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The Thompson Memo Ruling
Judge Lewis Kaplan's eloquent and eminently correct decision striking down the Justice Department's policy embodied in the 'Thompson Memo' that pressures corporations, by threat of indictment, to cut off legal fees to 'culpable' employees, was widely publicized and acclaimed. But it may ultimately produce little change in the real world of white-collar criminal defense.
In the specific case ' the KPMG tax fraud prosecution, United States v. Stein, 435 F. Supp. 2d 330, 362 (S.D.N.Y. 2006) ' Judge Kaplan thus far has been unwilling to dismiss the criminal charges because of the government's conduct or order the government to pay the lost fees. Instead, the court attempted to jawbone KPMG into resuming payments. When this failed, the court opened an ancillary civil proceeding that permitted the criminal defendants to sue KPMG for legal fees on the ground that its past practices show an implied agreement to advance legal fees. Every indication is that KPMG will vigorously fight the claim at this month's trial and will appeal if it loses.
The KPMG decisions surely will prompt corporate policy-makers to rethink charter and bylaw provisions and their past practices relating to reimbursement of legal fees to indicted or targeted officers, directors or employees. Companies will be watching to see how Judge Kaplan's rulings fare in the Court of Appeals and whether other courts follow his lead. When asked to advance fees, companies will weigh the risk of being sued if they refuse. But they are likely to conclude that the policy expressed in the Thompson Memo reflects the mindset of current-day federal prosecutors, and that the risk of a lawsuit for fees is far outweighed by the risk of alienating prosecutors by funding the legal defense of their quarry, especially since few plaintiffs are likely to have such strong evidence of government coercion as was presented to Judge Kaplan.
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