Thursday, July 12, 2007
The payment of legal fees is a hot issue in white collar crime cases these days because of the enormous costs of defending multiple investigations and, in some instances, indictments that could result in an effective life term of imprisonment if there's a conviction. In the KPMG tax shelter prosecution (U.S. v. Stein), U.S. District Court Judge Lewis Kaplan asked prosecutors to give him some estimate of what a "reasonable, privately-funded defense would cost in this case." The Judge asked for the response as part of his determination of the appropriate remedy to grant because the government pressured the accounting firm to cut off attorney's fees for its former employees and partners. Prosecutors from the Southern District of New York gave a judicious -- if unhelpful -- response: to paraphrase, "We have no clue." The letter to the court (available below) is interesting because it gives estimates of the cost of private counsel in a number of high profile cases based on media and other reports, including Jeffrey Skilling ($70 million), Richard Scrushy ($21 million in the HealthSouth fraud trial), Dennis Kozlowski ($26 million), John and Timothy Rigas ($25 million). We would add to the list the claim for over $15 million in attorney's fees for Douglas Lake (Westar Energy -- see earlier post here), and Lord Conrad Black, whose fees have exceeded $20 million (see earlier post here).
In most of the cases, the corporation for which these defendants worked were obligated to pay the attorney's fees under broad indemnification provisions in place at most larger businesses, especially publicly-traded corporations. And for the public companies, they often have to reveal the costs of defending their officers, directors, and employees when the numbers become "material" to their financial statements. Of course, attorney's fees become a problem when the company goes into bankruptcy and the D&O insurance policy runs out.
In discussing what would be a "reasonable" defense cost in the Stein prosecution, the federal prosecutors couldn't help taking a shot at the defense lawyers, while abjuring their ability to determine what is (or is not) reasonable: "There are many avenues of legal work some defense counsel have indicated (formally or informally) they are considering pursuing which the Government believes will be fruitless and, in any event, likely to lead to results that are completely irrelevant and inadmissible. But what work a defense attorney should actually do to provide a 'reasonable' defense, and what those services would reasonably cost, does not strike us as something on which we could appropriately express an opinion that would be helpful to the Court." (ph)