TBA Law Blog


Posted by: Craig Sanders & Brandon Stout on Jul 1, 2015

Journal Issue Date: Jul 2015

Journal Name: July 2015 - Vol. 51, No. 7

Some of the most important participants in lawsuits are fact witnesses. These participants usually have no stake in the outcome of the lawsuit, yet they may possess critical information that can be a determinative factor in whether a case is ultimately won or lost. From the fact witnesses’ perspective, however, participating in a lawsuit may not appear worthwhile regardless of their importance to either the plaintiff or defendant. Participation may take the fact witnesses away from their jobs or family, which can cost them income and valuable time. Therefore, fact witnesses sometimes request or demand payment for their participation in a lawsuit. What is a lawyer to do in this instance? In this article, we examine the ethics rules, case law and policy implications surrounding compensation of fact witnesses.

Can a Lawyer Pay a Fact Witness for Testifying?

Any analysis of this dilemma must start with the Tennessee Rules of Professional Conduct. Rule 3.4(h) specifically governs fact witness compensation. It permits a lawyer to “advance, guarantee, or acquiesce in the payment of: (1) expenses reasonably incurred by a witness in attending or testifying; [or] (2) reasonable compensation to a witness for that witness’s loss of time in attending or testifying.”[1] Accordingly, Rule 3.4(h) expressly provides that a lawyer may pay a fact witness for time spent testifying in a lawsuit and for expenses incurred.

The Tennessee Rules of Professional Conduct distinguish between payments to fact witnesses for time spent in a case versus payments for specific testimony. Rule 3.4(h) states that a lawyer cannot “pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent on the content of his or her testimony or the outcome of the case.”[2] Moreover, the Rule prohibits a lawyer from “offer[ing] an inducement to a witness that is prohibited by law.”[3] Payments contingent on the testimony of the witness or outcome of the lawsuit are prohibited, regardless of whether the witness provides truthful or untruthful testimony.

Beyond the text of Rule 3.4(h), there is limited guidance about compensation of fact witnesses in Tennessee. Comment 4 to Rule 3.4 provides that “it is not improper to pay a witness’s expenses … on terms permitted by law” and that “[t]he common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying.”[4] The comments do not further elaborate on the Rule. Additionally, the Tennessee Board of Professional Responsibility has not issued opinions specifically addressing the propriety of paying fact witnesses.

The ABA Model Rules of Professional Conduct, which are similar to the Tennessee Rules, provide some additional guidance. Model Rule 3.4(b) provides that a lawyer shall not “offer an inducement to a witness that is prohibited by law.”[5] As with the comments in the Tennessee Rules, Comment 3 to the ABA Model Rule explains that although “it is not improper to pay a witness’s expenses,” the “common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying.”[6] The ABA has construed Comment 3 as permitting fact witness compensation for lost time, because such is not considered the payment of a “fee for testifying.”[7]

Can a Lawyer Pay a Fact Witness for Preparation Time?

Given that the ethics rules permit payments to fact witnesses as long as the payments are not contingent on the witness’s testimony, the issue then focuses on the specific aspects of witness participation that are compensable. Rule 3.4(h) explicitly permits fact witness payments for “loss of time in attending or testifying.” Rule 3.4(h) does not expressly address paying fact witnesses for time spent participating in a lawsuit beyond “attending or testifying,” such as meeting with a lawyer or reviewing documents before a deposition or trial.

