Contacting and Compensating a Non-Party/Former Employee Fact Witness

What is the rule for ex parte contact with a corporate adversary's former employee? Most courts and ethics boards have concluded that ex parte contact is not prohibited by law or by ethical rules, as long as counsel does not inquire into privileged matters with the former employee. The best place to start the analysis of this question is the American Bar Association (ABA) Model Rules of Professional Conduct Rule 4.2, the so-called “no contact” rule, which prohibits a lawyer from contacting a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is otherwise authorized to do so by law or court order. Comment 7 to Model Rule 4.2 extends this prohibition to contact with a “constituent” or employee of a corporate party involved in a suit, but expressly states that the prohibition does not extend to contacts with a “former constituent”:

In the case of a represented organization, this Rule prohibits communications with a constituent of the organization who supervises, directs or regularly consults with the organization's lawyer concerning the matter or has authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability. Consent of the organization's lawyer is not required for communication with a former constituent. ' In communicating with a current or former constituent of an organization, a lawyer must not use methods of obtaining evidence that violate the legal rights of the organization. See Rule 4.4.

ABA Model Rules of Prof'l Conduct R. 4.2, comment 7 (2012) (emphasis added).

The reference to Rule 4.4 in comment 7 pertains to Model Rule 4.4, “Respect for Rights of Third Persons.” Comment 1 to Model Rule 4.4 instructs that counsel must not use methods of obtaining evidence that would violate a third party's rights, which would include the right of a third party (i.e., the former employer) to be free from “unwarranted intrusions into privileged relationships, such as the client-lawyer relationship.” ABA Model Rules of Prof'l Conduct R. 4.4, comment 1 (2012).

The ABA Committee on Ethics and Professional Responsibility has long held that the “no contact” rule of Model Rule 4.2 does not bar ex parte contact with an adversary's former employees. See ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 91-359, at 3 (1991). In so holding, however, the Committee has warned of the responsibility of counsel to avoid encouraging a former employee to breach or violate a privilege:

With respect to any unrepresented former employee, of course, the potentially-communicating adversary attorney must be careful not to seek to induce the former employee to violate the privilege attaching to attorney-client communications to the extent his or her communications as a former employee with his or her former employer's counsel are protected by the privilege (a privilege not belonging to or for the benefit of the former employee, [] [but belonging to] the former employer). Such an attempt could violate Rule 4.4 (requiring respect for the rights of third persons).

Id.

Furthermore, the Committee has warned that counsel should “punctiliously comply” with the requirements of Model Rule 403, which addresses lawyer's dealings with unrepresented persons, stating that the lawyer must clearly explain to the former employee the lawyer's role in the matter, including the name of the lawyer's client and the fact the former employer is an adverse party. Id. at 4.

Likewise, counsel for the former employer also has ethical obligations in dealing with the former employee. The company's counsel is cautioned not to try to make an end run around Model Rule 4.2 by contacting a former employee in advance and simply telling that person not to speak with opposing counsel, or offering free representation if the former employee agrees not to speak with opposing counsel. Pursuant to Model Rule 3.4(f), “Fairness to Opposing Party and Counsel,” a lawyer “shall not ' (f) request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or an employee or other agent of a client; and (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information.” Thus, if the company's counsel is to say anything, it should only be to tell the former employee that he or she will probably receive a call from opposing counsel requesting an interview and that the former employee is free to choose either to do the interview, or to refuse to do it. See Fischbach v. Founders Court Inc., No. 2:94-CV-00765, 2:95-CV-00211, 1996 U.S. Dist. LEXIS 8256, at *4 (M.D.N.C. May 16, 1996); North Carolina State Bar v. Graves, 274 S.E.2d 396, 399 (N.C. Ct. App. 1981).

