Inside and outside lawyers representing companies in litigation or investigations will be familiar with the problem of a former employee or other fact witness who, following receipt of a deposition or trial subpoena or a less formal request to make himself/herself available, asks to be compensated. For most litigators, the usual and visceral response is “no,” out of concern about both the legality of such compensation and the strategic implications for the case and the witness’ credibility. Indeed, in our experience, compensating fact witnesses for their time is a highly unusual if not almost unheard of occurrence.
That said, for the rare and exceptional situation when the only way to secure the cooperation and/or testimony of an important fact witness may be to compensate him or her, it is important to understand that, while lawyers must proceed with great caution and care, the applicable legal and ethical rules in New York and in many (but not all) other jurisdictions do afford litigants some latitude to reasonably compensate nonparty fact witnesses for time spent preparing to testify, assisting counsel, and/or testifying, and for related expenses.
After briefly reviewing the basic legal and ethical framework applicable to New York lawyers in particular,1 we set out a list of rudimentary “dos” and “don’ts” that we hope will assist counsel when faced with the difficult question of whether and when it is proper and/or strategically wise to agree to such compensation. Our discussion focuses on deposition and trial witnesses but applies equally in the context of investigations, informal interviews, and other instances in which a non-party testifying witness might be asked to assist counsel in connection with litigation or potential litigation.
We start with federal and New York procedural rules, which set a compensation floor—but not a ceiling—by requiring that a witness subpoenaed to testify receive a nominal per diem fee ($40 per day in the federal system, $15 per day in the state system) plus reimbursement for travel costs.2 Because this statutorily mandated payment is only for the witness’ attendance all the witness must do is show up. The witness need not familiarize himself/herself with the case, review emails or other documents, nor take other preparatory steps typically necessary to provide meaningful, useful, and accurate testimony. Which brings us to the crux of the issue: If counsel wants the witness to do more than appear, the witness may want to receive additional compensation in turn.
For the attorney considering whether his or her client should agree to any such additional compensation, there are two essential guideposts. The first is the federal anti-gratuity statute, 18 U.S.C. §201, which criminalizes both the payment and receipt of anything of value for, because of, or to influence a witness’ sworn testimony. But that law also makes clear that it does not prohibit the payment or receipt of (1) witness fees; (2) “the reasonable cost of travel and subsistence incurred”; or (3) “the reasonable value of time lost in attendance at any … trial, hearing, or proceeding.”3 The second set of guideposts are local ethical rules, which, for New York lawyers, means looking principally to Rule of Professional Conduct 3.4(b). While Rule 3.4 similarly prohibits compensation to a witness “contingent upon the content of the witness’s testimony or the outcome of the matter,” it too authorizes attorneys to “advance, guarantee or acquiesce in the payment of reasonable compensation to a witness for the loss of time in attending, testifying, preparing to testify or otherwise assisting counsel, and reasonable related expenses.”4 From these basic guideposts, as applied by the courts and interpreted in ethics opinions, the following set of dos and don’ts emerge.
1. For corporate counsel, DO try to avoid the issue proactively by inserting into employment and/or severance agreements cooperation clauses that require an employee to make himself/herself available for interviews and testimony and cooperate in any investigation, administrative, regulatory, or judicial proceeding. Such contractual provisions, supported by the consideration of continued employment or a severance payment, may avoid the problem entirely, at least for those who work or once worked for the company.
