FACTS[1]

The inquiring attorney represents a corporate defendant (the “Corporation”) in a civil lawsuit.  A former employee of the Corporation may be a fact/occurrence witness for the Corporation in the lawsuit.

QUESTIONS PRESENTED

1.         May a lawyer who represents a defendant corporate client compensate a former employee of the corporation for time spent by the former employee in preparing for and/or testifying at a deposition or trial, where the former employee is a fact/occurrence witness?

2.         If a lawyer may so compensate the former employee, what is a reasonable compensation where the former employee is self-employed and operates his/her own business and is not compensated on an hourly basis?

RELEVANT ETHICS RULES

ER 3.4   Fairness to Opposing Party and Counsel

A lawyer shall not:

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(b)       falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law;

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The comment to ER 3.4(b):

With regard to paragraph (b), it is not improper to pay a witness’ 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 witness any fee for testifying and     that it is improper to pay an expert witness a contingent fee.

ER 1.8   Conflict of Interest:  Prohibited Transactions

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(e)       A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:

(1)       a lawyer may advance court costs and expenses of litigation, provided the client remains ultimately liable for such costs and expenses; and

(2)       a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.

OPINION

There are three levels of inquiry in this matter.  First, whether a fact/occurrence witness, as distinguished from an expert, may be paid a reasonable fee for preparing for and testifying in a deposition or trial.   Second, if so, may the lawyer pay the fee, as distinguished from the client paying the fee?  Finally, what is a reasonable fee when the witness is self-employed and is not paid on an hourly basis?  A discussion of each inquiry follows:

1.         May a fact/occurrence witness be compensated for time spent preparing for and testifying at trial or deposition?[2]

ER 3.4(b) provides that a lawyer may not offer an inducement to a witness that is prohibited by law. The comment provides that although it is permissible to pay the expenses of a fact witness, “[t]he common law rule in most jurisdictions is that it improper to pay an occurrence witness any fee for testifying. . . .”  The Preamble to the Rules of Professional Conduct explains that “[c]omments do not add obligations to the rules but provide guidance for practicing in compliance with these rules.”  The question under ER 3.4(b), therefore, is whether Arizona law prohibits the payment of fees to non-expert witnesses, which makes it in part a legal question.  Although legal questions are beyond the scope of the jurisdiction of this Committee, this question will be analyzed to aid compliance with ER 3.4(b).

Arizona has no statutory or case law prohibiting reasonable payment to fact/occurrence witnesses in civil cases.[3]  The American Bar Association recently published a thorough opinion regarding this issue.  ABA Formal Op. 96-402.  The ABA Committee concluded that Model Rule 3.4(b) does not prohibit the payment of fees to fact witnesses, as long as they are not based on the outcome of the litigation or prohibited by the law of the jurisdiction.  The ABA cited an opinion of the Pennsylvania Bar Association Committee on Legal Ethics, which concluded that the payment of fees to fact witnesses is disfavored.  The ABA, however, found Pennsylvania’s reading of Model Rule 3.4(b) too narrow, and instead reasoned:

            [a]s long as it is made clear to the witness that the payment is not being

            made for the substance or efficacy of the witness’ 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 Committee is of the view that such payments do not violate

            the Model Rules.

At least three other jurisdictions, California, New York and Illinois, have issued formal opinions consistent with that of the ABA.  The California Rules of Professional Conduct differ from those of Arizona.  See Rule 5-310(B) of the California Rules of Professional Conduct.  The applicable rule expressly allows for the payment of “[r]easonable compensation to a witness for loss of time in attending or testifying.”  Id.  The rule, however, neither expressly prohibits nor expressly allows compensation for time spent in preparation for testimony.  The California Committee found that “reasonable compensation for preparation time, the amount and nature of which is discoverable and admissible at trial, seems no more objectionable in principle than expert witness fees.”  CA Eth. Op. 1997-149.

Formal ethics opinions from New York in 1982 and 1994 addressed the question under the language of DR 7-109, which permits a lawyer to pay “[r]easonable compensation to a [non expert] witness for his loss of time in attending or testifying.”  NY Ethic. Op. 547 (1982); NY Eth. Op. 668 (1994).  The New York Committee in both opinions cited the purpose of the DR to include the prevention of perjury or falsely colored testimony in return for fees.  The 1982 opinion reasoned the rules should be read broadly to allow payment “for loss of time in testifying or in otherwise attending court proceedings and preparing therefor.”  The 1994 opinion frames the issue clearly in stating “[w]e must attempt to draw the line between compensation that enhances the truth seeking process by easing the burden of testifying witnesses, and compensation that serves to hinder the truth seeking process because it tends to ‘influence’ witnesses to ‘remember’ things in a way favorable to the side paying them.”

