1. CHAPTER ____ FUND COUNSEL’S PERSPECTIVE
Payroll Auditor as Witness.
Every time a payroll auditor completes an audit billing summary for a pension fund or
welfare fund (the “Fund”), the auditor is also preparing a piece of evidence for potential
litigation against a delinquent employer. The auditor is also preparing to testify under oath in
that litigation. Although the percentage of fringe benefit collections lawsuits that are contested is
low, Fund Counsel must occasionally call upon the payroll auditor to testify in a collections
lawsuit to support a payroll audit. In contested litigation, payroll auditors will be asked to testify
in a deposition, trial or other legal proceeding, and the testimony is vital to the Fund’s success,
because the audit is a crucial part of the Fund’s damages – money – claim.
Payroll auditors are often independent contractor/service providers for the Fund, and they
might have separate counsel throughout the proceedings. In that case, the Fund may not assert
“attorney-client” privilege with respect to comments made by Fund Counsel to the payroll
auditor. Nevertheless, the Fund, through its counsel, should be clear at the beginning, as to the
use of Fund Counsel or the auditor’s counsel.
Depositions.
A deposition is primarily used as a tool to preserve witness testimony. It is recorded, and
a witness has the opportunity to read and revise the answers. In addition to preserving witness
testimony, depositions are useful in assessing witness performance and credibility. Accordingly,
witness preparation and performance cannot be taken lightly, and it is an important part of a
winning strategy.
In preparing a payroll auditor – or any other witness - Fund Counsel should challenge the
witness to stick to only four answers to any question posed:
(1) “Yes,”
(2) “No,”
(3) “I don’t know,” and
(4) “I can’t remember.”
This is the Four Answer Rule (“FAR”). Usually, it is the delinquent employer’s attorney
deposing the payroll auditor, and the deposition becomes a recorded adversarial conversation.
Any information given outside the boundaries of the FAR will only assist the delinquent
employer’s case and hurt the Fund’s case. It is not dishonest to promote the FAR. It is a
reminder that guessing during a deposition examination will lead to harmful testimony, and it
could diminish a witness’s credibility.
Often a witness does not care to admit not knowing all the details, and that witness will
take risks in explaining things not fully grounded. It is crucial for witnesses to swallow their
pride and stick to the FAR. Here is an example of the FAR in action: Mr. Beebe, the Fund’s
payroll auditor, is subpoenaed by the delinquent employer’s attorney for a deposition in a
collections lawsuit. One of the Fund’s key pieces of evidence is Mr. Beebe’s payroll audit, and
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2. the delinquent employer’s attorney wants to depose Mr. Beebe in an effort to find weaknesses in
the audit.
Attorney: Mr. Beebe, on line 20 of Exhibit A (payroll audit), what
made you conclude that the particular individual performed
172 hours of covered employment?
Mr. Beebe: I don’t know.
Attorney: What do you mean you “don’t know?”
Mr. Beebe: I...don’t ...know.
Well done, Mr. Beebe! The FAR is intact. Perhaps Mr. Beebe could have said that he
has a detailed protocol he follows to determine which individuals are performing covered
employment, and he guesses that individual fit the protocol. But that was not the question. The
question was directed to the particular audit entry.
Chances are that Mr. Beebe does not have his audit notes before him, and the question
asks him to reach back into his memory bank to articulate the rationale for Line 20’s entry. The
payroll audit may have taken place months, maybe years, before the lawsuit, and Mr. Beebe
would be speculating and guessing if he were to try to completely piece it together to answer the
deposition question. Mr. Beebe is not being dishonest, but the delinquent employer’s attorney is
guilty of framing a poorly crafted question. Unless otherwise commanded, Mr. Beebe does not
have to bring his audit notes with him. Let’s hear some more:
Attorney: Did you ever discuss Exhibit A with Mr. Staab, Plaintiffs’
attorney?
Mr. Beebe: Yes.
Attorney: What did Mr. Staab say to you about Exhibit A?
Mr. Beebe: I can’t remember.
Again, well done, Mr. Beebe! As much as the attorney’s question appears to be hearsay
and protected by the attorney-client privilege, it is not. Hearsay is objectionable only if it is
being offered to prove the case; i.e. “Mr. Staab said he burned down the house.” Also, if Mr.
