United States v. Stein, No. 07-3042 (2d Cir. 2008)
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07-3042-cr United States v. Stein 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 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2007 (Argued: March 25, 2008 Decided: August 28, 2008) Docket No. 07-3042-cr - - - - - - - - - - - - - - - - - - - -x UNITED STATES OF AMERICA, Appellant, - v.JEFFREY STEIN, JOHN LANNING, RICHARD SMITH, JEFFREY EISCHEID, PHILIP WIESNER, MARK WATSON, LARRY DELAP, STEVEN GREMMINGER, GREGG RITCHIE, RANDY BICKHAM, CAROL G. WARLEY, CARL HASTING, and RICHARD ROSENTHAL, Defendants-Appellees. - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, FEINBERG and HALL, Circuit Judges. The United States appeals from an order of the United 36 States District Court for the Southern District of New York 37 (Kaplan, J.), dismissing an indictment against Defendants- 38 Appellees, thirteen former partners and employees of 1 accounting firm KPMG, LLP. 2 ruling that the government deprived Defendants-Appellees of 3 their right to counsel under the Sixth Amendment by causing 4 KPMG to place conditions on the advancement of legal fees to 5 Defendants-Appellees, and to cap the fees and ultimately end 6 them. 7 Amendment violation, and because no other remedy will return 8 Defendants-Appellees to the status quo ante, we affirm the 9 dismissal of the indictment. We affirm the district court s Because the government failed to cure the Sixth In a separate summary order 10 filed today, we dismiss as moot the government s appeal from 11 the order of the district court suppressing proffer 12 statements made by Defendants-Appellees Richard Smith and 13 Mark Watson. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 KARL METZNER, Assistant United States Attorney (Michael J. Garcia, United States Attorney, Southern District of New York, on the brief; John M. Hillebrecht, Margaret Garnett, Katherine Polk Failla, Assistant United States Attorneys, of counsel), United States Attorney s Office for the Southern District of New York, New York, New York, for Appellant. SETH P. WAXMAN (Paul A. Engelmayer, Danielle Spinelli, Catherine M.A. Carroll, Daniel S. Volchok, on the brief), 2 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 37 38 39 40 41 42 43 44 Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Appellees Stein, Lanning, Smith, Bickham and Rosenthal. STANLEY S. ARKIN (Sean R. O Brien, Joseph V. DiBlasi, Elizabeth A. Fitzwater, on the brief), Arkin Kaplan Rice LLP, New York, New York, for Appellee Eischeid. JOHN S. MARTIN, JR. (Otto G. Obermaier, on the brief), Martin & Obermaier, LLC, New York, New York; Daniel C. Richman, of counsel, New York, New York, for Appellees DeLap, Gremminger, Warley and Wiesner. MICHAEL S. KIM (Leif T. Simonson, on the brief), Kobre & Kim LLP, New York, New York, for Appellee Watson. TED W. CASSMAN (Cristina C. Arguedas, Raphael M. Goldman, Michael W. Anderson, on the brief), Arguedas, Cassman & Headley, LLP, Berkeley, California; Ann C. Moorman, Law Offices of Ann C. Moorman, of counsel, Berkeley, California, for Appellee Ritchie. RUSSELL M. GIOIELLA (Richard M. Asche, on the brief), Litman, Asche & Gioiella, LLP, New York, New York, for Appellee Hasting. MARK I. LEVY (Sean M. Green, on the brief), Kilpatrick Stockton LLP, Washington, D.C., for Amici Curiae Association of Corporate 3 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 37 38 39 40 41 42 43 44 Counsel and Chamber of Commerce of the United States of America. WALTER DELLINGER (Pamela Harris, Karl R. Thompson, Brianne J. Gorod, on the brief), O Melveny & Myers LLP, Washington, D.C., for Amici Curiae Former Attorneys General and United States Attorneys. IRA M. FEINBERG, Hogan & Hartson LLP, New York, New York, for Amici Curiae Former United States Attorneys, First Assistants and Criminal Division Chiefs. LEWIS J. LIMAN (Molly M. Lens, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, New York; Paul B. Bergman, New York, New York, for Amici Curiae New York Council of Defense Lawyers, New York State Bar Association, and National Association of Criminal Defense Lawyers. MARK A. KIRSCH (Kara Morrow, Tamar Bruger, Stephen M. Nickelsburg, on the brief), Clifford Chance U.S. LLP, New York, New York; Ira D. Hammerman, Kevin M. Carroll, for Amicus Curiae Securities Industry and Financial Markets Association. MICHAEL J. GILBERT (Steven B. Feirson, on the brief), Dechert LLP, New York, New York; Daniel J. Popeo, for Amicus Curiae Washington Legal Foundation. 4 1 DENNIS JACOBS, Chief Judge: 2 The United States appeals from an order of the United 3 States District Court for the Southern District of New York 4 (Kaplan, J.), dismissing an indictment against thirteen 5 former partners and employees of the accounting firm KPMG, 6 LLP. 7 government, KPMG would have paid defendants legal fees and 8 expenses without regard to cost. 9 findings of fact, Judge Kaplan ruled that the government 10 deprived defendants of their right to counsel under the 11 Sixth Amendment by causing KPMG to impose conditions on the 12 advancement of legal fees to defendants, to cap the fees, 13 and ultimately to end payment. 14 435 F. Supp. 2d 330, 367-73 (S.D.N.Y. 2006) ( Stein I ). 15 Judge Kaplan also ruled that the government deprived 16 defendants of their right to substantive due process under 17 the Fifth Amendment.1 Judge Kaplan found that, absent pressure from the Based on this and other See United States v. Stein, Id. at 360-65. 1 In later decisions, Judge Kaplan ruled that defendants Richard Smith and Mark Watson s proffer session statements were obtained in violation of their Fifth Amendment privilege against self-incrimination, and that their statements would be suppressed, see United States v. Stein, 440 F. Supp. 2d 315 (S.D.N.Y. 2006) ( Stein II ); that the court had ancillary jurisdiction over Defendants-Appellees civil suit against KPMG for advancement of fees, see United States v. Stein, 452 F. Supp. 2d 230 (S.D.N.Y. 2006) ( Stein 5 1 We hold that KPMG s adoption and enforcement of a 2 policy under which it conditioned, capped and ultimately 3 ceased advancing legal fees to defendants followed as a 4 direct consequence of the government s overwhelming 5 influence, and that KPMG s conduct therefore amounted to 6 state action. 7 unjustifiably interfered with defendants relationship with 8 counsel and their ability to mount a defense, in violation 9 of the Sixth Amendment, and that the government did not cure We further hold that the government thus 10 the violation. 11 defendants to the status quo ante, we affirm the dismissal 12 of the indictment as to all thirteen defendants.2 13 of this disposition, we do not reach the district court s 14 Fifth Amendment ruling. Because no other remedy will return In light 15 16 17 III ), vacated, Stein v. KPMG, LLP, 486 F.3d 753 (2d Cir. 2007); and that dismissal of the indictment is the appropriate remedy for those constitutional violations, see United States v. Stein, 495 F. Supp. 2d 390 (S.D.N.Y. 2007) ( Stein IV ). 2 In a separate summary order filed today, we dismiss as moot the government s appeal from the order of the district court suppressing proffer statements made by DefendantsAppellees Smith and Watson. 6 1 BACKGROUND 2 The Thompson Memorandum 3 In January 2003, then-United States Deputy Attorney 4 General Larry D. Thompson promulgated a policy statement, 5 Principles of Federal Prosecution of Business Organizations 6 (the Thompson Memorandum ), which articulated principles 7 to govern the Department s discretion in bringing 8 prosecutions against business organizations. 9 Memorandum was closely based on a predecessor document The Thompson 10 issued in 1999 by then-U.S. Deputy Attorney General Eric 11 Holder, Federal Prosecution of Corporations. 12 435 F. Supp. 2d at 336-37. 13 governing charging decisions, the Thompson Memorandum 14 identifies nine additional considerations, including the 15 company s timely and voluntary disclosure of wrongdoing and 16 its willingness to cooperate in the investigation of its 17 agents. 18 U.S. Dep t of Justice, Principles of Federal Prosecution of 19 Business Organizations (Jan. 20, 2003), at II. 20 Memorandum explains that prosecutors should inquire 21 22 23 24 See Stein I, Along with the familiar factors Mem. from Larry D. Thompson, Deputy Att y Gen., The whether the corporation appears to be protecting its culpable employees and agents [and that] a corporation s promise of support to culpable employees and agents, either through the advancing of attorneys 7 1 2 3 4 5 6 7 8 Id. at VI (emphasis added and footnote omitted). 9 appended to the highlighted phrase explains that because fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government s investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation s cooperation. A footnote 10 certain states require companies to advance legal fees for 11 their officers, a corporation s compliance with governing 12 law should not be considered a failure to cooperate. 13 at VI n.4. 14 prosecution had transpired -the Department of Justice 15 replaced the Thompson Memorandum with the McNulty 16 Memorandum, under which prosecutors may consider a company s 17 fee advancement policy only where the circumstances indicate 18 that it is intended to impede a criminal investigation, 19 and even then only with the approval of the Deputy Attorney 20 General. 21 Dep t of Justice, Principles of Federal Prosecution of 22 Business Organizations (Dec. 12, 2006), at VII n.3. 23 Commencement of the Federal Investigation 24 After Senate subcommittee hearings in 2002 concerning Id. In December 2006--after the events in this Mem. from Paul J. McNulty, Deputy Att y Gen., U.S. 25 KPMG s possible involvement in creating and marketing 26 fraudulent tax shelters, KPMG retained Robert S. Bennett of 8 1 the law firm Skadden, Arps, Slate, Meagher & Flom LLP 2 ( Skadden ) to formulate a cooperative approach for KPMG 3 to use in dealing with federal authorities. 4 Supp. 2d at 339. 5 clean house -a determination to ask Jeffrey Stein, Richard 6 Smith, and Jeffrey Eischeid, all senior KPMG partners who 7 had testified before the Senate and all now [Defendants- 8 Appellees] here -to leave their positions as deputy chair 9 and chief operating officer of the firm, vice chair-tax 10 services, and a partner in personal financial planning, 11 respectively. 12 put on administrative leave. 13 resigned with arrangements for a three-year $100,000-per- 14 month consultancy, and an agreement that KPMG would pay for 15 Stein s representation in any actions brought against Stein 16 arising from his activities at the firm. 17 negotiated a contract with Smith that included a similar 18 clause; but that agreement was never executed. 19 495 F. Supp. 2d at 408. 