Compensating a Non-Party/Former Employee Fact Witness

Often, a non-party fact witness will ask to be paid for his or her “trouble” ' that is, for lost time and expenses incurred in providing information or testimony. Can counsel for either side to a lawsuit agree to pay a non-party fact witness? In most jurisdictions, the answer is yes, but with certain limitations and restrictions, with which counsel must be very careful to comply.

Typically, a non-party fact witness is entitled to an attendance fee plus a certain rate per mile. In New York, for instance, the Civil Practice Law and Rules 8001 (a) provides that the subpoenaed trial witness is entitled to $15 per day and $.23 per mile. However, while Model Rule 3.4(b) provides that it is improper for a lawyer to “counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law,” it is “not improper to pay a witness's expenses ' .” ABA Model Rules of Prof'l Conduct R. 3.4, comment 3 (2012).

While the Rule and its comments do not further define “expenses,” an ABA Formal Opinion provides much more detail:

A lawyer, acting on her client's behalf, 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 and provided further that the payment does not violate the law of the jurisdiction. ?ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 96-402, at 1 (1996). The attorney is directed to inform the witness that the payment is for the loss of time, not “for the substance (or efficacy) of the [] testimony” and to ensure compensation is “reasonable, so as to avoid affecting, even unintentionally, the content of a witness's testimony.”

Id. at 1-2.

What amount of money constitutes “reasonable” compensation that does not convey an appearance of impropriety or a wrongful attempt to influence testimony? Would, for example, a payment of $10,000 for no more than a few hours of testimony be considered reasonable and permissible? The New York Court of Appeals recently confronted this very issue in Caldwell v. Cablevision Systems Corp., No. 19, 2013 N.Y. LEXIS 115, at ** 3 (N.Y. Feb. 7, 2013).

In Caldwell, the defendant paid a treating emergency room doctor $10,000 to testify solely about a single entry in his notes regarding plaintiff's statement as to how an accident occurred, which contradicted the plaintiff's trial testimony. On cross-examination, the doctor denied that his testimony was influenced by the payment, stating simply that he was at trial to “testify to my records.” He testified only about the entry in his emergency room notes. No professional opinion was sought or given.

Plaintiff's counsel asked the trial judge to strike the doctor's testimony or, alternatively, to issue a curative instruction or a jury charge concerning monetary influence. The trial judge denied plaintiff's counsel's request, however, and gave only the general, pattern jury instruction bias charge to the jury, which made no reference to the doctor's testimony or the payment he received. The jury later returned a defense verdict finding that defendant's negligence was not a significant factor in plaintiff's injury. Id. at **4.

The Court of Appeals, like the Appellate Division, was “troubled by what appears to be a substantial payment to a fact witness in exchange for minimal testimony,” and agreed with plaintiff that the trial judge should have “instructed the jury that fact witnesses may be compensated for their lost time but that the jury should assess whether the compensation was disproportionately more than what was reasonable.” Id. at ** 5, 9. The Court of Appeals, however, found that the failure to give such a charge was harmless error, given that the doctor's testimony was limited to the one entry in his notes made right after the incident and that it was implausible that he tailored his testimony for the fee. Id. at ** 7.

Accordingly, the crux of the matter is whether the payment is “compensation” (for the value of the fact witness's lost time and expenses) versus a “fee” just for providing testimony, and for the latter, “[t]he common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying ' .” Model Rules of Prof'l Conduct R. 3.4, comment 3 (2012). While “reasonable [compensation], [] [in an amount that] avoid[s] affecting, even unintentionally, the content of a witness's testimony” is allowable (ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 96-402, at 2), attorneys are directed to their State's ethical rules for further direction as to what exactly may be compensated and how to determine reasonable compensation.

