U.S. v. Stein
| Decision Date | 06 September 2006 |
| Docket Number | No. SI 05 Crim. 0888(LAK).,No. 06 Civ. 5007(LAK).,SI 05 Crim. 0888(LAK).,06 Civ. 5007(LAK). |
| Citation | 452 F.Supp.2d 230 |
| Parties | UNITED STATES of America, v. Jeffrey STEIN, et al., Defendants. In re United States of America, v. Jeffrey Stein, et al., Defendants. Jeffrey Stein, et al., Plaintiffs, v. KPMG LLP, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Justin S. Weddle, Kevin M. Downing, Stanley J. Okula, Jr., Margaret Garnett, Assistant United States Attorneys, Michael J. Garcia, United States Attorney, Charles A. Stillman, Stillman Friedman & Schechtman, P.C., Robert S. Bennett Skadden, Arps, Slate, Meagher & Flom LLP, Attorneys for KPMG LLP.
David Spears, Spears & Imes LLP, Attorney for Jeffrey Stein and on, the advancement claim only, John Lanning.
Michael Madigan, Robert H. Hotz, Jr., Christopher T. Schulten, Akin Gump Strauss Hauer & Feld LLP, Attorneys for John Lanning on the indictment.
Robert S. Fink, Caroline Rule, Fran Obeid, Kostelanetz & Fink, LLP, Attorneys for Richard Smith.
Stanley S. Arkin, Joseph V. DiBlasi, Elizabeth A. Fitzwater, Arkin Kaplan Rice LLP, Attorneys for Jeffrey Eischeid.
Ronald E. DePetris, Marion Bachrach, Dana Moskowitz, DePetris & Bachrach, LLP, Attorneys for Philip Wiesner.
Steven M. Bauer, Karli E. Sager, Latham & Watkins, LLP, Attorneys for John Larson on the indictment.
Stephen Willey, Savitt & Bruce, LLP, Attorney for John Larson on the advancement claim.
David C. Scheper, Julio V. Vergara, Overland Borenstein Scheper & Kim LLP, Attorneys for Robert Pfaff.
Susan R. Necheles, Hafetz & Necheles, Attorney for Richard Rosenthal.
Diana D. Parker, Attorney for Larry DeLap.
John R. Wing, Lankier Siffert & Wohl LLP, Attorney for Larry DeLap on the indictment.
John F. Kaley, Doar Rieck Kaley & Mack, Attorney for Steven Gremminger.
Cristina Arguedas, Ann Moorman, Arguedas, Cassman & Headly, LLP, Michael Horowitz, Michelle Seltzer Cadwalader, Wickersham & Taft LLP, Attorneys for Gregg Ritchie on the indictment.
David Campbell Smith, McNamara, Spira & Smith, Attorney for Gregg Ritchie on the advancement claim.
George D. Niespolo, Duane Morris LLP, Attorney for Randall Bickham on the indictment.
Marc Fenster, Russ August & Kabat, Attorney for Randall Bickham on the advancement claim.
Michael S. Kim, Leif T. Simonson, Kobre & Kim LLP, Attorneys for Mark Watson.
John A. Townsend, Townsend & Jones LLP, Attorney for Carol Warley on the indictment and the advancement claim.
James R. DeVita, Bryan Cave LLP, Attorney for Carol Warley on the indictment.
Russell M. Gioiella, Richard M. Asche, Litman, Asche & Gioiella, LLP, Attorneys for Carl Hasting.
David B. Pitofsky, Richard Mark Strassberg, Goodwin Proctor LLP, Attorneys for David Greenberg on the indictment.
Leonard F. Lesser, Simon Lesser P.C., Attorney for David Greenberg on the advancement claim.
This is said to be the largest criminal tax case in our nation's history. The indictment charges nineteen defendants, seventeen of them formerly partners or employees of the giant accounting firm, KPMG, with conspiracy and tax evasion.1
The Court previously held that the government violated the Fifth and Sixth Amendment' rights of the defendants formerly associated with KPMG (the "KPMG Defendants") by causing KPMG.—under threat of indictment and destruction of the firm—to depart from its uniform prior practice of paying the legal expenses of KPMG personnel in all cases in which they were named in consequence of their activities on behalf of the firm. It found that KPMG would have paid those expenses— whether legally obliged to do so or not— but for the government's improper conduct, a finding that is binding as between the defendants and the government. The Court, however, deferred the request of the KPMG Defendants to dismiss the indictment based upon the government's misconduct, reasoning that dismissal might prove inappropriate if KPMG were obligated to advance the defense costs, in which case all or much of the harm caused and still threatened by the government's actions might be remedied or avoided. The Court held that it has ancillary jurisdiction over the claims against KPMG for advancement of defense costs and permitted the assertion of those claims in this case. In addition, it postponed the criminal trial for approximately four months, in part to afford KPMG—which already had participated in the criminal case insofar as the KPMG Defendants sought a remedy from KPMG—a fuller opportunity to defend against those claims.
The KPMG Defendants, as contemplated by the Court's previous opinion ("Stein I"),2 served a summons and complaint on KPMG in the criminal case for advancement of defense costs. KPMG has moved to dismiss for lack of subject matter jurisdiction and on the merits.
• safeguard the defendants' rights to a fundamentally fair trial, and
• seek to avoid imposing defense costs on the taxpayers, which is what will occur to the extent that any of the KPMG Defendants go broke trying to defend themselves.
Accordingly, after careful consideration, the Court has concluded that enforcement of any applicable arbitration clause, to the extent that it would require arbitration of claims for advancement of legal expenses in this case, would be against public policy. This Court will resolve the advancement claims on the merits.
KPMG argues also that the advancement claims of a number of the KPMG Defendants are foreclosed by the KPMG partnership agreement and, in any case, have been released. Its partnership agreement argument is without merit. As one of the KPMG Defendants in fact may have released KPMG from any obligation to advance defense costs, however, the motion to dismiss as to him is converted into one for summary judgment on that issue. In a number of other instances, the release issue presents a question of fact for trial. In still others, it is without merit.
KPMG makes also a number of other arguments. It attacks the subject matter jurisdiction of the Court and the legal sufficiency of the advancement complaint. It raises as well a number of procedural contentions. These arguments, however, all fail. The advancement claims will proceed to a prompt trial except perhaps in the case of one KPMG Defendant whose claim may be subject to dismissal on summary judgment.
The Court assumes familiarity with Stein I and its subsequent opinion, which granted in part the KPMG Defendants' motion to suppress statements made to the government.3 These give the background against which this matter arises.4 It suffices for present purposes to summarize briefly both the KPMG Defendant...
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APPENDIX 7. American College of Trial Lawyers' recommended practices for companies and their counsel in conducting internal investigations (february 2008)
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