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United States of America > Colorado > Litigation Dispute resolution > Advisory > Article > No Per Se Rule Requires Striking a Fact Witness Paid on a Contingency Fee in Colorado, But Violation of the Rules of Professional Conduct May Result

Article: No Per Se Rule Requires Striking a Fact Witness Paid on a Contingency Fee in Colorado, But Violation of the Rules of Professional Conduct May Result

Article by David Fine and Charles Swanson

On July 18, 2013, the Colorado Court of Appeals announced its decision in Just In Case Business Lighthouse, LLC v. Murray, 2013 COA 112.  This case involved alleged fraud in the negotiated termination of agreements concerning a commission payable for facilitating the sale of a business.  The plaintiff had hired an advisor to examine business records and prepare summaries, for which the advisor was to be paid ten percent of any judgment or settlement received.  The plaintiff endorsed the advisor as both an expert and a fact witness.  The defendant filed a motion in limine seeking to exclude any testimony by the advisor.  The trial court, however, allowed the advisor to testify as a fact witness, denying the defendant’s motion in limine in part.  The court of appeals’ decision addressed a question of first impression in Colorado:  does compensating a fact witness on a contingent basis require the exclusion of that witness's testimony?1

The court rejected a per se rule of exclusion.  Rather, the court held that “contingent compensation requires the trial court to determine whether the witness should be stricken as a sanction.”  Laying out several trial practice bases, and rejecting the notion that ethical considerations warrant per se exclusion, the court stated that “[t]rial courts are in a unique position to assess the impact of such testimony on the overall integrity of the proceedings and to take measures to preserve the fairness of the trial.”

The court, however, left open the possibility that paying a contingency fee could result in excluding the lay witness’s testimony as a sanction for the proponent party’s bad faith or for violation of the Colorado Rules of Professional Conduct.  The court expressed no opinion whether bad faith existed, but it found that plaintiff’s counsel violated Rule 3.4(b) (a lawyer may not “falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a witness that is prohibited by law”).  The court noted that it was not addressing attorney regulation concerns and that its finding did not need to be supported by the higher evidentiary standard of clear and convincing evidence necessary for attorney discipline matters.

The court made clear that violation of a rule of professional responsibility did not necessarily require the exclusion of testimony.

[W]here the Rules of Professional Conduct become intertwined with litigation and a potential ethical violation threatens to prejudice the fairness of the proceedings, a trial court may consider the issue not as a disciplinary matter but rather within the context of the litigation.”  Mercantile Adjustment Bureau, L.L.C. v. Flood, 278 P.3d 348, 354 (Colo. 2012).  Such rulings most often arise in attorney disqualification.  See, e.g., Liebnow v. Boston Enterps. Inc., 2013 CO 8, ¶ 11.  They involve discretion derived from the trial court’s “inherent power to ensure the integrity of the process and fairness to the parties.”  In re Estate of Myers, 130 P.3d 1023, 1025 (Colo. 2006).

The court directed that on remand the trial court was to make findings, which should address [the advisor’s] contingent compensation, direct testimony, and cross-examination, in the context of the “need to protect the integrity of the trial.”  Liebnow, ¶ 13.  [footnote omitted]  The court may take additional evidence.  After making findings, the court shall exercise its discretion and determine whether [the advisor’s] testimony should be stricken as a sanction for either plaintiff’s bad faith, if any, or based on Colo. RPC 3.4(b).  [footnote omitted]  See id., ¶ 14 (“[I]t is within the exclusive province of the trial court to determine whether a violation of the rules regarding conflict harms the fairness of the proceedings.”).

The core of the Court’s analysis is that the question for a trial court is whether compensated witnesses’ testimony compromises the integrity of the trial process.  Certainly a per se rule of exclusion would have been clearer both for trial courts and litigants.  Indeed, a well-reasoned dissent stated, “because I believe that presenting a contingent fee witness necessarily goes to the integrity and fairness of the trial, I conclude that a trial verdict that results from the testimony of such a witness is, by definition, unfair and improper and must be reversed.”

It is quite likely this question will be decided by the Colorado Supreme Court.  In our view, regardless of a further appeal and its outcome, litigants should be extremely reluctant to offer the testimony of a witness where compensation of the witness is related at all to the testimony.  Even if the testimony is allowed (and we believe in most cases it will not), the credibility of such testimony is inherently suspect and will be subject to vigorous cross examination.  Moreover, counsel who put forth a witness paid a contingent fee may find herself subject to personal sanctions for violating the Colorado Rules of Professional Conduct.
1The court of appeals also addressed other evidentiary matters not discussed here.

Last Update: 2013-Sep-10 David R. Fine - Dentons
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Author: David R. Fine
Law Firm: Dentons
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