In 1996, the ABA Standing Committee on Ethics and Professional Responsibility issued guidance on fact witness compensation in its Formal Opinion 96-402.[8] The precise issue before the committee was whether it was proper under Model Rule 3.4 “for a lawyer to compensate a non-expert witness for the reasonable value of the time expended by the witness while preparing for or giving testimony at a deposition or trial.”[9] The committee found that such payments are proper:

A lawyer … may compensate a non-expert witness for time spent in attending a deposition or trial or in meeting with the lawyer preparatory to such testimony, provided that the payment is not conditioned on the content of the testimony … [or does not] violate the law of the jurisdiction.[10]

The committee reasoned that DR 7-109(c), the predecessor to Model Rule 3.4, expressly permitted “reasonable compensation to a witness for his loss of time in attending or testifying,”[11] such as Tennessee Rule 3.4(h) permits. The committee found that nothing in the present Rule’s history indicated the drafter’s intent “to negate this concept.”[12] The committee further found that there is no reason to distinguish between time spent actually testifying and time spent preparing to testify.[13] The majority of state bar associations that have considered this issue agree with the ABA that a lawyer may pay a fact witness for time spent both preparing to testify and testifying.[14]

Based upon the ABA Rules and available guidance, as well as the language of Tennessee Rule of Professional Conduct 3.4, it appears proper for a lawyer in Tennessee to compensate a fact witness for “time spent in reviewing and researching records that are germane to his or her testimony.”[15] The Tennessee Supreme Court has noted that the Tennessee Rules of Professional Responsibility were modeled after the ABA Rules.[16] Furthermore, it is nonsensical to think that payments to fact witnesses for their time in a deposition or trial should be permissible, but that payments to fact witnesses for their time preparing to attend or give such testimony are unethical or otherwise impermissible. Courts and litigants have an interest in not just presenting fact witnesses’ testimony, but having the fact witnesses fully prepared as well. Many cases may involve voluminous materials that a fact witness needs to review in order to present accurate and complete testimony. Payment for such review may be just as important to the witness, if not more so, as payment for actual time in a deposition or at trial.

Case law on the issue of compensating fact witnesses is scant. However, case law available further suggests that a lawyer may pay a fact witness for time spent preparing to testify in a case. The United States District Court for the Middle District of Tennessee briefly discussed the issue in Smith v. Pfizer and concluded that payments for preparation are permissible.[17] The plaintiff sought to exclude the testimony of a fact witness.[18] The plaintiff argued that the witness was an “expert witness,” because the defendant paid her for her time working on the case.[19] The defendant paid the witness a “consulting fee” of $500 per hour for time spent testifying, preparing for her deposition by reviewing documents, and preparing her affidavit.[20]

The court held that, “although these payments certainly affect [the witness’s] credibility, they do not render her an expert witness.”[21] The court then recognized 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.”[22] The court also noted that the ABA Model Rule “allows parties to pay witnesses for their ‘loss of hourly wages or professional fees.’”[23] Therefore, Smith stands for the proposition that payments to fact witnesses for their time spent preparing to testify are permissible. Other jurisdictions have also approved of this practice.[24]

How Much Can a Lawyer Pay a Fact Witness?

Given that the ethics rules and the case law allow fact witness compensation, the next issue is the amount of money a lawyer may properly pay a fact witness. The Tennessee Rules of Professional Responsibility do not clearly address this issue. As noted above, Rule 3.4(h) merely states that a lawyer may not pay a witness contingent upon the content of his or her testimony or the outcome of the case.[25] The ABA Standing Committee on Ethics and Professional Responsibility provided guidance in its Formal Opinion 96-402. The committee stated that the amount of compensation paid to a fact witness for time spent testifying or preparing to testify “must be reasonable, so as to avoid affecting, even unintentionally, the content of a witness’s testimony.”[26]

The committee further discussed the manner in which an attorney can determine “reasonable compensation.” Where a witness can demonstrate that he has “sustained a direct loss of income because of his time away from work — as, for example, loss of hourly wages or professional fees,” that loss of income is what the witness should be paid.[27] Therefore, with regard to an employed witness, a reasonable fee should be based on the witness’s normal hourly rate of pay.[28]

