Full opinion text
OPINION KAPLAN, District Judge. Table of Contents I. Introduction.394 II. The Factual Bases of the Court’s Constitutional Holdings. A. The Thompson Memorandum. 1. The Text!. 2. The Bar’s Understanding of the Thompson Memorandum (a) Former U.S. Attorney General Edwin Meese III_ (b) KPMG Lead Counsel Robert Bennett. (c) ABA President Karen J. Mathis. (d) The American College of Trial Lawyers. (e) The United States Chamber of Commerce:. (f) Law Review Articles. B. The Thompson Memorandum and the USAO’s Actions Caused KPMG to Limit and Then Cut Off Payment of Fees. o o 1. The Thompson Memorandum Influenced KPMG Even Before the February 25, 2004 Meeting Took Place. o o 2. KPMG Made No Decisions Until After the February 25, 2004 Meeting . o (a) KPMG Made No Decisions Before the Meeting Even as to Costs of Representing Employees During the Investigation . o (b) The Decision Not to Pay the Defense Costs of Any Employees Who Were Indicted Came Even Later . o 3. There Was Ample Evidence that KPMG Would Have Paid the Fees of Most of these Defendants Absent Government Interference.405 4. New Evidence that KPMG Would Have Paid Absent Government Interference.407 III. The Due Process Arguments .409 A. The KPMG Defendants’ Pattern Argument.410 B. The Legal Standard.411 C. The Actions of the USAO “Shock the Conscience” .412 IV. The Impact on the KPMG Defendants. r — ( A. Deprivation of Counsel of Choice. i — i B. The Other Practical Consequences rH 1. The Scope and Nature of this Case i — l (a) Discovery. (b) Motion Practice. tH (c) Trial. t-i (d) Subject Matter. tH 2. The Limitations on the Defense ... tH V. Remedy. A. The Government’s CJA Argument. 419 419 B. Defendants Deprived of Counsel of Choice. 421 C. The KPMG Defendants as to Whom the Government Concedes Dismissal 423 D. The Defendants as to Whom the Government Resists Dismissal . 425 1. Defendants Pfaff and Larson. 425 2. Defendant Greenberg. 426 VI. Conclusion. 427 The government threatened to indict, and thus to destroy, the giant accounting firm, KPMG LLP (“KPMG”). It coerced KPMG to limit and then cut off its payment of the legal fees of KPMG employees. KPMG avoided indictment by yielding to government pressure. Many of its personnel did not. They now await trial, four of them deprived of counsel of their choice and most of the others unable to afford the defenses that they would have presented absent the government’s interference. This Court previously held that the government’s interference with KPMG’s payment of the legal fees of its employees and former employees violated the employees’ constitutional rights. The government now concedes that thirteen of the sixteen individuals formerly employed by KPMG (the “KPMG Defendants”) are entitled to dismissal, assuming that this Court’s previous ruling was correct. But the government does not concede the correctness of that ruling. Accordingly, the Court has reconsidered Stein I carefully in light of the government’s arguments. It remains convinced that the ruling was correct. Indeed, additional evidence not previously considered strongly supports the Court’s decision. The government, however, now has focused for the first time on the specific circumstances of certain of these defendants. The Court concludes that three of the defendants have not established that KPMG would have paid their defense costs even if the government had left KPMG to its own devices. The indictment therefore will be dismissed as to thirteen of the sixteen KPMG Defendants. The case will proceed to trial on the charges against the other three as well as two additional defendants who never were employed by KPMG and whose rights therefore were not violated. I. Introduction The indictment charges nineteen defendants, seventeen of them formerly partners or employees of KPMG, with conspiracy and tax evasion. It asserts also that KPMG, which entered into a deferred prosecution agreement with the government, was an unindicted co-conspirator. This Court held in Stein I that the government violated the Fifth and Sixth Amendment rights of the KPMG Defendants by causing KPMG to depart from its prior practice of paying the legal expenses of KPMG personnel in all cases in which they were sued in consequence of their activities on behalf of the firm. It found that KPMG would have paid those expenses — whether legally obliged to do so or not — but for the government’s improper actions. The Court, however, deferred the request of the KPMG Defendants to dismiss the indictment, reasoning that dismissal might prove inappropriate if KPMG were obligated to advance the defense costs. In that case, all or much of the harm caused and still threatened by the government’s actions might be remedied or avoided. The Court held that it had ancillary jurisdiction over the KPMG Defendants’ claims against KPMG for advancement of defense costs and permitted the assertion of those claims in this case. The Court of Appeals, however, recently held that this Court lacks ancillary jurisdiction