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`06-4358
`Stein v. KPMG
`
`UNITED STATES COURT OF APPEALS
`FOR THE SECOND CIRCUIT
`August Term, 2006
`(Argued: November 21, 2006 Decided: May 23, 2007)
`Docket No. 06-4358-cv
`- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
`JEFFREY STEIN, MARK WATSON, PHILIP WIESNER, RANDALL BICKHAM,
`LARRY DELAP, JEFFREY EISCHEID, DAVID GREENBERG, STEVEN
`GREMMINGER, CARL HASTING, JOHN LANNING, JOHN LARSON, ROBERT
`PFAFF, GREGG RITCHIE, RICHARD ROSENTHAL, RICHARD SMITH, and CAROL
`G. WARLEY,
`Plaintiffs-Appellees,
`-
`v.
`-
`
`KPMG, LLP,
`Defendant-Appellant.
`- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
`B e f o r e:
`WINTER, HALL, Circuit Judges, and GLEESON,*
`District Judge.
`Appeal from the exercise of ancillary jurisdiction in a
`criminal tax fraud prosecution by the United States District
`Court for the Southern District of New York (Lewis A. Kaplan,
`Judge) over a state law contractual claim for attorneys’ fees,
`and from denial of a motion to compel arbitration under the
`
`*The Honorable John Gleeson, of the United States District
`Court for the Eastern District of New York, sitting by
`designation.
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`Federal Arbitration Act. This assertion of jurisdiction was
`intended to provide a remedy for Fifth and Sixth Amendment
`violations found by the court. We treat the appeal as a petition
`for a writ of mandamus and grant the petition. We vacate the
`order asserting ancillary jurisdiction as beyond the district
`court's power.
`
`SHEILA L. BIRNBAUM, Skadden, Arps, Meagher &
`Flom LLP, New York, New York (Barbara Wrubel,
`J. Russell Jackson, Preeta D. Bansal, Haydan
`A. Coleman, Skadden, Arps, Meagher & Flom
`LLP, New York, New York, Amy Sabrin, Skadden,
`Arps, Meagher & Flom LLP, Washington D.C.,
`Charles A. Stillman, Stillman, Friedman &
`Shechtman, P.C., New York, New York, on the
`brief), for Defendant Appellant.
`DAVID SPEARS, Spears & Imes LLP, New York,
`New York, for Plaintiffs-Appellees Jeffrey
`Stein and John Lanning.
`RONALD E. DEPETRIS, DePetris & Bachrach, LLP,
`New York, New York (Marion Bachrach, on the
`brief), for Plaintiff-Appellee Richard Smith.
`John A. Townsend, Townsend & Jones, LLP,
`Houston, Texas, on the brief, for Plaintiff-
`Appellee Carol G. Warley.
`David C. Scheper, Overland Borenstein Scheper
`& Kim LLP, Los Angeles, California, on the
`brief, for Plaintiff-Appellee Robert Pfaff.
`John F. Kaley, Doar Rieck Kaley & Mack, New
`York, New York, on the brief, for Plaintiff-
`Appellee Steven Gremminger.
`David C. Smith, McNamara Spira & Smith, Los
`Angeles, California, on the brief, for
`Plaintiff-Appellee Gregg Ritchie.
`Leonard F. Lesser, Simon Lesser P.C., New
`York, New York, on the brief, for Plaintiff-
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`Appellee David Greenberg.
`Diana D. Parker, Law Offices of Diana D.
`Parker, New York, New York, on the brief, for
`Plaintiff-Appellee Larry DeLap.
`Michael S. Kim, Kobre & Kim LLP, New York,
`New York, on the brief, for Plaintiff-
`Appellee Mark Watson.
`Marc A. Fenster, Russ, August & Kabat, Los
`Angeles, California, on the brief, for
`Plaintiff-Appellee Randall Bickham.
`Stanley S. Arkin, Arkin Kaplan Rice LLP, New
`York, New York, on the brief, for Plaintiff-
`Appellee Jeffrey Eischeid.
`Robert S. Fink, Kostelanetz & Fink, LLP, New
`York, New York, on the brief, for Plaintiff-
`Appellee Richard Smith.
`Stephen Willey, Savitt & Bruce LLP, Seattle,
`Washington, on the brief, for Plaintiff-
`Appellee John Larson.
