I am straying off the strict topic of Bankruptcy law and into an area of general litigation and attorney ethics that has come up in one of my pending cases. When it is OK for a lawyer to pay, or offer to pay, a witness in a pending case? The common sense answer that probably comes to mind immediately is “never.” Then we might consider some exceptions for witness fees and expenses that may be required by applicable law and expert fees and expenses. Other payments are far more questionable. Read until the end of this long-winded post for a very common Bankruptcy scenario that may surprisingly run afoul of the ethical rules and federal criminal law.
In my case, we are litigating against a law firm and their client in Bankruptcy Court. The law firm is also acting as counsel in the litigation, thus making them lawyers, parties and witnesses for themselves and their client. The law firm also has an agreement with their client to pay any award of damages or sanctions that may be assessed against him in the case. Thus, they have an agreement to pay a client/co-party/witness whose testimony also bears upon the firm’s own potential liability.
The starting point in Georgia is, not surprisingly, the Rules of Professional Conduct, but most states have a similar, if not identical, rule. Rule 3.4(b)(3) states:
Fairness to Opposing Party and Counsel
A lawyer shall not: (3) pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of the testimony or the outcome of the case. But a lawyer may advance, guarantee, or acquiesce in the payment of: (i) expenses reasonably incurred by a witness in preparation, attending or testifying; or (ii) reasonable compensation to a witness for the loss of time in preparing, attending or testifying; or (iii) a reasonable fee for the professional services of an expert witness…The maximum penalty for a violation of this rule is disbarment.
Courts have held that the payment of witnesses beyond allowed expenses is not just an actual or potential conflict of interest, or a matter that goes to bias or credibility at trial. It “violates the integrity of the of the justice system and undermines the proper administration of justice.” Ward v. Nierlich, 2006 WL 5412626 (S.D. Fla Sept. 20, 2006)(ruling on Florida’s identical Rule 3.4(b)); Golden Door Jewelry Creations, Inc. v. Lloyds Underwriters Non– Marine Ass’n, 865 F.Supp. 1516, 1525 (S.D.Fla.1994).
The very heart of the judicial system lies in the integrity of the participants…. Justice must not be bought or sold. Attorneys have a solemn responsibility to assure that not even the taint of impropriety exists as to the procurement of testimony before courts of justice. It is clear that the actions of the respondent in attempting to obtain compensation for the testimony of his clients … violates the very essence of the integrity of the judicial system and the disciplinary rule and code of professional responsibility, the integration rules of the Florida Bar and the oath of his office.
The Florida Bar v. Jackson, 490 So.2d 935, 936 (Fla.1986). The cases also make it clear that the Rule applies equally to payments made for truthful testimony. Ward v. Nierlich, 2006 WL 5412626 (the rules “clearly prohibit a lawyer from paying or offering to pay money or other rewards to witnesses in return for their testimony, be it truthful or not…”). The Golden Door court cited a New York opinion that states:
Payment to a witness to testify in a particular way, payment of money to prevent a witness’s attendance at a trial and the payment … to make him sympathetic … are all payments which are absolutely indefensible…. The payment of a sum of money to a witness to “tell the truth” is as clearly subversive of the proper administration of justice as to pay him to testify to what is not true. In re Robinson, 151 A.D. 589, 600, 136 N.Y.S. 548, 445 (1912), affirmed, 209 N.Y. 354, 103 N.E. 160 (1913) (emphasis added).
865 F.Supp. at 1525-26.
We will not tolerate payments of any sum of money by an attorney to witnesses for the opposition to secure or influence testimony, whether it be for the purpose of securing truthful testimony or otherwise.
In re Kien, 69 Ill.2d 355, 14 Ill.Dec. 365, 368, 372 N.E.2d 376, 379 (1977) (attorney suspended for 18 months).
