Second Circuit Rules District Court Lacked Jurisdiction to Order KPMG to Stand Trial for Its Failure to Pay Defendants’ Legal Fees

In what is said to be the largest criminal tax case in American history, the U.S. Court of Appeals for the Second Circuit in New York held on May 23, 2007 that District Judge Lewis Kaplan lacked jurisdiction to open a separate civil proceeding to resolve an attorney fee dispute between KPMG LLP and former partners and employees charged with the sale of allegedly improper tax shelters. Judge Kaplan had previously held that the government violated the defendants’ Fifth and Sixth Amendment rights by pressuring KPMG to withhold the advancement of legal fees for the defendants. The Second Circuit stated that “more direct (and far less cumbersome) remedies are available,” such as dismissal of the indictment. Stein v. KPMG, LLP, Docket No. 06-4358-cv (May 23, 2007).

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