20 Stein I, 435 F. Bennett s strategy included a decision to Id. Smith was transferred and Eischeid was Id. at 339 n.22. Stein Id. at 339. KPMG Stein IV, In February 2004, KPMG officials learned that the firm 21 and 20 to 30 of its top partners and employees were subjects 22 of a grand jury investigation of fraudulent tax shelters. 9 1 Stein I, 435 F. Supp. 2d at 341. 2 KPMG s CEO announced to all partners that the firm was aware 3 of the United States Attorney s Office s ( USAO ) 4 investigation and that [a]ny present or former members of 5 the firm asked to appear will be represented by competent 6 coun[sel] at the firm s expense. 7 at 407 (first alteration in original and internal quotation 8 marks omitted). 9 10 On February 18, 2004, Stein IV, 495 F. Supp. 2d The February 25, 2004 Meeting In preparation for a meeting with Skadden on February 11 25, 2004, the prosecutors -including Assistant United States 12 Attorneys ( AUSAs ) Shirah Neiman and Justin Weddle -decided 13 to ask whether KPMG would advance legal fees to employees 14 under investigation. 15 Bennett started the meeting by announcing that KPMG had 16 resolved to clean house, that KPMG would cooperate fully 17 with the government s investigation, and that its goal was 18 not to protect individual employees but rather to save the 19 firm from being indicted. 20 the firm s plans for advancing fees and about any legal 21 obligation to do so. 22 the government would take into account the firm s legal Stein I, 435 F. Supp. 2d at 341. Id. Id. AUSA Weddle inquired about Later on, AUSA Neiman added that 10 1 obligations to advance fees, but that the Thompson 2 Memorandum [w]as a point that had to be considered. 3 Bennett then advised that although KPMG was still 4 investigating its legal obligations to advance fees, its 5 common practice was to do so. 6 Bennett explained, KPMG would not pay legal fees for any 7 partner who refused to cooperate or took the Fifth, so 8 long as KPMG had the legal authority to do so. 9 Id. at 342. Id. However, Id. Later in the meeting, AUSA Weddle asked Bennett to 10 ascertain KPMG s legal obligations to advance attorneys 11 fees. 12 cannot be rewarded under federal guidelines. 13 Skadden attorney s notes attributed to AUSA Weddle the 14 prediction that, if KPMG had discretion regarding fees, the 15 government would look at that under a microscope. 16 344 (emphasis omitted). 17 AUSA Neiman added that misconduct should not or Skadden then reported back to KPMG. Id. One Id. at In notes of the 18 meeting, a KPMG executive wrote the words [p]aying legal 19 fees and [s]everance next to not a sign of cooperation. 20 Stein IV, 495 F. Supp. 2d at 408. 21 Communications Between the Prosecutors and KPMG 22 On March 2, 2004, Bennett told AUSA Weddle that 11 1 although KPMG believed it had no legal obligation to advance 2 fees, it would be a big problem for the firm not to do so 3 given its partnership structure. 4 at 345 (internal quotation marks omitted). 5 disclosed KPMG s tentative decision to limit the amount of 6 fees and condition them on employees cooperation with 7 prosecutors. 8 Stein I, 435 F. Supp. 2d But Bennett Id. Two days later, a Skadden lawyer advised counsel for 9 Defendant-Appellee Carol G. Warley (a former KPMG tax 10 partner) that KPMG would advance legal fees if Warley 11 cooperated with the government and declined to invoke her 12 Fifth Amendment privilege against self-incrimination. 13 Id. On a March 11 conference call with Skadden, AUSA Weddle 14 recommended that KPMG tell employees that they should be 15 totally open with the USAO, even if that [meant 16 admitting] criminal wrongdoing, explaining that this would 17 give him good material for cross-examination. 18 (alteration in original and internal quotation marks 19 omitted). 20 KPMG employees who had been identified as subjects of the 21 investigation. 22 policy ( Fees Policy ), pursuant to which advancement of Id. That same day, Skadden wrote to counsel for the Id. The letter set forth KPMG s new fees 12 1 fees and expenses would be 2 3 4 5 6 7 8 9 Id. at 345-46. 10 correspondence. [i] capped at $400,000 per employee; [ii] conditioned on the employee s cooperation with the government; and [iii] terminated when an employee was indicted. The government was copied on this Id. at 345. 11 On March 12, KPMG sent a memorandum to certain other 12 employees who had not been identified as subjects, urging 13 them to cooperate with the government, advising them that it 14 might be advantageous for them to exercise their right to 15 counsel, and advising that KPMG would cover employees 16 reasonable fees. 17 Id. at 346 n.62. The prosecutors expressed by letter their 18 disappoint[ment] with [the] tone of this memorandum and 19 its one-sided presentation of potential issues, and 20 demanded that KPMG send out a supplemental memorandum in a 21 form they proposed. 22 alternative language, premised on the assum[ption] that 23 KPMG truly is committed to fully cooperating with the 24 Government s investigation, Letter of David N. Kelley, 25 United States Attorney, Southern District of New York, March 26 17, 2004, advised employees that they could meet with Id. at 346. 13 The government s 1 investigators without the assistance of counsel, Stein I, 2 435 F. Supp. 2d at 346 (emphasis omitted). 3 and circulated a memo advising that employees may deal 4 directly with government representatives without counsel. 5 Id. (emphasis omitted). 6 KPMG complied, At a meeting in late March, Skadden asked the 7 prosecutors to notify Skadden in the event any KPMG employee 8 refused to cooperate. 9 the prosecutors regularly informed Skadden whenever a KPMG 10 employee refused to cooperate fully, such as by refusing to 11 proffer or by proffering incompletely (in the government s 12 view). 13 lawyers that fee advancement would cease unless the 14 employees cooperated. 15 under and submitted to interviews, or they were fired and 16 KPMG ceased advancing their fees. 17 Smith attended proffer sessions after receiving KPMG s March 18 11 letter announcing the Fees Policy, and after Skadden 19 reiterated to them that fees would be terminated absent 20 cooperation. 21 district court found) they feared that KPMG would stop 22 advancing attorneys fees -although Watson concedes he Id. Id. at 347. Over the following year, Skadden, in turn, informed the employees Id. The employees either knuckled For example, Watson and They did so because (they said, and the 14 1 attended a first session voluntarily.3 2 Stein, 440 F. Supp. 2d 315, 330-33 (S.D.N.Y. 2006) ( Stein 3 II ). 4 Office has notified us that individuals have not . . . 5 cooperat[ed], KPMG has promptly and without question 6 encouraged them to cooperate and threatened to cease payment 7 of their attorney fees and . . . to take personnel action, 8 including termination. 9 States Attorney s Office, November 2, 2004; see, e.g., Stein 10 II, 440 F. Supp. 2d at 323 (describing KPMG s termination of 11 Defendant-Appellant Warley after she invoked her Fifth 12 Amendment privilege against self-incrimination). See United States v. As Bennett later assured AUSA Weddle: Whenever your Letter of Robert Bennett to United 13 KPMG Avoids Indictment 14 In an early-March 2005 meeting, then-U.S. Attorney 15 David Kelley told Skadden and top KPMG executives that a 16 non-prosecution agreement was unlikely and that he had 17 reservations about KPMG s level of cooperation: 18 a lot better from big companies. 3 I ve seen Bennett reminded Kelley As discussed above, in a decision that is the subject of the summary order filed today, the district court held that Defendants-Appellees Smith and Watson s proffer statements were obtained in violation of their Fifth Amendment privilege against self-incrimination and that their statements would be suppressed. Id. at 337-38. 15 1 how KPMG had capped and conditioned its advancement of legal 2 fees. 3 Kelley remained unconvinced. KPMG moved up the Justice Department s chain of 4 command. 5 Attorney General James Comey, Bennett stressed KPMG s 6 pressure on employees to cooperate by conditioning legal 7 fees on cooperation; it was, he said, precedent[]setting. 8 Stein I, 435 F. Supp. 2d at 349 (internal quotation marks 9 omitted). At a June 13, 2005 meeting with U.S. Deputy KPMG s entreaties were ultimately successful: on 10 August 29, 2005, the firm entered into a deferred 11 prosecution agreement (the DPA ) under which KPMG admitted 12 extensive wrongdoing, paid a $456 million fine, and 13 committed itself to cooperation in any future government 14 investigation or prosecution. Id. at 349-50. 15 Indictment of Individual Employees 16 On August 29, 2005 -the same day KPMG executed the 17 DPA -the government indicted six of the Defendants-Appellees 18 (along with three other KPMG employees): Jeffrey Stein; 19 Richard Smith; Jeffrey Eischeid; John Lanning, Vice Chairman 20 of Tax Services; Philip Wiesner, a former tax partner; and 21 Mark Watson, a tax partner. 22 on October 17, 2005 named ten additional employees, A superseding indictment filed 16 1 including seven of the Defendants-Appellees: Larry DeLap, a 2 former tax partner in charge of professional practice; 3 Steven Gremminger, a former partner and associate general 4 counsel; former tax partners Gregg Ritchie, Randy Bickham 5 and Carl Hasting; Carol G. Warley; and Richard Rosenthal, a 6 former tax partner and Chief Financial Officer of KPMG.4 7 Pursuant to the Fees Policy, KPMG promptly stopped advancing 8 legal fees to the indicted employees who were still 9 receiving them. Id. at 350. 10 Procedural History 11 On January 12, 2006, the thirteen defendants (among 12 others) moved to dismiss the indictment based on the 13 government s interference with KPMG s advancement of fees.5 14 In a submission to the district court, KPMG represented that 15 16 17 18 19 the Thompson memorandum in conjunction with the government s statements relating to payment of legal fees affected KPMG s determination(s) with respect to the advancement of legal fees and other defense costs to present or former partners and employees . . . . In 4 The superseding indictment filed on October 17, 2005 charged 19 defendants in 46 counts for conspiring to defraud the United States and the IRS, tax evasion and obstruction of the internal revenue laws (although not every individual was charged with every offense). 5 According to the district court, [a]ll defendants previously employed by KPMG joined in the motion. Id. at 336 n.5. 17 1 2 3 fact, KPMG is prepared to state that the Thompson memorandum substantially influenced KPMG s decisions with respect to legal fees . . . . 4 Stein IV, 495 F. Supp. 2d at 405 (internal quotation marks 5 and emphasis omitted). 