Stein v. KPMG, No. 06-4358 (2d Cir. 2007)

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06-4358 Stein v. KPMG 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2006 4 (Argued: November 21, 2006 Decided: May 23, 2007) 5 Docket No. 06-4358-cv 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 JEFFREY STEIN, MARK WATSON, PHILIP WIESNER, RANDALL BICKHAM, LARRY DELAP, JEFFREY EISCHEID, DAVID GREENBERG, STEVEN GREMMINGER, CARL HASTING, JOHN LANNING, JOHN LARSON, ROBERT PFAFF, GREGG RITCHIE, RICHARD ROSENTHAL, RICHARD SMITH, and CAROL G. WARLEY, 27 criminal tax fraud prosecution by the United States District 28 Court for the Southern District of New York (Lewis A. Kaplan, 29 Judge) over a state law contractual claim for attorneys fees, 30 and from denial of a motion to compel arbitration under the Plaintiffs-Appellees, - v. - KPMG, LLP, Defendant-Appellant. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - B e f o r e: WINTER, HALL, Circuit Judges, and GLEESON,* District Judge. Appeal from the exercise of ancillary jurisdiction in a * The Honorable John Gleeson, of the United States District Court for the Eastern District of New York, sitting by designation. 1 1 Federal Arbitration Act. 2 intended to provide a remedy for Fifth and Sixth Amendment 3 violations found by the court. 4 for a writ of mandamus and grant the petition. 5 order asserting ancillary jurisdiction as beyond the district 6 court's power. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 This assertion of jurisdiction was We treat the appeal as a petition We vacate the SHEILA L. BIRNBAUM, Skadden, Arps, Meagher & Flom LLP, New York, New York (Barbara Wrubel, J. Russell Jackson, Preeta D. Bansal, Haydan A. Coleman, Skadden, Arps, Meagher & Flom LLP, New York, New York, Amy Sabrin, Skadden, Arps, Meagher & Flom LLP, Washington D.C., Charles A. Stillman, Stillman, Friedman & Shechtman, P.C., New York, New York, on the brief), for Defendant Appellant. DAVID SPEARS, Spears & Imes LLP, New York, New York, for Plaintiffs-Appellees Jeffrey Stein and John Lanning. RONALD E. DEPETRIS, DePetris & Bachrach, LLP, New York, New York (Marion Bachrach, on the brief), for Plaintiff-Appellee Richard Smith. John A. Townsend, Townsend & Jones, LLP, Houston, Texas, on the brief, for PlaintiffAppellee Carol G. Warley. David C. Scheper, Overland Borenstein Scheper & Kim LLP, Los Angeles, California, on the brief, for Plaintiff-Appellee Robert Pfaff. John F. Kaley, Doar Rieck Kaley & Mack, New York, New York, on the brief, for PlaintiffAppellee Steven Gremminger. David C. Smith, McNamara Spira & Smith, Los Angeles, California, on the brief, for Plaintiff-Appellee Gregg Ritchie. Leonard F. Lesser, Simon Lesser P.C., New York, New York, on the brief, for Plaintiff2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Appellee David Greenberg. Diana D. Parker, Law Offices of Diana D. Parker, New York, New York, on the brief, for Plaintiff-Appellee Larry DeLap. Michael S. Kim, Kobre & Kim LLP, New York, New York, on the brief, for PlaintiffAppellee Mark Watson. Marc A. Fenster, Russ, August & Kabat, Los Angeles, California, on the brief, for Plaintiff-Appellee Randall Bickham. Stanley S. Arkin, Arkin Kaplan Rice LLP, New York, New York, on the brief, for PlaintiffAppellee Jeffrey Eischeid. Robert S. Fink, Kostelanetz & Fink, LLP, New York, New York, on the brief, for PlaintiffAppellee Richard Smith. Stephen Willey, Savitt & Bruce LLP, Seattle, Washington, on the brief, for PlaintiffAppellee John Larson. Susan R. Necheles, Hafetz & Necheles, New York, New York, on the brief, for PlaintiffAppellee Richard Rosenthal. Russell M. Gioiella, Litman, Asche & Gioiella, New York, New York, on the brief, for Plaintiff-Appellee Carl Hasting. WINTER, Circuit Judge: This appeal is an offspring of a criminal tax fraud 37 prosecution. 38 Kaplan asserted ancillary jurisdiction over a state law contract 39 claim brought against KPMG, LLP, by sixteen of the defendants in 40 the criminal case, all former partners and employees of KPMG, 41 seeking to force it to pay their legal expenses. In the course of the criminal prosecution, Judge 3 KPMG appeals 1 from the decision allowing the ancillary proceeding and from the 2 denial of its motion to compel arbitration of the contract claim. 3 Construing KPMG s appeal as a petition for writ of mandamus, we 4 grant the petition. 5 asserting ancillary jurisdiction over the contract claim as 6 beyond the district court s power. 