“You know that we are living in a material world…” — Madonna, 1984
It is, after all, a material world. Oh, sure, we do some things out of civic or moral duty, not expecting any compensation beyond the very real satisfaction of doing the right thing. But in commercial litigation, when the principal issue is money, the participants all tend to develop an interest in getting a fair share of the principal. You bill by the hour. Your experts bill by the hour. Your client-witnesses are already paid to serve their employers’ financial interests. But what about nonparty fact witnesses? Your retired former plant manager, who is a key fact witness in your breach-of-supply contract case, would like a little love (make that money) to get off her beach chair and come out of retirement to help you by preparing for and sitting for a deposition. And the price she is asking — $500 an hour — is peanuts compared with the $100 million judgment you are seeking. You want a happy, motivated witness, so this is a no-brainer — pay her what she asks without another thought, right? Well, wrong. Let’s give it a little thought first.
Let’s start with the general rule: Agreements to compensate fact witnesses beyond standard subpoena rates are against public policy. Hamilton v. General Motors Corp., 490 F.2d 223, 229 (7th Cir. 1973); U.S. v. Cinergy Corp., 2008 U.S. Dist. Lexis 123516, at *34-*37 (S.D. Ind. December 18, 2008). Indeed, such agreements may not merely be contrary to public policy — they may be criminal. Section (b) of 18 U.S.C. 201 [Bribery of public officials and witnesses], as you might suspect from the title, makes it a crime to offer or receive “anything of value…with intent to influence the testimony” of a witness. But take a good close look at section (c): “Whoever directly or indirectly, demands, seeks, receives, accepts, or agrees to receive or accept anything of value personally for or because of the testimony under oath or affirmation given or to be given by such person as a witness upon any such trial, hearing, or other proceeding, 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.”
Forgive me a little tangent here. Those of you for whom English is not a foreign language might think that “whoever” means “anyone.” Ah, but then Legalese would not be among the languages in which you are fluent. “Whoever” means anyone — except a prosecutor and his witnesses. U.S. v. Anty, 203 F.3d 305, 311-312 (4th Cir. 2000) (“we hold that 18 U.S.C. § 201(c)(2) does not prohibit the United States from acting in accordance with long-standing practice and statutory authority to pay fees, expenses, and rewards to informants even when the payment is solely for testimony”); see also, U.S. v. Ihnatenko, 482 F.3d 1097, 1100 (9th Cir. 2007); U.S. v. Barnett, 197 F.3d 138, 144-45 (5th Cir. 1999); U.S. v. Albanese, 195 F.3d 389, 394-95 (8th Cir. 1999). So prosecutors need not worry about 18 U.S.C. 201; but if you are a defense lawyer or a civil lawyer, “whoever” means “you” and it is worth a little worry.
Now, there are exceptions. 18 U.S.C. 201(d) provides that sections (b) and (c) do not prohibit paying “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.” So experts can charge, and you can pay, a fee. And fact witnesses can charge, and you can pay, the reasonable value of time lost.
Well, that’s clear, right? The reasonable value of time lost. Hmm, for you fans of black-and-white lines, you may feel a bit unfulfilled. What does “reasonable value of time lost” mean? Well, let me tell you in no uncertain terms: It means whatever the individual judge who is looking at your individual facts thinks it means. Compare Consolidated Rail Corp. v. Grand Trunk Western Railroad Co., 2012 U.S. Dist. Lexis (February 16, 2012) ($125 per hour paid to retired former employee permissible) and Cinergy, 2008 U.S. Dist. Lexis 123516, at *34-*37 (S.D. Ind. December 18, 2008) (“A $200.00 per hour fee is beyond ‘the reasonable value of time lost’ for a person who purports to be ‘retired’ ”).
Now the sheer ambiguity of the word “reasonable” ought to give you some comfort that you won’t face a criminal prosecution if you pay a couple of hundred bucks to your retired manager. But $500? And at any number, there are still ethical and practical issues to consider.
The American Bar Association’s Formal Ethics Opinion 96-402, issued in 1996, remains the applicable guideline adopted by most of the states. The opinion holds that payments to compensate a fact witness for lost time are not an ethical violation — so long as reasonable. Oh, there we go again. Reasonable. We remain fixed in the eye of the beholder, and individual state ethics bodies could behold differently. And if they find you unreasonable, you may find yourself suspended. Check out Florida Bar v. Wohl, 842 So. 2d 811, 813 (Fla. 2003) (attorney suspended for paying fact witness $500 per hour plus “usefulness” bonus).
OK, enough with the nuclear possibilities. Fact is, it really isn’t likely that you will face criminal or ethical sanctions by paying a witness some amount that is in the zip code of reasonable. But that isn’t the only issue. In Rocheux Int’l of N.J. Inc. v. U.S. Merchs. Fin. Group Inc., 2009 U.S. Dist. Lexis 93082, at *7-*8 (D.N.J. October 5, 2009), the court found that payments to a fact witness of the relatively modest amount of $4,300 for preparation and sitting for a deposition disqualified the witness from testifying at trial.
Now, other courts have taken a much more user-friendly approach. In Platypus Wear Inc. v. Horizonte Fabricacao Distribuicao Importacao E Exportacao LTDA, 2010 U.S. Dist. Lexis 13472, at *12-*13 (S.D. Fla. January 8, 2010), a motion was brought to exclude the testimony of a fact witness who had been “improperly” paid about $5,300 at $150 per hour. But the court declined and decided instead that the proper remedy was disclosure to the jury of the payments. And while the Platypus court had what looked like reasonable compensation, other courts have come to the same result in the face of apparent excess. In Caldwell v. Cablevision Sys. Corp., 86 A.D.3d 46, 53-54 (N.Y. App. Div. 2d Dep’t 2011), the witness payment was clearly over the top — a doctor was paid $10,000 for taking off a single afternoon simply to authenticate a note in a medical history as a business record. The court assumed that the amount was unreasonable; the court wasn’t asked, so did not opine on the ethical considerations. But the court found that the proper remedy was to instruct the jury on bias and let them weigh the doctor’s testimony in light of its price.
And there is the real crux. In theory, paying a fact witness has implications that range from criminal to ethical to strategic. But theory aside, in practice there is one practical constant — if you pay a witness for fact testimony, you get what you pay for — and the credibility of that testimony is tarnished in direct proportion to the degree of varnish.
So what do you tell your retired manager when she asks for $500 an hour to prepare for and give a deposition? Well, you tell her that her cooperation is invaluable, and that you would gladly pay anything for her truthful testimony — but that there is a criminal statute that could put you both at risk if the amount is deemed to be unreasonable. And, more important, you want her to look credible before the jury when the case goes to trial. So what amount can we confidently predict that a jury will find acceptable? She made $150,000 the last year she was employed, so you wouldn’t break a sweat paying her at that rate — $75 per hour. You could easily justify adding something for inflation and something for luring her away from that beach she retired to, so $125 to $150 per hour still seems easily defensible. But $500? It just looks bad. Reason with her. And if she won’t see reason, see if you can find a different witness.
Robert L. Byman, a partner at Chicago’s Jenner & Block and the treasurer of the American College of Trial Lawyers, can be reached at firstname.lastname@example.org.