6 At a hearing on March 30, 2006, Judge Kaplan asked the 7 government whether it was prepared at this point to commit 8 that [it] has no objection whatsoever to KPMG exercising its 9 free and independent business judgment as to whether to 10 advance defense costs to these defendants and that if it 11 were to elect to do so the government would not in any way 12 consider that in determining whether it had complied with 13 the DPA? 14 your Honor. 15 . . They can always exercise their business judgment. 16 you described it, your Honor, that s always been the case. 17 It s the case today, your Honor. The AUSA responded: That s always been the case, That s fine. We have no objection to that . . As 18 Judge Kaplan ordered discovery and held a three-day 19 evidentiary hearing in May 2006 to ascertain whether the 20 government had contributed to KPMG s adoption of the Fees 21 Policy. 22 IRS agent, three Skadden attorneys, and one lawyer from 23 KPMG s Office of General Counsel, among others. The court heard testimony from two prosecutors, one 18 Numerous 1 documents produced in discovery by both sides were admitted 2 into evidence. 3 Stein I 4 Judge Kaplan s opinion and order of June 26, 2006 5 noted, as the parties had stipulated, that KPMG s past 6 practice was to advance legal fees for employees facing 7 regulatory, civil and criminal investigations without 8 condition or cap. 9 Starting from that baseline, Judge Kaplan made the following See Stein I, 435 F. Supp. 2d at 340. 10 findings of fact. 11 began by test[ing] the waters to see whether KPMG could 12 adhere to its practice of paying its employees legal 13 expenses when litigation loomed [by asking] for [the] 14 government s view on the subject. 15 omitted). 16 convey when she said that misconduct should not or cannot 17 be rewarded under federal guidelines ; but her statement 18 was understood by both KPMG and government representatives 19 as a reminder that payment of legal fees by KPMG, beyond any 20 that it might legally be obligated to pay, could well count 21 against KPMG in the government s decision whether to indict 22 the firm. At the February 25, 2004 meeting, Bennett Id. at 341 (footnote It is not clear what AUSA Neiman intended to Id. at 344 (internal quotation marks omitted). 19 1 [W]hile the USAO did not say in so many words that it did 2 not want KPMG to pay legal fees, no one at the meeting could 3 have failed to draw that conclusion. 4 Id. Based on those findings, Judge Kaplan arrived at the 5 following ultimate findings of fact, all of which the 6 government contests on appeal: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 [1] the Thompson Memorandum caused KPMG to consider departing from its long-standing policy of paying legal fees and expenses of its personnel in all cases and investigations even before it first met with the USAO and induced KPMG to seek an indication from the USAO that payment of fees in accordance with its settled practice would not be held against it ; [2] the government made repeated references to the Thompson Memo in an effort to reinforce[] the threat inherent in the Thompson Memorandum ; [3] the government conducted itself in a manner that evidenced a desire to minimize the involvement of defense attorneys ; and [4] but for the Thompson Memorandum and the prosecutors conduct, KPMG would have paid defendants legal fees and expenses without consideration of cost. Id. at 352-53. 28 Against that background, Judge Kaplan ruled that a 29 defendant has a fundamental right under the Fifth Amendment 30 to fairness in the criminal process, including the ability 31 to get and deploy in defense all resources lawfully 32 available to him or her, free of knowing or reckless 20 1 government interference, id. at 361, and that the 2 government s reasons for infringing that right in this case 3 could not withstand strict scrutiny, id. at 362-65. 4 Kaplan also ruled that the same conduct deprived each 5 defendant of the Sixth Amendment right to choose the lawyer 6 or lawyers he or she desires and to use one s own funds to 7 mount the defense that one wishes to present. 8 (footnote omitted). 9 enforcement interests in taking the specific actions in Judge Id. at 366 He reasoned that the government s law 10 question [do not] sufficiently outweigh the interests of the 11 KPMG Defendants in having the resources needed to defend as 12 they think proper against these charges. 13 [T]he fact that advancement of legal fees occasionally 14 might be part of an obstruction scheme or indicate a lack of 15 full cooperation by a prospective defendant is insufficient 16 to justify the government s interference with the right of 17 individual criminal defendants to obtain resources lawfully 18 available to them in order to defend themselves . . . . 19 Id. at 369. 20 Id. at 368. Judge Kaplan rejected the government s position that 21 defendants have no right to spend other people s money on 22 high-priced defense counsel: [T]he KPMG Defendants had at 21 1 least an expectation that their expenses in defending any 2 claims or charges brought against them by reason of their 3 employment by KPMG would be paid by the firm, and any 4 benefits that would have flowed from that expectation--the 5 legal fees at issue now--were, in every material sense, 6 their property, not that of a third party. 7 further determined that defendants need not show how their 8 defense was impaired: the government s interference with 9 their Sixth Amendment right to be represented as they 10 choose, like a deprivation of the right to counsel of 11 their choice, is complete irrespective of the quality of the 12 representation they receive. Id. at 367. He Id. at 369. 13 As to remedy, Judge Kaplan conceded that dismissal of 14 the indictment would be inappropriate unless other avenues 15 for obtaining fees from KPMG were first exhausted. 16 373-80. 17 file a civil suit against KPMG under the district court s 18 ancillary jurisdiction. 19 commenced, and Judge Kaplan denied KPMG s motion to dismiss. 20 United States v. Stein, 452 F. Supp. 2d 230 (S.D.N.Y. 2006) 21 ( Stein III ). 22 court lacked ancillary jurisdiction over the action. Id. at To that end, Judge Kaplan invited defendants to Id. at 377-80, 382. The suit was However, this Court ruled that the district 22 Stein 1 v. KPMG, LLP, 486 F.3d 753 (2d Cir. 2007). 2 Stein IV 3 Judge Kaplan dismissed the indictment against the 4 thirteen defendants on July 16, 2007. 5 Supp. 2d at 427. 6 the government violated defendants right to substantive due 7 process by holding that the prosecutors conduct also 8 independently shock[s] the conscience. 9 Judge Kaplan concluded that no remedy other than dismissal 10 of the indictment would put defendants in the position they 11 would have occupied absent the government s misconduct. 12 at 419-28. 13 Stein IV, 495 F. He reinforced the ruling in Stein I that Id. at 412-15. Id. The government appeals the dismissal of the indictment. 14 15 16 DISCUSSION We review first [I] the government s challenges to the 17 district court s factual findings, including its finding 18 that but for the Thompson Memorandum and the prosecutors 19 conduct KPMG would have paid employees legal fees -pre- 20 indictment and post-indictment -without regard to cost. 21 Next, because we are hesitant to resolve constitutional 22 questions unnecessarily, [II] we inquire whether the 23 1 government cured the purported Sixth Amendment violation by 2 the AUSA s in-court statement on March 30, 2006 that KPMG 3 was free to decide whether to advance fees. 4 conclude that this statement did not return defendants to 5 the status quo ante, [III] we decide whether the 6 promulgation and enforcement of KPMG s Fees Policy amounted 7 to state action under the Constitution and [IV] whether the 8 government deprived defendants of their Sixth Amendment 9 right to counsel. Since we 10 11 12 I The government challenges certain factual findings of 13 the district court. 14 error, viewing the evidence in the light most favorable to 15 defendants and asking whether we are left with the definite 16 and firm conviction that a mistake has been committed. 17 Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) 18 (internal quotation marks omitted). We review those findings for clear 19 The government points out that the Thompson Memorandum 20 lists fees advancement as just one of many considerations 21 in a complex charging decision, and thus argues that Judge 22 Kaplan overread the Thompson Memorandum as a threat that 24 1 KPMG would be indicted unless it ceased advancing legal fees 2 to its employees. 3 Judge Kaplan s finding withstands scrutiny. KPMG was 4 faced with the fatal prospect of indictment; it could be 5 expected to do all it could, assisted by sophisticated 6 counsel, to placate and appease the government. 7 Kaplan noted, KPMG s chief legal officer, Sven Erik Holmes, 8 testified that he considered it crucial to be able to say 9 at the right time with the right audience, we re in full As Judge 10 compliance with the Thompson Memorandum. 11 Supp. 2d at 364 (emphasis added and internal quotation marks 12 omitted). 13 reason to consider the impact of the firm s indictment on 14 the interests of the firm s partners, employees, clients, 15 creditors and retirees. 16 Stein I, 435 F. Moreover, KPMG s management and counsel had The government reads the Thompson Memorandum to say 17 that fees advancement is to be considered as a negative 18 factor only when it is part of a campaign to circle the 19 wagons, i.e., to protect culpable employees and obstruct 20 investigators. 21 instructs a prosecutor to ask whether the corporation 22 appears to be protecting its culpable employees and agents. And it is true that the Thompson Memorandum 25 1 But even if the government s reading is plausible, the 2 wording nevertheless empowers prosecutors to determine which 3 employees will be deprived of company-sponsored counsel: 4 prosecutors may reasonably foresee that employees they 5 identify as culpable will be cut off from fees. 6 The government also takes issue with Judge Kaplan s 7 finding that the prosecutors (acting under DOJ policy) 8 deliberately reinforced the threat inherent in the Thompson 9 Memorandum. Id. at 352-53. It protests that KPMG 10 considered conditioning legal fees on cooperation even 11 before the February 25, 2004 meeting and that KPMG adopted 12 its Fees Policy free from government influence. 13 Judge Kaplan s interpretation of the meeting is supported by 14 the following record evidence. 15 would be problematic for a partnership like KPMG, Bennett 16 began by attempting to sound out the government s position 17 on the issue. 18 prosecutors declined to sign off on KPMG s prior 19 arrangement. 