Opinion #113. Limitations on Attorney-Witness and Contingent Fee Agreements

Issued by the Professional Ethics Commission

Date Issued: December 5, 1990

A panel of the Grievance Commission has requested an advisory opinion from the Professional Ethics Commission pursuant to Me. Bar Rule 11(c)(1) concerning the following matter.

FACTS

Attorney A has been representing Client C in business matters over a period of years. Client C has had a falling out with his business partners, and he asks Attorney A to undertake litigation in the matter. The potential damages in the case are very substantial.

Attorney A agrees to represent Client C in the matter, but since the litigation will be very complex, he believes that he should associate with co‑counsel. Attorney A expects that he will be called as a witness to give testimony by one side or the other about the legal services he has provided, if the matter goes to trial.

Client C agrees Attorney A should associate with other counsel for the matter, and Law Firm B accepts the referral. With the agreement of Client C, Attorney A and Law Firm B enter a contingent fee agreement with Client C. If there is a recovery, Law Firm B and Attorney A agree to split the contingent fee equally. The client agrees to this arrangement. However, Attorney A never enters an appearance as attorney for C.

The matter goes to trial, Attorney A is called as a witness by the other party, and he gives testimony under oath. Attorney A testifies at trial that he expected to be called as a witness by one party or the other and arranged for other counsel since “it would be impossible for me to handle a matter like this where I would very likely wind up being a witness.” Transcript, p. 347. Neither Attorney A nor Law Firm B’s trial counsel reveal to opposing counsel or the court that if there is a recovery, Attorney A will receive a contingent legal fee. Opposing counsel never questions Attorney A about his current attorney/client relationship with Client C or about legal fees.

Client C prevails at trial and judgment is entered awarding substantial damages. Attorney A is entitled to one‑half of the contingent fee.

QUESTION

Is it a violation of the Maine Bar Rules for an attorney who has represented a client to refer a matter involving that former client’s representation to other counsel, participate in a contingent fee agreement with the client and other counsel, and then act as a witness in a trial of that matter in which there is a potential for receiving a contingent legal fee, without further disclosure to the Court, opposing parties or their counsel?

OPINION

As posed by the Grievance Commission, the question focuses on the lack of disclosure to opposing counsel of the contingent fee arrangement with Attorney A as the potential basis for a finding of ethical misconduct. Although the Ethics Commission concludes, for the reasons hereinafter stated, that the fee arrangement violates the Bar Rules, it is not because of a breach of a duty of disclosure. No Bar Rule requires an attorney to advise opposing counsel that a witness is interested in the outcome of the litigation. Rather, it is the office of discovery and cross examination to elicit facts which will impeach the witness’ credibility.

Nonetheless, the Commission has concluded that the fee arrangement entered by Attorney A and Law Firm B violates Bar Rule 3.4(j)(1). That rule states that:

(1) A lawyer shall not accept employment in contemplated or pending litigation if he knows, or should know, that he is likely or ought to be called as a witness.

The rationale for the disqualification is set forth in A.B.A. formal Op. No. 339 (1975):

The principal ethical objections to a lawyer’s testifying for his client as to contested issues are that the client’s case will, to that extent, be presented through testimony of an obviously interested witness who is subject to impeachment on that account. . . .
. . .The fact that a witness may be interested, even financially, in the outcome of the case, does not necessarily mean that he will testify falsely or will color or slant his testimony to favor the party with whom his interest rests. But given a choice between two or more witnesses competent to testify as to contested issues, and other factors being equal, a client’s cause is best served by having the testimony from the witness not subject to impeachment for interest in the outcome of the trial.
Because a trial advocate clearly possesses such an interest, his testimony or that of a lawyer in his firm is properly subject to inquiry based on such interest, perhaps including elements of his fee arrangement in some instances. Thus, the weight and credibility of testimony needed by the client may be discounted and in some cases the effect will be detrimental to the client’s cause.[1]

We assume that A was “employed” within the meaning of the rule since the Grievance Commission has advised us that he had agreed to act as “associate counsel” even though he did not actually enter an appearance. Moreover, he signed a contingent fee agreement which we assume was in standard form and contemplated a fee for legal services.