In Golden Door, the plaintiff, with the assistance of its lawyers, paid fact witnesses over $750,000.00. The court concluded that the attorneys violated ethical rules. In Ward, a witness was paid $5,000.00 and a stake in the outcome of the litigation. The lawyers who assisted with the payment were disqualified for compromising the integrity of the judicial system and “engaging in a scheme to purchase the testimony of witnesses.” In Patel v. 7-Eleven, Inc., 2015 WL 9701133 (C.D.Ca. April 14, 2015), a disgruntled former employee of the defendant corporation contacted plaintiff’s counsel and offered to act as a witness for plaintiffs. Plaintiff’s counsel hired the witness as an “expert” at $300.00 per hour, but the court determined that the witness was a actually a fact witness improperly paid for his testimony. The court disqualified plaintiff’s counsel for the ethical breaches.
In order to maintain ethical standards of professional responsibility, the Court must assess a sanction against Plaintiffs’ counsel’s conduct that actually punishes counsel for its ethical wrongdoing. Because a lesser effective sanction is not available in this case, the Court concludes that disqualification of counsel as a result of their ethical violation is necessary to maintain the integrity of these proceedings.
Of course, there are many more cases and different fact scenarios but virtually all have the same bottom line.
Now we get to an even more critical question. Is the payment of witnesses a federal crime? Section 201(c)(2) of Title 18 states the following:
(c)Whoever— (1)otherwise than as provided by law for the proper discharge of official duty— (2) directly or indirectly, gives, offers, or promises anything of value to any person, for or because of the testimony under oath or affirmation given or to be given by such person as a witness upon a trial, hearing, or other proceeding, before any court, any committee of either House or both Houses of Congress, or any agency, commission, or officer authorized by the laws of the United States to hear evidence or take testimony, 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.
Again, an outright secret bribe to a witness for favorable testimony is an easy call. However, a Bankruptcy Court has extended this statute to benefits to a potential witness in the context of a settlement motion.
In In re Telcar Group, Inc., 363 B.R. 345 (Bankr. E.D.N.Y. 2007), the Chapter 7 Trustee sought approval of a settlement that may have provided a financial benefit to an insider in the case who may have been a witness in later proceedings. An objection to the proposed settlement was filed on the grounds that it violated public policy against the payment of witnesses. The Court held:
Although the Amended Stipulation does not require Mignone to testify for the Trustee, the Court cannot consider the question of whether Mignone is or will be a witness in a vacuum. All parties agree that Mignone is a central figure in the history of the Debtor. Although the Trustee may speculate that he may not call Mignone as a witness to testify in the Levey Litigation, there remains the possibility that Mignone’s testimony may be required by the Leveys or Bogart. Here, by reason of the reimbursement and release provisions of the Amended Settlement, Mignone has been offered something of value which, on its face, appears to be in violation of 18 U.S.C. § 201, et. seq. since that statute criminalizes the giving of something of value for or because of past or potential testimony before a Court. More specifically, if the Amended Settlement is approved by this Court, and at a future time the Trustee achieves success in the Levey Litigation in which Mignone testifies as a witness, the connection between Mignone’s testimony and the reimbursement arguably falls within the purview of 18 U.S.C. § 201. Whether it is actually criminal conduct is not for the Court to now decide. Rather, the Court must consider the effect of the settlement and, no matter how the issue is parsed, the reimbursement to Mignone is inexorably tied to success in the litigation against the Levey Entities.
Please review the full opinion for the detailed facts and context. The Court also concluded that the proposed settlement violated NY Disciplinary Rule 7-109(c), which was substantially similar to Georgia Rule 3.4. See also Golden Door (declining to apply §201(c)(2) but finding ethical violations); United Realty Advisors, LP v. Verschleiser, 2019 WL 4889420 (S.D.N.Y 2019) (remedies for “reprehensible conduct” of lawyers and violations of §201(c)(2) were criminal prosecution, disbarment or other bar sanctions).
I won’t go further into this criminal statute, but if the improper payments violate this statute they will almost certainly violate the applicable ethical rules. In short, do not pay witnesses for their testimony beyond basic expenses. The consequences can be severe for lawyers and their clients.
Scott Riddle’s practice focuses on bankruptcy and reorganization. Scott has represented businesses and other parties in Bankruptcy cases for over 30 years. You can contact Scott at 404-815-0164 or scott@scottriddlelaw.com. For more information, click here.