with respect to the fee advancement claims against KPMG. Other efforts to resolve this question have failed. In consequence, the matter is before the Court on the renewed applications of the KPMG Defendants to dismiss the indictment on the basis of the government’s violations of their constitutional rights. Before proceeding to the question of remedy, however, the Court first addresses the government’s principal attack on Stein I, its claim that the decision rests on clearly erroneous findings of fact. II. The Factual Bases of the Court’s Constitutional Holdings The government challenges three pivotal factual findings upon which Stein I rests, viz.: • “[T]he Thompson Memorandum caused KPMG to consider departing from its long-standing policy of paying legal fees and expenses of its personnel in all cases and investigations even before it first met with the [United States Attorney’s Office (“USAO”)]. As a direct result of the threat to the firm inherent in the Thompson Memorandum, it sought an indication from the USAO that payment of fees in accordance with its settled practice would not be held against it.” • “[T]he USAO did not give KPMG the comfort it sought. To the contrary, it deliberately ... reinforced the threat inherent in the Thompson Memorandum. It placed the issue of payment of legal fees high on its agenda for its first meeting with KPMG counsel, which emphasized the prosecutors’ concern with the issue. [Assistant United States Attorney (“AUSA”)] Weddle raised the issue [at the February 25, 2004 meeting] and then repeatedly focused on KPMG’s ‘obligations,’ thus clearly implying — consistent with the language of the Thompson Memorandum — that compliance with legal obligations would be countenanced, but that anything more than compliance with demonstrable legal obligations could be held against the firm. [AUSA] Nei-man’s statement, in response to a comment about payment of legal fees by KPMG, that misconduct should not be rewarded quite reasonably was understood in the same vein, whatever its intent. And Mr. Weddle’s colorful warning that the USAO would look at any discretionary payment of fees by KPMG ‘under a microscope’ drove the point home.” • “KPMG’s decision to cut off all payments of legal fees and expenses to anyone who was indicted and to limit and to condition such payments prior to indictment upon cooperation with the government was the direct consequence of the pressure applied by the Thompson Memorandum and the USAO. Absent the Thompson Memorandum and the actions of the USAO, KPMG would have paid the legal fees and expenses of all of its partners and employees both prior to and after indictment, without regard to cost.” A. The Thompson Memorandum The government argues first that the Court misinterpreted the Thompson Memorandum. The Memorandum did not, the government contends, discourage payment of legal fees for company employees by increasing the risk of indictment of a company under investigation that chooses to make such payments. The Court disagrees. Not only is the Court’s reading of the document correct, and in any case certainly well within the bounds of its role as fact finder, but it is a reading shared by the Bar in general and KPMG’s counsel in particular. 1. The Text The Thompson Memorandum, before it was superseded following Stein /, made cooperation with a government investigation a factor to be considered in deciding whether to indict a corporation or other business entity. It stated that “[i]n gauging the extent of the corporation’s cooperation, the prosecutor may consider the corporation’s willingness to identify the culprits within the corporation, including senior executives; to make witnesses available; to disclose the complete results of its internal investigation; and to waive attorney-client and work product protection.” It then went on to say: “Another factor to be weighed by the prosecutor is whether the corporation appears to be protecting its culpable employees and agents. Thus, while cases will differ depending on the circumstances, a corporation’s promise of support to culpable employees and agents, either through the advancing of attorneys fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government’s investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation’s cooperation.” The Thompson Memorandum thus made clear that advancing attorneys’ fees to personnel of a business entity under investigation, except where such advances were required by law, might have been viewed by the government as protection of culpable individuals and thus contribute to a government decision to indict the entity. The government nevertheless argues that there was no evidence that the Thompson Memorandum discouraged companies from paying employees’ legal fees by increasing the perceived risk of indictment for companies that did so. It suggests that there was no reason to believe that the defense bar — including KPMG’s counsel — ever read the Thompson Memorandum to convey such a threat. Indeed, it argues