Determining compensation is more difficult when the fact witness is retired or unemployed. In this instance, the ABA Standing Committee on Ethics and Professional Responsibility stated that “the lawyer must determine the reasonable value of the witness’s time based on all relevant circumstances.”[29] Unfortunately, the ABA committee did not further explain payment rates for unemployed or retired witnesses, and there is little authority from other sources on this point. Ethics opinions are available from the Arizona Committee on the Rules of Professional Conduct and the California Committee on Professional Responsibility and Conduct. According to the Arizona committee, when a fact witness is unemployed, retired or self-employed, fact witness compensation may be based on what the witness last earned or determined by the “market value” of the testifying witness.[30] Similarly, the California Ethics Committee considers the following when determining whether a fact witness’s compensation is reasonable: “[T]he witness’[s] normal rate of pay if currently employed, what the witness last earned, if currently unemployed, or what others earn for comparable activity.”[31] These formulas ensure that a fact witness’s compensation is objectively reasonable and consistent with the ABA’s guidance.[32] Presumably, this payment structure would be reasonable to use in Tennessee.

Courts from other jurisdictions have approved of the practice of paying fact witnesses for their time preparing for and giving testimony at rates consistent with these formulas. For instance, in Consolidated Rail Corp. v. CSX Transportation Inc., the United States District Court for the Eastern District of Michigan concluded that a formal fact witness compensation agreement was ethical.[33] In the case, a former employee of one of the plaintiffs was an important fact witness.[34] After his retirement, the employee entered into a “consulting agreement” with his former employer to participate in the anticipated litigation and be compensated for his time.[35]

At the fact witness’s deposition, the defense lawyer asked him if he was being paid for his time.[36] The witness confirmed that he was, and the consulting arrangement was later revealed.[37] The defendant moved to exclude the witness’s testimony on the basis that he was “an improperly paid fact witness and charged an unreasonable rate of $125 per hour for his time providing factual testimony.”[38] The plaintiffs responded by arguing that they did not pay the fact witness for the substance of his testimony and that he was reasonably compensated for his expenses and lost time for reviewing documents, meeting with plaintiffs’ counsel, and attending his deposition.[39]

The court held that the payments were proper under Model Rule 3.4(b).[40] The court noted that public policy forbids fact witness compensation above the witness’s expenses and reasonable value of lost time.[41] The court ultimately denied a motion to exclude the fact witness from testifying at trial. However, the court allowed the defendant to inquire into the “consulting agreement” on cross-examination.[42]

Policy Implications

The practice of compensating fact witnesses for their time spent in a lawsuit raises numerous policy implications. Perhaps the most important policy implication supporting the practice is that it ensures that fact witnesses will be forthcoming with information and fully prepared to provide testimony. Discovering what a witness knows may be critical to finding the truth about what occurred and providing the trier of fact with a complete picture of the underlying events. The reality is that fact witnesses may be unwilling to come forward or divulge information if it will cost them money and time for which they are not compensated. Thus, the judicial system is best served by allowing this compensation, thereby ensuring that both sides of a dispute know all of the relevant facts. Like other participants in a trial, including lawyers, judges, and expert witnesses, a fact witness’s time is valuable.[43]

The primary policy implication against compensating fact witnesses regards concern that fact witnesses may be inclined to slant or fabricate their testimony to favor the party who is paying them.[44] Likewise, lawyers could be inclined to induce fact witnesses to slant their testimony. A secondary consideration is that the practice of compensating fact witnesses can increase the cost of litigation and create complications regarding the amount and extent of such payments.

Despite these concerns, courts, ethics committees and others who have addressed the topic generally believe they do not weigh in favor of prohibiting fact witness compensation. Lawyers pay expert witnesses for their time, and the concern that expert witnesses will slant their testimony in favor of one side has not prevented the practice of paying them. Additionally, paying expert witnesses increases the cost of litigation to both sides of a case. In many cases, this increased cost is substantial. Nonetheless, this cost is deemed acceptable, because of the critical role expert witnesses often play in litigation.