`Susan R. Necheles, Hafetz & Necheles, New
`York, New York, on the brief, for Plaintiff-
`Appellee Richard Rosenthal.
`Russell M. Gioiella, Litman, Asche &
`Gioiella, New York, New York, on the brief,
`for Plaintiff-Appellee Carl Hasting.
`WINTER, Circuit Judge:
`This appeal is an offspring of a criminal tax fraud
`prosecution. In the course of the criminal prosecution, Judge
`Kaplan asserted ancillary jurisdiction over a state law contract
`claim brought against KPMG, LLP, by sixteen of the defendants in
`the criminal case, all former partners and employees of KPMG,
`seeking to force it to pay their legal expenses. KPMG appeals
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`from the decision allowing the ancillary proceeding and from the
`denial of its motion to compel arbitration of the contract claim.
`Construing KPMG’s appeal as a petition for writ of mandamus, we
`grant the petition. We vacate the order of the district court
`asserting ancillary jurisdiction over the contract claim as
`beyond the district court’s power. The issues regarding KPMG’s
`motion to compel arbitration are therefore moot.
`BACKGROUND
`The full history of the proceedings underlying this appeal
`is reported in United States v. Stein, 435 F. Supp. 2d 330
`(S.D.N.Y. 2006) (Stein I); United States v. Stein (Stein v. KPMG
`LLP), 452 F. Supp. 2d 230 (S.D.N.Y. 2006) (Stein II).
`Familiarity with these opinions is assumed, and we recount here
`only those facts pertinent to the disposition of the present
`appeal.
`The underlying criminal prosecution is said to be the
`largest criminal tax case in American history. Stein II, 452 F.
`Supp. 2d at 237. Nineteen defendants are charged with conspiracy
`and tax evasion, including the appellees, who are former partners
`or employees of the accounting firm KPMG. Id. The defendants
`are alleged to have, inter alia, devised, marketed, and
`implemented fraudulent tax shelters that caused a tax loss to the
`United States Treasury of more than $2 billion. In connection
`with the alleged tax shelters, KPMG entered into a deferred
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`prosecution agreement with the government, agreeing to cooperate
`fully with the government and to pay $456 million in fines and
`penalties. Stein I, 435 F. Supp. 2d at 349-50. If KPMG performs
`its obligations under the agreement, it will escape prosecution.
`Id.
`
`The particular dispute giving rise to this appeal concerns
`policies adopted by the Department of Justice in response to
`highly visible public concerns over the compliance by business
`firms with federal and state law. See Leonard Orland, The
`Transformation of Corporate Criminal Law, 1 Brook. J. Corp. Fin.
`& Com. L. 45 (2006). The policies were established in the so-
`called “Thompson Memorandum,” which set out standards to be
`followed by federal prosecutors in determining whether to bring
`criminal prosecutions against firms as well as their agents.1
`See Mem. from Larry D. Thompson, Deputy Attorney General, U.S.
`Dep’t. Of Justice, to Heads of Department Components, United
`States Attorneys, re: Principles of Federal Prosecution of
`Business Organizations (Jan. 20, 2003) (“Thompson Mem.”),
`http://www.usdoj.gov/dag/cftf/business_ organizations.pdf. One
`such standard deemed a firm’s voluntary payment of wrongdoing
`agents' legal expenses a factor favoring prosecution of the firm.
`Id. at 7-8.
`During the course of the investigation, and prior to the
`indictments in this matter, KPMG negotiated with and paid the
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`legal fees of some, but not all, of the appellees. Upon
`indictment, however, KPMG stopped these payments. Stein I, 435
`F. Supp. 2d at 350. In Stein I, the district court found that
`the government had used the threat of prosecution to pressure
`KPMG into cutting off payment of the appellees’ legal fees and
`thereby violated appellees’ Fifth and Sixth Amendment rights to a
`fair trial and the effective assistance of counsel. Id. at 382.
`The merits of that ruling are not before us on this appeal.
`The district court suggested that the constitutional
`violation could be rendered harmless if the appellees could
`successfully force KPMG to re-commence -- or, for some of the
`appellees, commence -- paying their legal expenses. Id. at 373,
`376-78. The court sua sponte instructed the clerk of the
`district court to open a civil docket number for an expected
`contract claim by the appellees against KPMG for advancement of
`their defense costs. Id. at 382. The district court stated that
`it would “entertain the claims pursuant to its ancillary
`jurisdiction over this case.” Id.