There is disagreement among jurisdictions on how to value and compensate a witness for his or her time. The Alabama State Bar allows an attorney to compensate a witness for actual lost wages and expenses incurred. Alabama State Bar, Formal Op. 81-549 (1981) and 97-02 (1997). The State Bar of California Standing Committee on Professional Responsibility and Conduct has stated that the determination should be made on a case-by-case basis and could include “the witness's rate of pay if currently employed, what the witness last earned if currently unemployed, or what others earn for comparable activity.” State Bar of California Standing Comm. on Prof'l Responsibility and Conduct, Formal Op. 1997-149, at 4 (1997) (containing a full discussion of Wisconsin and New York Bar Associations' formal opinions and its agreement with their opinions).

The New York State Bar Association's Committee on Professional Ethics has twice considered this issue and determined that: (1) “[l]oss of time must [] be translated into dollars,” which can include “lost wages” and that “even recreation time is susceptible to valuation,” Formal Opinion 547, at 2 (1982); and (2) a non-party fact witness at trial “may receive a reasonable rate, determined by the fair market value for the time, regardless of whether the individual suffered actual financial loss,” Formal Opinion 668, at 1 (1994).

As to the issue of whether a non-party witness can be paid for time spent preparing for testimony, the ABA Committee on Ethics and Professional Responsibility draws no distinction between time spent testifying and time spent preparing for testimony, but acknowledges that there is disagreement on this issue; citing to the Pennsylvania Bar's formal opinion on its Rule 3.4(b), which “can be read to disfavor compensation ' for time invested in preparing for testimony.” ABA Comm. on Ethics & Responsibility, Formal Op. 96-402 at 1-2.

A related issue is whether a lawyer can pay a non-party to serve as a “fact-finder” for a company involved in a suit. Typically, the non-party is a retired employee who reviews old product design files and/or corporate historical records to help the company reconstruct developments in products or other corporate historical events. Often, the retired employee is signed to a consulting agreement for such work. The New York Bar Association Formal Opinion 668 directly addresses this issue, holding that such agreements are acceptable and states that “[t]here is no ethical limit on the amount an individual may be paid for assistance in the fact finding process, so long as the client consents after full disclosure,” even if the individual could later become a trial witness. N.Y. Bar Assoc. Comm. on Prof'l Ethics, Formal Op. 668, at 1 (1994). The consulting agreement and the hourly rate paid for “fact-finding,” could be discoverable, however, particularly if the fact-finding witness does indeed become a trial witness.

Conclusion

While Hollywood always loves a riveting ending to a drama, in the real world of litigation, the less drama, the better. Counsel who ignores the legal and ethical rules of contacting and compensating a former employee fact witness is only inviting potential unwanted'drama.

Imagine a weeks-long product liability trial, where the jury has sat through countless days of tedious and complex fact and expert testimony, much of which may be difficult to understand. What the jurors will understand, however, is a strong jury instruction at the end of the trial telling them that they can totally disregard the testimony of counsel's “star” witness, the non-party former employee, if they believe he or she has been disproportionately compensated. Furthermore, beyond the trial, counsel may have to face a State Bar ethics board and “do some explaining.”'

In dealing with a non-party, former employee fact witness, counsel is well advised to confirm in advance the particulars of a jurisdiction's ethical and legal rules regarding non-party contact and to show respect for the rights of the witness, the rights of the employer/adversary, and the integrity of the litigation system.'

'

John J. Weinholtz is a partner and Kevin T. Saunders is an associate with Nixon Peabody LLP, resident in the Buffalo and Rochester, NY, offices, respectively. They both practice in the firm's Products: Class Action, Trade and Industry Representation group.

Every good civil trial movie worth the price of admission seems to have as its climax the former employee who has long harbored some dark secret about the employer that is now revealed on the stand years later and that saves the day for the downtrodden plaintiff (and even more downtrodden attorney). Hollywood has repeated this formula successfully through the decades with, as examples, the former operating room nurse providing the true admitting record in The Verdict (1982); the former chemical company employee providing information about chemicals that were dumped into the town's water supply in A Civil Action (1998); and the former gas company employee testifying that he preserved records, against the gas company's direction, showing chromium contamination in the groundwater in Erin Brockovich (2000). While former employees can make for good drama on the movie screen, they can present legal and ethical issues that make for unwanted drama in real world litigation, unless counsel is careful.'