that “none of the prosecutors read the Thompson Memorandum in this way.” They construed the document, the government says, to mean that “the payment of legal fees [wa]s considered only when the Government believed such payments were part of an effort to ‘circle the wagons,’ an effort to appear cooperative while protecting culpable employees.” The Thompson Memorandum is inconsistent with the government’s argument. It says clearly that, “depending on the circumstances, a corporation’s ... advancing of attorneys fees” could be viewed as “protecting its culpable employees and agents.” The government’s “circle the wagons” gloss simply is not in the text. Any competent lawyer reading the document would regard a corporate client that was under investigation as being at greater risk of indictment if it advanced legal fees to employees who might be viewed by prosecutors as culpable than if it did not advance legal fees. That is the plain meaning of the language. The Justice Department itself undoubtedly recognized this when, following Stein I, it changed it in the McNulty Memorandum. But this reading of the plain language of the document is supported by far more. 2. The Bar’s Understanding of the Thompson Memorandum There can be no serious doubt that the Bar, as the Court properly inferred from the text of the Thompson Memorandum and the testimony of KPMG’s then-deputy general counsel, read the Thompson Memorandum as discouraging payment of legal fees for company employees under investigation by holding out the prospect that doing so would increase the risk of indictment. This view is supported by an abundance of published statements and literature, including (a) Former U.S. Attorney General Edwin Meese III: “Even if no prosecutor ever mentions [waiving attorney-client privilege and cutting off payment of employees’ attorney fees] to a company, the fact that the Thompson Memorandum requires federal prosecutors to take all nine of its factors into consideration when deciding whether to indict a business organization necessarily places great pressure on the company to take these two steps. As the Thompson Memorandum itself emphasizes, a ‘prosecutor generally has wide latitude in determining when, whom, how, and even whether to prosecute’ a business organization. The company and its counsel know that the prosecution team will eventually go through each of the nine factors point by point. Any outright ‘No’ in response to whether the company has cooperated with one of the factors will be glaringly apparent.” (b) KPMG Lead Counsel Robert Bennett: “[T]he Thompson memorandum makes clear that corporations that cooperate in the prosecution of employees stand a greater chance of avoiding corporate indictment. * & & “Where ... it appéars that criminal conduct occurred, it generally is advisable to not advance fees. Indeed, to do so may be construed by the government as a lack of cooperation by the corporation, an impediment to its investigation, and an indication of a failure of corporate responsibility.” (c) ABA President Karen J. Mathis: “[T]he Thompson Memorandum encourages prosecutors to deny cooperation credit to companies and other organizations that assist or support their so-called ‘culpable employees and agents’ who are the subject of investigations by ... providing or paying for their legal counsel.” (d) The American College of Trial Lawyers: “Defense counsel and their clients increasingly find government resistance to corporate efforts to advancing attorneys’ fees to individual employees once a government investigation has been commenced. Although individuals under investigation or charged by the government are entitled to obtain qualified, independent counsel without interference from the government, federal prosecutors frequently object to a corporation providing counsel for its employees and penalizes [sic] the company for not cooperating with the government investigation. * * * “[T]he guidance recently issued to federal prosecutors in the Holder Memo Standards [] could, and does, generate interference with the principle that non-government employees facing government investigation or prosecution are entitled to qualified, competent representation. Today, it is common for defense counsel to be confronted by a federal prosecutor who believes that a corporation is not fully cooperating with the government in a federal criminal investigation solely because the corporation is paying the legal fees for an officer, director or employee.” (e) The United, States Chamber of Commerce: “Federal investigators often object to the payment by corporations of the legal fees for their employees. The Thompson memorandum specifically identifies advancement of legal fees to employees as a negative factor when deciding whether a company has cooperated with the government. This policy deals " a serious blow to the ability of employees to vindicate their legal rights without suffering financial ruin.” (j) Law Review Articles: Law review articles echo this understanding