`The district court acknowledged a more obvious remedy for
`the constitutional violations it had found -- dismissal of the
`indictment -- and explicitly left that possibility open as an
`incentive for the government to strongarm KPMG to advance
`appellees' defense costs. Id. at 380. In short, having found
`that the government violated appellees' constitutional rights by
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`threatening to bring one indictment, the district court sought to
`remedy the violation by threatening to dismiss another.
`Following this invitation, the appellees filed the
`anticipated complaints against KPMG. In the complaints, fifteen
`of the sixteen appellees relied primarily on an “implied-in-fact”
`contract with KPMG based on KPMG’s alleged history of paying its
`employees’ legal expenses. The sixteenth appellee, Jeffrey
`Stein, relied on an express breach of his written separation
`agreement with KPMG. In response, KPMG moved to dismiss for lack
`of subject matter jurisdiction and on the merits. It also argued
`that the case should be referred to arbitration under arbitration
`agreements between KPMG and the various appellees. The district
`court denied KPMG’s motions in Stein II, 452 F. Supp. 2d 230.
`The Stein II opinion contained three principal holdings:
`(i) a reaffirmation of the court's earlier holding that ancillary
`jurisdiction existed over the contractual fee dispute between
`appellees and KPMG; (ii) a rejection of KPMG’s argument that the
`“implied-in-fact” contract claims of all of the appellees, save
`Stein, were foreclosed by written agreements containing merger
`clauses; and (iii) a finding that enforcement of any applicable
`arbitration clause would be against public policy. The court
`concluded that arbitration might interfere with the district
`court’s ability to ensure a speedy trial, could lead to a
`dismissal of possibly meritorious criminal charges, would
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`endanger the appellees’ rights to a fair trial, and would risk
`imposing unnecessary costs on taxpayers if the appellees should
`become indigent. Id. at 238-39.
`The opinion closed by setting the trial of appellees’
`advancement claim for six weeks later, October 17, 2006,
`following an abbreviated period of limited discovery. Id. at
`275. The procedural rules governing the trial were left to the
`future, the district court noting that “[i]t is not now entirely
`clear exactly how this will play out.” Id. at 274. Although the
`district court stated that KPMG would have “the protections
`inherent in the Federal Rules of Civil Procedure,” id. at 275,
`the court elsewhere stated that the advancement claim, although
`civil in nature, “is a criminal case to which the Civil Rules do
`not apply,” id. at 260. It further expressed its intention to
`apply the Civil Rules only “to the extent they are consistent
`with the Criminal Rules.” Id. at 269.
`On appeal, KPMG argues that the district court lacks subject
`matter jurisdiction over appellees’ advancement claims and also
`that, if jurisdiction exists, the district court further erred by
`refusing to compel arbitration.
`DISCUSSION
`
`a) Appeal or Mandamus
`Appellees argue that we have no appellate jurisdiction to
`review the district court’s assertion of ancillary jurisdiction
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`because the denial of KPMG’s motion to dismiss appellees’
`advancement complaint was an unappealable interlocutory order in
`a criminal case. KPMG responds that we have jurisdiction under
`the Federal Arbitration Act (the “FAA”)to review the district
`court’s refusal to compel arbitration, and that we may then
`exercise pendent jurisdiction over the question of ancillary
`jurisdiction.
`These arguments in turn spawn a tangle of counter- and
`counter-counter-arguments. Section 16 of the FAA provides for
`interlocutory appeal from a refusal to stay an action under
`Section 3 of the FAA, or of a refusal to compel arbitration under
`Section 4. 9 U.S.C. § 16(a)(1). KPMG, however, did not ask for
`a stay under Section 3 anywhere in its notice of motion to
`dismiss, and Section 4 applies only to orders by “any United
`States district court which, save for [the arbitration]
`agreement, would have jurisdiction under Title 28 . . . .” 9
`U.S.C. § 4. However, the district court does not have
`jurisdiction over the advancement claim under Title 28.