Illinois Ethics Opinion 87-05, issued in 1988, addressed this issue and was affirmed by the Illinois Board of Governors.  Like New York, the Illinois Committee analyzed the issue under

DR -109(c) and concluded that a fact witness could be reimbursed for time spent being interviewed.

Read literally, nothing in ER 3.4(b) prohibits the payment of reasonable fees to fact witnesses.  Such fees are not otherwise prohibited by state law.  The Committee is persuaded by the reasoning of the ABA Opinion and the opinions from the other jurisdictions discussed above, and believes that a reasonable fee may be paid to a fact witness for time spent preparing for testimony, being interviewed and/or testifying at deposition or trial.  The Committee will not opine on what figure would represent a reasonable compensation.  This is a question of fact that may vary from situation to situation and it is the attorney’s duty to evaluate the reasonableness of any fee, keeping in mind that a fee that is unreasonably high will tend to appear as an illegal and unethical inducement to color testimony.[4]  The fee may not be contingent upon the outcome of the litigation.[5]  The lawyer would do well to instruct the witness to not allow the fee to color or influence testimony in any way and to memorialize their fee agreement in writing.

2.         May a lawyer advance the payment of the fee for a fact/occurrence witness?

Arizona’s version of ER 1.8 differs from the Model Rules.  Arizona’s version requires a client to be ultimately responsible for costs and expenses of litigation that are advanced by a lawyer.  Thus, to the extent a fact witness is paid a feel as described above, and that fee is advanced by the lawyer, the client must remain ultimately responsible for the fee, unless the client is indigent.  See ER 1.8(e).

3.  What is a reasonable fee for a self-employed fact/occurrence witness?

The ABA opinion discussed above explains that compensation to a fact witness must be reasonable and the determination of reasonableness is left to the lawyer.  ABA Formal Op. 96-402.  For a witness who lost time away from employment, such fee may be based upon the witness’ normal hourly rate.  Id.  For the unemployed, retired or self-employed witness, however, the determination is more difficult, but still must be determined by the lawyer.  Id.

The California ethics opinion lends some guidance on this matter and suggests that for an unemployed or self-employed individual, a gauge for a reasonable fee may be what the person last earned or what others earn for comparable activity.  As the California Committee explained:

            Problems may arise when the witness is self-employed or is compensated on a

            commission basis, or when weekends and night-hours are devoted to

            preparation, and in that event, closer consideration should be given to the

            matter of assessing the amount to be paid.  But even recreation time is

            susceptible to valuation.  Attorneys are frequently called upon to elicit proof

            of unliquidated damages, and should not feel at a loss in coping with the

            vagaries of the situation.  CA Eth. Op. 1997-149.

The New York ethics opinion provides:

            The amount of compensation that is to be considered ‘reasonable’ will be

            determined by the market value of the testifying witness.  For example, if in

            the ordinary course of the individual’s profession or business, he or she could

            expect to be paid the equivalent of $150/hour, he or she may be reimbursed

            at such rate.  NY Eth. Op. 668 (1994).

This Committee finds the above guidelines useful.  The precise determination of a reasonable fee for a fact witness must be determined on a case-by-case basis by the lawyer, aided by the above guidelines.  As stated above, however, the attorney must remain mindful that a fee that is too high will tend to appear as an improper, unethical inducement.  See footnote 4, supra.  An attorney should also keep in mind that payment of a fee may appear unreasonable if the fee is so high that the witness is “better off” than she would have been if she spent the time otherwise earning an income rather than testifying or preparing to testify.

CONCLUSION

The Committee believes that payment of a reasonable fee to a fact witness for time spent preparing for testimony or being interviewed, whether for deposition or trial, is not prohibited by ER 3.4, as long as the compensation is reasonable and is not based upon the outcome of the litigation.  The determination of what constitutes a reasonable fee must be determined on a case-by-case basis, keeping in mind that it is unethical and illegal to offer a benefit to influence the testimony of any witness.  If the fee is advanced by the lawyer, the client must remain ultimately responsible for the fee.