7 motion to compel arbitration are therefore moot. 8 9 We vacate the order of the district court The issues regarding KPMG s BACKGROUND The full history of the proceedings underlying this appeal 10 is reported in United States v. Stein, 435 F. Supp. 2d 330 11 (S.D.N.Y. 2006) (Stein I); United States v. Stein (Stein v. KPMG 12 LLP), 452 F. Supp. 2d 230 (S.D.N.Y. 2006) (Stein II). 13 Familiarity with these opinions is assumed, and we recount here 14 only those facts pertinent to the disposition of the present 15 appeal. 16 The underlying criminal prosecution is said to be the 17 largest criminal tax case in American history. 18 Supp. 2d at 237. 19 and tax evasion, including the appellees, who are former partners 20 or employees of the accounting firm KPMG. 21 are alleged to have, inter alia, devised, marketed, and 22 implemented fraudulent tax shelters that caused a tax loss to the 23 United States Treasury of more than $2 billion. 24 with the alleged tax shelters, KPMG entered into a deferred Stein II, 452 F. Nineteen defendants are charged with conspiracy 4 Id. The defendants In connection 1 prosecution agreement with the government, agreeing to cooperate 2 fully with the government and to pay $456 million in fines and 3 penalties. 4 its obligations under the agreement, it will escape prosecution. 5 Id. 6 Stein I, 435 F. Supp. 2d at 349-50. If KPMG performs The particular dispute giving rise to this appeal concerns 7 policies adopted by the Department of Justice in response to 8 highly visible public concerns over the compliance by business 9 firms with federal and state law. See Leonard Orland, The 10 Transformation of Corporate Criminal Law, 1 Brook. J. Corp. Fin. 11 & Com. L. 45 (2006). 12 called Thompson Memorandum, which set out standards to be 13 followed by federal prosecutors in determining whether to bring 14 criminal prosecutions against firms as well as their agents.1 15 See Mem. from Larry D. Thompson, Deputy Attorney General, U.S. 16 Dep t. Of Justice, to Heads of Department Components, United 17 States Attorneys, re: Principles of Federal Prosecution of 18 Business Organizations (Jan. 20, 2003) ( Thompson Mem. ), 19 http://www.usdoj.gov/dag/cftf/business_ organizations.pdf. 20 such standard deemed a firm s voluntary payment of wrongdoing 21 agents' legal expenses a factor favoring prosecution of the firm. 22 Id. at 7-8. The policies were established in the so- One 23 During the course of the investigation, and prior to the 24 indictments in this matter, KPMG negotiated with and paid the 5 1 legal fees of some, but not all, of the appellees. 2 indictment, however, KPMG stopped these payments. 3 F. Supp. 2d at 350. 4 the government had used the threat of prosecution to pressure 5 KPMG into cutting off payment of the appellees legal fees and 6 thereby violated appellees Fifth and Sixth Amendment rights to a 7 fair trial and the effective assistance of counsel. 8 The merits of that ruling are not before us on this appeal. 9 Upon Stein I, 435 In Stein I, the district court found that Id. at 382. The district court suggested that the constitutional 10 violation could be rendered harmless if the appellees could 11 successfully force KPMG to re-commence -- or, for some of the 12 appellees, commence -- paying their legal expenses. 13 376-78. 14 district court to open a civil docket number for an expected 15 contract claim by the appellees against KPMG for advancement of 16 their defense costs. 17 it would entertain the claims pursuant to its ancillary 18 jurisdiction over this case. Id. at 373, The court sua sponte instructed the clerk of the Id. at 382. The district court stated that Id. 19 The district court acknowledged a more obvious remedy for 20 the constitutional violations it had found -- dismissal of the 21 indictment -- and explicitly left that possibility open as an 22 incentive for the government to strongarm KPMG to advance 23 appellees' defense costs. 24 that the government violated appellees' constitutional rights by Id. at 380. 6 In short, having found 1 threatening to bring one indictment, the district court sought to 2 remedy the violation by threatening to dismiss another. 3 Following this invitation, the appellees filed the 4 anticipated complaints against KPMG. 5 of the sixteen appellees relied primarily on an implied-in-fact 6 contract with KPMG based on KPMG s alleged history of paying its 7 employees legal expenses. 8 Stein, relied on an express breach of his written separation 9 agreement with KPMG. In the complaints, fifteen The sixteenth appellee, Jeffrey In response, KPMG moved to dismiss for lack 10 of subject matter jurisdiction and on the merits. 