The better practice is that lawyers should be allowed to pay fact witnesses for their time spent in meeting with lawyers on a case and preparing to give testimony. This practice ensures that all facts will be accessible to the litigants, which is consistent with the broad policy favoring the discovery of relevant, non-privileged information embodied in the Tennessee Rules of Civil Procedure.[45] This practice is also consistent with pre-trial discovery’s goal of avoiding trial by ambush.[46] Moreover, lawyers are paid for their time spent gathering evidence and preparing to prosecute or defend their client’s case. Judges and expert witnesses are also compensated. We should not ask fact witnesses to participate in the process without compensating them for their time as well. Finally, this practice is fair to all litigants involved in a case, because all litigants have the same opportunity to seek out any fact witnesses.

Furthermore, effective procedural safeguards are available to ensure that lawyers do not abuse the practice of compensating fact witnesses or use the practice for impermissible purposes. For example, opposing counsel can cross-examine a fact witness, either at deposition or at trial, about the witness’s compensation, such as the lawyer did in the Smith case discussed above.[47] As noted in Smith, “these payments certainly affect [the fact witness’s] credibility,” and the lawyer will be able to make this argument to the jury.[48]

Additionally, trial courts and the Tennessee Board of Professional Responsibility can discipline lawyers if they pay fact witnesses for more than their lost time, such as the Florida Supreme Court did in The Florida Bar v. Wohl.[49] In that case, an attorney offered to pay a fact witness, who was a former employee of his client, a bonus of between $100,000 and $1 million depending on “the usefulness of” the witness’s testimony.[50] The compensation was unconnected to any salary the witness previously earned or was currently earning. In affirming the ruling that the payment was an inducement to the witness and not compensation for expenses or lost time, the court found that such agreements tempt “a witness to color his or her testimony,” which is what the relevant ethics rules seek to prevent.[51] The court found the attorney’s behavior to be “extremely serious misconduct” and affirmed a 90-day suspension from practice.[52] Tennessee courts can impose similar punishments and grant other remedies.[53]

Conclusion

Many fact witnesses are not motivated by any sort of civic duty to be forthcoming with information pertinent to a lawsuit and in preparing to give testimony. Instead, lawyers often have to incentivize fact witnesses to come forward and to be fully prepared. Lawyers in Tennessee may pay fact witnesses for their time spent “attending” and “testifying” in a lawsuit, which likely includes paying fact witnesses for their time spent preparing to attend or testify.

Payments to fact witnesses should be at or near their current hourly rate, assuming the witnesses are currently employed. When the fact witness is retired or unemployed, the rate of the witness’s compensation is more difficult to determine. In these instances, the lawyer will have to engage in an alternative analysis, such as that recommended by the Arizona Committee on the Rules of Professional Conduct and the California Committee on Professional Responsibility and Conduct.

The primary objective is to compensate fact witnesses at an objectively reasonable rate for their time expended in the case based upon their occupation, normal salary, and any other available information.