Contacting a Non-Party/Former Employee

In the movies, the former employee fortuitously arrives out of nowhere, eagerly agreeing to a clandestine meeting with counsel at which the “smoking-gun” evidence is provided. In the real world, counsel must work hard just to locate the knowledgeable former employee and then work even harder to convince the person to take a phone call or show up at a meeting, not knowing whether the person is the consummate “company man” or the embittered, terminated curmudgeon, or is a type somewhere in between.

What is the rule for ex parte contact with a corporate adversary's former employee? Most courts and ethics boards have concluded that ex parte contact is not prohibited by law or by ethical rules, as long as counsel does not inquire into privileged matters with the former employee. The best place to start the analysis of this question is the American Bar Association (ABA) Model Rules of Professional Conduct Rule 4.2, the so-called “no contact” rule, which prohibits a lawyer from contacting a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is otherwise authorized to do so by law or court order. Comment 7 to Model Rule 4.2 extends this prohibition to contact with a “constituent” or employee of a corporate party involved in a suit, but expressly states that the prohibition does not extend to contacts with a “former constituent”:

In the case of a represented organization, this Rule prohibits communications with a constituent of the organization who supervises, directs or regularly consults with the organization's lawyer concerning the matter or has authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability. Consent of the organization's lawyer is not required for communication with a former constituent. ' In communicating with a current or former constituent of an organization, a lawyer must not use methods of obtaining evidence that violate the legal rights of the organization. See Rule 4.4.

ABA Model Rules of Prof'l Conduct R. 4.2, comment 7 (2012) (emphasis added).

The reference to Rule 4.4 in comment 7 pertains to Model Rule 4.4, “Respect for Rights of Third Persons.” Comment 1 to Model Rule 4.4 instructs that counsel must not use methods of obtaining evidence that would violate a third party's rights, which would include the right of a third party (i.e., the former employer) to be free from “unwarranted intrusions into privileged relationships, such as the client-lawyer relationship.” ABA Model Rules of Prof'l Conduct R. 4.4, comment 1 (2012).

The ABA Committee on Ethics and Professional Responsibility has long held that the “no contact” rule of Model Rule 4.2 does not bar ex parte contact with an adversary's former employees. See ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 91-359, at 3 (1991). In so holding, however, the Committee has warned of the responsibility of counsel to avoid encouraging a former employee to breach or violate a privilege:

With respect to any unrepresented former employee, of course, the potentially-communicating adversary attorney must be careful not to seek to induce the former employee to violate the privilege attaching to attorney-client communications to the extent his or her communications as a former employee with his or her former employer's counsel are protected by the privilege (a privilege not belonging to or for the benefit of the former employee, [] [but belonging to] the former employer). Such an attempt could violate Rule 4.4 (requiring respect for the rights of third persons).

Id.

Furthermore, the Committee has warned that counsel should “punctiliously comply” with the requirements of Model Rule 403, which addresses lawyer's dealings with unrepresented persons, stating that the lawyer must clearly explain to the former employee the lawyer's role in the matter, including the name of the lawyer's client and the fact the former employer is an adverse party. Id. at 4.

Likewise, counsel for the former employer also has ethical obligations in dealing with the former employee. The company's counsel is cautioned not to try to make an end run around Model Rule 4.2 by contacting a former employee in advance and simply telling that person not to speak with opposing counsel, or offering free representation if the former employee agrees not to speak with opposing counsel. Pursuant to Model Rule 3.4(f), “Fairness to Opposing Party and Counsel,” a lawyer “shall not ' (f) request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or an employee or other agent of a client; and (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information.” Thus, if the company's counsel is to say anything, it should only be to tell the former employee that he or she will probably receive a call from opposing counsel requesting an interview and that the former employee is free to choose either to do the interview, or to refuse to do it. See Fischbach v. Founders Court Inc., No. 2:94-CV-00765, 2:95-CV-00211, 1996 U.S. Dist. LEXIS 8256, at *4 (M.D.N.C. May 16, 1996); North Carolina State Bar v. Graves , 274 S.E.2d 396, 399 (N.C. Ct. App. 1981).

