Saturday, October 13, 2007

Prosecutors File the Opening Brief Challenging Dismissal of 13 KPMG Defendants

The U.S. Attorney's Office for the Southern District of New York filed its brief (available below) with the Second Circuit in United States v. Stein seeking to overturn U.S. District Judge Lewis Kaplan's order dismissing the tax fraud charges against thirteen former KPMG partners and employees related to sales of allegedly abusive tax shelters.  Judge Kaplan found that the government violated the defendants' constitutional rights by pressuring KPMG into denying payment of their attorney's fees.  He determined that the then-named Thompson Memo -- now revised as the McNulty Memo -- violated the Sixth Amendment right to counsel, the defendants' substantive due process rights under the Fifth Amendment, and that the actions of prosecutors constituted "outrageous government conduct" requiring dismissal of the indictment. 

The government contests Judge Kaplan's factual findings and legal analysis.  The brief argues:

Because the defendants had no legal right to receive legal fees from KPMG, any Government involvement in KPMG’s decisionmaking did not violate the defendants’ Sixth Amendment rights. The outer limit of Sixth Amendment protection encompasses a criminal defendant’s right to use his own funds to finance his defense, but the Supreme Court has explicitly rejected the notion that a defendant has a similar right to funds from third parties.

The District Court also erred when it engaged in a Fifth Amendment substantive due process analysis of the Thompson Memorandum in Stein I. The “fundamental right” identified by the District Court in Stein I “to obtain and use in order to prepare a defense resources lawfully available to him or her, free of knowing or reckless government interference”—if found anywhere—falls within the Sixth Amendment right to counsel. And the Supreme Court has instructed that where a particular Amendment provides an explicit textual source of constitutional protection against a particular sort of government behavior, that Amendment, not the more generalized notion of substantive due process, must be the guide for analyzing such claims.

Moreover, the District Court’s substantive due process analysis was itself flawed. The District Court erroneously identified the right to use resources “lawfully available” for one’s defense free from knowing or reckless Government interference as a “fundamental right” deeply rooted in American tradition and values, on par with the rights to marry, to have children, to direct the education and upbringing of one’s children, to marital privacy, to use contraception, to bodily integrity, and to abortion. Whatever its importance, the right to use an employer’s resources for one’s defense is not “objectively, deeply rooted in this Nation’s history and tradition, and implicit in the concept of ordered liberty, such that neither liberty nor justice would exist if [it was] sacrificed.” As a result, to the extent that the Thompson Memorandum is evaluated as legislation, it must meet only a rational basis test, which it does easily.

The government's brief comes in at a hefty 25,690 words -- 106 pages -- and comfortably exceeds the Second Circuit's 14,000 word limitation.  A motion to accept the brief has also been filed, so the version below may not be the final one if the court rejects it.  Lengthy briefs in white collar crime cases are certainly not unknown, and the KPMG brief is less than half the length of former Enron CEO Jeffrey Skilling's opening brief, which came in at well over 200 pages.  Former Qwest CEO Joseph Nacchio's brief, also filed this week, is a veritable short story at a bit over 60 pages, below the 17,000 word maximum authorized by the Tenth Circuit in the case.  With the trial of the four remaining defendants in the Stein case set to start shortly, the government's evidence will be on display well before the Second Circuit decides on the dismissal of the other defendants. (ph)

Download us_v_stein_government_opening_2d_cir_brief_oct_10_2007.pdf

                                                                           

SidebarWall Street Journal reporter Paul Davies has written extensively on the KPMG case, providing very cogent analysis of a complicated prosecution.  According to the WSJ Law Blog (here), Paul is heading to the Philadelphia Inquirer as an editorial page editor.  I would like to wish him good luck, and his reporting on the case will be missed. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2007/10/prosecutors-fil.html

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