`Moreover, even if KPMG is deemed to have constructively
`petitioned for a stay under Section 3, an exercise of pendent
`jurisdiction would require us to find that the issue of ancillary
`jurisdiction is “‘inextricably intertwined’ with an issue over
`which the court properly has appellate jurisdiction,” as where
`“the same specific question underl[ies] both the appealable order
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`and the non-appealable order, or where resolution of the non-
`appealable order [is] subsidiary to resolution of the appealable
`order.” Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 576 (2d
`Cir. 2005) (citations omitted).
`To undertake pendent jurisdiction, therefore, we would have
`to find that the issue of ancillary jurisdiction is inextricably
`intertwined with the denial of the motion to compel arbitration,
`presumably on the grounds that the district court’s reasons for
`asserting ancillary jurisdiction and for finding that arbitration
`would be against public policy were the same, i.e., the need to
`afford an adequate and timely remedy for the constitutional
`violations. See Stein I at 377 (ancillary proceeding needed
`"[i]n order to guarantee [appellees'] right to choose their own
`counsel . . ."); Stein II at 245 (having found the constitutional
`violations, "the overreaching issue is what to do about it"), and
`254 (need to promptly vindicate appellees' Fifth and Sixth
`Amendment rights are factors rendering arbitration clauses
`contrary to public policy).
`We decline to resolve the question of appellate
`jurisdiction. We suggested at oral argument that it might be
`more appropriate to exercise our mandamus power. The parties
`were invited to file supplemental briefs on the issue, and Judge
`Kaplan himself filed a submission on the issue.
`We have in the past treated an appeal as a petition for
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`leave to file a writ of mandamus. In re Repetitive Stress Injury
`Litigation, 11 F.3d 368, 373 (2d Cir. 1993); In re Hooker
`Investments, Inc., 937 F.2d 833, 837 (2d Cir. 1991). However, we
`have generally done so only after finding a lack of appellate
`jurisdiction. Repetitive Stress Injury Litigation, 11 F.3d at
`373; Hooker Investments, 937 F.2d at 837. There has been
`criticism of the practice of resorting to mandamus without first
`resolving the issue of appellate jurisdiction, ACF Indus., Inc.
`v. EEOC, 439 U.S. 1081, 1085 (1979) (Powell, J., dissenting from
`denial of certiorari), but there is nevertheless precedent for
`doing so, see, e.g., In re Globe Newspaper Co., 920 F.2d 88 (1st
`Cir. 1990); Guam v. United States Dist. Court, 641 F.2d 816 (9th
`Cir. 1981); Wilk v. Am. Medical Assn., 635 F.2d 1295, 1298 (7th
`Cir. 1980); see also Wright, Miller & Cooper, 16 Fed. Prac. &
`Proc. Juris.2d § 3932.1. While the practice of resorting to
`mandamus only in the absence of jurisdiction may be of value in
`alerting courts to the danger of allowing mandamus to become a
`substitute for an appeal and thus to swallow the rule against
`interlocutory appeals, ACF Indus., 439 U.S. at 1085, the
`circumstances here fully justify the exercise of mandamus power
`without deciding whether we have appellate jurisdiction.
`In turning to mandamus, we simply recognize that "[t]he
`traditional use of the writ in the aid of appellate jurisdiction
`both [at] common law and in the federal courts has been to
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`confine an inferior court to a lawful exercise of its
`prescribed jurisdiction . . . ." Roche v. Evaporated Milk Ass’n,
`319 U.S. 21, 26 (1943). Because the actions of the district
`court were well outside its subject matter jurisdiction, our
`resort to mandamus does not in any way expand the potential use
`of that writ and avoids our unnecessarily addressing complex
`jurisdictional issues.
`The jurisdictional issues are complex, but largely because,
`as we explain below, the proceeding challenged on this appeal --
`a state law contract action against a non-party within a federal
`criminal proceeding -- is well outside the subject matter
`jurisdiction conferred by Congress on the federal courts. It is
`hardly surprising, therefore, that there is no statute or body of
`caselaw that clearly affords or clearly precludes appellate
`review of the commencement of such a proceeding. For example,
`the failure of Congress to mention Title 18 as well as Title 28
`in Section 4 of the FAA is not evidence of an intent to preclude
`interlocutory appeals from orders refusing to compel arbitration
`in criminal cases. Rather, it is evidence that Congress did not
`expect such issues ever to arise in criminal cases. Indeed, the
`complexities surrounding our appellate jurisdiction underline the
`paucity of grounds supporting the district court’s assertion of
`ancillary jurisdiction.
