Following what some praise as a landmark ruling where a federal judge blasted the tactics of government prosecutors and struck down crucial portions of the so-called Thompson Memo, the legal world is abuzz over the implications of the case, and some are pushing the Justice Department to modify its guidance to prosecutors.
The decision, handed down by Judge Lewis Kaplan in New York on June 26, said the Justice Department had improperly pressured KPMG to stop paying the legal bills of 16 former employees charged with selling bogus tax shelters. Kaplan also squarely took on the Thompson Memo, a document the Justice Department drafted in 2003 to outline the criteria prosecutors should consider in determining whether to indict a company (see copy of the memo and related coverage in box at right).
A central criterion of the Thompson Memo was a company’s cooperation with prosecutors. Defense lawyers have long grumbled that prosecutors abuse that provision, implicitly threatening to indict companies if they don’t agree to strong-arm tactics such as cutting off financial support for employees facing trial. Kaplan’s decision, United States v. Stein, said the Thompson Memo does indeed encourage such extremes and ruled those clauses of the document unconstitutional.
Defense lawyers rejoiced at the ruling, and have quickly begun speculating on how far Kaplan’s decision may reach.
Hockeimer
“The next frontier may be for courts to focus on instances where the government has required companies to waive the attorney-client and work product privileges in order to be deemed ‘cooperative,’” says Henry Hockeimer, a partner at Ballard Spahr Andrews & Ingersoll. “Judge Kaplan’s due process analysis—done in the context of the government pressuring companies to not advance fees—may have applicability in the privilege waiver context.”
Hockeimer says the vehicle for that could be a motion to suppress or a motion to prevent the government from introducing statements made by employees to in-house or outside counsel. “There could be due process and Fifth Amendment interests implicated,” he says.
Martz
Stephanie Martz, director of the National Association of Criminal Defense Lawyers’ White Collar Crime Project, agrees that Kaplan’s Fifth Amendment analysis “could apply to other parts of Thompson Memo.” Martz also says the Sixth Amendment’s right to due process could enter the picture.
“I think what’s important is the factual analysis and finding Judge Kaplan made that the presence of the language in the memorandum is inherently coercive and that alone is enough for constitutional violation,” she says.
Digging In?
Khoury
Paul Khoury, a partner at law firm Wiley Rein & Fielding, says the decision is likely to affect the way both prosecutors and defense counsel handle legal fees going forward.
Before they question the payment of legal fees, Khoury says, prosecutors “will have to recognize that they might put themselves in a dangerous position, because they might be perceived as implying that unless companies cut off funds to former employees under investigation, they may be indicted.”
He also says defense counsel are likely to try to address the payment of legal fees “more head on” with prosecutors as a result. “They’re likely to say, ‘Let’s avoid the mess that occurred with KPMG. We’re cooperating in every manner we can, but we have a pre-existing practice of providing fees to employees in these circumstances. We’re planning on continuing our policy, but that in no way impacts the cooperation we’re providing,’” Khoury says.
“As long as it remains good law, the decision will provide companies cover to advance fees and will stop the DoJ from aggressively insisting on termination of advancing fees in exchange for viewing a company as cooperative.”
— Henry Hockeimer, Ballard Spahr Andrews & Ingersoll
Hockeimer at Ballard Spahr says the decision will affect districts where federal prosecutors have been “aggressive in pushing” the Thompson Memo’s provisions.
“Whether it’s binding precedent or not, it’s a decision that U.S. attorney offices have to be aware of,” he says. “As long as it remains good law, the decision will provide companies cover to advance fees and will stop the DoJ from aggressively insisting on termination of advancing fees in exchange for viewing a company as cooperative.”
Others aren’t so sure. While it’s “significant as a legal matter,” says Larry Ribstein, a law professor at the University of Illinois, Kaplan’s decision alone may not have much impact on the government’s actions.
Ribstein
“From the evidence we’ve seen so far, the government is digging in its heels,” Ribstein says. “A big question is whether Judge Kaplan might get so frustrated with KPMG’s refusal to pay defendants’ legal fees, and the possible government role in this refusal, that he might do what he initially declined to do and dismiss the indictment.”
The Justice Department itself said at the time of Kaplan’s decision that it would consider appealing. No such appeal has been made yet, but Justice Department spokesmen declined to elaborate further for this story.
Pushing For Changes
Still, Martz and others are hopeful that Kaplan’s ruling could trigger wider efforts by defense lawyers and other groups to modify the language in the Thompson Memo.
NACDL is part of a coalition that includes the U.S. Chamber of Commerce and the Association of Corporate Counsel, among others, pushing the Justice Department to revise Thompson Memo “in a way that doesn’t jeopardize corporate compliance programs, unduly interfere with corporate governance, and protects the rights of individual employees,” Martz says.
“We have the third branch of government saying this is unconstitutional and House lawmakers have expressed extreme displeasure about these practices,” she says. “I don’t think the Justice Department can ignore this any more.”
Stephen Bronis, a partner at Zuckerman Spaeder and chair of the American Bar Association’s White Collar Crime Committee, says the Kaplan decision will be all the more influential because it comes on the heels of the U.S. Sentencing Commission’s decision in April to eliminate language in the Federal Sentencing Guidelines that companies must waive attorney-client privilege to be considered cooperative with investigators.
Bronis
“This decision puts the Justice Department in a very defensive position regarding the provisions in the memo,” Bronis says. He cites the ABA’s own effort to get the Justice Department to change the waiver policy “to eliminate any suggestion” that waiver of attorney-client or work product privilege should be considered when prosecutors mull whether to indict a company.
“The decision in the Stein case may be significant in providing the platform to make those arguments to the Department of Justice and other courts,” he says.
Bronis noted that the ABA White Collar Crime Committee is working on a resolution that he says “will discuss the issues raised by the Thompson Memorandum as they impact upon the ethical responsibilities of lawyers representing corporations and employees.”
Still, Khoury urges patience. “I don’t think this decision means the Thompson Memo is now fair game for complete rewriting,” he says. “This is the first significant push back we’ve seen.”
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