11 that the case should be referred to arbitration under arbitration 12 agreements between KPMG and the various appellees. 13 court denied KPMG s motions in Stein II, 452 F. Supp. 2d 230. 14 The Stein II opinion contained three principal holdings: 15 (i) a reaffirmation of the court's earlier holding that ancillary 16 jurisdiction existed over the contractual fee dispute between 17 appellees and KPMG; (ii) a rejection of KPMG s argument that the 18 implied-in-fact contract claims of all of the appellees, save 19 Stein, were foreclosed by written agreements containing merger 20 clauses; and (iii) a finding that enforcement of any applicable 21 arbitration clause would be against public policy. 22 concluded that arbitration might interfere with the district 23 court s ability to ensure a speedy trial, could lead to a 24 dismissal of possibly meritorious criminal charges, would 7 It also argued The district The court 1 endanger the appellees rights to a fair trial, and would risk 2 imposing unnecessary costs on taxpayers if the appellees should 3 become indigent. 4 Id. at 238-39. The opinion closed by setting the trial of appellees 5 advancement claim for six weeks later, October 17, 2006, 6 following an abbreviated period of limited discovery. 7 275. 8 future, the district court noting that [i]t is not now entirely 9 clear exactly how this will play out. Id. at The procedural rules governing the trial were left to the Id. at 274. Although the 10 district court stated that KPMG would have the protections 11 inherent in the Federal Rules of Civil Procedure, id. at 275, 12 the court elsewhere stated that the advancement claim, although 13 civil in nature, is a criminal case to which the Civil Rules do 14 not apply, id. at 260. 15 apply the Civil Rules only to the extent they are consistent 16 with the Criminal Rules. 17 It further expressed its intention to Id. at 269. On appeal, KPMG argues that the district court lacks subject 18 matter jurisdiction over appellees advancement claims and also 19 that, if jurisdiction exists, the district court further erred by 20 refusing to compel arbitration. 21 22 23 24 DISCUSSION a) Appeal or Mandamus Appellees argue that we have no appellate jurisdiction to review the district court s assertion of ancillary jurisdiction 8 1 because the denial of KPMG s motion to dismiss appellees 2 advancement complaint was an unappealable interlocutory order in 3 a criminal case. 4 the Federal Arbitration Act (the FAA )to review the district 5 court s refusal to compel arbitration, and that we may then 6 exercise pendent jurisdiction over the question of ancillary 7 jurisdiction. 8 9 KPMG responds that we have jurisdiction under These arguments in turn spawn a tangle of counter- and counter-counter-arguments. Section 16 of the FAA provides for 10 interlocutory appeal from a refusal to stay an action under 11 Section 3 of the FAA, or of a refusal to compel arbitration under 12 Section 4. 13 a stay under Section 3 anywhere in its notice of motion to 14 dismiss, and Section 4 applies only to orders by any United 15 States district court which, save for [the arbitration] 16 agreement, would have jurisdiction under Title 28 . . . . 17 U.S.C. § 4. 18 jurisdiction over the advancement claim under Title 28. 19 Moreover, even if KPMG is deemed to have constructively 20 petitioned for a stay under Section 3, an exercise of pendent 21 jurisdiction would require us to find that the issue of ancillary 22 jurisdiction is inextricably intertwined with an issue over 23 which the court properly has appellate jurisdiction, as where 24 the same specific question underl[ies] both the appealable order 9 U.S.C. § 16(a)(1). KPMG, however, did not ask for 9 However, the district court does not have 9 1 and the non-appealable order, or where resolution of the non- 2 appealable order [is] subsidiary to resolution of the appealable 3 order. 4 Cir. 2005) (citations omitted). Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 576 (2d 5 To undertake pendent jurisdiction, therefore, we would have 6 to find that the issue of ancillary jurisdiction is inextricably 7 intertwined with the denial of the motion to compel arbitration, 8 presumably on the grounds that the district court s reasons for 9 asserting ancillary jurisdiction and for finding that arbitration 10 would be against public policy were the same, i.e., the need to 11 afford an adequate and timely remedy for the constitutional 12 violations. 