`Were we to opine on the various arguments over appellate
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`jurisdiction, we would have to address issues involving the FAA
`and pendent jurisdiction that arise only because of the
`happenstances of this unique case. There is no need for a
`precedent regarding appellate jurisdiction in this context
`because our issuance of the writ disposes of this matter and
`renders the existence of future such cases unlikely. However,
`opining on the jurisdictional issues does risk the making of
`statements that might be misleading in future cases in a
`different context. We therefore turn to the mandamus remedy
`without deciding the jurisdictional issues.
`b) The Merits
`As discussed above, mandamus is available to confine courts
`to their designated jurisdiction. Other “touchstones” of
`mandamus review are “usurpation of power, clear abuse of
`discretion and the presence of an issue of first impression.”
`Steele v. L.F. Rothschild & Co., Inc., 864 F.2d 1, 4 (2d Cir.
`1988) (internal quotation marks omitted). Three conditions must
`be satisfied before the writ may issue: first, the party seeking
`relief must have “no other adequate means to attain the relief he
`desires,” second, the petitioner must show that his right to the
`writ is “clear and indisputable,” and third, the issuing court
`must be satisfied that the writ is appropriate under the
`circumstances. Cheney v. United States Dist. Court, 542 U.S.
`367, 380-81 (2004) (internal quotation marks and citations
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`omitted). The writ is, of course, to be used sparingly. In
`addition to avoiding its use as a substitute for an appeal,
`discussed above, “the principal reasons for our reluctance to
`condone use of the writ [are] the undesirability of making a
`district court judge a litigant and the inefficiency of piecemeal
`appellate litigation.” Mallard v. United States Dist. Court, 490
`U.S. 296, 309 (1989). In the present matter, all of the standard
`requirements for granting mandamus relief are met, while the
`reasons underlying the traditional reluctance to resort to the
`writ are either not present or favor granting the writ.
`Appellees argue that KPMG’s right to relief is not “clear
`and indisputable” because the proper scope of ancillary
`jurisdiction is not well-settled by our caselaw. To be sure,
`“[t]he boundaries of ancillary jurisdiction are not easily
`defined and the cases addressing it are hardly a model of
`clarity.” Garcia v. Teitler, 443 F.3d 202, 208 (2d Cir. 2006).
`However, because ancillary jurisdiction cannot be limitless and
`still be ancillary, boundaries there must be, and the exercise of
`ancillary jurisdiction here is clearly outside those boundaries.
`As Garcia stated, “ancillary jurisdiction is aimed at
`enabling a court to administer justice within the scope of its
`jurisdiction.” Id. (internal quotation marks omitted).
`Ancillary jurisdiction is intended “to permit disposition of
`claims that are, in varying respects and degrees, factually
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`interdependent by a single court, and . . . to enable a court to
`function successfully, that is, to manage its proceedings,
`vindicate its authority, and effectuate its decrees.” Id.
`(quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
`379-80 (1994)).
`The most common exercise of ancillary jurisdiction is,
`probably, to resolve fee disputes between a party and its
`attorney arising in litigation in which the attorney represented
`the party. See, e.g., Cluett, Peabody & Co., Inc. v. CPC
`Acquisition Co., Inc., 863 F.2d 251 (2d Cir. 1988); Novinger v.
`E.I. DuPont de Nemours & Co., Inc., 809 F.2d 212 (3d Cir. 1987).
`In Garcia, for example, we upheld the exercise of ancillary
`jurisdiction to compel an attorney to return a retainer obtained
`to represent a party in the underlying litigation after the
`district court had ordered the attorney to withdraw as counsel
`because of misconduct. Garcia, 443 F.3d at 208, 211-12.
`Exercise of ancillary jurisdiction over a fee dispute between a
`party and an attorney functioning as an officer of the court in
`litigation over which a court has jurisdiction is, however, a
`world away from the exercise of ancillary jurisdiction in a
`criminal proceeding to adjudicate a contract dispute between the
`defendants and a non-party former employer.
