June 25, 2007
The Problem of Remedy in the KPMG Tax Shelter Prosecution
The government's brief (available below) in opposition to the motion to dismiss filed by the former KPMG partners and employees in the large tax shelter prosecution is not so much an opposition as it is an acknowledgment of the reality of crafting a remedy for the constitutional violations found by U.S. District Court Judge Lewis Kaplan. While it may come as a surprise that the government supports the defendant's argument in favor of dismissal, the brief acknowledges the reality of Judge Kaplan's finding that the denial of attorney's fees by KPMG in response to government pressure constituted a violation of the defendants' Sixth Amendment rights. In his opinion (available here), Judge Kaplan found that the Sixth Amendment violation was "structural," which means that the prejudice to the defendants cannot be remedied short of dismissal.
The government still contests Judge Kaplan's analysis, but concedes that if it is correct, then the only alternative authorized by the Supreme Court for such a violation would be dismissal if KPMG cannot be compelled to pay the attorney's fees. The Court's recent decision in U.S. v. Gonzalez-Lopez, 126 S.Ct. 2557 (2006), requires automatic reversal of a conviction for denial of the right to counsel of choice, a type of "structural" error, and the district court found that the Sixth Amendment violation for the KPMG defendants rested on the same constitutional protection. Prosecutors did not accept the Judge's invitation to offer other remedies because they could not find any that would redress the violation. Any remedy short of dismissal would not correct the "structural" violation of the defendants' rights found by Judge Kaplan, and therefore a conviction would have to be reversed. The brief states:
Given the logic and express holdings of the Court’s decision in Stein I, and given (i) the ruling by the Court of Appeals on the ancillary jurisdiction question and (ii) the fact that KPMG steadfastly declines to pay the defendants’ fees, it is difficult to understand how anything short of dismissal of the Indictment would suffice. The Court has held that the defendants’ Fifth and Sixth Amendment rights have been infringed and that those violations have led to “structural error,” and the remedy that the Court hoped would restore the defendants “to the position they would have occupied but for the government’s constitutional violation” has not come to pass. If the Court’s analysis and holdings in Stein I are correct — and we respectfully submit that they are not — on appeal “a per se rule of reversal [would apply] following any trial and conviction, when a structural error is present at trial, even if the record contains overwhelming evidence of guilt.” United States, 106 F.3d 450, 454 (2d Cir. 1997).
While it is clear that the government wants to appeal the case to the Second Circuit -- it appears to be champing at the bit to do so -- its brief does not misconstrue the cases or seek to mislead the court in order to obtain appellate review. The brief disputes the defense argument that dismissal is appropriate for "outrageous government conduct," and instead limits the argument in favor of dismissal to the Sixth Amendment violation. Moreover, it only recommend dismissal for twelve of the eighteen defendants, noting that the other six do not have a valid claim against KPMG for attorney's fees so there would not be a violation of their right to counsel triggering dismissal. The logic of Judge Kaplan's decision on the constitutional issues does not leave much room for any other remedy once the Second Circuit rejected his proposed claim procedure against KPMG (see earlier post here). If granted by Judge Kaplan and upheld by the Second Circuit, the dismissal would impose a significant cost on the government for its transgressions in pursuing the case. (ph)
UPDATE: A couple readers sent e-mails asking how the government can appeal a decision to dismiss that it appears to be agreeing to. The government's brief makes clear that, in its view, the only permissible remedy for the Sixth Amendment violation is dismissal of the indictment by the court, but the government is not conceding that the basis for that remedy is correct. Under 18 U.S.C. Sec. 3731: "In a criminal case an appeal by the United States shall lie to a court of appeals from a decision, judgment, or order of a district court dismissing an indictment or information or granting a new trial after verdict or judgment, as to any one or more counts, or any part thereof, except that no appeal shall lie where the double jeopardy clause of the United States Constitution prohibits further prosecution." If Judge Kaplan orders the indictments dismissed, it will not be with the government's acquiescence except to the extent prosecutors acknowledge it is the only -- or perhaps best -- remedy. This is not a case of a voluntary dismissal under Rule 48(a), and the government remains opposed to the remedy even though dismissal would allow it to appeal, which it probably wants very much to do. This is one of those funny little procedural technicalities, because if Judge Kaplan refuses to dismiss the indictment, the defendants cannot appeal that decision under the collateral order doctrine. (ph)
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