Beebe is not a Fund employee, then there would be no attorney-client privilege with respect to
conversations between Mr. Staab and Mr. Beebe. The point of this example is that witnesses are
often asked to re-play conversations that occurred weeks, months and years ago. In this
particular exchange, the inquiry was open-ended and vague. That is the clue for Mr. Beebe to
conclude that he cannot possibly remember each word Fund Counsel said to him about the audit.
FAR serves well in answering the question. Mr. Beebe and Fund Counsel met frequently to
discuss the payroll audit. Mr. Beebe has a good memory, but nobody remembers every word of
each conversation that occurred several months before.
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3. It is crucial for every payroll auditor witness to wait for Fund Counsel to state an
objection before answering the deposition question. Objections are tools for attorneys to prevent
evidence from being introduced. Objections in a deposition do not get a ruling, because there is
no judge present to make a ruling. But the objection is recorded in the transcript, and it is
preserved for the moment the testimony is being offered as evidence. Not every question is
objectionable, but many are, and the witness should allow for objections to be raised.
Sometimes the delinquent employer’s attorney will ask a simple - but objectionable - question,
and the witness will answer before any objection can be raised. That shows the attorney that the
witness may be out of control. In a deposition, the attorney(s) might state their objection, and
then instruct the witness to answer the question. Deposition examination has a broader inquiry
scope than trial examination, and answers will follow objections in almost all situations.
In his many years of being a payroll auditor, Mr. Beebe has realized that he is more
experienced than most delinquent employers’ attorneys in Fund collections lawsuits. Attorneys
do not build their practice around defending against Fund delinquency cases, because there are
so few defenses, and usually delinquent employers cannot afford an attorney from the beginning
of a lawsuit through the end of a lawsuit. There are many attorneys who represent employers in
all phases of their business, but Fund collections cases seldom repeat with represented
employers. Accordingly, it is not surprising to find delinquent employers’ attorneys stumbling
over which questions, or more importantly, what form of question, to ask. Here is more from the
deposition examination:
Employer’s Attorney: Mr. Beebe, what were you doing the morning of
August 31, 2006?
Mr. Beebe: I can’t remember. (He might want to start an irrelevant
chain recitation such as “I turned off my alarm, and I got out of bed. I
pushed the cat off the hamper, and I brushed my teeth. I went to the
kitchen and I prepared oatmeal.” Such a diatribe would be comically
unnecessary, but with Mr. Beebe’s experience, he will not disclose
anything harmful about the Fund. Besides, the asking attorney would
likely cut him off after pushing the cat off the hamper.)
Employer’s Attorney: Did you perform a payroll audit in the morning
of August 31, 2006?
Mr. Beebe: Yes.
Mr. Beebe could have answered the first question with a direct “I performed a payroll
audit.” But he resisted, and he stayed within the FAR. It is tempting for a witness to anticipate
what the questioner is trying to ask and then answer with what the witness thinks the questioner
is asking. If a question is open-ended, then a witness should resist taking the initiative to explain
what the witness thinks the questioner wants to hear. If the witness cannot resist, then there is a
risk that the witness will explain things that might end up being harmful to the Fund. Here is an
example of a “too eager” witness:
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4. Delinquent Employer’s Attorney: Mr. Beebe, is there any particular
reason you chose to audit my client’s payroll.
Mr. Beebe: (about to explode) Yes, the Fund’s trustees never liked the
President of your client’s company, and they wanted me to make his life a
“living hell.” They told me to “leave no stone unturned” and to go out of
my way to make him look like a big fat cheater.
At this point, Fund Counsel and the payroll auditing firm’s attorney have signaled “Time
Out!” and would like a few minutes with Mr. Beebe off the record. Mr. Beebe broke the FAR.
Although he answered “Yes,” he did not stop. He volunteered information that, even if true,
gave the attorney a set of facts that could damage the Fund’s case; i.e. help demonstrate that the
Fund’s payroll audit was done with a purpose other than to determine the veracity of the
employer’s reporting.
Get rid of the cell, or move it to the War Story Text I moved to the end
of the chapter.
Whenever delinquent employers’ attorneys conduct a deposition of adversarial witnesses,
they serve their clients by asking “Why” questions. “Why” questions provoke detailed witness
explanations. A detailed explanation in a deposition transcript could be damaging to the Fund,
especially if the same witness testifies differently at trial. Contrary testimony in a deposition
transcript can and should be used to impeach the witness at trial, and the witness’s credibility is
damaged. If the witness’s credibility is damaged, then the evidence is adversely affected. The
best way to show the effect of impeachment is the “often-thought-of-but-seldom-asked” follow-
up question: “Are you lying now, or were you lying in your deposition?” At this point, the
witness’s credibility is damaged, and the evidence is tarnished.