20 it had a legal obligation to advance fees. 21 with its fallback position: conditioning fees on 22 cooperation. However, Because withholding of fees Stein IV, 495 F. Supp. 2d at 402. The Instead they asked KPMG to ascertain whether Id. KPMG responded In Judge Kaplan s view, this was not an 26 1 official policy announcement, but rather a proposal: Skadden 2 lawyers repeatedly emphasized to the prosecutors that no 3 final decision had been made. 4 all this is that the prosecutors inquiry about KPMG s legal 5 obligations was a routine check for conflicts of interest; 6 but on this record, Judge Kaplan was entitled to see things 7 differently.6 8 9 One available inference from Nor can we disturb Judge Kaplan s finding that the government conducted itself in a manner that 10 evidenced a desire to minimize the involvement of defense 11 attorneys. 12 March 11 phone call between the prosecutors and Skadden, 13 AUSA Weddle demanded that KPMG tell its employees to be 14 totally open with the USAO, even if that [meant 15 admitting] criminal wrongdoing, so that he could gather 16 material for cross-examination. 17 original and internal quotation marks omitted). 18 12, the prosecutors prevailed upon KPMG to supplement its Stein I, 435 F. Supp. 2d at 353. 6 During the Id. at 345 (alterations in On March It is unnecessary for us to determine the import of AUSA Neiman s statement that misconduct should not or cannot be rewarded or to decide whether AUSA Weddle actually said that the government would look at discretionary fee advancement under a microscope. Stein I, 435 F. Supp. 2d at 344. 27 1 first advisory letter with another, which clarified that 2 employees could meet with the government without counsel. 3 In addition, prosecutors repeatedly used Skadden to threaten 4 to withhold legal fees from employees who refused to 5 proffer -even if defense counsel had recommended that an 6 employee invoke the Fifth Amendment privilege. 7 could reasonably reject the government s version of these 8 events. 9 Judge Kaplan Finally, we cannot say that the district court s 10 ultimate finding of fact -that absent the Thompson 11 Memorandum and the prosecutors conduct KPMG would have 12 advanced fees without condition or cap -was clearly 13 erroneous. 14 KPMG had a longstanding voluntary practice of advancing 15 and paying employees legal fees without regard to economic 16 costs or considerations and without a preset cap or 17 condition of cooperation with the government . . . in any 18 civil, criminal or regulatory proceeding arising from 19 activities within the scope of employment. 20 (internal quotation marks omitted). 21 from certain that KPMG is legally obligated to advance 22 defendants legal fees, Stein v. KPMG, LLP, 486 F.3d 753, The government itself stipulated in Stein I that 28 Id. at 340 Although it is far 1 762 n.3 (2d Cir. 2007), a firm may have potent incentives to 2 advance fees, such as the ability to recruit and retain 3 skilled professionals in a profession fraught with legal 4 risk. 5 intervention, KPMG executed an agreement under which it 6 would advance Stein s legal fees without cap or condition 7 (and negotiated toward an identical agreement with Smith). 8 And while the government maintains that the civil, criminal 9 and regulatory investigations confronting KPMG constituted Also, there is evidence that, before the prosecutors 10 an unprecedented state of affairs that might have caused 11 KPMG to adopt new and different policies, Judge Kaplan was 12 not required to agree. 13 the court that the Thompson Memorandum and the prosecutors 14 conduct substantially influenced [its] determination(s) 15 with respect to the advancement of legal fees. 16 Indeed, KPMG itself represented to For the foregoing reasons, we cannot disturb Judge 17 Kaplan s factual findings, including his finding that, but 18 for the Thompson Memorandum and the prosecutors conduct, 19 KPMG would have advanced legal fees without condition or 20 cap. 21 22 29 1 II 2 We now consider the government s claim of cure. 3 government is correct, the taint of the purported Sixth 4 Amendment violation would be neutralize[d], dismissal of 5 the indictment would be inappropriate, and we could avoid 6 deciding the constitutional question. 7 Morrison, 449 U.S. 361, 365 (1981); see, e.g., id. at 366-67 8 (referring to [t]he Sixth Amendment violation, if any and 9 concluding that the violation, which we assume has If the United States v. 10 occurred, has had no adverse impact upon the criminal 11 proceedings (emphases added)). 12 Cases involving Sixth Amendment deprivations are 13 subject to the general rule that remedies should be tailored 14 to the injury suffered from the constitutional violation and 15 should not unnecessarily infringe on competing interests. 16 Id. at 364. 17 neutralize the taint by tailoring relief appropriate in the 18 circumstances to assure the defendant the effective 19 assistance of counsel and a fair trial. 20 Dismissal of an indictment is a remedy of last resort, id., 21 and is appropriate only where necessary to restore[] the 22 defendant to the circumstances that would have existed had Therefore, we must identify and then 30 Id. at 365. 1 there been no constitutional error, United States v. 2 Carmichael, 216 F.3d 224, 227 (2d Cir. 2000). 3 In Stein IV, Judge Kaplan concluded that dismissal of 4 the indictment as to the thirteen defendants was warranted 5 because no other remedy would restore them to the position 6 they would have enjoyed but for the government s 7 unconstitutional conduct. 8 28. 9 deprived four defendants -Gremminger, Hasting, Ritchie and Stein IV, 495 F. Supp. 2d at 419- Specifically, Judge Kaplan found that the government 10 Watson -of counsel of their choice. 11 simply lack the resources to engage the lawyers of their 12 choice, lawyers who had represented them as long as KPMG was 13 paying the bills. (footnote omitted)). 14 found that all thirteen defendants -even those who were 15 still represented by their counsel of choice -were forced by 16 KPMG s withholding of post-indictment legal fees to limit 17 their defenses . . . for economic reasons and that they 18 would not have been so constrained if KPMG paid their 19 expenses. 20 finances and determining the estimated cost of legal 21 representation, Judge Kaplan concluded: 22 thirteen KPMG Defendants . . . has the resources to defend Id. at 419. Id. at 421 ( [T]hey Judge Kaplan also After reviewing defendants 31 [N]one of the 1 this case as he or she would have defended it had KPMG been 2 paying the cost, even if he or she liquidated all property 3 owned by the defendant. Id. at 425. 4 The government argues that it cured any Sixth Amendment 5 violation on March 30, 2006, when it told the district court 6 that KPMG was free to exercise [its] business judgment. 7 Therefore, the government contends, the appropriate remedy 8 for any constitutional violation would be to allow 9 defendants to retain their counsel of choice using whatever 10 funds KPMG is willing to provide now. 11 government claims, all that would be warranted is an 12 adjournment of trial to afford defendants additional time to 13 review documents and consult with counsel and expert 14 witnesses; and since 16 months passed between the 15 government s March 30, 2006 in-court statement and the July 16 16, 2007 dismissal of the indictment, defendants have 17 already enjoyed this remedy. 18 Judge Kaplan was unpersuaded. At most, the In his view, KPMG is 19 unlikely to pay defendants legal fees as if the government 20 had never exerted any pressure: KPMG might prefer not to be 21 seen as reversing course and implicitly admitting that it 22 caved in to government pressure ; the defendants have been 32 1 indicted on charges the full scope of which may not 2 previously have been foreseeable to KPMG -so that defense 3 costs may be larger than expected; and KPMG has since paid a 4 $456 million fine under the DPA, reducing the firm s 5 available resources. 6 Stein I, 435 F. Supp. 2d at 374. We agree with the district court. The prosecutor s 7 isolated and ambiguous statement in a proceeding to which 8 KPMG was not a party (and the nearly 16-month period of 9 legal limbo that ensued) did not restore defendants to the 10 11 status quo ante. Judge Kaplan asked whether the government would 12 represent that [i] it has no objection to KPMG exercising 13 its free and independent business judgment as to whether to 14 advance defense costs and [ii] if it were to elect to do 15 so the government would not in any way consider that in 16 determining whether it had complied with the DPA. 17 affirmed only the first proposition. 18 And as to that, the AUSA stated that the government s 19 position had not changed: so the import of that statement 20 depends on what position one thinks the government had 21 previously adopted. 22 The AUSA See supra p. [18]. Furthermore, it was unrealistic to expect KPMG to 33 1 exercise uncoerced judgment in March 2006 as if it had never 2 experienced the government s pressure in the first place. 3 The government s intervention, coupled with the menace 4 inherent in the Thompson Memorandum, altered the decisional 5 dynamic in a way that the district court could find 6 irreparable. 7 under which KPMG must continue to cooperate fully with the 8 government7 -it is not all that likely that the firm would 9 feel free to reverse course. Having assumed a supine position in the DPA - 10 True, even if KPMG had decided initially to advance 11 legal fees, it might always have changed course later: it is 12 undisputed that KPMG s longstanding fees policy was 13 voluntary and subject to revision. 14 suit KPMG represented that it would not have obligated 15 itself to pay millions of dollars in fees on behalf of an 16 unknown number of employees without regard to the charges 17 ultimately lodged against them.) 18 even absent government pressure KPMG would not have advanced 19 legal fees indefinitely and without condition. 7 (In fact, in the civil So, the government argues, The cooperation provisions of the DPA . . . require KPMG to comply with demands by the USAO . . . [or else face] the risk that the government will declare that KPMG breached the DPA and prosecute the criminal information to verdict. Stein I, 435 F. Supp. 2d at 350. 34 1 This is certainly plausible; but it directly 2 contradicts the district court s central finding -which is 3 not clearly erroneous -that [a]bsent the Thompson 4 Memorandum and the actions of the USAO, KPMG would have paid 5 the legal fees and expenses of all of its partners and 6 employees both prior to and after indictment, without regard 7 to cost. 8 finding, we cannot accept the government s claim of cure on 9 this score. Id. at 353. 10 Because we cannot disturb this * * * 11 The appropriate remedy for a constitutional violation 12 is one that as much as possible restores the defendant to 13 the circumstances that would have existed had there been no 14 constitutional error. 