`When a court undertakes to resolve claims arising from a
`relationship between a party to an action and the party’s
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`attorney in that action and involving the attorney’s conduct of
`that litigation, the parties to the ancillary proceeding are
`already before the court as a litigant and officer of the court;
`the relevant facts are generally more accessible to that court
`than to another; and the ability of the court to conduct and
`dispose of the underlying litigation may turn on, or at least be
`greatly facilitated by, resolution of the issues raised in the
`ancillary proceeding. However, when a non-party to the primary
`proceeding is sought to be joined as a defendant in the ancillary
`proceeding, the need for the ancillary proceeding and the
`efficiencies provided by it must be both sufficiently great to
`outweigh the prejudice to the non-party and to be consistent with
`the limited jurisdiction of federal courts.
`An ancillary proceeding may subject the non-party to what
`may be a different forum and different procedural or even
`substantive rules than would normally be involved in disposing of
`the claim at issue. In addition, the assertion of ancillary
`jurisdiction over matters that are otherwise outside the
`jurisdiction conferred by the Constitution and the Congress can
`be justified only by compelling needs arising in the exercise of
`the jurisdiction that is conferred. While we do not exclude the
`possibility of a legitimate ancillary proceeding involving a non-
`party to the primary litigation, we believe that the requisite
`compelling circumstances will be rare, as the need for such a
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`proceeding generally will be far less pressing than in cases
`involving parties already before the court.2
`In the present matter, the prejudice to KPMG is clear, and
`the need for the ancillary proceeding is entirely speculative.
`The claims to be resolved in the ancillary proceeding sound in
`contract, i.e. appellees claim that KPMG impliedly -- in one case
`expressly -- promised to pay their expenses in defending the
`present criminal charges. The prejudice to KPMG in having these
`claims resolved in a proceeding ancillary to a criminal
`prosecution in the Southern District of New York is clear. At
`stake are garden variety state law claims, albeit for large sums.
`KPMG believed that contractual disputes between it and the
`appellees would be resolved by arbitration. Instead, KPMG is
`faced with a federal trial of more than a dozen individuals’
`multi-million dollar “implied-in-fact” contract claims.
`Moreover, because such a proceeding is governed by no express
`statutory authority, the district court has indicated its
`intention to apply to this expedited undertaking an ad hoc mix of
`the criminal and civil rules of procedure determined on the fly,
`as it were. See Stein II, 452 F. Supp. 2d at 274-75. The
`resolution of the contract claims against KPMG is thus to occur
`in an entirely sui generis proceeding even though it may require
`the scrutinizing of decades of KPMG’s conduct, determining the
`states of mind of dozens of individuals, applying the findings
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`from those inquiries to the particular circumstances of each
`appellee, and resolving multiple questions of the law of several
`states. Waiting to appeal from a final judgment in this sort of
`proceeding can hardly be described as an “adequate means” of
`relief eliminating the need for mandamus. See Cheney, 542 U.S.
`at 380 (internal quotation marks omitted). This is especially
`the case where, as here, KPMG may have a contractual right to
`resolve these questions through arbitration and avoid such a
`proceeding altogether, as the FAA’s provision for interlocutory
`appeals from refusals to stay an action or compel arbitration was
`intended precisely to avoid such outcomes.
`The need for the particular ancillary proceeding is also far
`less pressing than contemplated by the district court. First,
`the interrelationship of the factual issues underlying the
`finding of constitutional violations and the asserted contract
`claims is marginal. The Fifth and Sixth Amendment violations
`were found to be the government’s implementation of the policy
`stated in the Thompson Memorandum with regard to decisions to
`indict or not indict firms. Stein I, 435 F. Supp. 2d at 367.
`One aspect of that policy was to take into account whether the
`firm was voluntarily paying the legal expenses of members or
`employees who had been indicted, see Thompson Mem. at 7-8, a
`factor deemed to favor indictment under the Thompson Memorandum.
`Id. That document gave no such weight to payments required by
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`contract. As a result, the constitutional issues before the
`district court went solely to what pressure the government put on
`KPMG not to pay fees voluntarily and to what KPMG’s response was.
`See Stein I, 435 F. Supp. 2d at 366, 343-49. A trial of claims
`to expenses based on contract -- especially implied contract --
`will go over very different factual ground.
