Paying witnesses to give factual testimony has long been prohibited because it tends to induce perjury. A recent decision from the federal district court in New Jersey shows the severe consequences to a party who elects to pay a fact witness. In Rocheux International of New Jersey, Inc. v. U.S. Merchants Financial Group, Inc., et al. (October 5, 2009), a commercial contract dispute, plaintiff had designated as its expert witness, Jorge Gutierrez, a disgruntled former employee of one of the defendants. Defendants moved to exclude him as a witness, claiming that he was an improperly paid fact witness, and requested sanctions against plaintiff’s counsel for misconduct.

Gutierrez had approached plaintiff, offering to provide favorable testimony about the defendant’s operations and practices. Rocheux identified Gutierrez as a both an expert witness (on defendant’s accounting software modules) and as a fact witness (on its business records and calculations for the use of raw materials). Gutierrez asserted in an affidavit that the defendant’s accounting software worked properly but that defendant’s supervisors engaged in unethical business practices by asking him to alter data.

Plaintiff’s counsel paid Gutierrez $4,000 for “consulting services” and Gutierrez charged defendants an additional $1,500 for his deposition testimony. At his deposition, Gutierrez admitted that he had not prepared an expert report regarding the operation of the defendant’s accounting software system and did not know whether his supervisors had asked him to falsify accounting data or merely correct that data.

Chief Judge Garrett Brown held that Gutierrez’s statements lacked the factual basis and reliable methodology necessary to qualify as expert testimony and were also irrelevant because the functioning of the accounting software was not at issue. Because plaintiff had no valid explanation for treating Gutierrez as an expert witness, the court found that the fees paid to him as a fact witness “cast a cloud over the legitimacy of [his] testimony.” The court also found that the fee paid to Gutierrez far exceeded what was reasonable as reimbursement for his costs in attending the trial or time lost during the trial.

Fact witnesses may only be compensated for their reasonable expenses incurred in attending the trial and any loss of income as a result of their time in testifying. Because the fees paid to Gutierrez far exceeded these standards, the court excluded him from testifying in the case, excused defendants from paying his “expert” witness fee and sanctioned plaintiff by requiring it to reimburse defendants for the attorneys’ fees and costs they had incurred as a result of the misconduct. The court reserved judgment on the need for additional sanctions or disciplinary action against the plaintiff’s counsel.

As Rocheux illustrates, parties need to think carefully before agreeing to a request for payment from any witness who will be providing fact testimony. Any compensation arrangement will be subject to discovery and must be supportable based on a reasonable calculation of actual income lost by the witness as a result of the time spent in testifying. The failure to consider the ramifications of such arrangements may later come back to haunt the paying party in court.