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Federal Judge Attacks Thompson Memo Cut-Off Of Defense Lawyer Fees – Indicated Class Action Law Firm Applauds Ruling

In a prior article, we discussed defense lawyer concerns about federal government efforts to require companies to divulge communications with its attorneys. That effort arises from federal guidelines contained in what is known as the Thompson memorandum, written in 2003. Another guideline suggests that corporate payment of lawyer fees for the criminal defense of employees will constitute a “black mark” against the company and may lead to an indictment. Lynnley Browning of the New York Times reports that yesterday a federal judge issued “the first major criticism from the bench” against tactics used by prosecutors and the Thompson memo. As Browning concisely summarized the issue:

Prosecutors have argued that the Thompson memorandum guidelines are simply factors that prosecutors must consider in evaluating a company’s cooperation and are not ironclad requirements. Defense lawyers and corporate lawyers, however, contend that the memorandum is being used as a club to bludgeon companies into disclosing legal secrets, cutting off legal fees and showing other signs of cooperation to avoid being indicted.

In a case concerning the criminal trial of former KPMG employees, a New York federal judge ruled that coercing a company into not paying lawyer fees for the defense of employees violates the employees’ constitutional rights. KPMG initially capped attorneys fees at $400,000 and then stopped paying defense costs entirely “to avert an indictment,” Browning reports. She adds, “KPMG is regarded as a textbook example of how firms can avoid indictment by cooperating with prosecutors, in part by firing employees suspected of wrongdoing – even before they are found guilty – and by cutting off legal fees.” The article quotes indicted class action law firm Milberg Weiss as stating, “We hope that courts will continue to hold the Justice Department accountable for such overreaching use of the Thompson memorandum.” Little is known of the class action firm’s pre-indictment communications with federal investigators, but in its defense, its attorneys may reveal details of the length investigation that preceding the criminal charges.

The Browning article, entitled “U.S. Tactic On KPMG Questioned,” may be found in the June 28, 2006, edition of the New York Times. It is well worth reading.