13 "[i]n order to guarantee [appellees'] right to choose their own 14 counsel . . ."); Stein II at 245 (having found the constitutional 15 violations, "the overreaching issue is what to do about it"), and 16 254 (need to promptly vindicate appellees' Fifth and Sixth 17 Amendment rights are factors rendering arbitration clauses 18 contrary to public policy). 19 See Stein I at 377 (ancillary proceeding needed We decline to resolve the question of appellate 20 jurisdiction. 21 more appropriate to exercise our mandamus power. 22 were invited to file supplemental briefs on the issue, and Judge 23 Kaplan himself filed a submission on the issue. 24 We suggested at oral argument that it might be The parties We have in the past treated an appeal as a petition for 10 1 leave to file a writ of mandamus. 2 Litigation, 11 F.3d 368, 373 (2d Cir. 1993); In re Hooker 3 Investments, Inc., 937 F.2d 833, 837 (2d Cir. 1991). 4 have generally done so only after finding a lack of appellate 5 jurisdiction. 6 373; Hooker Investments, 937 F.2d at 837. 7 criticism of the practice of resorting to mandamus without first 8 resolving the issue of appellate jurisdiction, ACF Indus., Inc. 9 v. EEOC, 439 U.S. 1081, 1085 (1979) (Powell, J., dissenting from In re Repetitive Stress Injury However, we Repetitive Stress Injury Litigation, 11 F.3d at There has been 10 denial of certiorari), but there is nevertheless precedent for 11 doing so, see, e.g., In re Globe Newspaper Co., 920 F.2d 88 (1st 12 Cir. 1990); Guam v. United States Dist. Court, 641 F.2d 816 (9th 13 Cir. 1981); Wilk v. Am. Medical Assn., 635 F.2d 1295, 1298 (7th 14 Cir. 1980); see also Wright, Miller & Cooper, 16 Fed. Prac. & 15 Proc. Juris.2d § 3932.1. 16 mandamus only in the absence of jurisdiction may be of value in 17 alerting courts to the danger of allowing mandamus to become a 18 substitute for an appeal and thus to swallow the rule against 19 interlocutory appeals, ACF Indus., 439 U.S. at 1085, the 20 circumstances here fully justify the exercise of mandamus power 21 without deciding whether we have appellate jurisdiction. While the practice of resorting to 22 In turning to mandamus, we simply recognize that "[t]he 23 traditional use of the writ in the aid of appellate jurisdiction 24 both [at] common law and in the federal courts has been to 11 1 confine an inferior court to a lawful exercise of its 2 prescribed jurisdiction . . . ." 3 319 U.S. 21, 26 (1943). 4 court were well outside its subject matter jurisdiction, our 5 resort to mandamus does not in any way expand the potential use 6 of that writ and avoids our unnecessarily addressing complex 7 jurisdictional issues. Roche v. Evaporated Milk Ass n, Because the actions of the district 8 The jurisdictional issues are complex, but largely because, 9 as we explain below, the proceeding challenged on this appeal -- 10 a state law contract action against a non-party within a federal 11 criminal proceeding -- is well outside the subject matter 12 jurisdiction conferred by Congress on the federal courts. 13 hardly surprising, therefore, that there is no statute or body of 14 caselaw that clearly affords or clearly precludes appellate 15 review of the commencement of such a proceeding. 16 the failure of Congress to mention Title 18 as well as Title 28 17 in Section 4 of the FAA is not evidence of an intent to preclude 18 interlocutory appeals from orders refusing to compel arbitration 19 in criminal cases. 20 expect such issues ever to arise in criminal cases. 21 complexities surrounding our appellate jurisdiction underline the 22 paucity of grounds supporting the district court s assertion of 23 ancillary jurisdiction. 24 It is For example, Rather, it is evidence that Congress did not Indeed, the Were we to opine on the various arguments over appellate 12 1 jurisdiction, we would have to address issues involving the FAA 2 and pendent jurisdiction that arise only because of the 3 happenstances of this unique case. 4 precedent regarding appellate jurisdiction in this context 5 because our issuance of the writ disposes of this matter and 6 renders the existence of future such cases unlikely. 7 opining on the jurisdictional issues does risk the making of 8 statements that might be misleading in future cases in a 9 different context. There is no need for a However, We therefore turn to the mandamus remedy 10 without deciding the jurisdictional issues. 11 b) 12 The Merits As discussed above, mandamus is available to confine courts 13 to their designated jurisdiction. 