15 it has been found that, absent governmental interference, 16 KPMG would have advanced unlimited legal fees 17 unconditionally, only the unconditional, unlimited 18 advancement of legal fees would restore defendants to the 19 status quo ante. 20 the ensuing 16-month delay were not enough. 21 Sixth Amendment violation, dismissal of the indictment is 22 required. Carmichael, 216 F.3d at 227. Since The government s in-court statement and 35 If there was a 1 2 3 III Judge Kaplan found that KPMG s decision to cut off all 4 payments of legal fees and expenses to anyone who was 5 indicted and to limit and to condition such payments prior 6 to indictment upon cooperation with the government was the 7 direct consequence of the pressure applied by the Thompson 8 Memorandum and the USAO. 9 (emphasis added); see also Stein II, 440 F. Supp. 2d at 334 10 (relying on this finding to conclude that KPMG s conduct was 11 fairly attributable to the State for Fifth Amendment 12 purposes). 13 enforcement of its Fees Policy was private action, outside 14 the ambit of the Sixth Amendment. 15 Stein I, 435 F. Supp. 2d at 353 The government protests that KPMG s adoption and When [t]he district court s dismissal of [an] 16 indictment raises questions of constitutional 17 interpretation, . . . we review the district court s 18 decision de novo. 19 (2d Cir. 2002). 20 United States v. King, 276 F.3d 109, 111 Actions of a private entity are attributable to the 21 State if there is a sufficiently close nexus between the 22 State and the challenged action of the . . . entity so that 36 1 the action of the latter may be fairly treated as that of 2 the State itself. 3 345, 351 (1974). 4 when the state [m]ere[ly] approv[es] of or acquiesce[s] in 5 the initiatives of the private entity, S.F. Arts & 6 Athletics, Inc. v. U.S. Olympic Comm., 483 U.S. 522, 547 7 (1987) (internal quotation marks omitted and first 8 alteration in original), or when an entity is merely subject 9 to governmental regulation, see Jackson, 419 U.S. at 350 & Jackson v. Metro. Edison Co., 419 U.S. The close nexus test is not satisfied 10 n.7. 11 assure that constitutional standards are invoked only when 12 it can be said that the State is responsible for the 13 specific conduct of which the plaintiff complains. 14 Yaretsky, 457 U.S. 991, 1004 (1982). 15 normally found when the State has exercised coercive power 16 or has provided such significant encouragement, either overt 17 or covert, that the choice must in law be deemed to be that 18 of the State. 19 The purpose of the [close-nexus requirement] is to Blum v. Such responsibility is Id. Although Supreme Court cases on this issue have not 20 been a model of consistency, Edmonson v. Leesville Concrete 21 Co., 500 U.S. 614, 632 (1991) (O Connor, J., dissenting), 22 some principles emerge. A nexus of state action exists 37 1 between a private entity and the state when the state 2 exercises coercive power, is entwined in the management or 3 control of the private actor, or provides the private actor 4 with significant encouragement, either overt or covert, or 5 when the private actor operates as a willful participant in 6 joint activity with the State or its agents, is controlled 7 by an agency of the State, has been delegated a public 8 function by the state, or is entwined with governmental 9 policies. Flagg v. Yonkers Sav. & Loan Ass n, 396 F.3d 10 178, 187 (2d Cir. 2005) (emphasis added and internal 11 quotation marks omitted); see also Skinner v. Ry. Labor 12 Executives Ass n, 489 U.S. 602, 615 (1989) (finding state 13 action where the Government did more than adopt a passive 14 position toward the underlying private conduct and where it 15 made plain not only its strong preference for [the private 16 conduct], but also its desire to share the fruits of such 17 intrusions ). 18 (1977) ( Constitutional concerns are greatest when the State 19 attempts to impose its will by force of law; the State s 20 power to encourage actions deemed to be in the public 21 interest is necessarily far broader. (emphasis added)). 22 But see Maher v. Roe, 432 U.S. 464, 476 The government argues: KPMG simply took actions in the 38 1 shadow of an internal DOJ advisory document (the Thompson 2 Memorandum) containing multiple factors and caveats; the 3 government s approval of KPMG s Fees Policy did not render 4 the government responsible for KPMG s actions enforcing it; 5 even if the government had specifically required KPMG to 6 adopt a policy that penalized non-cooperation, state action 7 would still have been lacking because KPMG would have 8 retained the power to apply the policy; and although the 9 prosecutors repeatedly informed KPMG when employees were not 10 cooperating, they did so at KPMG s behest, without knowing 11 how KPMG would react. 12 We disagree. KPMG s adoption and enforcement of the Fees Policy 13 amounted to state action because KPMG operate[d] as a 14 willful participant in joint activity with the government, 15 and because the USAO significant[ly] encourage[d] KPMG to 16 withhold legal fees from defendants upon indictment.8 17 Flagg, 396 F.3d at 187. 18 that its survival depended on its role in a joint project 19 with the government to advance government prosecutions. The government brought home to KPMG 8 The As explained in section IV.A, infra, the government s pre-indictment conduct was designed to have an effect once defendants were indicted, and it is therefore proper to consider such conduct for purposes of evaluating state action. 39 1 government is therefore legally responsible for the 2 specific conduct of which the [criminal defendants] 3 complain[]. 4 Blum, 457 U.S. at 1004 (emphasis omitted). The government argues that KPMG s decision to 5 condition legal fee payments on cooperation, while 6 undoubtedly influenced by the Thompson Memorandum, was not 7 coerced or directed by the Government. 8 runs up against the district court s factual finding (which 9 we do not disturb) that the fees decision was the direct But that argument 10 consequence of the Memorandum and the prosecutors conduct. 11 Stein I, 435 F. Supp. 2d at 353. 12 question of law whether the facts as found by the district 13 court establish state action. 14 (asking whether the private conduct must in law be deemed 15 to be that of the State (emphasis added)). 16 Nevertheless, it remains a See Blum, 457 U.S. at 1004 State action is established here as a matter of law 17 because the government forced KPMG to adopt its constricted 18 Fees Policy. 19 prosecutors stated would be considered in deciding whether 20 to indict KPMG -emphasizes that cooperation will be assessed 21 in part based upon whether, in advancing counsel fees, the 22 corporation appears to be protecting its culpable employees The Thompson Memorandum itself -which 40 1 and agents. 2 criminal investigation will virtually always be to protect 3 the client, KPMG s risk was that fees for defense counsel 4 would be advanced to someone the government considered 5 culpable. 6 government to become (in effect) paymaster. 7 Since defense counsel s objective in a So the only safe course was to allow the The prosecutors reinforced this message by inquiring 8 into KPMG s fees obligations, referring to the Thompson 9 Memorandum as a point that had to be considered, and 10 warning that misconduct should not or cannot be rewarded 11 under federal guidelines. 12 341-42. 13 hardly surprising, then, that KPMG decided to condition 14 payment of fees on employees cooperation with the 15 government and to terminate fees upon indictment: only that 16 policy would allow KPMG to continue advancing fees while 17 minimizing the risk that prosecutors would view such 18 advancement as obstructive. 19 Stein I, 435 F. Supp. 2d at The government had KPMG s full attention. It is To ensure that KPMG s new Fees Policy was enforced, 20 prosecutors became entwined in the . . . control of KPMG. 21 Flagg, 396 F.3d at 187. 22 decisionmaking, expressing their disappoint[ment] with They intervened in KPMG s 41 1 [the] tone of KPMG s first advisory memorandum, Stein I, 2 435 F. Supp. 2d at 346, and declaring that [t]hese problems 3 must be remedied by a proposed supplemental memorandum 4 specifying that employees could meet with the government 5 without being burdened by counsel. 6 plain their strong preference as to what the firm should 7 do, and their desire to share the fruits of such 8 intrusions. 9 regularly reporting to KPMG the identities of employees who Prosecutors also made Skinner, 489 U.S. at 615. They did so by 10 refused to make statements in circumstances in which the 11 USAO knew full well that KPMG would pressure them to talk to 12 prosecutors. 13 government s argument that it could not have known how KPMG 14 would react when informed that certain employees were not 15 cooperating is at best plausible only vis-à -vis the first 16 few employees.) 17 their preferred fee advancement policy and then supervised 18 its application in individual cases. 19 significant encouragement supports the conclusion that 20 KPMG s conduct is properly attributed to the State.9 Stein II, 440 F. Supp. 2d at 337. (The The prosecutors thus steered KPMG toward 9 Such overt and Because the Sixth Amendment attaches only upon indictment, the KPMG conduct attributable to the government is relevant only insofar as it contributed to KPMG s 42 1 The authorities cited by the government are not to the 2 contrary. 3 U.S. 991 (1982), and Albert v. Carovano, 851 F.2d 561 (2d 4 Cir. 1988) (en banc), two cases in which state action was 5 held to be lacking. 6 unsuccessfully challenged the transfer and discharge 7 decisions of private nursing homes. 8 that the private conduct was attributable to New York State 9 because state regulations required that the nursing homes The government relies on Blum v. Yaretsky, 457 In Blum, a class of Medicaid patients The patients claimed 10 transfer patients to a facility providing the level of care 11 indicated by the patient s medical condition or needs. 12 Blum, 457 U.S. at 1007-08 (quoting N.Y. Comp. Codes R. & 13 Regs. tit. 10, §§ 416.9(d)(1), 421.13(d)(1) (1980)). 14 though the regulations encouraged for efficiency reasons 15 the downward transfer of patients to lower levels of 16 care, id. at 1008 n.19 (emphasis added), and even though 17 federal law require[d] . . . state officials [to] review 18 nursing home assessments and [a]djust[] . . . benefit Even decision to withhold legal fees upon defendants indictment. See Part IV, infra. Many of KPMG s actions occurred prior to the August and October 2005 indictments. Nevertheless, when the defendants were indicted, KPMG had been so schooled by the government in the necessity of enforcing a particular fee advancement policy that KPMG understood what was expected of it once the indictments came down. 43 1 levels in response to a decision to discharge or transfer a 2 patient, id. at 1010, the Supreme Court ruled that state 3 action was lacking. 