`Second, while the ancillary proceeding is a major
`undertaking, its contribution to the efficient conclusion of the
`criminal proceeding is entirely speculative. Even if the holding
`that the government violated the Fifth and Sixth Amendments is
`correct -- an issue on which we express no opinion -- the
`ancillary proceeding will provide a "remedy" only if KPMG loses,
`hardly a foregone conclusion on the present record.3 But even if
`there are constitutional violations and even if KPMG was
`contractually obligated to pay appellees’ expenses, the ancillary
`proceeding is not an indispensable remedy and may not even
`constitute a full remedy. Dismissal of an indictment for Fifth
`and Sixth Amendment violations is always an available remedy.
`Moreover, if it violates the Fifth and Sixth Amendments for the
`government to coerce an employer to decline to pay expenses on a
`voluntary basis, it may well be a similar violation to coerce the
`employer to breach a contract to pay such expenses, thereby
`compelling the employees to pay the substantial costs of
`enforcing the contract in a civil action. Either way, the
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`government has used coercion to raise the costs of the defendants
`to obtain counsel of their own choosing. The ancillary
`proceeding may not, therefore, render any constitutional
`violation harmless.
`Third, even if there were constitutional violations and even
`if KMPG is contractually obligated to advance appellees'
`attorneys' fees and costs, creating an ancillary proceeding to
`enforce that obligation was not the proper remedy. If the
`government's coercion of KMPG to withhold the advancement of fees
`to its employees' counsel constitutes a substantive due process
`violation, or has deprived appellees of their qualified right to
`counsel of choice, more direct (and far less cumbersome) remedies
`are available. Assuming the cognizability of a substantive due
`process claim and its merit here, dismissal of the indictment is
`the proper remedy. As for the Sixth Amendment deprivation, if it
`turns out that the government's conduct separates appellees from
`their counsel of choice (an event that has not yet occurred),
`appellees may seek relief on appeal if they are convicted. We do
`not mean to exclude the possibility of other forms of relief.
`If, for example, a Sixth Amendment violation is the result of
`ongoing government conduct, the district court of course may
`order the cessation of such conduct. Having said that, we hold,
`however, that the remedies available to the district court in the
`circumstances presented here did not include its novel exercise
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`of ancillary jurisdiction. The "summary advancement proceeding,"
`id. at 381, it created may have been intended only as a vehicle
`for the government and KPMG to act on their "incentives" to
`somehow get appellees' counsel funded and thereby "avoid any risk
`of dismissal of [the indictment of the appellees] or other
`unpalatable relief." Stein I at 380. Or, as Stein II suggests,
`it might also have been envisioned as an uncharted hybrid legal
`proceeding for the expeditious resolution of numerous high-dollar
`and potentially complex contract claims. Either way, it was not
`an available remedy for either constitutional violation.
`Finally, on the present record, a proceeding ancillary to a
`criminal prosecution was not necessary either to avoid perceived
`deficiencies in ordinary civil contract actions to enforce the
`alleged advancement contracts or to remove some barrier to the
`appellees’ bringing of such actions. The fee issue has been
`known since the criminal investigation began and, unlike the
`situation in Weissman, see Note 2 supra, did not suddenly arise
`at an awkward period in the case. Many of the appellees were in
`negotiation with KPMG during the investigation period. Some
`sixteen months before the indictment, most of the appellees
`signed a letter that clearly indicated their knowledge of KPMG’s
`intent not to pay post-indictment fees and could -- arguably must
`-- be read as a waiver of any right to such fees. Stein II, 452
`F. Supp. 2d at 240-41. Nevertheless, appellees took none of the
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`available steps to enforce their alleged contracts with KPMG
`until well after the indictment when the district court raised
`the possibility of an ancillary proceeding and indicated its
`willingness to exercise jurisdiction over it.
`The traditional factors weighing against mandamus –- the
`undesirability of casting a judge as a litigant and the
`desirability of avoiding piecemeal appeals -- also weigh in favor
`of mandamus in this case. The district judge is not a party,
`and, by granting the writ, we avoid an unnecessary, potentially
`costly, and time-consuming procedure that would certainly be
`vacated on appeal. The district court has acknowledged that the
`proceedings before him “would be facilitated by p

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