14 mandamus review are usurpation of power, clear abuse of 15 discretion and the presence of an issue of first impression. 16 Steele v. L.F. Rothschild & Co., Inc., 864 F.2d 1, 4 (2d Cir. 17 1988) (internal quotation marks omitted). 18 be satisfied before the writ may issue: 19 relief must have no other adequate means to attain the relief he 20 desires, second, the petitioner must show that his right to the 21 writ is clear and indisputable, and third, the issuing court 22 must be satisfied that the writ is appropriate under the 23 circumstances. 24 367, 380-81 (2004) (internal quotation marks and citations Other touchstones of Three conditions must first, the party seeking Cheney v. United States Dist. Court, 542 U.S. 13 1 omitted). 2 addition to avoiding its use as a substitute for an appeal, 3 discussed above, the principal reasons for our reluctance to 4 condone use of the writ [are] the undesirability of making a 5 district court judge a litigant and the inefficiency of piecemeal 6 appellate litigation. Mallard v. United States Dist. Court, 490 7 U.S. 296, 309 (1989). In the present matter, all of the standard 8 requirements for granting mandamus relief are met, while the 9 reasons underlying the traditional reluctance to resort to the 10 11 The writ is, of course, to be used sparingly. In writ are either not present or favor granting the writ. Appellees argue that KPMG s right to relief is not clear 12 and indisputable because the proper scope of ancillary 13 jurisdiction is not well-settled by our caselaw. 14 [t]he boundaries of ancillary jurisdiction are not easily 15 defined and the cases addressing it are hardly a model of 16 clarity. 17 However, because ancillary jurisdiction cannot be limitless and 18 still be ancillary, boundaries there must be, and the exercise of 19 ancillary jurisdiction here is clearly outside those boundaries. 20 As Garcia stated, ancillary jurisdiction is aimed at 21 enabling a court to administer justice within the scope of its 22 jurisdiction. 23 Ancillary jurisdiction is intended to permit disposition of 24 claims that are, in varying respects and degrees, factually To be sure, Garcia v. Teitler, 443 F.3d 202, 208 (2d Cir. 2006). Id. (internal quotation marks omitted). 14 1 interdependent by a single court, and . . . to enable a court to 2 function successfully, that is, to manage its proceedings, 3 vindicate its authority, and effectuate its decrees. 4 (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 5 379-80 (1994)). 6 Id. The most common exercise of ancillary jurisdiction is, 7 probably, to resolve fee disputes between a party and its 8 attorney arising in litigation in which the attorney represented 9 the party. See, e.g., Cluett, Peabody & Co., Inc. v. CPC 10 Acquisition Co., Inc., 863 F.2d 251 (2d Cir. 1988); Novinger v. 11 E.I. DuPont de Nemours & Co., Inc., 809 F.2d 212 (3d Cir. 1987). 12 In Garcia, for example, we upheld the exercise of ancillary 13 jurisdiction to compel an attorney to return a retainer obtained 14 to represent a party in the underlying litigation after the 15 district court had ordered the attorney to withdraw as counsel 16 because of misconduct. 17 Exercise of ancillary jurisdiction over a fee dispute between a 18 party and an attorney functioning as an officer of the court in 19 litigation over which a court has jurisdiction is, however, a 20 world away from the exercise of ancillary jurisdiction in a 21 criminal proceeding to adjudicate a contract dispute between the 22 defendants and a non-party former employer. 23 24 Garcia, 443 F.3d at 208, 211-12. When a court undertakes to resolve claims arising from a relationship between a party to an action and the party s 15 1 attorney in that action and involving the attorney s conduct of 2 that litigation, the parties to the ancillary proceeding are 3 already before the court as a litigant and officer of the court; 4 the relevant facts are generally more accessible to that court 5 than to another; and the ability of the court to conduct and 6 dispose of the underlying litigation may turn on, or at least be 7 greatly facilitated by, resolution of the issues raised in the 8 ancillary proceeding. 9 proceeding is sought to be joined as a defendant in the ancillary However, when a non-party to the primary 10 proceeding, the need for the ancillary proceeding and the 11 efficiencies provided by it must be both sufficiently great to 12 outweigh the prejudice to the non-party and to be consistent with 13 the limited jurisdiction of federal courts. 