Wednesday, June 28, 2006

THE KPMG DECISION -- By far the biggest news of the day (yesterday and today) is Judge Kaplan's 88-page opus ruling that the government's tactic of forcing firms (like KPMG) to cut off their employee-defendant's legal fees is unconstitutional. As Judge Kaplan explained, "Those who commit crimes - regardless of whether they wear white or blue collars - must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend."

Needless to say, the decision has rippled across the white collar bar: "A federal judge ruled yesterday that a tactic used by prosecutors to crack down on corporate misconduct violated the constitutional rights of employees, a decision that may change the way the government pursues white-collar cases." See also WaPo.

WCCC Prof Blog has the highlights and is already drawing comparisons to Learned Hand.

To make a long story short, though, Judge Kaplan reasoned that under the Thompson Memo, which sets forth the DOJ's policy on prosecution of corporate entities, prosecutors were pressuring KPMG, which was facing a possible indictment of its own, to cut of their employee-defendant's legal fees, even though corporations routinely advance such fees. Such pressure probably would be proper if the pressure was narrowly tailoring, for example if the government was considering charging KPMG with obstruction or a similar allegation in which the payment of the fees might play a part. But otherwise, that pressure to cut off employees impinges on employees' abilities to defend themselves. Therefore, Judge Kaplan is going to allow the individual defendants to file claims for fees from KPMG.

In terms of analysis, WCCC Prof Blog favorably notes that Judge Kaplan recognized that white collar cases can be costly to individual defendants. And/but, as a consequence, director and officer insurers are probably taking note, and may impose their own restrictions on the advancement of fees to employee-defendants.

WSJ Law Blog has winners and losers and a hodge podge of views.