In BAE Systems Information and Electronic Systems Integration Inc. v Lockheed Martin Corporation, C.A. No. 3099-VCN (Del. Ch. Aug. 10, 2011), the Delaware Court of Chancery addressed an issue of legal ethics that is not often the focus of judicial opinions, but which is of practical importance to those who make their living in the litigation trenches. Two prior Chancery decisions in this case were highlighted on this blog here and here.
Issue Addressed: This decision addressed Rule 3.4(b) of the Delaware Lawyers’ Rules of Professional Conduct.
Why this decision is of practical importance: Everyone who needs a fact witness to prove or defend a case needs to know the ethical parameters of how and when a fact witness may be appropriately compensated for her “lost time”, for example, if the time she spends as a fact witness takes her away from her “day job” where she earns wages to make a living. This decision demonstrates that the contours of what is permissible in this context are not as clear as they should be.
Those of us who care about the legal profession want the rules of legal ethics to be enforced, but it is not fair to lawyers if the boundary lines are not clearly defined in order to provide notice about what is, and what is not, permissible. We want the rules of legal ethics to have meaning, but it does not help the profession or society as a whole if the rules, when applied to certain factual situations, do not lend themselves to simple “black and white” answers, as opposed to shades of grey. This creates a conundrum for both lawyers and those hardy souls who have the important job of enforcing legal ethics.
The factual background of this case is provided at the above links which summarized the two prior decisions in this case. In essence, this dispute involves a complex series of issues related to documents which are of a sensitive and technical nature. Due to confidentiality and competitive concerns, the parties entered into a very detailed stipulation that describes the restricted number of persons who would have access to this sensitive data. Among those persons are so-called “Designated Consultants” which each party may select, but the opposing party can object to the designation. This decision addressed the objection to the designation due to prior employment by the designee which allegedly exposed the designee to information which arguably compromised his objectivity and did not give the objecting party a “comfort level” about his ability to maintain confidences.
The other objection was based on Delaware Lawyers’ Rule of Professional Conduct 3.4(b) which, it was argued, provides a “prohibition on paying fact witnesses in order to influence their testimony”. (emphasis added).
Highlights of Decision
- Perhaps indicative of the less than pellucid guidance available regarding Rule 3.4(b), the Court in footnote 12 cited to several decisions from other states, as well as comments to the rule, which are not entirely consistent with one another at first glance.
- The Court explained that:
The prohibition against paying fact witnesses for their testimony protects the integrity of the adversary process: compensating a fact witness for her testimony creates the perception that, but for the compensation, the witness might not offer testimony consistent with the proponent’s interest. Nonetheless, although fact witnesses may not be paid for their testimony, the rules of ethics do not, in all cases, prohibit individuals, who happen also to be fact witnesses, from receiving compensation from parties for services in other capacities. (emphasis added and footnote omitted.)
- The objecting party admitted, as the Court observed, that the ethical rules, for example, do not prohibit an employee of a corporation from testifying on behalf of the corporation and being paid his normal wage for the time spent doing so. But their credibility can certainly be questioned based on the presumption that they would provide testimony favorable to their employer.
- Perhaps indicative of the less than clear guidance available on this topic, the Court did not directly address, and did not need to directly address, the issue of when a fact witness may be paid the fair wage that compensates her for the lost time away from the job at which she earns her living.
- The conclusion reached by the Court was that the ethical rules did not prevent the Designated Consultant from wearing two hats and being paid for his time as a Designated Consultant as long as he was not being paid for his time as a fact witness. See footnote 16, citing to decisions from other jurisdictions that addressed similar issues.
- An Opinion of the Delaware State Bar Association’s Committee on Professional Ethics, Del. Op. 2003-3 (“Op. 2003-3”), was discussed at length in footnote 17, but the Court found it factually distinguishable. Op. 2003-3 considered whether a client should have been allowed to compensate two fact witnesses, both retirees, for their lost time and expenses. Witness A was presently unemployed but Witness B had started an independent consulting business. The Committee concluded that Witness B could be reimbursed for his out of pocket expenses and for the reasonable value of his lost time, but Witness A could only be reimbursed for his out of pocket expenses.
- The Court explained that the Committee, in Op. 2003-3, drew the following distinction: Witness B’s participation as a fact witness would “result in a substantial lost economic opportunity, and moreover, that loss can be reasonably measured,” (Id. at 9), while in the case of Witness A, the Committee had “no facts to suggest that Witness A will lose an economic opportunity in spending time preparing for his testimony and testifying….” Id. at 10.
- What the Committee did not address in Op. 2003-3, and the Court did not need to decide, is the practical reality that most people do not want to “work for free” and there must be some acknowledgment that if one is asked to spend hours, and perhaps days, preparing to testify as a fact witness, whether or not that person is retired, it is reasonable to expect him or her to want some fair compensation for the time spent.
Bottom line: “Be careful out there” and hope that the good people who enforce the rules of ethics have an appreciation for the practical realities involved and the lack of bright lines that define the boundaries regarding this issue.