14 An ancillary proceeding may subject the non-party to what 15 may be a different forum and different procedural or even 16 substantive rules than would normally be involved in disposing of 17 the claim at issue. 18 jurisdiction over matters that are otherwise outside the 19 jurisdiction conferred by the Constitution and the Congress can 20 be justified only by compelling needs arising in the exercise of 21 the jurisdiction that is conferred. 22 possibility of a legitimate ancillary proceeding involving a non- 23 party to the primary litigation, we believe that the requisite 24 compelling circumstances will be rare, as the need for such a In addition, the assertion of ancillary 16 While we do not exclude the 1 proceeding generally will be far less pressing than in cases 2 involving parties already before the court.2 3 In the present matter, the prejudice to KPMG is clear, and 4 the need for the ancillary proceeding is entirely speculative. 5 The claims to be resolved in the ancillary proceeding sound in 6 contract, i.e. appellees claim that KPMG impliedly -- in one case 7 expressly -- promised to pay their expenses in defending the 8 present criminal charges. 9 claims resolved in a proceeding ancillary to a criminal The prejudice to KPMG in having these 10 prosecution in the Southern District of New York is clear. 11 stake are garden variety state law claims, albeit for large sums. 12 KPMG believed that contractual disputes between it and the 13 appellees would be resolved by arbitration. 14 faced with a federal trial of more than a dozen individuals 15 multi-million dollar implied-in-fact contract claims. 16 Moreover, because such a proceeding is governed by no express 17 statutory authority, the district court has indicated its 18 intention to apply to this expedited undertaking an ad hoc mix of 19 the criminal and civil rules of procedure determined on the fly, 20 as it were. 21 resolution of the contract claims against KPMG is thus to occur 22 in an entirely sui generis proceeding even though it may require 23 the scrutinizing of decades of KPMG s conduct, determining the 24 states of mind of dozens of individuals, applying the findings Instead, KPMG is See Stein II, 452 F. Supp. 2d at 274-75. 17 At The 1 from those inquiries to the particular circumstances of each 2 appellee, and resolving multiple questions of the law of several 3 states. 4 proceeding can hardly be described as an adequate means of 5 relief eliminating the need for mandamus. See Cheney, 542 U.S. 6 at 380 (internal quotation marks omitted). This is especially 7 the case where, as here, KPMG may have a contractual right to 8 resolve these questions through arbitration and avoid such a 9 proceeding altogether, as the FAA s provision for interlocutory Waiting to appeal from a final judgment in this sort of 10 appeals from refusals to stay an action or compel arbitration was 11 intended precisely to avoid such outcomes. 12 The need for the particular ancillary proceeding is also far 13 less pressing than contemplated by the district court. 14 the interrelationship of the factual issues underlying the 15 finding of constitutional violations and the asserted contract 16 claims is marginal. 17 were found to be the government s implementation of the policy 18 stated in the Thompson Memorandum with regard to decisions to 19 indict or not indict firms. 20 One aspect of that policy was to take into account whether the 21 firm was voluntarily paying the legal expenses of members or 22 employees who had been indicted, see Thompson Mem. at 7-8, a 23 factor deemed to favor indictment under the Thompson Memorandum. 24 Id. First, The Fifth and Sixth Amendment violations Stein I, 435 F. Supp. 2d at 367. That document gave no such weight to payments required by 18 1 contract. 2 district court went solely to what pressure the government put on 3 KPMG not to pay fees voluntarily and to what KPMG s response was. 4 See Stein I, 435 F. Supp. 2d at 366, 343-49. 5 to expenses based on contract -- especially implied contract -- 6 will go over very different factual ground. 7 As a result, the constitutional issues before the A trial of claims Second, while the ancillary proceeding is a major 8 undertaking, its contribution to the efficient conclusion of the 9 criminal proceeding is entirely speculative. Even if the holding 10 that the government violated the Fifth and Sixth Amendments is 11 correct -- an issue on which we express no opinion -- the 12 ancillary proceeding will provide a "remedy" only if KPMG loses, 13 hardly a foregone conclusion on the present record.3 14 there are constitutional violations and even if KPMG was 15 contractually obligated to pay appellees expenses, the ancillary 16 proceeding is not an indispensable remedy and may not even 17 constitute a full remedy. 