Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Paying an Expert Under a Contingency Fee Arrangement is a Major No-No.

      It's a sign of the times: finding ways to save money, that is.  However, if you have considered controlling expenses by paying an expert witness on a contingency fee basis, you need to direct your money-saving thoughts in a different direction.  Rules of Professional Conduct, rule 5-310(B) provides that “[a] member shall not: […] [d]irectly or indirectly pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of the witness's testimony or the outcome of the case.”  Of course, except where prohibited by law, a member can advance, guarantee, or acquiesce in the payment of a witness’s expenses incurred in attending a hearing and testifying, reasonable compensation for loss of time in attending or testifying, and, in the case of an expert, a reasonable fee for the expert’s professional services. (Rule 5-310(B)(1-3).) 

      A recent application of Rule 5-310 well illustrates the downside to paying an expert via a contingency fee arrangement or under a de facto contingency fee arrangement.  In Straughter v. Raymond IV (C.D. Cal. 2011) 2011 WL 1789987, a copyright infringement action, at the time plaintiff’s expert prepared reports and gave deposition testimony, she was being compensated on a contingency basis, even though her fee arrangement was subsequently returned to its original hourly basis secured by a lien on all of plaintiff’s personal property, including any recovery in the litigation.  Defendant moved to exclude and/or strike the expert’s opinions, reports, and testimony, and the district court granted the motion. 

      The court reasoned that it has long been the rule in California that contingency fee agreements between litigants and expert witnesses are void as against public policy. (2011 WL 1789987 at *2, discussing Von Kesler v. Baker (1933) 131 Cal.App. 654, 658.)  Such agreements tempt the expert to practice deceit and commit perjury.  Rule 5-310(B) prohibits an attorney from “[d]irectly or indirectly pay[ing], offer[ing] to pay, or acquies[ing] in the payment of compensation to a witness contingent upon...the outcome of the case.” Although no Ninth Circuit case had addressed the issue, district courts within this circuit and others have concluded that the testimony of such an expert must be excluded. (Id. at *2 [collecting cases].)  The Court agreed with those courts that had adopted a per se rule of excluding expert testimony “whose compensation is contingent on the outcome of the case.  The fact that [the expert’s] opinions were rendered when she had a direct financial interest in the outcome of this action, raises serious questions about the integrity of her expert testimony.  The same values underlying Von Kesler and Rule 5-310(B)...weigh in favor of excluding” the expert testimony. (Id. at *3.)  

That the expert’s contingency fee arrangement was cancelled and returned to an hourly fee was of no consequence.  At the time she drafted and produced her expert reports and testified at her deposition, the contingency fee agreement was in place.  Furthermore, under the revitalized hourly fee arrangement, plaintiff gave the expert a lien against his personal property and against any recovery in the case because of his inability to afford her hourly rate. That constituted “a de facto contingency fee arrangement.” (Id. at *3.) “[A]s a practical matter, [expert] will not be paid for her work unless and until plaintiff recovers a sum of money in connection with this case.  Therefore, [expert] continues to have a direct financial stake in the outcome of this litigation.” (Ibid.)

      Saving money is a good thing, but neither this desire nor creativity in its execution will do any good if either run contrary to the Rules of Professional Conduct.

--Luis E. Ventura

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis.  Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**