In an earlier post, here, I discussed Judge Lewis Kaplan's hearing regarding the prosecution's apparent application of the Justice Department's Thompson Memorandum to pressure KPMG to withdraw payment of attorney fees for the KPMG employees indicted in the tax shelter scandal. KPMG first capped the fees it would pay at $400,000 and then terminated legal fees for some of the indicted employees.
Judge Kaplan held a hearing on May 8 in which he appeared to side with the individuals and against the government. See, e.g., Judge Kaplan Has KPMG, Prosecutors and Thompson Memo Under a Microscope, 20 Corporate Crime Reporter 21 (May 19, 2006). As Mark Hamblett noted in the May 26 New York Law Journal, the "Briefs [for the hearing] Reflect High Stakes in Fight Over KPMG's Attorney Fee Policy."
Big guns fired for the defendants--the Securities Industry Association, The Association of Corporate Counsel, the Bond Market Association, the Chamber of Commerce, the New York Council of Defense Laywers and the National Association of Criminal Defense Lawyers all filed amicus curiae briefs. Id. They argued that government pressure on firms to withhold funds for representation is unconstitutional interference with the Sixth Amendment right to counsel and the Fifth Amendment right to due process, as well as deprivation of a property interest. One amicus brief argued that the potential for a firm to refuse to pay legal fees would make it harder for employees to get loans from financial institutions to cover their defense and would make the "busiest and most effective" criminal attorneys reluctant to represent them. Briefs [for the hearing] Reflect High Stakes in Fight Over KPMG's Attorney Fee Policy.
The government, for its part, argued that it had not pressured the firm but merely inquired about its practices. The government suggested that its interest had not been determinative: it sent four letters to KPMG about employees who were not cooperating, and in only one of those cases did KPMG terminate fees. Id.
Tuesday morning Judge Kaplan released his decision on KPMG executives' attorney-fee claim. He ruled that the government had "held the proverbial gun to [KPMG's] head" and "violated the Constitution it is sworn to defend." He found violations of both the Fifth and Sixth Amendment rights, and concluded that the "volume of evidence and the limited budget of many of the defendants had hindered their ability to construct defenses." See this Jonathan Stempel story on Reuters and this New York Times story.
I am not a constitutional lawyer and so will not comment on the intricacies of the Fifth and Sixth Amendment claims. As someone who cares enormously about the way our justice system works in practical matters in a society that is increasingly divided between the haves and the have nots, however, I find myself wondering why these defendants should be entitled to hundreds of thousands of dollars of legal fee assistance from their firm, when poor defendants may be stuck with a barely competent attorney from a public defenders office who has neither the time, money, nor inclination to acquaint himself with his client or mount a sophisticated defense. It seems to be yet another example of the way our system is tilted in favor of those who have access to power. This decision will ensure that powerful executives continue to have the best team of defendants that their employer corporation can provide to sift through reams of evidence, but it won't do a thing to protect the many poor criminal defendants who may even face the death penalty with counsel who literally sleep on the job.
I wonder, too, about the role that corporate indemnification arrangements play in managers' decisions to engage in aggressive strategies that push the legal envelope, whether in terms of financial accounting ,as in the Enron case, or tax shelters, as in the KPMG case. By removing the risk of having to use personal resources to pay for their own defense or possibly having to use less skilled lawyers, indemnification arrangements may free managers to take "too much" legal risk. One way to lessen the impact that such arrangements may have would be to require employees to repay the funds if they are found guilty, as is sometimes done. Reasonable caps on the indemnification amount might also provide a cautionary signal to managers.
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