL 3246837 (D.N.J. October 5, 2009). The court found that the compensation paid by the plaintiff to defendant's former employee was unreasonable and excluded the former employee’s testimony. Additionally, the court sanctioned plaintiff by requiring it to reimburse defendants for the attorney’s fees and costs they incurred as a result of the misconduct. Common Law Since Hamilton

  19. Golden Door Jewelry Creations, Inc., v. Lloyds Underwriters Non-Marine Ass’n., 865 F.Supp. 1516 (S.D. Fla. 1994); The court found that payments of over $700,000 to two fact witnesses were “egregious” and violated Fla. Rule of Professional Conduct 3.4. The court sanctioned defendant by precluding the use of all evidence “tainted by the ethical violation.” Common Law Since Hamilton

  20. Smith v. Pfizer, 714 F.Supp.2d 845 (M.D. Tenn. 2010). The court allowed the testimony of a fact witness that had been paid, by the defendant, her usual consulting fee of $500 an hour. The court held that “[i]t is not necessarily improper for a party to pay a fact witness if the money compensates the witness, at his or her professional rate, for lost time.” Common Law Since Hamilton

  21. Consulting AgreementsCompensation Beyond Travel and Incentives Not Allowed • U.S. v. Cinergy Corp., 2008 WL 7679914 (S.D. Ind. Dec. 18, 2008)– U.S. alleged that Cinergy committed 14 violations of the Clean Air Act. At close of the liability phase, Cinergy was found not liable for 10 of the alleged violations. However, because of Cinergy’s compensation of one fact witness, Robert Batdorf, the verdicts were thrown out and the court ordered a new trial. • Batdorf, a former employee, had retired three years prior to trial. Cinergy executed a consulting agreement with Batdorf as an independent contractor prior to trial. He was paid $200/hour in exchange for “live testimony.” During the remedy phase, U.S. learned of the consulting agreement.

  22. Consulting AgreementsCompensation Beyond Travel and Incentives Not Allowed • U.S. v. Cinergy Corp., continued. • Court’s reasoning in ordering new trial • Cinergy relied on theme of the credibility of paid vs. unpaid witnesses • Cinergy did not reveal the consulting agreement during the liability phase. When Batdorf testified that he was not an employee, Cinergy did not correct this inaccuracy • Cinergy’s compensation was improper. • Strict and literal interpretation of 18 U.S.C. § 201 (d) and Rule 3.4(b) of Indiana Rules of Professional Conduct. Although rules “allow for compensation of fact witnesses, never contemplated the hiring of a consultant …to provide advice and live testimony.” • Found the $200/hour rate to be unreasonable considering that as employee, his rate of pay was $88/hour

  23. New York v. Solvent Chem. Co., 166 F.R.D. 284 (W.D.N.Y. 1996) Consulting Agreements • “Of course, the court finds nothing improper in the reimbursement of expenses incurred by Mr. Beau in travelling to New York to provide …factual information, or in the payment of a reasonable hourly fee for Mr. Beu’s time. But in providing …protection from liability in [previous ongoing litigation between the corporation and Mr. Beu], and in this action, as a means of obtaining his cooperation as a fact witness, [defendant] went too far.” Compensation Allowed, But Not Incentives for Testimony • The court ordered production of the agreement so that it could be used for impeachment purposes and ordered costs to plaintiff to depose witness again.

  24. Goldstein v. Exxon Research & Eng’g. Co., 1997 WL 580599 (D.N.J. Feb. 28, 1997)(corporate defendant could not pay a retired employee for “time spent preparing to testify for facts within his personal knowledge.”) Consulting Agreements • Assume the agreement will be produced in discovery • Execute prior to, or as early as possible in litigation (work product/privilege considerations) • Make terms clear reasonable payment for time and expenses NOT testimony • Should not contain any incentives that could arguably be an inducement to perjure

  25. Guidelines for CompensationDisclose Payment • U.S. v. Cinergy Corp., 2008 WL 7679914 (S.D. Ind. Dec. 18, 2008) • The payment of defendant’s witness was not disclosed during the discovery phase. Rather, it was only during the remedy phase that the court and opposing counsel was made aware of the payments to defendant’s fact witness. • The court looked at the failure to disclose with suspicion. • The court granted the plaintiff’s motion for a new trial partially based on defendant’s failure to disclose.