Sometimes the delinquent employer’s attorney wants to depose payroll auditors to test
what kind of witnesses they will be at trial. Too often that means the delinquent employer’s
attorney will try to test the payroll auditor’s stamina by asking many questions that do not seem
relevant to the case. The standards are not the same when it comes to relevant questions in trials.
In other words, what is irrelevant at trial is not necessarily irrelevant in a deposition. At some
point, the attorney defending the payroll auditor in the deposition may object and state that the
inquiry is not reasonably calculated to lead to the admission of relevant evidence. At that same
point, the attorney will counsel the witness to not answer the question. If the deposing attorney
wishes to pursue the inquiry, that attorney may call the judge or magistrate to get a ruling on the
objection. Or, which is the likely scenario, the objection instructions to not answer the inquiry
will stand without further arguments between counsel.
Rarely will Fund Counsel depose a payroll auditor, but Fund Counsel will certainly call
the payroll auditor as a trial witness for direct examination. There is no need to depose a payroll
auditor, unless Fund Counsel sees a need to preserve the auditor’s testimony due to the auditor’s
failing health or trial unavailability.
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5. Trials.
It does not happen very often that a fringe benefit fund delinquency matter goes to trial,
because the defenses are so limited to allow for contested issues to continue to exist through the
pre-trial stages. These cases usually conclude with entry of a default judgment, summary
judgment or settlement. Whenever there is a trial, a payroll auditor’s testimony is often the most
important piece of evidence to support the Fund’s claim for damages. Somebody needs to
support the audit findings, on which the Fund will rely on the damages portion of the trial. The
damages portion focuses on the “how much,” and the other portion, the liability portion, focuses
on the “whether” aspect of the Fund’s case.
With depositions, the goal is for the witness to abide by the FAR: “Yes,” “No,” “I don’t
know” and “I can’t remember.” The FAR is limited to depositions, however, and it is not
applicable to trials. At trial, the payroll auditor should say as much as possible on direct
examination to support the Fund’s case, because Fund Counsel will pursue the payroll auditor’s
testimony in support of the Fund’s damages claim.
A trial witness example includes payroll auditor, Mr. Vivirito. First, Fund Counsel must
decide whether to subpoena Mr. Vivirito or to just tell him to be at the courthouse for trial.
Subpoenas are court orders to appear somewhere, and they are usually used for hostile, unwilling
or unrelated witnesses. There are some attorneys who do things “by the book,” and their book
says “Serve a Subpoena on all witnesses!” Suppose Mr. Vivirito has never worked for this Fund
client before, or there might be some animosity between Mr. Vivirito and the Fund. If that is the
case, then Fund Counsel would play it safe and serve a subpoena and witness and mileage fees
on Mr. Vivirito. Otherwise, if Mr. Vivirito does not appear as verbally requested, then the
Fund’s damages claim will suffer unnecessarily. Below is a part of Mr. Vivirito’s direct
examination:
Clerk of Court: Mr. Vivirito, raise your right hand (some clerks
can’t help but tell “lefties” to raise “their other right
hand!”). Do you solemnly swear to tell the truth,
the whole truth and nothing but the truth?
Mr. Vivirito: I do.
Fund Counsel: Mr. Vivirito, earlier we heard testimony from Mr.
Jones from Local 123 and Mr. Davis, the President
of the defendant company regarding whether there
is a written agreement to pay the Fund monthly
contributions. Are you familiar with the payment
obligations of ABC corporation, the named
defendant in this law suit?
The point of Fund Counsel’s preliminary comment at the beginning of direct examination is to
signal a shift from the liability portion of the trial to the damages portion. This might be
preceded with introductory inquiry; i.e. name, education, background, etc.