2. DO make sure, if you agree to compensate a witness for his or her time, that any such compensation is reasonable. The line between reasonable and unreasonable compensation can mean the difference between whether the compensation is lawful or criminal. Use of a witness’ standard hourly rate or the equivalent of lost wages based on a current or most recent job are likely to be considered reasonable.5 If the witness is unemployed or otherwise has no obvious benchmark rate of compensation, counsel must “determine the reasonable value of the witness’ time based on all relevant circumstances.”6 As to travel, lodging, and meal costs, avoid the obvious red flags—first class tickets, five-star hotels, extended stays, or super-fancy restaurants.7
Courts have found hourly rates of $125-$200 reasonable for former employees turned freelance workers,8 retired former employees,9 and self-employed consultants.10 In contrast, the New York Court of Appeals recently held that paying a surgeon $10,000 for one afternoon of non-expert testimony (in which he simply recounted what a patient said to him) was close enough to “exorbitant” that the trial judge erred in not giving an instruction that while “fact witnesses may be compensated for their lost time,” the jury should assess the witness’ credibility by considering “whether the compensation was disproportionately more than what was reasonable for the loss of the witness’s time from work or business.”11
3. DON’T—under any circumstances—make such payment contingent on the content, favorability, or outcome of the testimony. This is strictly prohibited under both the anti-gratuity statute and the professional conduct rules cited above.12
4. DO know that ethics opinions have confirmed the propriety of reimbursing a witness’ reasonable attorney fees, whether at the witness’ request or at your suggestion, and even if the witness formerly was employed by your client’s litigation adversary, so long as the attorney is independent and acting for the benefit and in the interests of the witness, not your client’s.13
5. Except in the rare circumstance when such an offer is necessary to obtain the witness’ cooperation, DON’T offer to compensate a fact witness unless he or she broaches the matter. While the ethical rules arguably permit an attorney to offer reasonable compensation to a witness,14 as a strategic matter, and to avoid any misperception on the part of the witness or a fact-finder as what motivated the compensation, it is generally unwise for the lawyer to be the one to raise the issue first. Also, be especially wary of disgruntled employees or former employees of your adversary approaching you and offering to provide damaging testimony on your client’s behalf in exchange for compensation for their time. That will almost certainly be viewed as improperly paying a witness “for his testimony.”15
6. DO carefully explain and make clear to the witness what she is and is not being compensated for. Such a statement might be along the lines of: “You are being compensated for your time preparing with or assisting counsel, and/or for your time testifying (including related travel time), but we are not compensating you for, or contingent on, the substance of your testimony, the outcome of the case, or as an inducement to tell the truth.”16 Give strong consideration to memorializing the specific terms in a writing, to avoid any misunderstandings. The fact and amount of the compensation almost certainly will be disclosed down the road, and any efforts to conceal such compensation may be met with judicial condemnation.17
7. DON’T instruct the witness not to assist or talk to your adversary. Attempting to purchase exclusive access to a witness may violate ethics rules that prohibit attorneys from interfering with a party’s ability to gather evidence.18
8. DON’T make the settlement of or indemnification of claims against the witness part of the compensation for costs arising from a witness’ testimony.19 Such compensation may blur the critical line between the prohibited “paying a fact witness for testimony” and the permitted “paying a fact witness for time and reasonable expenses.”20
9. DO be extra cautious about compensating defense fact witnesses for their time testifying at a criminal trial. It is of course true that the government, unlike private litigants, routinely induces witnesses to testify against a defendant and “compensates” them by offering leniency in exchange for cooperation. It is also true that the government routinely pays informants, and sometimes makes such payments contingent on the impact of the informant’s testimony. However, for the defense at a criminal trial, attacking the cooperating witness’ credibility on just these grounds—that he has been incentivized through the reward or prospect of leniency (or remuneration) to incriminate the defendant—is often one of the strongest challenges to the government’s case. If the defense were to compensate its own witnesses, that could seriously undermine this line of attack. Perhaps it is for this reason that we found no reported criminal cases—and are aware of none—in which compensation of defense fact witnesses was an issue.
10. Finally, no matter what kind of case you are litigating, in the rare circumstances when it may make sense to compensate a fact witness for his or her time, DON’T pay the witness more than you would be completely comfortable justifying to a regulator, judge or jury. If your matter has a substantial likelihood of ending up before a jury, remember that jurors receive only minimal compensation for their service (typically $40/day in federal and state court21) and are not compensated for lost time or wages. Think carefully about how jurors will react to one of your fact witnesses being paid a large sum of money in connection with his or her testimony.
Eric Tirschwell is a litigation partner and Theodore S. Hertzberg is a litigation associate at Kramer Levin Naftalis & Frankel. Sam Koch, an associate, assisted in the preparation of this article.
1. Some states outside New York follow the common law rule of prohibiting any compensation to fact witnesses. See, e.g., Pa. Bar Ass’n Comm. on Legal Ethics & Prof’l Responsibility, Informal Op. 95-126A (1995) (reading Pennsylvania witness compensation statute and professional conduct rules to “disfavor compensation to nonexpert witnesses for the time invested in preparing for testimony”). Counsel litigating in other states should pay close attention to the particular jurisdiction’s legal and ethical limitations.