of the Thompson Memorandum. One article, written shortly after the Thompson Memorandum issued, bluntly framed the dilemma facing corporations: “The renewed emphasis [of the Thompson Memorandum] on total, quick, and effective cooperation leaves little doubt that any corporation posturing itself for leniency in the form of non-prosecution should consider a contingency plan early on in the process of an internal investigation that contemplates ... carefully examining governing law on indemnification of legal representation expenses and the advancing of attorneys fees to employees that become subjects of the government’s inquiry.... * * * “The Thompson Memo seems to create an uncomfortable choice for the corporation: cooperate (i.e., turn over all witness interviews and other evidence gathered during the course of the internal investigation, make employees available to the government for witness interviews, desist from entering into joint defense agreements with employees, refrain from advancing legal fees to employees that may have violated [the] law, and discipline employees that may have violated the law) and hope to escape indictment, or close ranks and prepare the defense. The four comers of the policy leave little room for compromise between these bipolar extremes.” In sum, KPMG and its counsel knew from the Thompson Memorandum, even before they first communicated with the USAO, that the payment of the legal fees of KPMG employees, in the absence of a legal obligation to do so, would increase the risk of indictment of the firm, as prosecutors might view that action as protecting culpable employees. So the Court turns to the government’s next contention, viz. that KPMG conditioned and then cut off payment of legal fees entirely on its own, “not cowed by” the Thompson Memorandum and the actions of the USAO. B. The Thompson Memorandum and the USAO’s Actions Caused KPMG to Limit and Then Cut Off Payment of Fees The government argues that KPMG formulated its own policy on payment of attorneys fees — the government had nothing to do with it. “KPMG,” it asserts, “began the [February 25, 2004] meeting by volunteering that the firm had decided to change course and now intended to cooperate fully and completely, and later announcing its intention to ‘not pay legal fees for employees who declined to cooperate with the Government,’ but to pay otherwise.” In other words, “even assuming that the USAO communicated ... ‘that it did not want KPMG to pay legal fees,’ the evidence is uncontested that KPMG, apparently not cowed by any such communication, ignored that desire and went ahead and paid the fees, subject to terms and conditions of its own devising.” The government’s argument is unpersuasive. 1. The Thompson Memorandum Influenced KPMG Even Before the February 25, 2001 Meeting Took Place As an initial matter, the contention that the Thompson Memorandum had no effect on KPMG’s actions cannot be squared with the evidence or with the government’s concession to this Court. The record fully establishes KPMG’s specific and entirely understandable desire to do whatever it could to come within the Thompson Memorandum’s definition of a cooperative company. As KPMG’s new chief legal officer, former U.S. District Judge Sven Erik Holmes, testified in a civil deposition received in evidence in the fee hearing, he thought it indispensable “to be able to say, at the right time with the right audience, we’re in full compliance with the Thompson Guidelines.” Anything less, as former Attorney General Meese told the Senate Judiciary Committee, “might well have constituted legal malpractice.” It therefore is hardly surprising that the government expressly conceded in its closing argument at the fee hearing that the Thompson Memorandum influenced KPMG’s decisions on legal fees: “[AUSA] WEINSTEIN: I don’t think anybody is disputing that the Thompson memo as a whole had an influence on their [i.e., KPMG’s] decisions with respect to the legal fees. “So if we are asking whether there was an influence from the Thompson memo, of course, because the company was doing anything it could to cooperate.” 2. KPMG Made No Decisions Until After the February 25, 200I Meeting The government argues that the USAO’s actions, as distinguished from the Thompson Memorandum alone, had nothing to do with KPMG’s limitation and cutoff of legal fees because KPMG decided on its course before the initial February 25, 2004 meeting with the USAO. It contends, in other words, that KPMG formulated its own position, free of the USAO’s influence. But there are fundamental flaws in its argument. (a) KPMG Made No Decisions Before the Meeting Even as to Costs of Representing Employees During the Investigation The government’s challenge to the findings about the February 25 meeting rests on its assertion that “KPMG began the meeting by volunteering that the firm had decided to change course and now intended to cooperate fully and completely, and later announcing its intention to ‘not pay legal fees for