  26. Guidelines for CompensationPay for Time, Not Testimony • New York v. Solvent Chem. Co., 166 FRD 284 (W.D.N.Y. 1996) • The payment of a sum of money to a witness to testify in a particular way; the payment of money to prevent a witness’ attendance at a trial; the payment of money to a witness to make him “sympathetic” with [sic] the party expecting to call him; these are all payments which are absolutely indefensible and which are really included in the general definition of subornation of perjury

  27. Guidelines for CompensationPay for Time, Not Testimony • Golden Door Jewelry Creations, Inc. v. Lloyds Underwriters Non-Marine Assoc., 865 F. Supp. 1516 (S.D. Fla. 1994) • “Quite simply, a witness has a solemn and fundamental duty to tell the truth. He or she should not be paid a fee for doing so…payments made to fact witnesses ‘as actual expenses as permitted by law will not be disturbed..[t]he [c]ourt’s opinion today pertains only to payments made to fact witnesses for the purpose of obtaining their testimony in a case.”

  28. Guidelines for CompensationMake only “Reasonable” Payments • California Ethics Opinions 1997-149 • Suggests some objective ways of determining whether payments are reasonable: (1) the witness’ current rate of pay if currently employed; (2) what the witness last earned if not currently employed; and (3) what others earn for comparable activity.

  29. Guidelines for CompensationMake only “Reasonable” Payments • U.S. v. Cinergy Corp., 2008 WL 7679914 (S.D. Ind. Dec. 18, 2008) • The court found that witness’s hourly rate of $200/hr was unreasonable considering the fact that his salary at retirement three years earlier was only $88/hr.

  30. Guidelines for CompensationMake only “Reasonable” Payments • Centennial Mgmt. Serv. Inc. v. AXA Re Vie, 193 F.R.D. 671 (D. Kan. 2000) • Payment of nearly $70,000 (sum of hourly rates ranging from $125 to $200) was not unreasonably high or disproportionate to time spent, given fact witness’s experience in insurance industry, first hand knowledge of issues, and the complex nature of the case.

  31. Disciplinary action from state bar • Florida Bar v. Wohl, 842 So. 2d 811 (Fla. 2003). • Rocheux International of New Jersey, Inc., v. U.S. Merchants Financial Group, Inc., et al. (October 5, 2009). • Attorney’s fees and costs awarded to opposing party • New York v. Solvent Chem. Co., 166 FRD 284 (W.D.N.Y. 1996). Consequences of Running Afoul

  32. Mistrial • U.S. v. Cinergy Corp., 2008 WL 7679914 (S.D. Ind. Dec. 18, 2008) . • Exclusion of testimony • Rocheux Int’l of New Jersey, Inc., v. U.S. Merchants Fin. Group, Inc., et al., 2009 WL 3246837 (D.N.J. October 5, 2009). • Golden Door Jewelry Creations, Inc. v. Lloyds Underwriters Non-Marine Assoc., 865 F. Supp. 1516 (S.D. 1994) aff’d in pertinent part 117 F.3d 1328 (11th Cir. 1997). Consequences of Running Afoul

  33. Avoid pitfalls associated with the compensation of fact witnesses: • Determine the law in the jurisdiction in which the litigation is pending • ABA Formal Op. 96-402 provides that “a lawyer …may compensate a non-expert witness for time spent” in preparing and testifying “provided the payment does not violate the law of jurisdiction.” Practice Pointers

  34. Avoid pitfalls associated with the compensation of fact witnesses: • Do not use compensation to influence the testimony of the witness • Contingency fees are forbidden • No payments to opposing party’s witnesses Practice Pointers

  35. Avoid pitfalls associated with the compensation of fact witnesses: • Payments must be • Disclosed (the lawyer and the witness must be candid) • Reasonable • For time, not testimony Practice Pointers

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