Notes

  1. Tenn. Rules of Prof’l Conduct R. 3.4(h)(1)-(2).
  2. Id. R. 3.4(h).
  3. Id.
  4. Id. cmt. 4.
  5. Model Rules of Prof’l Conduct R. 3.4(b).
  6. Id. cmt. 3.
  7. ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 96-402 (1996).
  8. Id. The Tennessee Board of Professional Responsibility also periodically issues formal ethics opinions, which are published on the Board’s website. Additionally, the Board often relies on guidance issued by the ABA in analyzing ethical inquiries under the Tennessee Rules of Professional Conduct. See, e.g., Tenn. Bd. of Prof’l Responsibility, Formal Op. 85-F-101 (1985) (relying on and incorporating ABA Comm. on Ethics & Prof’l Responsibility, Informal Op. 1375 (1976), into its ethical guidance).
  9. ABA Formal Op. 96-402, supra note 7.
  10. Id. Model Rule 3.4’s caveat that the fact witness payment “does not violate the law of the jurisdiction” appears to apply in two situations. First, a few jurisdictions prohibit fact witness compensation for time spent testifying or preparing to testify. See, e.g., Goldstein v. Exxon Research & Eng’g Co., No. Civ. 95–2410, 1997 WL 580599, at *4 (D.N.J. Feb. 28, 1997) (holding that a fact witness may not be compensated for his time and that such payments violate public policy). Second, Tennessee’s criminal bribery statute prohibits payments to fact witnesses to “[c]orruptly influence the testimony of the witness” or to induce the witness to avoid service of process or not attend a proceeding. See Tenn. Code Ann. § 39-16-107(a)(1). Similarly, the federal bribery statute prohibits payments to a fact witness “because of the testimony under oath given by such person.” 18 U.S.C. § 201(c)(2). If a lawyer’s payment to a fact witness is not dependent on the substance of the witness’s testimony or with the intent of making the witness absent, the bribery statutes are not violated.
  11. Model Code of Prof’l Responsibility DR 7-109(c).
  12. ABA Formal Op. 96-402, supra note 7.
  13. Id.
  14. See, e.g., Alaska Bar Ass’n, Ethics Op. 93-2 (1993); State Bar of Ariz., Ethics Op. 97-07 (1997); State Bar of Cal. Standing Comm. on Prof’l Responsibility & Conduct, Formal Op. 1997-149 (1997); Ill. State Bar Ass’n, Advisory Op. 87-5 (1988); Ky. Bar Ass’n, Ethics Op. E-400 (1997); Mass. State Bar Ass’n Comm. on Prof’l Ethics, Ethics Op. 1991-3 (1991); N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Op. 668 (1994); S.C. Bar Ethics Advisory Comm., Advisory Op. 97-42 (1997); Va. State Bar Ass’n Legal Ethics Comm., Legal Ethics Op. 587 (1984). Some state bar associations have thus far only found that it is proper to pay fact witnesses for expenses and lost time incurred in testifying, and they have not yet issued guidance on whether it is proper to pay for time spent preparing to testify. See Ala. State Bar Ass’n Ethics Comm., Ethics Op. 1997-02 (1997); Conn. Bar Ass’n Standing Comm. on Prof’l Ethics, Informal Op. 1992-30 (1992); State Bar of N.M. Ethics Advisory Comm., Advisory Op. 1984-1 (1984); Wis. State Bar Prof. Ethics Comm., Formal Op. E-89-17 (1989). Only a couple of jurisdictions currently allow an attorney to pay a fact witness for time spent testifying but not preparing to testify. See Pa. Bar Ass’n Legal Ethics & Prof’l Responsibility Comm., Informal Op. 95-126 (1996) (stating that it “cannot say with certainty that compensating a non-expert for preparation time is not without risk of disciplinary enforcement action” and that the Pennsylvania ethics rules “disfavor compensation to non-expert witness for the time invested in preparing for testimony”).
  15. ABA Formal Op. 96-402, supra note 7.
  16. Wright v. Wright, 337 S.W.3d 166, 178 (Tenn. 2011).
  17. 714 F. Supp. 2d 845, 852-53 (M.D. Tenn. 2010). The federal district courts in Tennessee have adopted the Tennessee Rules of Professional Conduct. Local Rule 83.4(g) of the United States District Court for the Western District of Tennessee states: “All attorneys practicing before the United States District Court for the Western District of Tennessee shall comply with these Local Rules [and] the Rules of Professional Conduct as then currently promulgated and amended by the Supreme Court of Tennessee ….” Local rules for the Middle and Eastern Districts contain similar language. See M.D.TN. LR 83.01(e)(4); E.D.TN. LR 83.6.