employees who declined to cooperate with the Government,’ but to pay otherwise.” The implication is that KPMG had made up its mind even before it first met with the USAO. But the government’s account of the meeting is misleading, and its implication is incorrect. It is quite true, as the government argues, that KPMG’s attorney, Mr. Bennett, began the meeting by saying that KPMG had decided to change course and cooperate fully. Contrary to the government’s suggestion, however, those remarks were directed to KPMG’s high-level personnel changes and the importance of avoiding indictment of the firm. Mr. Bennett said nothing at that point about payment of legal fees. So the implication that KPMG opened the meeting by volunteering that it had decided upon a new course with respect to payment of legal fees is incorrect. The subject of legal fees first was raised by AUSA Weddle, acting according to the plan the prosecutors made before the meeting. When Mr. Weddle did raise the issue, KPMG did not initially respond by volunteering that it would pay fees only for employees who cooperated with the government. Rather, Mr. Bennett met Mr. Weddle’s question with a question. He asked for the government’s view on the subject. The notes of Mr. Pilchen, a Skadden Arps lawyer at the meeting, demonstrate this clearly: “Weddle-twmis p’ship agreement, bylaws. Are u paying fees for partners/ees? Are you obligated “RCB [Mr. Bennett] — ur view on the subject?” It is not difficult to see what was going on here. Mr. Bennett and KPMG well understood the Thompson Memorandum and the risk that the government would regard payment of employee legal fees as protection of culpable individuals. They thus knew that payment of legal fees for individuals could increase the risk of indictment of the firm. But refusal to pay legal fees was problematic for KPMG. The government stipulated: “Prior to February 2004, ... it had been the longstanding voluntary practice of KPMG to advance and pay legal fees, without a preset cap or condition of cooperation with the government, for counsel for partners, principals, and employees of the firm in those situations where separate counsel was appropriate to represent the individual in any civil, criminal or regulatory proceeding involving activities arising within the scope of the individual’s duties and responsibilities as a KPMG partner, principal, or employee.” Moreover, as Mr. Bennett later explained to the government, departing from this practice “would be a big problem” for KPMG because the firm was a partnership. The inference is compelling that Mr. Bennett’s response to Mr. Weddle was an attempt to sound out the US AO as to whether payment of legal fees by KPMG for employees caught up in the investigation would be held against the firm. It is undisputed also that the government gave KPMG no comfort. To the contrary, Ms. Neiman rejected Mr. Bennett’s feeler, saying “that the government would take into account KPMG’s legal obligations, if any, to advance legal expenses, but referred specifically to the Thompson Memorandum as a point that had to be considered.” Only then did KPMG say anything about paying legal fees only for employees who cooperated with the government, itself a partial retreat from its “common practice” of paying in all cases. Even that was a trial balloon, not the announcement of a decision. The Skadden lawyers emphasized that no decisions had been made. But Ms. Neiman and Mr. Weddle were not favorably disposed. Ms. Neiman said that “ ‘misconduct’ should not or cannot ‘be rewarded,’ ” and Mr. Weddle followed up by emphasizing that any payment of legal fees would be “look[ed] at ... under a microscope.” Mr. Pilchen’s notes show all this. After noting Mr. Bennett’s comment about paying fees only for those who cooperated, they say: “SP [Mr. Pilchen] — No decisions made. No counsel have been recommended. We have had discussions @ what the firm does in typical situations — but no final decisions made. “SN [Ms. Neiman] — misconduct shdn’t be rewarded. “JW [Mr. Weddle] — if u have discretion re fees■ — we’ll look at that under a microscope.” The logical inference, and the one the Court drew and draws, is that KPMG came into the meeting hoping to continue its past practice of paying employee legal fees. Anything else, in Mr. Bennett’s words, would have been “a big problem” because KPMG was a partnership. In view of the Thompson Memorandum, however, KPMG understandably was reluctant to do so without an indication from the USAO that such payments would not be held against the firm. Ms. Neiman declined to give that indication. So KPMG tentatively suggested a possible fallback position — payment of legal fees only for employees who cooperated with the government by, among other things, waiving the Fifth Amendment — while emphasizing that it had made no decisions. Even that, however, did not receive a warm reception from the USAO, which asked KPMG to get back to it once it determined what its obligations were, a reference to the