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United States v. Stein

September 25, 2006

UNITED STATES OF AMERICA,
v.
JEFFREY STEIN, ET AL., DEFENDANTS.
IN RE UNITED STATES OF AMERICA,
v.
JEFFREY STEIN, ET AL., DEFENDANTS.
JEFFREY STEIN, ET AL., PLAINTIFFS,
v.
KPMG LLP, DEFENDANT.



The opinion of the court was delivered by: Lewis A. Kaplan, District Judge

MEMORANDUM OPINION

The sixteen KPMG Defendants seek an order compelling KPMG to advance their defense costs in this criminal case and a corresponding declaratory judgment. On September 6, 2006, this Court denied KPMG's motion to dismiss their complaint. Trial of the advancement claim has been set for October 17 in the hope of resolving this dispute in sufficient time to adhere to the already once-postponed January 2007 trial date for the criminal charges.

KPMG has filed a notice of appeal, claiming that the Court erred in denying its motion because it lacks ancillary jurisdiction to hear the dispute and the KPMG Defendants are obliged to arbitrate the advancement issue. KPMG now moves for a stay pending appeal. The Court assumes familiarity with the three previous pertinent opinions in this case.*fn1

Discussion

A. Legal Standard

The fact that KPMG seeks to appeal this Court's ruling that the advancement claims are not arbitrable neither deprives this Court of jurisdiction to proceed to trial nor, in and of itself, requires a stay. To the contrary, as KPMG concedes, "a stay is not required," and the question whether to proceed to trial despite the pendency of an appeal claiming a right to arbitrate lies within the discretion of the district court.*fn2 So too with the attempt to appeal the ancillary jurisdiction ruling.

"Four criteria are relevant in considering whether to issue a stay of an order of a district court or an administrative agency pending appeal: the likelihood of success on the merits, irreparable injury if a stay is denied, substantial injury to the party opposing a stay if one is issued, and the public interest."*fn3 As the requisite degree of likelihood of success "will vary according to the court's assessment of the other [stay] factors,"*fn4 it is appropriate to begin with the equities and the public interest. Moreover, in balancing the equities, it is helpful to consider whether the harm to the applicant if a stay were denied and the order appealed from reversed would outweigh the harm to the opponent if a stay were granted and the order appealed from upheld.*fn5

B. Analysis

1. Irreparable Injury

Absent a stay, KPMG will be compelled to participate in pretrial discovery and, perhaps, other pretrial proceedings. It faces also two other possibilities. First, depending upon how quickly the appeal is decided, it could face a trial. Second, again depending upon how quickly the appeal is decided, the matter may proceed to judgment. In each case, therefore, we consider whether the possibility, were it to occur, actually would injure KPMG and, if so, whether the injury would be irreparable.

It is doubtful that participation in discovery proceedings in this Court would injure KPMG, let alone irreparably, even if it ultimately prevailed on its claim that it is entitled to arbitrate rather than litigate. In the one previous arbitration concerning this issue, KPMG sought discovery. Indeed, its arbitration strategy appears to be to provoke the KPMG Defendants to invoke the Fifth Amendment by seeking to question them in depositions concerning the merits of the criminal case and then to seek either dismissal or stay of their claims based on their assertions of their constitutional rights.*fn6 Hence, the suggestion that pretrial discovery here would injure KPMG is unpersuasive, as KPMG appears to want discovery regardless of where this dispute is litigated. Even if that were not the case, any depositions or other discovery taken here during the pendency of the appeal could be used in any arbitrations that eventually might take place. So it is difficult to regard such discovery as irreparable injury. Nor does the fact that the KPMG Defendants have served what KPMG claims are expansive document requests alter this analysis. If, after seeking agreement on narrower requests, KPMG still has objections to any of the discovery, it has ample recourse in this Court, just as would any other litigant.

The analysis of the possibility that these claims could be tried in this Court and, indeed, result in a judgment here rather than in arbitral fora is somewhat different.

If further proceedings before this Court threatened irrevocably to deprive KPMG, assuming it ultimately prevailed on its claim that the matter should be arbitrated, of an arbitral as distinct from a court decision, KPMG could be threatened with irreparable injury. But that is not the case. Even if the advancement claim now before this Court were tried to judgment, any error in proceeding with it here rather than compelling arbitration could be corrected by the Court of Appeals vacating the judgment. Hence, KPMG's position amounts only to a claim that participation in a trial here -- as distinguished from its result -- itself would constitute irreparable injury. So we turn to that contention.

If KPMG prevailed in this Court, which is possible, it presumably would be quite happy with the result and drop the appeal. In that event, participation in a trial here would have resulted in no injury at all.

It is possible also that KPMG would lose here and appeal. Were that to occur, there would be at least two possibilities.

First, KPMG might succeed on the arbitration issue on appeal without the Court of Appeals addressing the merits. In that event, the cost and inconvenience of the trial to some degree would have been unnecessary, as the matter might go on to arbitration. ...


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