Compensating a Non-Party/Former Employee Fact Witness

Often, a non-party fact witness will ask to be paid for his or her “trouble” ' that is, for lost time and expenses incurred in providing information or testimony. Can counsel for either side to a lawsuit agree to pay a non-party fact witness? In most jurisdictions, the answer is yes, but with certain limitations and restrictions, with which counsel must be very careful to comply.

Typically, a non-party fact witness is entitled to an attendance fee plus a certain rate per mile. In New York, for instance, the Civil Practice Law and Rules 8001 (a) provides that the subpoenaed trial witness is entitled to $15 per day and $.23 per mile. However, while Model Rule 3.4(b) provides that it is improper for a lawyer to “counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law,” it is “not improper to pay a witness's expenses ' .” ABA Model Rules of Prof'l Conduct R. 3.4, comment 3 (2012).

While the Rule and its comments do not further define “expenses,” an ABA Formal Opinion provides much more detail:

A lawyer, acting on her client's behalf, 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 and provided further that the payment does not violate the law of the jurisdiction. ?ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 96-402, at 1 (1996). The attorney is directed to inform the witness that the payment is for the loss of time, not “for the substance (or efficacy) of the [] testimony” and to ensure compensation is “reasonable, so as to avoid affecting, even unintentionally, the content of a witness's testimony.”

Id. at 1-2.

What amount of money constitutes “reasonable” compensation that does not convey an appearance of impropriety or a wrongful attempt to influence testimony? Would, for example, a payment of $10,000 for no more than a few hours of testimony be considered reasonable and permissible? The New York Court of Appeals recently confronted this very issue in Caldwell v. Cablevision Systems Corp., No. 19, 2013 N.Y. LEXIS 115, at ** 3 (N.Y. Feb. 7, 2013).

In Caldwell, the defendant paid a treating emergency room doctor $10,000 to testify solely about a single entry in his notes regarding plaintiff's statement as to how an accident occurred, which contradicted the plaintiff's trial testimony. On cross-examination, the doctor denied that his testimony was influenced by the payment, stating simply that he was at trial to “testify to my records.” He testified only about the entry in his emergency room notes. No professional opinion was sought or given.

Plaintiff's counsel asked the trial judge to strike the doctor's testimony or, alternatively, to issue a curative instruction or a jury charge concerning monetary influence. The trial judge denied plaintiff's counsel's request, however, and gave only the general, pattern jury instruction bias charge to the jury, which made no reference to the doctor's testimony or the payment he received. The jury later returned a defense verdict finding that defendant's negligence was not a significant factor in plaintiff's injury. Id. at **4.

The Court of Appeals, like the Appellate Division, was “troubled by what appears to be a substantial payment to a fact witness in exchange for minimal testimony,” and agreed with plaintiff that the trial judge should have “instructed the jury that fact witnesses may be compensated for their lost time but that the jury should assess whether the compensation was disproportionately more than what was reasonable.” Id. at ** 5, 9. The Court of Appeals, however, found that the failure to give such a charge was harmless error, given that the doctor's testimony was limited to the one entry in his notes made right after the incident and that it was implausible that he tailored his testimony for the fee. Id. at ** 7.

Accordingly, the crux of the matter is whether the payment is “compensation” (for the value of the fact witness's lost time and expenses) versus a “fee” just for providing testimony, and for the latter, “[t]he common law rule in most jurisdictions is that it is improper to pay an occurrence witness any fee for testifying ' .” Model Rules of Prof'l Conduct R. 3.4, comment 3 (2012). While “reasonable [compensation], [] [in an amount that] avoid[s] affecting, even unintentionally, the content of a witness's testimony” is allowable (ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 96-402, at 2), attorneys are directed to their State's ethical rules for further direction as to what exactly may be compensated and how to determine reasonable compensation.