18 and Sixth Amendment violations is always an available remedy. 19 Moreover, if it violates the Fifth and Sixth Amendments for the 20 government to coerce an employer to decline to pay expenses on a 21 voluntary basis, it may well be a similar violation to coerce the 22 employer to breach a contract to pay such expenses, thereby 23 compelling the employees to pay the substantial costs of 24 enforcing the contract in a civil action. But even if Dismissal of an indictment for Fifth 19 Either way, the 1 government has used coercion to raise the costs of the defendants 2 to obtain counsel of their own choosing. 3 proceeding may not, therefore, render any constitutional 4 violation harmless. 5 The ancillary Third, even if there were constitutional violations and even 6 if KMPG is contractually obligated to advance appellees' 7 attorneys' fees and costs, creating an ancillary proceeding to 8 enforce that obligation was not the proper remedy. 9 government's coercion of KMPG to withhold the advancement of fees If the 10 to its employees' counsel constitutes a substantive due process 11 violation, or has deprived appellees of their qualified right to 12 counsel of choice, more direct (and far less cumbersome) remedies 13 are available. 14 process claim and its merit here, dismissal of the indictment is 15 the proper remedy. 16 turns out that the government's conduct separates appellees from 17 their counsel of choice (an event that has not yet occurred), 18 appellees may seek relief on appeal if they are convicted. 19 not mean to exclude the possibility of other forms of relief. 20 If, for example, a Sixth Amendment violation is the result of 21 ongoing government conduct, the district court of course may 22 order the cessation of such conduct. 23 however, that the remedies available to the district court in the 24 circumstances presented here did not include its novel exercise Assuming the cognizability of a substantive due As for the Sixth Amendment deprivation, if it 20 We do Having said that, we hold, 1 of ancillary jurisdiction. 2 id. at 381, it created may have been intended only as a vehicle 3 for the government and KPMG to act on their "incentives" to 4 somehow get appellees' counsel funded and thereby "avoid any risk 5 of dismissal of [the indictment of the appellees] or other 6 unpalatable relief." 7 it might also have been envisioned as an uncharted hybrid legal 8 proceeding for the expeditious resolution of numerous high-dollar 9 and potentially complex contract claims. 10 The "summary advancement proceeding," Stein I at 380. Or, as Stein II suggests, Either way, it was not an available remedy for either constitutional violation. 11 Finally, on the present record, a proceeding ancillary to a 12 criminal prosecution was not necessary either to avoid perceived 13 deficiencies in ordinary civil contract actions to enforce the 14 alleged advancement contracts or to remove some barrier to the 15 appellees bringing of such actions. 16 known since the criminal investigation began and, unlike the 17 situation in Weissman, see Note 2 supra, did not suddenly arise 18 at an awkward period in the case. 19 negotiation with KPMG during the investigation period. 20 sixteen months before the indictment, most of the appellees 21 signed a letter that clearly indicated their knowledge of KPMG s 22 intent not to pay post-indictment fees and could -- arguably must 23 -- be read as a waiver of any right to such fees. 24 F. Supp. 2d at 240-41. The fee issue has been Many of the appellees were in Some Stein II, 452 Nevertheless, appellees took none of the 21 1 available steps to enforce their alleged contracts with KPMG 2 until well after the indictment when the district court raised 3 the possibility of an ancillary proceeding and indicated its 4 willingness to exercise jurisdiction over it. 5 The traditional factors weighing against mandamus - the 6 undesirability of casting a judge as a litigant and the 7 desirability of avoiding piecemeal appeals -- also weigh in favor 8 of mandamus in this case. 9 and, by granting the writ, we avoid an unnecessary, potentially The district judge is not a party, 10 costly, and time-consuming procedure that would certainly be 11 vacated on appeal. 