4 regulations do not require the nursing homes to rely on the 5 [patient care assessment forms designed by New York] in 6 making discharge or transfer decisions, and do not dictate 7 the decision to discharge or transfer in a particular case. 8 Id. at 1008, 1010 (emphasis added). 9 decisions ultimately turn[ed] on medical judgments made by 10 private parties according to professional standards that are 11 not established by the State. As the Court explained, the Instead, those Id. at 1008. 12 Likewise, Albert declined to deem the disciplinary 13 decisions of a private college to be state action, despite a 14 New York law requiring colleges to adopt disciplinary rules 15 and file them with the state. 16 We rejected plaintiffs claim that the college was compelled 17 by New York State to promulgate a disciplinary policy that 18 it would not have adopted otherwise. 19 rule of conduct imposed by the state, we explained, because 20 [c]olleges are free to define breaches of public order 21 however they wish, and they need not resort to a particular 22 penalty in any particular case. Albert, 851 F.2d at 568-69. 44 The policy was not a Id. at 564, 568. 1 Moreover, even if the state had mandated a particular rule, 2 the ultimate power to select a particular sanction in 3 individual cases would, as in [Blum], rest with the private 4 party. 5 the legislation or those rules that required that these 6 appellants be suspended. 7 Id. at 571. That is, there was nothing in either Id. at 568 (emphasis added). In Blum and Albert, it was decisive that [1] actions of 8 the private entity were based on independent criteria (the 9 medical standards; the college rules of conduct), and that 10 [2] the government was not dictating the outcomes of 11 particular cases. 12 Here, however, [1] KPMG was never free to define 13 cooperation independently: AUSA Weddle told Bennett that he 14 had had a bad experience in the past with a company 15 conditioning payments on a person s cooperation, where the 16 company did not define cooperation as tell the truth the[] 17 way we [the prosecutors] define it. 18 advancement decisions in individual cases thus depended 19 largely on state-influenced standards. 20 prosecution designated particular employees for deprivation 21 of fees (and, in some cases, termination of employment) by 22 demanding that KPMG threaten and penalize those employees 45 KPMG s fees In addition, [2] the 1 for non-cooperation. 2 Deputy Attorney General, [w]henever your Office has 3 notified us that individuals have not . . . cooperat[ed], 4 KPMG has promptly and without question encouraged them to 5 cooperate and threatened to cease payment of their attorneys 6 fees and . . . to take personnel action, including 7 termination. 8 defendants after inspiring and shaping KPMG s Fees Policy 9 and after exacting KPMG s compliance with it, prosecutors 10 effectively selected which employees would be deprived of 11 attorneys fees. 12 longstanding policy of advancing fees, the government then 13 compelled KPMG to apply the Fees Policy to particular 14 employees both pre- and post-indictment. 15 no protection in Blum and Albert. 16 As Bennett later reported to the Furthermore, by indicting the thirteen Having forced the constriction of KPMG s This conduct finds The government also directs us to another line of state 17 action cases: 18 Regulation, Inc., 279 F.3d 155 (2d Cir. 2002), and United 19 States v. Solomon, 509 F.2d 863 (2d Cir. 1975). 20 involved parallel, cooperative investigations by private 21 regulatory entities and government investigators. 22 Cromwell, the USAO and the National Association of D.L. Cromwell Investments, Inc. v. NASD 46 These cases In D.L. 1 Securities Dealers ( NASD ) simultaneously investigated 2 plaintiff stockbrokers. 3 NASD from compelling on-the-record interviews (on pain of 4 expulsion from their profession), arguing under the Fifth 5 Amendment that the NASD inquiry was a tool of the 6 prosecutors. 7 pointed to the informal and formal sharing of documents and 8 information between the government and the NASD, id. at 157- 9 58, 162, and the fact that the NASD interview demands 10 followed shortly after plaintiffs contested grand jury 11 subpoenas, id. at 162. 12 Stock Exchange ( NYSE ) had taken testimony from a trader 13 under threat of suspension or expulsion, and then forwarded 14 his deposition to the SEC pursuant to an SEC subpoena. 15 F.2d at 864-65. 16 The plaintiffs sought to enjoin D.L. Cromwell, 279 F.3d at 156-57. Plaintiffs Similarly, in Solomon, the New York 509 In both cases, we held that there was no state action 17 because the private actors had independent regulatory 18 interests and motives for making their inquiries and for 19 cooperating with parallel investigations being conducted by 20 the government. 21 preexisting regulatory duty to investigate questionable 22 securities transactions, 279 F.3d at 163 -that is, it would In D.L. Cromwell, the NASD had a 47 1 have requested interviews regardless of governmental 2 pressure. 3 pursuance of its own interests and obligations, not as an 4 agent of the [government], 509 F.2d at 869 -absent SEC 5 involvement, the NYSE would have investigated anyway. 6 Because the NASD and the NYSE had preexisting and 7 independent investigatory missions, their cooperation with 8 the government was not state action. 9 Compelled Cooperation and the New Corporate Criminal And in Solomon, the NYSE s efforts were in See Lisa Kern Griffin, 10 Procedure, 82 N.Y.U. L. Rev. 311, 369 (2007) (observing that 11 D.L. Cromwell and Solomon turned in large part on the fact 12 that requests for interviews were not generated by 13 governmental persuasion or collusion ). 14 district court found), absent the prosecutors involvement 15 and the Thompson Memorandum, KPMG would not have changed its 16 longstanding fee advancement policy or withheld legal fees 17 from defendants upon indictment. 18 2d at 353. 19 By contrast (as the See Stein I, 435 F. Supp. The government responds: Solomon declined to find state 20 action even though it involved a private entity compelling 21 interviews with one of its members, backed by the explicit 22 threat of expulsion, in the context of continuous 48 1 coordination between the NYSE and the SEC on the same side. 2 So how can KPMG, an adversary of the government, also be its 3 partner? 4 Athletic Ass n, 531 U.S. 288, 304 (2001) ( The state-action 5 doctrine does not convert opponents into virtual agents. ). 6 See Brentwood Acad. v. Tenn. Secondary Sch. An adversarial relationship does not normally bespeak 7 partnership. 8 reasonably believed it must do everything in its power to 9 avoid it. But KPMG faced ruin by indictment and The government s threat of indictment was easily 10 sufficient to convert its adversary into its agent. 11 was not in a position to consider coolly the risk of 12 indictment, weigh the potential significance of the other 13 enumerated factors in the Thompson Memorandum, and decide 14 for itself how to proceed. 15 at 367 ( The threat of [ruinous indictment] brings 16 significant pressure to bear on corporations, and that 17 threat provides a sufficient nexus between a private 18 entity s employment decision at the government s behest and 19 the government itself. ). 20 KPMG See Griffin, 82 N.Y.U. L. Rev. We therefore conclude that KPMG s adoption and 21 enforcement of the Fees Policy (both before and upon 22 defendants indictment) amounted to state action. 49 The 1 government may properly be held responsible for the 2 specific conduct of which the [criminal defendants] 3 complain[], Blum, 457 U.S. at 1004 (emphasis omitted), 4 i.e., the deprivation of their Sixth Amendment right to 5 counsel, if the violation is established. 6 7 8 9 IV The district court s ruling on the Sixth Amendment was based on the following analysis (set out here in précis). 10 The Sixth Amendment protects an individual s right to 11 choose the lawyer or lawyers he or she desires, Stein I, 12 435 F. Supp. 2d at 366 (citing Wheat v. United States, 486 13 U.S. 153, 164 (1988)), and to use one s own funds to mount 14 the defense that one wishes to present, id. (citing Caplin 15 & Drysdale, Chartered v. United States, 491 U.S. 617, 624 16 (1989)). 17 spend his own money on a defense. 18 defendants reasonably expected to receive legal fees from 19 KPMG, the fees were, in every material sense, their 20 property. 21 discretion to treat as obstruction a company s advancement 22 of legal fees is insufficient to justify the government s The goal is to secure a defendant s right to Id. Id. at 367. Because The government s interest in retaining 50 1 interference with the right of individual criminal 2 defendants to obtain resources lawfully available to them in 3 order to defend themselves. 4 not make a particularized showing of how their defense was 5 impaired, id. at 372, because [v]irtually everything the 6 defendants do in this case may be influenced by the extent 7 of the resources available to them, such as selection of 8 counsel and what the KPMG Defendants can pay their lawyers 9 to do, id. at 371-72. Id. at 369. Defendants need Therefore, the Sixth Amendment 10 violation is complete irrespective of the quality of the 11 representation they receive. Id. at 369.10 10 In Stein IV, Judge Kaplan nevertheless expanded his findings as to Sixth Amendment harms suffered by particular defendants: defendants Gremminger, Hasting and Watson were deprived of their chosen counsel, lawyers who had represented them as long as KPMG was paying the bills ; and defendant Ritchie was deprived of the services of Cadwalader Wickersham & Taft, which was to have played an integral role in his defense. 495 F. Supp. 2d at 421. In addition: All of the [present] KPMG Defendants . . . say that KPMG s refusal to pay their post-indictment legal fees has caused them to restrict the activities of their counsel, limited or precluded their attorneys review of the documents produced by the government in discovery, prevented them from interviewing witnesses, caused them to refrain from retaining expert witnesses, and/or left them without information technology assistance necessary for dealing with the mountains of electronic discovery. The government has not contested these assertions. The Court therefore has no reason to doubt, and hence finds, that all of them have been 51 1 2 3 A Most of the state action relevant here -the 4 promulgation of the Thompson Memorandum, the prosecutors 5 communications with KPMG regarding the advancement of fees, 6 KPMG s adoption of a Fees Policy with caps and conditions, 7 and KPMG s repeated threats to employees identified by 8 prosecutors as being uncooperative -pre-dated the 9 indictments of August and October 2005.11 (Of course, after 10 the indictments were filed KPMG ceased advancing fees to all 11 thirteen of the present defendants who were still receiving 12 fees up to that point. 