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6. Mr. Vivirito is eager to answer Fund Counsel’s first question on direct examination, but
he remembers the MOST IMPORTANT RULE for testifying at trial: Wait for the Question to
be completed before answering it! This most important rule comes in handy for direct
examination, because an answer following a complete question fits neatly into Fund Counsel’s
trial strategy. If a witness starts answering too soon, then there are too many voices, which leads
to confusion in the courtroom. The Fund’s case can only be damaged by confusion, and the
delinquent employer hopes to spread as much confusion as possible. Perhaps Fund Counsel will
cue the witness with a head nod to signal that the question is complete. Better yet, Fund Counsel
can prepare the witness beforehand by telling the witness which questions are going to be asked.
Direct examination should sound like a collegial conversation that is being overheard by
everybody else in the courtroom.
If a witness does not understand the question, then the witness should state the lack of
understanding. Fund Counsel might trip over words or ask an incomprehensible question. It is
much better for the Fund’s case to declare the lack of understanding than to guess what was
asked. Any delay or guessing the question creates confusion and chaos. Mr. Vivirito’s answer
to the first question on direct examination is easy. All he has to say is “Yes.”
The “Most Important Rule” for trial witness testimony defined above is especially crucial
when being cross-examined by the delinquent employer’s attorney. After Fund Counsel is
finished with direct examination, the delinquent employer’s attorney follows with cross-
examination. A good cross-examination will elicit only “yes” or “no” answers. Occasionally,
the delinquent employer’s attorney might ask a cross-examination question that is objectionable,
and the “Most Important Rule” helps Fund Counsel to articulate an objection. If the question is
whether Mr. Vivirito had brushed his teeth before trial, Mr. Vivirito should wait for Fund
Counsel to interpose a relevancy objection. If Mr. Vivirito nevertheless spits out a quick “Yes, I
brushed my teeth!” then Fund Counsel’s objection is lost.
The purpose of cross-examination is to deflate that which direct examination has inflated.
Cross-examination is usually the most undesirable task for all witnesses. In this case, the
delinquent employer’s attorney is searching for potential weakness in the audit entries, and Mr.
Vivirito is the targeted person to be used to achieve this goal.
Delinquent Employer’s Attorney: Mr. Vivirito, on line 20 of Plaintiffs’ Exhibit
4, the name Steve Johnson appears. You do
not know whether Mr. Johnson was indeed
performing covered employment, do you?
(What was the question?!)
Mr. Vivirito: Yes. (He knows or he does not know
hmmmm?)
Delinquent Employer’s Attorney: At your deposition last October, didn’t you
say your conclusion on Mr. Johnson was
solely due to his wage rate?
Mr. Vivirito: Yes. (He didn’t or did he?)
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7. Delinquent Employer’s Attorney: In fact, isn’t the wage rate the only basis for
including the names on lines 1 through 21 of
Plaintiffs’ Exhibit 47?
Mr. Vivirito: Yes. (Is it or isn’t it?)
Fund Counsel should have anticipated this exchange, and in direct examination, Fund
Counsel would have had Mr. Vivirito explain the criteria for audit entries, which would have
reduced the harmful goal being sought by the delinquent employer’s attorney. In case Fund
Counsel did not elicit an explanation of the criteria in direct examination, then there is still re-
direct examination that follows cross-examination.
Re-direct examination is Fund Counsel’s opportunity to repair any harm done – deflation
– on cross-examination. It is good that Mr. Vivirito did not try to “salvage” his testimony on his
own volition during cross-examination. Sometimes witnesses tend to get combative if the cross-
examining attorney appears to be successfully deflating direct examination. If cross-
examination’s deflation cannot be repaired on re-direct examination, then there is something
wrong with the Fund’s case, and Fund Counsel should have anticipated it.
If re-direct examination is successful in fixing any harm that might have been perceived
from cross-examination. The examination process concludes with re-cross examination. If the
delinquent employer’s attorney asks the same questions in re-cross examination, then re-direct
examination was successful. Sometimes the presiding judge will ask questions, particularly if
there is no jury. The judge will make sure she fully understands the payroll audit, because it is
central to the Fund’s damages claim.
The Payroll Auditor as Expert Witness.
Fund Counsel should consider qualifying the Fund’s payroll auditor as an “expert”
witness. The Federal Rules of Evidence come into play because an expert witness is expected to
give an opinion about an aspect of the case. As an expert witness, the payroll auditor would be
permitted to give an “expert” opinion about various aspects of the audit (e.g., the amount of a
delinquent employer’s liability, etc.). There are no hard-set requirements for who can be an
expert witness. This is also a tactical maneuver, because it forces the delinquent employer to
consider getting its own expert witness to rebut the testimony of the Fund’s expert, the payroll
auditor. It is hopeful the delinquent employer will see that the additional expense and effort of
finding its expert might be too much.