There is disagreement among jurisdictions on how to value and compensate a witness for his or her time. The Alabama State Bar allows an attorney to compensate a witness for actual lost wages and expenses incurred. Alabama State Bar, Formal Op. 81-549 (1981) and 97-02 (1997). The State Bar of California Standing Committee on Professional Responsibility and Conduct has stated that the determination should be made on a case-by-case basis and could include “the witness's rate of pay if currently employed, what the witness last earned if currently unemployed, or what others earn for comparable activity.” State Bar of California Standing Comm. on Prof'l Responsibility and Conduct, Formal Op. 1997-149, at 4 (1997) (containing a full discussion of Wisconsin and New York Bar Associations' formal opinions and its agreement with their opinions).

The New York State Bar Association's Committee on Professional Ethics has twice considered this issue and determined that: (1) “[l]oss of time must [] be translated into dollars,” which can include “lost wages” and that “even recreation time is susceptible to valuation,” Formal Opinion 547, at 2 (1982); and (2) a non-party fact witness at trial “may receive a reasonable rate, determined by the fair market value for the time, regardless of whether the individual suffered actual financial loss,” Formal Opinion 668, at 1 (1994).

As to the issue of whether a non-party witness can be paid for time spent preparing for testimony, the ABA Committee on Ethics and Professional Responsibility draws no distinction between time spent testifying and time spent preparing for testimony, but acknowledges that there is disagreement on this issue; citing to the Pennsylvania Bar's formal opinion on its Rule 3.4(b), which “can be read to disfavor compensation ' for time invested in preparing for testimony.” ABA Comm. on Ethics & Responsibility, Formal Op. 96-402 at 1-2.

A related issue is whether a lawyer can pay a non-party to serve as a “fact-finder” for a company involved in a suit. Typically, the non-party is a retired employee who reviews old product design files and/or corporate historical records to help the company reconstruct developments in products or other corporate historical events. Often, the retired employee is signed to a consulting agreement for such work. The New York Bar Association Formal Opinion 668 directly addresses this issue, holding that such agreements are acceptable and states that “[t]here is no ethical limit on the amount an individual may be paid for assistance in the fact finding process, so long as the client consents after full disclosure,” even if the individual could later become a trial witness. N.Y. Bar Assoc. Comm. on Prof'l Ethics, Formal Op. 668, at 1 (1994). The consulting agreement and the hourly rate paid for “fact-finding,” could be discoverable, however, particularly if the fact-finding witness does indeed become a trial witness.

Conclusion

While Hollywood always loves a riveting ending to a drama, in the real world of litigation, the less drama, the better. Counsel who ignores the legal and ethical rules of contacting and compensating a former employee fact witness is only inviting potential unwanted'drama.

Imagine a weeks-long product liability trial, where the jury has sat through countless days of tedious and complex fact and expert testimony, much of which may be difficult to understand. What the jurors will understand, however, is a strong jury instruction at the end of the trial telling them that they can totally disregard the testimony of counsel's “star” witness, the non-party former employee, if they believe he or she has been disproportionately compensated. Furthermore, beyond the trial, counsel may have to face a State Bar ethics board and “do some explaining.”'

In dealing with a non-party, former employee fact witness, counsel is well advised to confirm in advance the particulars of a jurisdiction's ethical and legal rules regarding non-party contact and to show respect for the rights of the witness, the rights of the employer/adversary, and the integrity of the litigation system.'

'

John J. Weinholtz is a partner and Kevin T. Saunders is an associate with Nixon Peabody LLP, resident in the Buffalo and Rochester, NY, offices, respectively. They both practice in the firm's Products: Class Action, Trade and Industry Representation group.