## Facts

- Federal prosecutors investigated KPMG and certain partners/employees for allegedly fraudulent tax shelters and later indicted thirteen former KPMG partners and employees.
- KPMG historically advanced legal fees for partners and employees facing legal proceedings arising from their work.
- During the investigation, prosecutors applied a DOJ cooperation policy that treated a corporation’s payment of employees’ attorneys’ fees as potentially inconsistent with “cooperation.”
- Prosecutors repeatedly questioned KPMG about fee advancement and conveyed that continuing to pay fees beyond legal obligations could be viewed negatively in deciding whether to indict KPMG.
- Under this pressure, KPMG adopted a restrictive fee policy: a $400,000 cap, a requirement of “cooperation” as a condition of payment, and termination of fee advancement upon indictment.
- Prosecutors communicated views about whether particular individuals were sufficiently “cooperating,” and KPMG used fee payments to encourage cooperation.
- After the individual defendants were indicted, KPMG stopped paying their legal fees.
- The district court found KPMG would have continued paying legal fees without those restrictions but for the government’s influence, treated the fee cutoffs as government-attributable conduct, found a Sixth Amendment violation, and dismissed the indictment.

## Issues

1. Whether KPMG’s decision to cap, condition, and terminate advancement of defendants’ legal fees was fairly attributable to the government as state action.
2. Whether that government-attributable interference unlawfully burdened defendants’ Sixth Amendment right to counsel of choice and ability to prepare a defense.
3. Whether dismissal of the indictment was an appropriate remedy for the constitutional violation.

## Decision

- The Second Circuit affirmed the dismissal of the indictment.
- It held the prosecutors’ actions in pressuring KPMG to restrict and end fee advancement were attributable to the government as state action.
- It held the resulting deprivation and conditioning of fee support substantially interfered with defendants’ ability to retain counsel of choice in a complex criminal case, violating the Sixth Amendment.
- It agreed dismissal was warranted because the interference had already affected representation and defense choices in ways that could not reliably be cured by lesser sanctions.

## Legal Principles

- Private conduct may be treated as state action when the government uses coercive pressure or threats that effectively drive the private party’s decision.
- The Sixth Amendment is violated when government conduct substantially and unjustifiably interferes with a defendant’s ability to retain counsel of choice and to mount an effective defense.
- When government interference with the defense function has already altered counsel selection or defense strategy in irreparable ways, dismissal may be an appropriate remedy within the district court’s supervisory authority.

## Conclusion

The court held that prosecutors’ cooperation-pressure tactics caused KPMG to cut off and condition employees’ defense funding, constituting state action that interfered with the defendants’ Sixth Amendment right to counsel of choice; because the resulting harm to the defense could not be undone, dismissal of the indictment was affirmed.


United States v. Stein, 541 F.3d 130 (2d Cir. 2008)