Legal News

Second Circuit Skeptical of Government?s Arguments in KPMG

By Dan Slater

Yesterday, a three-judge panel from the Second Circuit Court of Appeals heard arguments over whether the indictments of 13 former KPMG executives should be tossed due to the fact that prosecutors pressured the company not to pay the individuals’ legal fees. Last year, district judge Lewis Kaplan dismissed the indictments, concluding that the government violated the KPMG executives’ constitutional rights to counsel and due process. (Click here for a Law Blog timeline of the case’s confounding history.)

Karl Metzner, the prosecutor who argued the appeal for the government, said the issue, to the extent there was one, was remedied “five to seven months” after the 2005 indictments because the government eventually clarified that it wouldn’t penalize KPMG for advancing the defendants’ legal fees, which are estimated at between $10 and $44 million per defendant.

But according to this WSJ story by law blog colleague Amir Efrati, the court seemed unpersuaded. Judge Dennis Jacobs said that, even if prosecutors in the case had reassured KPMG that it was OK to pay the fees (which he didn’t believe they had), he questioned whether it was possible for the government to turn back the clock after allegedly pressuring the company on the issue. “You’re saying at that point KPMG is able to exercise judgment to pay fees. But hasn’t the calculus changed?” (Here’s another report from the NYLJ.)

Another judge on the panel, Peter Hall, also questioned whether the government could “put toothpaste back in the tube” after pressuring the company.

Metzner, the government’s advociate, said the earlier policy was meant to discourage companies from “protecting culpable employees by, among other things, advancing their legal fees.” He then added that, in general, “The government has no legitimate interest in impairing the quality or quantity of a defense.” At the hearing, Judge Jacobs said he couldn’t “reconcile those two positions.”

After his rebuttal argument, Efrati tells us, Metzner sat down and turned to his co-counsel and said “I tried.”

Arguing for the defense: Seth Waxman, a former U.S. solicitor general, and John Martin, a former U.S. district judge in Manhattan. And a nice day yesterday for Waxman in Foley Square — the Second Circuit also ruled against the NY airline passenger bill of rights law — Waxman represented the Air Transport Association of America.

Full post as published by Law Blog - WSJ.com on March 26, 2008 (boomark / email).