Fact Witnesses Can Be Compensated for Assistance with Case and Discovery Preparation

Lawyers may compensate fact witnesses in professional fields for their time in assisting with a case and discovery preparation, so long as this work is “directly related” to giving testimony in a proceeding, the Florida Supreme Court has ruled.

In Trial Practices, Inc. v. Hahn Loeser & Parks, LLP, the Florida high court held that although it would not permit compensation for all “assistance with case and discovery preparation,” this type of preparation was compensable if it was directly related to the witness preparing for, attending, or testifying at proceedings. ABA Section of Litigation leaders say that even though the decision opens the door wider for fact witness compensation, attorneys should take care when deciding what expenses are and are not compensable.

Trial Court Awards $236,000 in Attorney Fees for Compensation of Professional Fact Witnesses

In 2006, Trial Practices, Inc. (TPI) sued an attorney for breach of a litigation consulting agreement related to an earlier lawsuit against the attorney’s former business partner. The attorney had engaged TPI to help him with the case, but the case ended in a mistrial and a dispute arose over TPI’s fees. When the case went to trial in 2011, the attorney presented seven fact witnesses who testified as to the issue of alleged damages. Three of these witnesses were attorneys who had been involved in the first lawsuit, one was the attorney’s longtime accountant, and three were attorneys from another law firm.

The jury returned a verdict in favor of the attorney, and he moved for attorney fees and costs under a fee-shifting provision in the consulting agreement. The fees included approximately $236,000 for fees paid to the seven fact witnesses’ professional firms, including the attorneys who testified. TPI protested that the fee request was improper on the grounds that the attorney had secretly paid the fact witnesses at their professional billing rates rather than the Florida statutory rate of $5 per day for “actual attendance.” But the trial court awarded the attorney $2 million in attorney fees, which included some of the fact witnesses’ professional fees.

TPI appealed, and Florida’s Second District Court of Appeal rejected TPI’s arguments that the $5 per day fee was appropriate, but certified the following question to the Florida Supreme Court: “Does Rule 4-3.4(b) of the Rules Regulating the Florida Bar permit a party to make certain payments for fact witnesses?”

Florida Supreme Court Rules

As a backdrop to the certified question, the Florida Supreme Court outlined Rule 4-3.4(b), which permits payments to witnesses if they fall within one of three categories: (1) “reasonable expenses incurred by the witness in attending or testifying at proceedings”; (2) “a reasonable, noncontingent fee for professional services of an expert witness”; or (3) “reasonable compensation to reimburse a witness for the loss of compensation incurred by reason of preparing for, attending, or testifying at proceedings.” The court noted that the Rule reflects both the concern about offering inducements to color testimony and the value of a witness’s time. The court focused its analysis on whether the third exception, “preparing for, attending, or testifying at proceedings,” permits compensating a fact witness for what the district court called “assistance with case and discovery preparation.”

The court declined to conclude that “assistance with case and discovery preparation” would always be part of “preparing for, attending, or testifying at proceedings.” The more appropriate inquiry was whether the “assistance with case and discovery preparation” is directly related to the witness “preparing for, attending, or testifying at proceedings.” Here, the case was highly complex and required the attorney to depend upon professionals, some of whom were also accused of wrongdoing. The court concluded that these professionals had the necessary knowledge to help defend the suit, and it would be unfair for them not to be reasonably compensated for any assistance regarding these complex matters regarding which they would later be called to testify.

However, the court emphasized that because the trial court’s cost award was not itemized, a line item review would be necessary to determine which expenses were directly related to “preparing for, attending, or testifying at proceedings.” The court gave examples that reviewing correspondence and assisting with responding to interrogatories that were related to matters within the witness’s knowledge of the case would be compensable, but time spent reviewing certain motions for sanctions and motions in limine would not. The court reiterated that the Rules did not permit compensating witnesses in order to improperly influence them.

In conclusion, the court rephrased the certified question and concluded that “Rule 4-3.4(b) of the Rules Regulating the Florida Bar permits a party to pay a fact witness for the witness’s assistance with and case discovery preparation that is directly related to the witness preparing for, attending, or testifying at proceedings.” Because the trial court’s cost award had not been itemized, however, it was unclear which payments met this standard and which did not. Therefore, the court quashed the Second District’s decision and remanded the case with instructions that the case be further remanded to the trial court for further proceedings.

Implications of Trial Practices, Inc.

“This is an unusual situation in which the essential fact witnesses were attorneys, and attorneys’ professional rates are not insignificant,” notes John M. Barkett, Miami, FL, cochair of the Section of Litigation’s Ethics & Professionalism Committee. “But if you need someone to testify as a fact witness, and their professional rates are high, you need to pay them fairly,” he adds. “It takes time and effort to be a fact witness, but it’s also important not to improperly influence witnesses via compensation,” notes Susan L. Saltzstein, New York, NY, cochair of the Section’s Expert Witnesses Committee.

“The decision makes sense because as long as a witness’s work is ‘directly related to preparing for, attending, or testifying at proceedings,’ counsel should be able to compensate the witness for that time,” opines Barkett. “However, because of the lack of detailed invoices, the court couldn’t assess whether the payments were directly related to preparing for, attending, or testifying at proceedings,” adds Saltzstein. Barkett says he hopes that “the sides will meet and agree what is compensable and what isn’t, so the trial court judge won’t have to scrutinize every single expense.”

“This opinion means lawyers will look closely at whether a fact witness’s work is directly related to preparing for, attending, or testifying at proceedings,” Saltzstein predicts. “As an attorney, always be mindful of your time entries,” cautions Barkett. “That way, if you are later called as a fact witness, a court can determine whether your tasks are directly related to preparing for, attending, or testifying at proceedings, and therefore compensable.”

The ABA’s Model Rule 3.4(b) prohibits only “offer[ing] an inducement to a witness that is prohibited by law,” less precise language than the Florida rule. Only Florida, Georgia, Hawaii, Massachusetts, New York, Oregon, Pennsylvania, Tennessee, Texas, and Virginia have clarified their language to include compensation for professional fact witnesses. Might this case have been decided differently in another state?