To Pay or Not to Pay?
Compensation of Fact Witnesses
Tianna H. Raby
Public Policy Arguments
For Compensation
Against Compensation
• Value of witness’s time
• Civic duty
• Fairness to witness
• Incentive to perjure or color
testimony
• Subpoena power not
sufficient to obtain quality
testimony
• Appearance that justice can
be purchased
Governing Authority
▪ 18 U.S.C. Section 201 (Anti-Bribery Statute)
▪ ABA Model Rules of Professional Conduct
- Rule 3.4 Fairness to Opposing Party and Counsel
▪ State Rules of Professional Conduct
- Most states have adopted some form of ABA Model Rules
▪ Federal and State Case Law
Title 18 United States Code
Federal Anti-Bribery Statute
• 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.”
Title 18 United States Code
Federal Anti-Bribery Statute
• 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.
Title 18 United States Code
Federal Anti-Bribery Statute
• 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.
Model Rules
of Professional Conduct
Rule 3.4: FAIRNESS TO OPPOSING PARTY AND COUNSEL
A lawyer shall not:
...
b)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 RULES OF PROF’L CONDUCT R. 3.4 (2003).
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.
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).
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.
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.
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.
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.”
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.”
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.
It’s Your Civic Duty
•
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
•
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.
“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.’”
Common Law Since Hamilton
•
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
•
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
•
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.”
Consulting Agreements
Compensation 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.
Consulting Agreements
Compensation 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
Consulting Agreements
Compensation Allowed, But Not Incentives for Testimony
•
New York v. Solvent Chem. Co., 166 F.R.D. 284 (W.D.N.Y. 1996)
“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.”
–
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.
Consulting Agreements
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.”)




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
Guidelines for Compensation
Disclose 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.
Guidelines for Compensation
Pay 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
Guidelines for Compensation
Pay 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.”
Guidelines for Compensation
Make 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.
Guidelines for Compensation
Make 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.
Guidelines for Compensation
Make 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.
Consequences of Running Afoul
•
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
•
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).
Practice Pointers
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
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
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