Thompson Memorandum’s statement that payment of legal fees beyond a company’s legal obligations could be viewed as a lack of “cooperation.” There is no credible evidence that KPMG made any decisions at all about payment of employee legal expenses before the February 25 meeting ended. Mr. Bennett first got back to the government on March 2 to give what AUSA Weddle described in a contemporaneous email as KPMG’s “preliminary view on legal fees.” He said that KPMG was “planning on ... putting a cap on fees” and conditioning their payment for any given partner or employee on that individual “cooperating fully with the company and the government.” But AUSA Wed-dle stated under oath that Mr. Bennett told him on this occasion that no final decision had been reached. In short, KPMG’s statements at the February 25 meeting about a possible new policy concerning legal fees were not announcements of decisions already made, let alone decisions that the firm had made free of government interference. KPMG was bidding against itself in an auction in which the Thompson Memorandum set out the rules, the USAO was both the seller and the auctioneer, and the lot on the block was avoidance of an indictment of the firm. The decisions all were made after the February 25 meeting. (b) The Decision Not to Pay the Defense Costs of Any Employees Who Were Indicted, Came Even Later KPMG’s definitive response on attorneys’ fees came on March 11, 2004, when Skadden’s Mr. Rauh sent the government a sample form letter to KPMG employees. The form letter stated that KPMG would pay an individual’s legal fees and expenses, up to a maximum of $400,000, on the condition that the individual “cooperate with the government and ... be prompt, complete, and truthful.” Most importantly, the letter added something new, something that had not even been mentioned at the February 25 meeting. It said that “payment of ... legal fees and expenses will cease immediately if ... [the recipient] is charged by the government with criminal wrongdoing.” This was the first mention to the government, so far as the record reveals, of any intention to cut off payment of legal fees to anyone who was indicted. The Court finds that KPMG’s decision to cut off payment of any legal expenses to anyone who was indicted — which is the critical point here — was prompted by the Thompson Memorandum and the USAO’s negative reaction at the February 25 meeting to the possibility that KPMG would pay any legal fees in the absence of a legal obligation to do so. The record thus does not bear out the government’s argument that KPMG, “apparently not cowed by any [indication that the government did not want KPMG to pay legal fees], ignored that desire and went ahead and paid the fees, subject to terms and conditions of its own devising.” The fact that KPMG paid legal fees of its employees and former employees during the pre-indictment investigation — as long as they did what the government asked and waived the Fifth Amendment — • does not support the government. The government ultimately was perfectly happy to have KPMG do so because the threat of cutting off even those payments gave KPMG, and therefore the government, leverage over the recipients. As the government said in summation at the fee hearing: “[T]here are two ways the company could get their people in. One is they could hold over their head their job. The other is they could cut off their legal fees. If it’s a former employee, the first one isn’t even relevant. So regardless of whether there is a reference in the Thompson memo for legal fees, that is all the company can do to get its people in.” But the critical fact remains that KPMG refused to pay the fees of these defendants after they were indicted as a result of the Thompson Memorandum and the actions of the USAO. The government nevertheless persists in arguing that the Court’s causation finding was clearly erroneous because no one from KPMG said that the Thompson Memorandum and the USAO’s actions precipitated the decision. This argument too is unpersuasive. There was no need for direct evidence of the reasons for KPMG’s decision. The evidence as a whole more than supports the Court’s finding. Moreover, the government was on ample notice that the reasons that KPMG acted as it did were to be tried at the hearing. Yet it called no witnesses to testify as to when, how, and why KPMG made the decisions it did. The reason it did not do so is the elephant in the room that the government tries to ignore. In a letter to the Court three days before the start of the hearing, KPMG represented: “categorically that the Thompson memorandum in conjunction with the government’s statements relating to payment of legal fees ‘affected KPMG’s determination(s) with respect to the advancement of legal fees and other defense costs to present or former partners and employees....’ In fact, KPMG is prepared to state that the Thompson memorandum substantially influenced KPMG’s decisions with respect to legal fees....” In view of this statement, it is not surprising that the government adduced no evidence to challenge the defense contention that the Thompson Memorandum and the USAO’s conduct both influenced KPMG’s decisions on legal fees. Indeed, it did not contest the point at the fee hearing. 3. There Was Ample Evidence that KPMG Would Have Paid the Fees of Most of these Defendants Absent Government Interference Finally, the government contends that the Court’s “key finding — that KPMG would have paid the defendants[ ]’ legal fees absent the Thompson Memorandum and the conduct of the USAO — is wholly belied by the evidence of record.” It suggests that the Court erred in inferring that KPMG would have paid its employees’ defense costs here because KPMG had paid post-indictment defense costs in only one prior case and because the government has hypothesized other reasons why a firm in KPMG’s position might have declined to pay. But the government stipulated that KPMG had a long standing practice of paying the legal fees of its personnel “in any civil, criminal or regulatory proceeding involving activities arising within the scope of the individual’s duties and responsibilities as a KPMG partner, principal, or employee.” It conceded that KPMG’s legal fee decision was influenced by the Thompson Memorandum. And there was considerably more evidence at the fee hearing than the bare words of the stipulation and the government’s concession. The government ignores the fact that KPMG, as of January 27, 2004 — less than a month before the February 25 meeting, entered into an express contract with defendant Stein in which it agreed to pay his defense costs in “all legal proceedings or actions ... brought against [Stein] arising from and within the scope of his duties and responsibilities ... ” — in other words, to adhere to its prior practice. It ignores the fact that KPMG lawyers told the government at the February 25, 2004 meeting that no decisions had been made concerning payment of legal fees. It ignores their inquiry as to the government’s view and distorts their tentative suggestion of a policy to avoid dealing with the fact that these were parts of an effort to see how far KPMG could go in adhering to its prior practice and its agreement with Stein without risk to the firm. It ignores the fact that KPMG’s lawyers told the government on February 25, 2004 that KPMG’s “common practice” was to pay such fees— a statement that suggests that KPMG wished to, or at least was entertaining the possibility that it might, pay all employee defense costs in this matter. It ignores Mr. Bennett’s statement that departing from its common practice of paying these expenses “would be a big problem” for KPMG because the firm was a partnership. It ignores the fact that KPMG, in addition to paying post-indictment defense costs in a case years ago, much more recently had paid over $20 million in individual defense costs in the Xerox matter, which included a criminal investigation. And it ignores Mr. Loonan’s testimony, which strongly suggested that cost was not a factor in KPMG’s decision here. In short, the government ignores extensive evidence showing that KPMG was a partnership that historically had stood — and hoped in this case to stand — behind its partners and employees, regardless of cost and regardless of whether the exposure they faced was criminal or civil, because the nature of the firm made it “a big problem” to do anything else. And it ignores as well something else that is telling. In a little-noticed comment at the fee hearing, KPMG’s general counsel mentioned that KPMG was paying the defense costs of many of the individuals indicted in this case in civil cases relating to these tax shelters. The circumstances and full extent of its actions, however, became clear only in response to a recent question by the Court. It now is undisputed that KPMG has been paying the defense costs of at least eleven of the sixteen KPMG Defendants in civil cases relating to the tax shelters here at issue and also the defense costs of eight of them in regulatory inquiries relating to the conduct in question in this case. The precise amount of these payments to date is not of record, but it exceeds $3.4 million. Moreover, it is striking that KPMG has paid these costs subject to the requirement that the individuals be represented in the civil matters by attorneys who are not involved in defending this criminal case. The fact that KPMG is paying civil defense costs, regardless of amount, is consistent with its uniform practice over many years. What makes the criminal case different is only the Thompson Memorandum and the USAO’s actions. Indeed, the fact that KPMG has been paying the civil defense costs on condition that the defendants’ lawyers in those matters be different than their lawyers in the criminal case — a condition that is at war with any consideration of economy or efficiency— demonstrates with astonishing clarity that the different treatment of the criminal case defense costs has been driven from