12 proceedings before him would be facilitated by prompt review of 13 the merits of the challenged order. 14 the magnitude and importance of the ongoing criminal proceedings 15 -- also argue for swift review to avoid further delay of the 16 underlying criminal proceedings. 17 reasons, the three requirements of Cheney v. United States Dist. 18 Court, 542 U.S. 367, 380-81 (2004), are met here. The district court has acknowledged that the The same considerations -- For all of the foregoing 19 CONCLUSION 20 We treat the appeal as a petition for writ of mandamus. 21 grant the petition, vacate the orders below to the extent that 22 they find jurisdiction over the complaint against KPMG and 23 dismiss appellees complaint against KPMG. We 24 22 1 FOOTNOTES 2 3 1. The Thompson Memorandum has been superseded by the McNulty Memorandum. See Mem. From Paul J. McNulty, Deputy Attorney General, U.S. Dep t of Justice, to Heads of Department Components, United States Attorneys, re: Principles of Federal Prosecution of Business Organizations, http://www.usdoj.gov/dag/speech/2006/mcnulty memo.pdf. 2. In United States v. Weissman, 1997 WL 334966 (S.D.N.Y. June 16, 1997), a district court asserted ancillary jurisdiction over a dispute concerning the advancement of legal fees by a former employer to a criminal defendant. In Weissman, a former Empire Blue Cross/Blue Shield executive had his defense costs advanced pursuant to a corporate by-law stipulating that the company would cover all legal costs unless a judgment or other final adjudication established that the officer had acted in bad faith or used deliberate dishonesty. Id. at *1. After the jury convicted the former executive, but prior to sentencing, the company stopped paying legal expenses. Id. at *2. The executive, however, argued that he was entitled to coverage of expenses through post-conviction motions and sentencing. *11. Id. at The question addressed in the ancillary proceeding was the legal question of whether a jury s guilty verdict constitutes a 23 final adjudication. Id. The court acknowledged that it could find no other example of a court in a criminal case exercising ancillary jurisdiction over an employer in an advancement case. Id. at *5. The Weissman court further noted that the argument that complex questions of state law are implicated in the dispute was the most powerful challenge to the court's ancillary jurisdiction. Id. at *8. We need intimate no view on the merits of Weissman because it is somewhat different from the present matter. On the one hand, in Weissman, the issue of the employer refusing to advance expenses arose at a time when no disposition of the issue could be reasonably obtained in another forum. On the other hand, there was no perceived Sixth Amendment violation by the government in need of a remedy. 3. That KPMG should lose on the merits is far from certain. KPMG s alleged uniform practice, Stein I, 435 F. Supp. 2d at 356, of paying the legal fees for indicted employees and partners -- seemingly an indispensable element of an implied-in-fact contract -- appears to consist of a single instance in which KPMG paid the legal fees of two partners indicted and convicted in a 1974 criminal case, id. at 340. In addition, as a condition of having their pre-indictment legal fees paid by KPMG, most of the appellees signed fee letters acknowledging that KPMG would not pay post-indictment fees and -- on the most straight-forward 24 reading -- waiving any right to such fees. Supp. 2d at 240-41. Stein II, 452 F. What is more, when the appellees moved to dismiss the indictment on Sixth Amendment grounds, they took the position that the payment of legal fees was a matter of KPMG s freedom of choice, stipulating with the government that it had been the longstanding voluntary practice of KPMG to advance and pay legal fees . . . . (emphasis added). Stein I, 435 F. Supp. 2d at 340 Arguably, the appellees would be estopped from now arguing that KPMG had a contractual obligation -- implied or otherwise -- to pay post-indictment legal fees. Finally, we note that some of the district court s public policy reasons for refusing to compel arbitration -- i.e., that arbitration would interfere with the appellees rights to counsel of their choice and risk the need for the government to provide counsel to indigent defendants -- seem to assume that KPMG would win any arbitration proceeding. 25

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