2. See 28 U.S.C. §1821(b) (2012); N.Y. C.P.L.R. 8001(a) (McKinney Supp. 2014).
3. 18 U.S.C. §201(d) (2012).
4. N.Y. Comp. Codes R. & Regs. tit. 22, §1200.0; see also N.Y. Penal Law §215.00 (McKinney 2010) (prohibiting any person from conferring, offering or agreeing to confer a benefit upon a witness under an agreement or understanding that the witness’ testimony will be influenced).
5. Roy Simon, Simon’s New York Rules of Professional Conduct Annotated 890 (2013 ed.); see also ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 96-402 (1996) [hereinafter ABA Op. 96-402].
6. ABA Op. 96-402.
7. See Simon, supra note 5, at 888 (“[A] lawyer may not say to a witness: ‘If you come to New York City to testify, we will put you up in the Waldorf-Astoria for a week, pick up the tab at the five-star restaurants, and get you tickets to the Broadway shows of your choice.’”).
8. Centennial Mgmt. Servs. v. Axa Re Vie, 193 F.R.D. 671, 675 (D. Kan. 2000) (approving rate of $125 per hour for reviewing documents, $150 per hour for attending meetings and preparing for testimony, and $200 per hour for testifying).
9. Consol. Rail Corp. v. CSX Transp., No. 09-cv-10179, 2012 WL 511572, at *12-13 (E.D. Mich. Feb. 16, 2012) (rate of $125 per hour was not excessive or unreasonable given that witness charged same rate to another party).
10. Prasad v. MML Investor Servs., No. 04 Civ. 380, 2004 WL 1151735, at *5-7 (S.D.N.Y. May 24, 2004) (rate of $125 per hour was not unreasonable given that it was equal to what witness generally charged for his consulting services).
11. Caldwell v. Cablevision Sys., 20 N.Y.3d 365, 372 (2013). See generally Michael J. Hutter, “Compensating the Fact Witness: Rules and Limits,” N.Y.L.J., Dec. 1, 2011, at 3.
12. See also, e.g., Thomas v. City of N.Y., 293 F.R.D. 498 (S.D.N.Y. 2013) (vacating judgment where plaintiff had agreed to pay key fact witness 20 percent of any recovery and witness agreed to be held liable for 10 percent of plaintiff’s legal fees if defendant prevailed); Tricham Hous. Assocs. v. Klein, 113 A.D.3d 432 (1st Dep’t 2014) (vacating agreement as contrary to public policy and creating an incentive for false testimony whereby settling defendant would testify on plaintiff’s behalf and plaintiff would pay defendant’s legal fees if plaintiff defeated non-settling defendants’ counterclaims).
13. N.Y. State Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 962 (2013); N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Formal Op. 729 (2000) [hereinafter NYCLA Op. 729]. Compensation-related considerations aside, be mindful of ethical restrictions regarding communications with persons already represented by counsel and with unrepresented persons. See N.Y. R. Prof’l Conduct 4.2 & 4.3.
14. Cf. NYCLA Op. 729 (attorney may suggest to a witness that his client will pay for counsel to represent the witness).
15. See, e.g., Rocheux Int’l of N.J. v. U.S. Merchs. Fin. Group, No. 06-6147, 2009 WL 3246837, at *1-4 (D.N.J. Oct. 5, 2009).
16. See ABA Op. 96-402; N.Y. R. Prof’l Conduct 3.4.
17. See, e.g., Consol. Rail, 2012 WL 511572, at *11 (failure to disclose circumstances of consultant/fact witness’ compensation found to be “troubling and indicative of improper conduct”).
18. Nissan N. Am., Inc. v. Johnson Elec. N. Am., No. 09-11783, 2010 WL 10107597, at *4-5 (E.D. Mich. May 12, 2010).
19. See New York v. Solvent Chem., 166 F.R.D. 284, 289-90 (W.D.N.Y 1996).
20. Caldwell, 20 N.Y.3d at 371.
21. 28 U.S.C. §1871(b) (2012); N.Y. Jud. Law §521(a) (McKinney 2003).