An exception to Rule 3.4(j)(1) provides that it does not apply “where the predictable testimony will relate solely to . . . legal services furnished by the lawyer. . .” In the present case, the lawyer expected to and did testify about legal services which he had previously performed for Client C. However, that exception is limited to testimony in cases where the nature and value of the legal services is in issue.[2] The reference in both D.R. 5‑101(B)(3) and Model Rule 3.7(a)(2) to the “nature and value of the legal services rendered” (emphasis added) clarifies the limited breadth of the exception. The Reporter’s notes to Me. Bar Rule 3.4(j)(1) make clear that the changes in language from D.R. 5‑101(3) were not intended to be “substantive.” We therefore conclude that the omission of the words “nature and value” from Rule 3.4(j)(1) was not intended to alter the meaning of the Rule.

The policies favoring disqualification are particularly applicable in the case presented. A should have withdrawn completely from participation as an advocate as soon as it became obvious that his testimony would be required. By remaining as co‑counsel, he created a substantial risk of prejudice to his client’s case since his testimony could have been discounted by the fact finder because of his direct pecuniary interest in the outcome of the litigation. Since Law Firm B was apparently handling the actual trial of the case, A’s continued involvement could not be excused on the grounds that his withdrawal would impose a “substantial hardship” on his client. See Rule 3.4(j)(1).

The Commission also believes that the conduct described may have violated 3.7(g)(3). That rule states that a lawyer shall not:

(3) Directly or indirectly pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of his testimony or the outcome of his case. . . .

Although Attorney A’s fee was ostensibly for legal services performed, the facts provided suggest that his favorable testimony as a witness may have been his sole contribution to the case. Thus, the outcome of the litigation, and therefore his entitlement to payment, may have been related to the fact finder's assessment of the persuasiveness of his testimony. Although the attorney may have regarded the contingent payment to A as a forwarding fee[3] rather than as compensation for his testimony as a witness, the harm which the rule was intended to prevent[4] exists as much in the present case as it would where the witness was not an attorney. The Commission, therefore, concludes that, under the circumstances presented, A apparently entered into a fee agreement in which his compensation as a witness was contingent “upon . . . the outcome of (the) case. . . .” Law Firm B would also have violated Rule 3.7(g)(3) by acquiescing in the fee agreement. The rule makes no exception for cases in which such a fee arrangement is agreed to by the client.

It might be argued that this result is inconsistent with Rule 3.4(j)(2) which permits a lawyer to accept employment in a case in which his partner or associate is to be called as a witness since that rule permits the attorney‑witness to benefit indirectly in the successful outcome of the litigation by sharing in the fees charged by the attorney who is handling the case. The short answer is that A is not a member of Law Firm B so that the exception is by its terms inapplicable. In addition, the indirect pecuniary benefit to the attorney‑witness permitted by Rule 3.4(j)(2) may not have the same potential for inducing biased testimony as would a direct payment to a witness contingent upon the outcome of the trial. In any event, the Commission expresses no opinion whether Rule 3.4(j)(2) would apply where an attorney was to be a witness in a case being tried by his partner in which fees were contingent upon the outcome of the litigation.


FOOTNOTES

[1] This language was quoted with approval in Grievance Comm. op. no. 41 (1983).

[2] Model Rule 3.7, com. 3 states that the equivalent provision in the Model Rules “recognizes that where the testimony concerns the extent and value of legal services rendered in the action in which the testimony is offered, permitting lawyers to testify avoids the need for a second trial with new counsel to resolve that issue. See also Wolfram, Modern Legal Ethics 386 (1986).

[3] This arrangement is not forbidden by Bar Rule 3.3(d) which permits a division of fees without regard to the responsibility assumed by the respective attorneys for carrying on the litigation.

[4] Contracts promising extra compensation to witnesses contingent upon the outcome of the litigation have also been held unenforceable because they are against public policy. It has been stated that:

(S)uch extra compensation is almost certain to affect the attitudes of the witness and to color his testimony, consciously or unconsciously. This is true even though there is no perjury and no intention to induce perjury. Doubtless such bargains are not effectively discouraged by merely declaring them to be illegal and unenforceable; but as in many other cases it is better than nothing, especially when the attempt to enforce more drastic penalties would fail. 6A Corbin, Contract (1951) quoted in N.Y. State Bar Ass’n, op. 547 (1982).

Enduring Ethics Opinion