  18. Smith, 714 F. Supp. 2d at 851.
  19. Id. at 852-53.
  20. Id.
  21. Id. at 853.
  22. Id. (citing Prassad v. MML Investors Servs., No. 04 Civ. 380, 2004 WL 1151735, at *5 (S.D.N.Y. May 24, 2004)).
  23. Id. (quoting ABA Formal Op. 96-402, supra note 7).
  24. See, e.g., Consol. Rail Corp. v. CSX Transp. Inc., No. 09–cv–10179, 2012 WL 511572, at *13 (E.D. Mich. Feb. 16, 2012).
  25. Tenn. Rules of Prof’l Conduct R. 3.4(h).
  26. ABA Formal Op. 96-402, supra note 7.
  27. Id.
  28. Id.
  29. ABA Formal Op. 96-402, supra note 7.
  30. Ariz. Ethics Op. 97-07, supra note 14.
  31. Cal. Formal Op. 1997-149, supra note 14.
  32. See ABA Formal Op. 96-402, supra note 7.
  33. Consol. Rail Corp., 2012 WL 511572, at *13.
  34. Id. at *3.
  35. Id.
  36. Id. at *4.
  37. Id. at *5.
  38. Id. at *8
  39. Id.
  40. Id. at *10.
  41. Id. at *8.
  42. Id. at *13.
  43. Although both Tennessee and federal law provide for per-diem compensation for fact witnesses’ attendance at trial, the compensation is inadequate. See 28 U.S.C. § 1821(b) (providing for a $40 per day fee for a fact witness’s attendance at trial); Tenn. Code Ann. § 24-4-101(b) (providing for a $30 per day fee).
  44. See Goldstein, 1997 WL 580599, at *4 (basing its holding that a fact witness cannot be compensated for time spent preparing to testify on the court’s concern that such payments can tend to cause perjury).
  45. See Wright v. United Servs. Auto. Ass’n, 789 S.W.2d 911, 915 (Tenn. Ct. App. 1990) (“The discovery rules embody a broad policy favoring discovery of any relevant, non-privileged information ….”)
  46. See id. (“Pre-trial discovery is intended to bring out the facts prior to trial, thereby eliminating surprise and enabling the parties to decide what is at issue.”)
  47. 714 F. Supp. 2d at 852-53; see also Consol. Rail Corp., 2012 WL 511572, at *4 (permitting opposing counsel to cross-examine a fact witness at trial regarding his compensation).
  48. 714 F. Supp. 2d at 853.
  49. 842 So.2d 811, 816 (Fla. 2003).
  50. Id. at 813.
  51. Id. at 813, 815.
  52. Id. at 816.
  53. Courts have imposed other remedies for improper fact witness payments beyond disciplinary actions from state bar associations. For example, courts have excluded the fact witness. See Rocheux Int’l of N.J. v. U.S. Merchs. Fin. Grp. Inc., Civ. No. 06–6147, 2009 WL 3246837, at *5 (D.N.J. Oct. 5, 2009). Other courts have awarded attorney’s fees and costs to the opposing party. See New York v. Solvent Chem. Co. Inc., 166 F.R.D. 284, 292 (W.D.N.Y. 1996). One court even declared a mistrial. See United States v. Cinergy Corp., No. 1:99-cv-1693-LMJ-JMS, 2008 WL 7679914, at *14 (S.D. Ind. Dec. 18, 2008). Thus, there are a range of remedies available to the courts to punish unscrupulous lawyers who abuse the practice of fact witness compensation.

Craig P. Sanders CRAIG P. SANDERS is a partner at Rainey, Kizer, Reviere & Bell PLC in Jackson. He dedicates the bulk of his practice to the areas of medical malpractice and professional liability defense. Sanders has been named a Rising Star in the area of medical malpractice defense by Law & Politics Mid-South Super Lawyers magazine. He received his law degree magna cum laude from the University of Tennessee College of Law in 2002 where he was a member of the Tennessee Law Review and National Moot Court team.

 

Brandon Stout BRANDON J. STOUT is an associate at Rainey, Kizer, Reviere & Bell PLC. He obtained his law degree summa cum laude from the University of Memphis, Cecil C. Humphreys School of Law in 2014. While in law school, he served on the Editorial Board of The University of Memphis Law Review as an articles editor and was a member of the ABA National Appellate Advocacy Moot Court Team and the Wagner Labor & Employment Law Moot Court Team.