What happens if the auditor does not live up to the expectation of an “expert?” There is
no real minimum education requirement for a payroll auditor, and many of my Funds use payroll
auditors who do not have a college degree. They can still be experts. But if the hope is to also
force the delinquent employer to hire an expert, then there is a risk that the delinquent employer
will find a CPA from one of the big accounting firms. If a court is weighing expert witness
testimonies and the Fund’s payroll auditor has a 2-year associate’s degree, it does not look very
good when the delinquent employer’s expert is a CPA and a published author. The tactical ploy
of qualifying the Fund’s payroll auditor as an expert witness could actually backfire.
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8. The question on whether to make the payroll auditors an expert will depend on the need
for the payroll auditor’s opinion. Fund Counsel usually does not be seek an opinion from the
auditor, but rather a factual recitation of what was reviewed, what was determined to be the
delinquency, and is the payroll audit summary an accurate reflection of the payroll audit. Even
in that short scope, there is a risk that opinion testimony might be heard. It is not so much the
verbal testimony, but rather the written exhibit(s), from which the payroll auditor is testifying.
Two of the most important exhibits to introduce at trial are the Fund’s payroll auditing
procedures and the payroll audit summary. Both of these exhibits will be introduced through
either the payroll auditor who did the actual audit or that auditor’s supervisor. The payroll
auditing procedures should be a product approved by the Fund’s Board of Trustees with the
assistance and consultation of Fund Counsel, Fund Auditor and Fund Administrator. There is no
firm rule as to what should be in the procedures, and it is important that the auditor and the
Fund’s trustees follow the procedures. If the auditor or the trustees failed to follow it, then the
document can be a hurtful trial exhibit for the Fund. The same is true for the payroll audit
summary. It must be prepared in such a way that the trustees can understand it and the auditor
can explain it. If the auditor’s supervisor is the testifying witness, then it is crucial that the
supervisor also played a direct role in the review and approval of the actual audit exhibit.
Otherwise, the supervisor lacks the appropriate foundation to serve as the witness to the
particular exhibit. It could therefore be damaging to the Fund’s case if the supervisor witness
has not seen the audit until trial.
In trial preparation, Fund Counsel usually obtains all of the exhibits’ admission stipulated
before the trial starts. This eliminates objections at trial and allows for free flow testimony. At
trial, Fund Counsel should focus energy on cross-examination of the delinquent employer and
not worry whether the payroll audit will make it into evidence.
FUND COUNSEL WAR STORY
Several years ago, I defended a deposition of a Fund trustee, who was being asked by the
delinquent employer’s attorney about how the Fund selects employers to be audited. Instead of
saying “I don’t know,” the trustee had a panic-stricken look on his face and started to turn red.
He did not know, and he did not want to admit it. He thought it would be embarrassing for a
trustee to not know how employers are selected for payroll auditing. The deposing attorney
sensed she could ease the Trustee by illustrating possible scenarios. Here is roughly how it
went:
Attorney: So, did the trustees pass around a hat with names, and the
employer’s name that got pulled from the hat is who got audited? Is that
how it went?
Trustee: (stuttering) Yeah, that’s how it went, there was a hat with
names, and we would pull the names for audit.
Attorney: Really? Where is the hat?
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9. Fund Counsel Staab: (head spinning) Hold it! Can we take a five minute
break?!
In the hallway outside the deposition room, I asked the Trustee what that was about,
especially when there was no such process or hat. He said he did not know, he panicked, and he
was easily susceptible to suggestion. I reminded him he was under oath, and that he cannot lie
under oath. We returned to the deposition, and the trustee had an opportunity to testify that there
was no hat and that he had no clue how employers were selected. It is not embarrassing to admit
not knowing.
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10. Fund Counsel Staab: (head spinning) Hold it! Can we take a five minute
break?!
In the hallway outside the deposition room, I asked the Trustee what that was about,
especially when there was no such process or hat. He said he did not know, he panicked, and he
was easily susceptible to suggestion. I reminded him he was under oath, and that he cannot lie
under oath. We returned to the deposition, and the trustee had an opportunity to testify that there
was no hat and that he had no clue how employers were selected. It is not embarrassing to admit
not knowing.
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