13 also state action.) As explained in Part III, this was So we must determine how this pre- forced to limit their defenses in the respects claimed for economic reasons and that they would not have been so constrained if KPMG paid their expenses subject only to the usual sort of administrative requirements typically imposed by corporate law departments on outside counsel fees. Id. at 418-19 (footnote omitted). Judge Kaplan explained that even though many defendants had net assets ranging from $1 million to $5 million, their resources were inadequate to defend this case as they would have defended it absent the government s actions. Id. at 423. 11 Again, state action includes both conduct by the government and conduct by KPMG that is fairly attributable to the government. See Part III, supra. 52 1 indictment conduct may bear on defendants Sixth Amendment 2 claim. 3 The Sixth Amendment right of the accused to 4 assistance of counsel in all criminal prosecutions is 5 limited by its terms: it does not attach until a prosecution 6 is commenced. 7 128 S. Ct. 2578, 2583 (2008) (quoting U.S. Const. amend. VI) 8 (some internal quotation marks and footnote omitted). 9 Attachment refers to when the [Sixth Amendment] right may Rothgery v. Gillespie County, 554 U.S. ---, 10 be asserted ; it does not concern the separate question of 11 what the right guarantees, i.e., what the substantive 12 guarantee of the Sixth Amendment is at that stage of the 13 prosecution. 14 The Supreme Court has pegged commencement [of a 15 prosecution] to the initiation of adversary judicial 16 criminal proceedings -whether by way of formal charge, 17 preliminary hearing, indictment, information, or 18 arraignment. Id. at 2583 (majority opinion) (quoting 19 United States v. Gouveia, 467 U.S. 180, 188 (1984)). 20 rule is not mere formalism, but a recognition of the point 21 at which the government has committed itself to prosecute, 22 the adverse positions of government and defendant have Id. at 2592, 2594 (Alito, J., concurring). 53 The 1 solidified, and the accused finds himself faced with the 2 prosecutorial forces of organized society, and immersed in 3 the intricacies of substantive and procedural criminal 4 law. Id. (quoting Kirby v. Illinois, 406 U.S. 682, 689 5 (1972) (plurality opinion)). 6 Judge Kaplan focused on KPMG s decision to withhold 7 fees upon indictment: 8 pertinent to possible dismissal of the indictment was the 9 government s role in KPMG s action in cutting off payment of 10 legal fees for those who were indicted as distinct from the 11 limitations on payment of legal fees during the 12 investigative stage. 13 (emphasis added) (citing Stein I, 435 F. Supp. 2d at 373). 14 Therefore, Judge Kaplan explained, [a]ctions by the 15 government that affected only the payment of legal fees and 16 defense costs for services rendered prior to the indictment 17 . . . do not implicate the Sixth Amendment. 18 F. Supp. 2d at 373 (emphasis added). [T]he constitutional violation Stein IV, 495 F. Supp. 2d at 404 n.54 Stein I, 435 19 By the same token, state action that also (or only) 20 affected the advancement of legal fees for services rendered 21 post-indictment does implicate defendants Sixth Amendment 22 rights, regardless of when the conduct took place: 54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Id. at 366 (emphasis added). 19 government s pre-indictment conduct was of a kind that would 20 have post-indictment effects of Sixth Amendment 21 significance, and did. 22 It is true, of course, that the Sixth Amendment right to counsel typically attaches at the initiation of adversarial proceedings -at an arraignment, indictment, preliminary hearing, and so on. But the analysis can not end there. The Thompson Memorandum on its face and the USAO s actions were parts of an effort to limit defendants access to funds for their defense. Even if this was not among the conscious motives, the Memorandum was adopted and the USAO acted in circumstances in which that result was known to be exceptionally likely. The fact that events were set in motion prior to indictment with the object of having, or with knowledge that they were likely to have, an unconstitutional effect upon indictment cannot save the government. This conduct, unless justified, violated the Sixth Amendment. In other words, the We endorse this analysis. Although defendants Sixth 23 Amendment rights attached only upon indictment, the district 24 court properly considered pre-indictment state action that 25 affected defendants post-indictment. 26 acts prior to indictment so as to impair the suspect s 27 relationship with counsel post-indictment, the pre- 28 indictment actions ripen into cognizable Sixth Amendment 29 deprivations upon indictment.12 12 When the government As Judge Ellis explained in As Judge Kaplan recognized, the pre-indictment conduct is separately constrained by the Fifth Amendment. 55 1 United States v. Rosen, 487 F. Supp. 2d 721 (E.D. Va. 2007), 2 it is entirely plausible that pernicious effects of the 3 pre-indictment interference continued into the 4 post-indictment period, effectively hobbling defendants 5 Sixth Amendment rights to retain counsel of choice with 6 funds to which they had a right. . . . [I]f, as alleged, the 7 government coerced [the employer] into halting fee advances 8 on defendants behalf and the government did so for the 9 purpose of undermining defendants relationship with counsel 10 once the indictment issued, the government violated 11 defendants right to expend their own resources towards 12 counsel once the right attached. 13 Id. at 734. Since the government forced KPMG to adopt the 14 constricted Fees Policy -including the provision for 15 terminating fee advancement upon indictment -and then 16 compelled KPMG to enforce it, it was virtually certain that 17 KPMG would terminate defendants fees upon indictment. 18 therefore reject the government s argument that its actions 19 (virtually all pre-indictment) are immune from scrutiny 20 under the Sixth Amendment.13 13 We We need not decide whether KPMG s pre-indictment conditioning and capping of fees -conduct we have determined was state action -establishes a Sixth Amendment violation by 56 1 2 B We now consider what the [Sixth Amendment] right 3 guarantees. 4 concurring). Rothgery, 128 S. Ct. at 2592 (Alito, J., 5 The Sixth Amendment ensures that [i]n all criminal 6 prosecutions, the accused shall enjoy the right . . . to 7 have the Assistance of Counsel for his defence. 8 Const. amend. VI. 9 defendant the right to be represented by an otherwise U.S. Thus the Sixth Amendment guarantees the 10 qualified attorney whom that defendant can afford to hire, 11 or who is willing to represent the defendant even though he 12 is without funds. 13 States, 491 U.S. 617, 624-25 (1989). 14 right is the right of a defendant who does not require 15 appointed counsel to choose who will represent him. 16 States v. Gonzalez-Lopez, 548 U.S. 140, 144 (2006).14 Caplin & Drysdale, Chartered v. United [A]n element of this United itself. As discussed below, KPMG s termination of fees upon indictment deprived defendants of their Sixth Amendment right to counsel. 14 Although the Sixth Amendment right to counsel of choice has been regarded as the root meaning of the constitutional guarantee, id. at 147-48, the right is qualified: the attorney must be admitted to the bar, willing to represent the defendant, free from certain conflicts of interest, compliant with the rules of the court, and so on, see Wheat v. United States, 486 U.S. 153, 159-60 (1988). 57 1 2 The government must honor a defendant s Sixth Amendment right to counsel: 3 4 5 6 7 8 9 10 11 12 13 Maine v. Moulton, 474 U.S. 159, 170-71 (1985). 14 intuitive: the right to counsel in an adversarial legal 15 system would mean little if defense counsel could be 16 controlled by the government or vetoed without good reason. This means more than simply that the State cannot prevent the accused from obtaining the assistance of counsel. The Sixth Amendment also imposes on the State an affirmative obligation to respect and preserve the accused s choice to seek this assistance. . . . [A]t the very least, the prosecutor and police have an affirmative obligation not to act in a manner that circumvents and thereby dilutes the protection afforded by the right to counsel. This is 17 Consistent with this principle of non-interference, 18 courts have identified violations of the Sixth Amendment 19 right to counsel where the government obtains incriminating 20 statements from a defendant outside the presence of counsel 21 and then introduces those statements at trial. 22 id. at 176; Massiah v. United States, 377 U.S. 201, 206 23 (1964). 24 Amendment when it intrudes on the attorney-client 25 relationship, preventing defense counsel from 26 participat[ing] fully and fairly in the adversary 27 factfinding process. See, e.g., Likewise, the government violates the Sixth Herring v. New York, 422 U.S. 853, 58 1 858 (1975); see, e.g., id. at 858-59 (holding that a New 2 York statute allowing judges in a criminal bench trial to 3 deny counsel the opportunity to make a closing argument 4 deprived defendant of his Sixth Amendment right to the 5 assistance of counsel); Geders v. United States, 425 U.S. 6 80, 91 (1976) (holding that a trial court s order that 7 defendant not consult with his attorney during an overnight 8 recess during trial violated the Sixth Amendment). 9 Defendants-Appellees do not say that they were deprived 10 of constitutionally effective counsel. See Strickland v. 11 Washington, 466 U.S. 668, 686 (1984). Their claim is that 12 the government unjustifiably interfered with their 13 relationship with counsel and their ability to mount the 14 best defense they could muster. 15 The government, relying on Caplin & Drysdale, Chartered 16 v. United States, 491 U.S. 617 (1989), contends that a 17 defendant has no Sixth Amendment right to a defense funded 18 by someone else s money. 19 ruled that a defendant s Sixth Amendment right to retain 20 counsel of choice was not violated when the funds he 21 earmarked for defense were seized under a federal forfeiture 22 statute, because title to the forfeitable assets had vested In that case, the Supreme Court 59 1 in the United States. 2 Monsanto, 491 U.S. 600, 616 (1989) (holding that pretrial 3 restraining order based on showing of probable cause that 4 property is forfeitable does not arbitrarily interfere 5 with a defendant s fair opportunity to retain counsel ). 