United States v. Stein
102 A.F.T.R.2d (RIA) 6023, 2008 U.S. App. LEXIS 18524, 541 F.3d 130 (2008)
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Rule of Law:
The government violates a defendant's Sixth Amendment right to counsel when it uses its prosecutorial power to coerce a private employer into altering its established policy of advancing legal fees, causing the employer to withhold funds that it otherwise would have paid for its employees' legal defense.
Facts:
- The Department of Justice promulgated the 'Thompson Memorandum,' which stated that in determining whether to indict a business organization, prosecutors could consider whether the company was paying the legal fees of culpable employees.
- Accounting firm KPMG, LLP had a long-standing, established practice of advancing legal fees for its employees in any civil, criminal, or regulatory proceeding, without a preset cap or a condition of cooperation.
- KPMG became the subject of a federal grand jury investigation into fraudulent tax shelters, which exposed the firm to a potentially ruinous indictment.
- In a meeting with KPMG's counsel, federal prosecutors referenced the Thompson Memorandum and questioned KPMG's fee advancement practice, warning that the government would look at any discretionary payments 'under a microscope.'
- Following this pressure, KPMG changed its policy to cap legal fees at $400,000, condition their payment on employees' full cooperation with the government's investigation, and terminate all payments upon an employee's indictment.
- Prosecutors regularly informed KPMG when they deemed an employee to be uncooperative, which prompted KPMG to threaten that employee with the termination of their legal fees.
- When the defendants, thirteen former KPMG partners and employees, were indicted, KPMG ceased advancing legal fees for their defense pursuant to its new policy.
Procedural Posture:
- The United States indicted thirteen former partners and employees of KPMG in the U.S. District Court for the Southern District of New York.
- The defendants moved to dismiss the indictment, alleging the government's conduct in pressuring KPMG to cease paying their legal fees violated their Fifth and Sixth Amendment rights.
- The district court conducted an evidentiary hearing and found that, but for the government's pressure, KPMG would have paid the defendants' legal fees unconditionally.
- The district court ruled that the government's actions violated the defendants' Sixth Amendment right to counsel and their Fifth Amendment right to substantive due process.
- After concluding that no other remedy would be sufficient, the district court dismissed the indictment against all thirteen defendants.
- The United States, as the appellant, appealed the dismissal of the indictment to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does the government violate defendants' Sixth Amendment right to counsel when it leverages the threat of corporate indictment to pressure an employer into capping, conditioning, and ultimately terminating its long-standing practice of advancing legal fees to its employees?
Opinions:
Majority - Jacobs
Yes. The government violates a defendant's Sixth Amendment right to counsel by unjustifiably interfering with their ability to fund their defense. The court found that KPMG's decision to change its fee advancement policy was a direct consequence of the government's coercive pressure, transforming KPMG's conduct into state action. The government used the threat of a corporate indictment and the Thompson Memorandum to compel KPMG to adopt a fee policy that served the government's prosecutorial interests. This conduct unjustifiably interfered with the defendants' relationship with their counsel and their ability to mount a defense using resources that, but for the government's actions, would have been lawfully available to them. Because the harm was complete and no other remedy could restore the defendants to their original position, dismissal of the indictment was appropriate.
Analysis:
This decision significantly curtails the government's ability to use prosecutorial pressure against corporations to indirectly weaken the defense of individual employees. By finding KPMG's conduct to be state action, the court extended Sixth Amendment protections to cover situations where the government effectively outsources its coercive power to a private entity. The ruling established a crucial check on the power of policies like the Thompson Memorandum, forcing the Department of Justice to revise its guidelines regarding what constitutes corporate cooperation. The case affirms that the right to counsel includes the right to use lawfully available resources for one's defense, free from unjustified government interference, even if those resources are voluntarily provided by a third party like an employer.
