Contingency Fee Testimony Allowed, Colorado Supreme Court Rules

Experts paid on a contingency fee basis may testify in court as non-expert summary witnesses, the Colorado Supreme Court has ruled in a case that pits the rules of evidence against the rules of professional conduct.

In Murray v. Just In Case Bus. Lighthouse, LLC, Colo., Jun 20, 2016, Pearl Development Company contracted with Just in Case Business Lighthouse, owned by Joseph Mahoney, to find a buyer for the company on a commission basis. Mahoney contacted Epic Energy Resources, Inc. as a potential buyer, but Pearl and Epic did not reach an agreement with Mahoney.

Some time later, the president of Pearl, Patrick Murray, signed a letter of intent to sell Pearl to Epic Energy Resources, Inc., without Mahoney's knowledge. Murray then persuaded Mahoney to terminate his contract with Pearl.

When Mahoney learned of Epic buying Pearl five months later, Mahoney sued Murray and Pearl's other officers and owners for fraudulent misrepresentation. To help in his lawsuit against Murray, Mahoney hired a business expert, Preston Sumner, as an advisor, with a ten-percent contingency fee for Sumner if Mahoney won his case.

When Mahoney disclosed Sumner as an expert witness in the case, Murray objected, arguing that Colorado Rules of Professional Conduct (RPC) 3.4(b) prohibit compensating witnesses on a contingency fee basis.

The trial court agreed in part, prohibiting Sumner from testifying as an expert witness, but allowing him to testify as a summary witness. Sumner testified and the jury returned a verdict in favor of Mahoney. Murray appealed, again challenging Sumner's testimony.

The court of appeals partially rejected Murray's arguments, but remanded the case back to the trial court to determine whether Sumner's testimony should have been excluded.

Murray petitioned the Colorado Supreme Court for review. The Supreme Court affirmed in part and reversed in part. It found that:

• Excluding testimony of improperly compensated witnesses is within the discretion of trial courts.
• Allowing summary witness testimony is reasonable if the evidence is sufficiently complex and voluminous.
• Admitting summaries that characterize evidence in an "argumentative fashion" is an abuse of a trial court's discretion.

The Colorado Supreme Court agreed with the court of appeals that the contingency fee agreement violated Colorado RPC 3.4(b), in which Comment 3 states: "It is improper to pay any witness a contingent fee for testifying." The Supreme Court found, however, that "… the violation of an ethical rule does not displace the rules of evidence." "[T]rial courts retain the discretion under CRE 403 to exclude the testimony of improperly compensated witnesses."

The trial court did not abuse its discretion because the probative value of Sumner's testimony was not substantially outweighed by the danger of unfair prejudice, the Supreme Court found, noting that the professional conduct code does not say that the testimony of such witnesses is inadmissible.

The trial court's constraints on Sumner's testimony — only allowing him to summarize previously introduced evidence and not allowing him to offer any conclusions or opinions — was proper, the Supreme Court ruled. However, it found that the trial court erred in admitting one of Sumner's summary charts, because it included arguments of counsel. As the chart did not substantially influence the outcome of the case, the Court found the error harmless.

The Supreme Court reversed the court of appeals' judgment remanding the case to the trial court, affirming its on all other issues.