6 7 Id. at 628; see also United States v. The government focuses on the following passage from Caplin & Drysdale: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Caplin & Drysdale, 491 U.S. at 626 (emphasis added and first 26 omission in original). 27 narrow: the Sixth Amendment does not prevent the government 28 from reclaiming its property from a defendant even though 29 the defendant had planned to fund his legal defense with it. 30 It is easy to distinguish the case of an employee who 31 reasonably expects to receive attorneys fees as a benefit Whatever the full extent of the Sixth Amendment s protection of one s right to retain counsel of his choosing, that protection does not go beyond the individual s right to spend his own money to obtain the advice and assistance of . . . counsel. Walters v. National Assn. of Radiation Survivors, 473 U.S. 305, 370 (1985) (Stevens, J., dissenting). A defendant has no Sixth Amendment right to spend another person s money for services rendered by an attorney, even if those funds are the only way that that defendant will be able to retain the attorney of his choice. A robbery suspect, for example, has no Sixth Amendment right to use funds he has stolen from a bank to retain an attorney to defend him if he is apprehended. The money, though in his possession, is not rightfully his . . . . The holding of Caplin & Drysdale is 60 1 or perquisite of employment, whether or not the expectation 2 arises from a legal entitlement. 3 a matter of fact, these defendants would have received fees 4 from KPMG but for the government s interference. 5 there is no Sixth Amendment right for a defendant to obtain 6 counsel using tainted funds, [a defendant] still possesses a 7 qualified Sixth Amendment right to use wholly legitimate 8 funds to hire the attorney of his choice. 9 Farmer, 274 F.3d 800, 804 (4th Cir. 2001) (emphasis added). 10 As has been found here as Although United States v. It is axiomatic that if defendants had already received 11 fee advances from KPMG, the government could not (absent 12 justification) deliberately interfere with the use of that 13 money to fuel their defenses. 14 that it could not prevent a lawyer from furnishing a defense 15 gratis. 16 Sixth Amendment guarantees a defendant the right to be 17 represented by an otherwise qualified attorney . . . who is 18 willing to represent the defendant even though he is without 19 funds. ). 20 lawyer to represent the defendant (subject, of course, to 21 ethical rules governing third-party payments to counsel, see 22 United States v. Locascio, 6 F.3d 924, 932-33 (2d Cir. And the government concedes See Caplin & Drysdale, 491 U.S. at 624-25 ( [T]he Presumably, such a lawyer could pay another 61 1 1993)). 2 from interfering with such arrangements, then surely it also 3 prohibits the government from interfering with financial 4 donations by others, such as family members and neighbors-- 5 and employers. 6 739-40 (4th Cir. 1973) (per curiam) ( The Sixth Amendment 7 right to counsel includes not only an indigent s right to 8 have the government appoint an attorney to represent him, 9 but also the right of any accused, if he can provide counsel And if the Sixth Amendment prohibits the government See United States v. Inman, 483 F.2d 738, 10 for himself by his own resources or through the aid of his 11 family or friends, to be represented by an attorney of his 12 own choosing. (emphasis added)). 13 Amendment protects against unjustified governmental 14 interference with the right to defend oneself using whatever 15 assets one has or might reasonably and lawfully obtain. 16 In a nutshell, the Sixth The government points out that KPMG s past fee practice 17 was voluntary and subject to change, and that defendants 18 therefore could have had no reasonable expectation of the 19 ongoing advancement of fees. 20 quarrels with Judge Kaplan s finding that absent any state 21 action, KPMG would have paid defendants legal fees and 22 expenses without regard to cost. But this argument simply 62 See Stein I, 435 F. Supp. 1 2d at 353. 2 advancement as a matter of law, see Stein v. KPMG, LLP, 486 3 F.3d 753, 762 n.3 (2d Cir. 2007) (commenting that 4 defendants likelihood of success in obtaining a judgment 5 against KPMG for legal fees is far from certain ); but the 6 Sixth Amendment prohibits the government from impeding the 7 supply of defense resources (even if voluntary or gratis), 8 absent justification. 9 interference was justified, it violated the Sixth Amendment. 10 Defendants were not necessarily entitled to fee Therefore, unless the government s The government is sometimes allowed to interfere with 11 defendants choice or relationship with counsel, such as to 12 prevent certain conflicts of interest. 13 States v. Curcio, 680 F.2d 881 (2d Cir. 1982). 14 government has failed to establish a legitimate 15 justification for interfering with KPMG s advancement of 16 legal fees. 17 See, e.g., United However, the The government argues that it may inquire into third- 18 party payment of legal fees in certain circumstances. 19 example, in United States v. Locascio, we affirmed the 20 disqualification of defendant s counsel based in part on 21 defendant s benefactor payments to the attorney to serve 22 as house counsel to members of the Gambino organized crime 63 For 1 family. 2 acceptance of such benefactor payments . . . raises an 3 ethical question as to whether the attorney s loyalties are 4 with the client or the payor, id. (some internal quotation 5 marks omitted), and that proof of house counsel can be used 6 by the government to help establish the existence of the 7 criminal enterprise under RICO, by showing the connections 8 among the participants, id. at 932-33. 9 Locascio, 6 F.3d at 932. We explained that the The government s reliance on Locascio is misplaced. 10 There, the attorney s status as house counsel was 11 potentially part of the proof of the Gambino criminal 12 enterprise, id. at 933, i.e., it was evidence going to an 13 element of the crime itself, and it was relevant to 14 ascertaining and preventing potential conflicts of interest, 15 id. at 932. 16 compelling justifications. 17 But here, the government claims no such It is also urged that a company may pretend cooperation 18 while circling the wagons, that payment of legal fees can 19 advance such a strategy, and that the government has a 20 legitimate interest in being able to assess cooperation 21 using the payment of fees as one factor. 22 be a legitimate justification, it would not be in play here: 64 Even if that can 1 prosecutors testified before the district court that they 2 were never concerned that KPMG was circling the wagons. 3 Moreover, it is unclear how the circling of wagons is much 4 different from the legitimate melding of a joint defense. 5 The government conceded at oral argument that it is in 6 the government s interest that every defendant receive the 7 best possible representation he or she can obtain. 8 company that advances legal fees to employees may stymie 9 prosecutors by affording culpable employees with high- A 10 quality representation. 11 interest that every defendant receive the best possible 12 representation, it cannot also be in the government s 13 interest to leave defendants naked to their enemies. 14 But if it is in the government s Judge Kaplan found that defendants Gremminger, Hasting, 15 Ritchie and Watson were unable to retain the counsel of 16 their choosing as a result of the termination of fee 17 advancements upon indictment. 18 421-22. 19 finding, and we will not disturb it. 20 deprived of counsel of choice (without justification) need 21 not show how his or her defense was impacted; such errors 22 are structural and are not subject to harmless-error review. Stein IV, 495 F. Supp. 2d at The government does not contest this factual 65 A defendant who is 1 See Gonzalez-Lopez, 548 U.S. at 144, 148-52. 2 at stake here is the right to counsel of choice, . . . and 3 that right was violated because the deprivation of counsel 4 was erroneous. 5 required to make the violation complete. 6 course, a completed constitutional violation may still be 7 remediable. 8 government has failed to cure this Sixth Amendment 9 violation. [T]he right No additional showing of prejudice is Id. at 146. Of However, as explained in Part II, the Therefore, the government deprived defendants 10 Gremminger, Hasting, Ritchie and Watson of their Sixth 11 Amendment right to counsel of choice. 12 The remaining defendants -Bickham, DeLap, Eischeid, 13 Lanning, Rosenthal, Smith, Stein, Warley, and Wiesner -do 14 not claim they were deprived of their chosen counsel. 15 Rather, they assert that the government unjustifiably 16 interfered with their relationship with counsel and their 17 ability to defend themselves. 18 government conceded that these defendants are also entitled 19 to dismissal of the indictment, assuming the correctness of 20 Stein I. 21 these defendants can easily demonstrate interference in 22 their relationships with counsel and impairment of their In the district court, the See Stein IV, 495 F. Supp. 2d at 393. 66 We agree: 1 ability to mount a defense based on Judge Kaplan s non- 2 erroneous findings that the post-indictment termination of 3 fees caused them to restrict the activities of their 4 counsel, and thus to limit the scope of their pre-trial 5 investigation and preparation. 6 indicted based on a fairly novel theory of criminal 7 liability; they faced substantial penalties; the relevant 8 facts are scattered throughout over 22 million documents 9 regarding the doings of scores of people, id. at 417; the Id. at 418. Defendants were 10 subject matter is extremely complex, id. at 418; technical 11 expertise is needed to figure out and explain what happened; 12 and trial was expected to last between six and eight months, 13 id. 14 forced to limit their defenses . . . for economic reasons 15 and . . . they would not have been so constrained if KPMG 16 paid their expenses. 17 these defendants were also deprived of their right to 18 counsel under the Sixth Amendment.15 As Judge Kaplan found, these defendants have been Id. at 419. 15 We therefore hold that This case does not raise, and therefore we have no occasion to consider, the application of our holding to the following scenario: A defendant moves unsuccessfully in the district court to dismiss the indictment on the same Sixth Amendment theory. The defendant proceeds to trial with his or her chosen attorney, and the attorney is forced to limit the scope of his or her efforts due to the defendant s 67 1 2 3 CONCLUSION For the foregoing reasons, we AFFIRM the judgment of the district court dismissing defendants indictment. financial constraints. The defendant is convicted based on overwhelming evidence of his or her guilt. 68
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