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United States v. Stein

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


November 13, 2006

UNITED STATES OF AMERICA,
v.
JEFFREY STEIN, ET AL., DEFENDANTS.

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

MEMORANDUM AND ORDER

(Corrected)

After the superceding indictment was filed in October 2005, the Court set this case for trial commencing September 11, 2006. By order dated July 19, 2006, the Court granted a motion for a continuance and postponed it until January 2007. This delay was necessitated by (1) discovery problems, and (2) the government's violation of the constitutional rights of sixteen of the eighteen remaining defendants by improperly causing KPMG to depart from its uniform prior practice by cutting off its payment of these defendants' legal fees. The latter circumstances required additional proceedings prior to trial concerning the remedy, including a determination whether KPMG is legally obliged to pay those fees.*fn1

In September 2006, the government applied for a six month continuance of the trial, arguing among other things that the defendants needed the additional time for proper preparation. At a conference on September 26, 2006, several defendants joined in that request. The Court took the issue under advisement, indicating that it would review the matter once it was determined whether KPMG is obliged to advance defense costs. It indicated that it expected to be in a position to make an informed decision this month,*fn2 an estimate that presupposed that the KPMG fee issue would have been tried in October, which did not occur.

Last week, all defendants joined in a motion to adjourn the trial until no earlier than April 2007. Although the government has not had time to respond to the motion and the Court therefore does not rely upon the defendants' unanswered contentions for present purposes, the motion grounds the adjournment request on (1) the government's production -- since the Court last addressed this issue -- of an additional 7 million pages of documents, and (2) the continued uncertainty concerning the fee advancement issue.

The significance of the KPMG fee advancement issue here long has been clear. This Court found, after a full evidentiary hearing, that the government violated the rights of the KPMG Defendants by inducing KPMG -- which otherwise would have advanced defense costs -- to cut off payments upon indictment. Rather than immediately dismissing the indictment or imposing other sanctions on the government, the Court reasoned that the issue whether KPMG was legally obligated to pay those fees first should be determined if that is possible. If KPMG is obliged to pay, payment could greatly mitigate the impact of the government's improper actions. This in turn could diminish the advisability of dismissal or other potentially serious sanctions. If KPMG is not obliged to pay, or if a prompt determination is not feasible, the issue of sanctions could be considered after exhaustion of that possibility.*fn3

The importance of this issue for the prompt and fair resolution of the charges in this case would be difficult to overstate. While it appears that some of the KPMG Defendants may be well off, there is a real and growing possibility that some and perhaps all lack funds necessary to their defense.*fn4 One need note only that the government has produced literally millions of pages of discovery -- much (perhaps most) of it long after the October 2005 discovery deadline and evidently much only recently -- to understand the burdens upon the defendants and their lawyers.*fn5 As one attorney put it during the September 26 conference:

"You know, your Honor, from the beginning of this case, I have sort of tried to avoid, and I think several of us have . . . really getting into the issue of the finances of the defendants.

"I don't have anything. We have no sort of -- I have no staff. I'm basically by myself. The case has gotten longer and longer and more and more complex and more and more and more documents. And without relief in the fee case, I really don't know that I'll even be able to stay in this case, although I can tell you that I've tried everything humanly possible to do that and not to make an application like that [i.e., to be relieved], for many obvious reasons.

"But I just have -- I mean, at one point you get to the point where you just don't know how you're going to deal with this. And that's the point I'm at. I don't know if anybody else is there. I know I'm there."*fn6

While this attorney did not speak for all, his comments may be appropriate for at least a number of the KPMG Defendants. Defendant Watson, for example, is a young man who has been unemployed for a year or more and whose net worth over two years ago was only $320,000, of which about a third was the equity in his residence.*fn7 Defendant Carol Warley, for another, is the primary support of her family,*fn8 and stands to be financially wiped out by the cost of defending this case, regardless of the outcome.*fn9 And it is unlikely that Watson and Warley are the only ones whose defenses are being constrained by lack of funds. Indeed, this Court previously estimated -- before the estimated length of the trial grew materially -- that the cost of having a single privately retained lawyer, at an hourly rate modest for this area, simply attend the trial probably would exceed $375,000 and that of a basic defense would be $500,000 to $1 million or more.*fn10

It now is evident that the fee advancement issue cannot be resolved in time for a January 2007 trial, regardless of the Court of Appeals' disposition of KPMG's pending appeal. Accordingly, the trial date and related deadlines must be continued. Moreover, given all of the current uncertainties,*fn11 it is impossible now to predict with confidence when the charges in the indictment may be tried.*fn12

Accordingly, the trial on the indictment is adjourned sine die. Defendants' time to disclose their witness and exhibit lists and to make expert disclosures is adjourned from December 1, 2006 until March 1, 2007. The Court will conduct a conference with counsel*fn13 on December 20, 2006 at 9:30 a.m. to consider possible trial dates as well as the status of discovery.*fn14 In the latter regard, the government shall respond, on or before December 4, 2006, to the defendants' assertions concerning discovery in their motion of November 10, 2006. The defendants' motion for a continuance [docket item 821] is denied as moot.

SO ORDERED.


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