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Wild KPMG Fees Decision

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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8 Responses

  1. Nate Oman says:

    Dave: This is facinating to me. I am still unclear about the nature of the legal entitlement that the government interfered with. If I understand you correctly, there is a statutory right in California, but not in Delaware. Did Judge Kaplan actually do the analysis of the contract issue under Delaware law, ie was there actually an implied in fact or implied in law contract to indemnify?

    If there really was a legal obligation to indemnify that the government interfered with, why do we need the constitutional pyrotechnics to protect that legal entitlement? It seems to my that we say that KPMG has a contractual obligation to indemnify. Under pressure from the government, it does not. The former-employees then sue KPMG for breach of contract. KPMG must pay, since I can’t see how the government’s threats could constitute some sort of a defense on the contract claim.

    I haven’t read the case, so I may be missing something really obvious here, but I don’t see how the government has deprived the indemnitees of anything more than the cost of enforcing their contract (no minor thing that, but hardly a loss of legal representation).

  2. PK says:

    To follow up Nate’s comment, even if the judge did find such an implied contract under DE law, how does he justify attempting to bind KPMG (through some from of res judicata) when they were not a party to the proceeding?

  3. One Who Read It says:

    Did you bother reading the opinion? It is well labeled and very specific on each and every point.

  4. John K says:

    The government controls KPMG through the Deferred Prosecution Agreement. The government, which has effective control over KPMG (the proverbial gun to its head), can just advance the fees.

    The prosecution violated the Constitution. The prosecution cannot be sued because of sovereign immunity. The absence of a direct remedy does not mean no right exists or no violation occurred. It might have precluded jurisdiction, had the court not already had ancillary jurisdiction, which is discussed in the opinion.

  5. Laura says:

    I can’t see how the government’s threats could constitute some sort of a defense on the contract claim.

    Toertious interference with contract that also abrogrates your right to choice of counsel is both a contract and a constitutional claim.

  6. Dave Hoffman says:

    To respond to a few of these comments. Nate: The Judge did not do any analysis of the contract issue, the holding is that the expectation creates an entitlement even without (I take it) an real contractual right. That is, he doesn’t hold that the employees get to sue for breach, but instead get to sue as (I think) a holder of a constitutional damages right that KPMG, as an enabler of the violation, must pay.

    The opinion is well-labeled and well-written, but I do not see (cf. Ribstein and others) why this makes sense as a constitutional claim. Assume that there was no employment relationship, simply an ordinary contract between me and Nate, whereby I agreed to pay Nate’s legal bills. Before the indictment issues, the prosecutors or police (does it matter?) pressure me and I breach the contract. Does Nate really have a constitutional claim against me? I doubt it (being no expert on the 6th Amendment, I can’t be more sure than that.)

    John K, and the judge, make an “effective control” argument. I find it really hard to see how the DPA makes KPMG a state actor, or its equivalent. Is the government on the hook should these fees prove extraordinarily large, driving KPMG into bankruptcy (unlikely, to be sure, but consider the possibility).

    Laura argues that TIWC is a contract and a constitutional claim when it “abrogates your right to choice of counsel”. But here, it hasn’t abrogated that right, but simply made the employees seek other sources of funding. Moreover, the judge didn’t find that there was a contract, just a reasonable expectation of payment, which I would have thought made a pretty significant impact. I teach my class that to tort a contract, there usually has to be a contract that you know about. But cf. Texaco.

  7. Not Dave Hoffman says:

    Does Nate really have a constitutional claim against me? I doubt it (being no expert on the 6th Amendment, I can’t be more sure than that.)

    But the pre-indictment stuff was a 5th Amendment claim. If you look at cases like Moran v. Burbine (1986) 475 U.S. 412, the Court has made clear that the test is the Due Process Clause’s “shock the conscience” test.

    The standard for being an agent of the government is rather low; see Hammad.

    Also, how could the prosecutors have said, “cut the fees” if they didn’t know there were fees being paid?

  8. Laura says:

    But here, it hasn’t abrogated that right, but simply made the employees seek other sources of funding.

    Isn’t this an intent question focused on the federal actor? Why isn’t the intent to abrograte and the denial of funding enough?

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