the outset by the fear that the government would view any assistance in defending against the indictment as a black mark against KPMG. KPMG cut off payment of defense costs to anyone who was indicted for one reason and one reason alone — -the Thompson Memorandum and the related actions of the USAO. In their absence, KPMG would have paid every penny, just as it always had done before. A New Evidence that KPMG Would Have Paid Absent Government Interference Three additional pieces of evidence — one of which was discovered only recently in the more than 22 million pages of discovery turned over to the defense, a second that was not previously of record, and the third only recently produced to the defense by KPMG — confirm the Court’s finding that the Thompson Memorandum and the USAO’s actions caused KPMG to change its policy, for this case only, with respect to payment of legal fees. The first is a voicemail message on February 18, 2004 — immediately after KPMG learned of the criminal referral but before the February 25 meeting with the USAO — from Gene O’Kelly, then KPMG’s chief executive officer, to all partners. It announced that the firm just had learned that the USAO would be commencing an investigation. It went on to say that “[a]ny present or former members of the firm asked to appear will be represented by competent council [sic] at the firm’s expense.” There was no mention of conditioning KPMG’s payment on cooperation, no mention of any cap on legal expenses, and no mention that the firm would stop paying in the event of indictment. The voicemail concluded by stating: “Finally, you should expect that I and other members of leadership will work diligently to bring this matter to a successful conclusion, provide you with all the necessary support and keep you updated on a periodic basis. In closing, I ask that you exhibit the resolve that you’ve shown throughout the Xerox investigation which defines what makes us a great firm.” The Xerox investigation, it will be recalled, was the criminal and SEC investigation in which KPMG spent over $20 million on the individual defenses of four of its personnel. The second relates to the contract that KPMG negotiated with Richard Smith pri- or to February 25 and then refused to sign. The fact of the agreement and KPMG’s refusal to sign were known previously. The Court did not know previously that the Smith contract contained a clause, substantively identical to that in the Stein contract, that explicitly would have required KPMG to pay Smith’s defense costs. Nor did the Court know previously that Smith and KPMG chairman O’Kelly had scheduled a meeting for February 27, 2004 to execute it. Following the February 25 meeting between KPMG and the USAO, however, KPMG refused to sign the contract to which it had agreed. The reason for KPMG’s sudden change of heart is made clear by the final piece of new evidence — recently produced notes taken by Greg Russo, a senior KPMG executive, at the meeting at which the Skadden lawyers reported back to KPMG on their February 25 meeting with the USAO. Near the beginning of the notes, Russo wrote: “ — Paying legal fees } } not a sign “ — Severance } of cooperation” After noting the nature of the possible charge against KPMG — “[conspiracy to defraud the U.S. Treasury” — the notes go on: “(1) uphill battle — Neiman } potential } action “(2) no one has a get out of jail } against free card — Weddle } the firm } “(3) shams — Sullivan }” Near the end, the notes state: Attorneys fees for individuals as long as they cooperate, up to indictment w/ a cap “-^Severance a problem (Smith’s pending agreement)” These three items of evidence sharpen the picture that emerged at the fee hearing. Mr. O’Kelly’s voicemail supports the Court’s finding that KPMG went into the February 25, 2004 meeting wishing to pay the defense costs of its personnel (not doing so “would be a big problem”), but apprehensive in light of the Thompson Memorandum that doing so would increase the risk that the firm would be indicted. So too does the fact that KPMG, only days before the February 25 meeting, reached an agreement with Mr. Smith on a contract that explicitly would have obligated the firm to pay his legal fees. It therefore is not surprising that Mr. Bennett on February 25 parried the prosecutors’ inquiry about payment of legal fees and attempted to elicit the government’s view. He did so in order to see whether KPMG could adhere to its usual practice, or something approaching it, without increasing the risk of indictment of the firm. The Russo notes, however, confirm that Skadden Arps reported back to KPMG after the meeting that the government was “angry,” that Ms. Neiman had led Skadden to believe that avoiding an indictment of the firm would be an “uphill battle,” that Mr. Weddle had stressed that “no one has a get out of jail free card,” and that paying legal fees and entering into severance agreements would “not [be] a sign of cooperation.” In other words, payment of legal fees and entering into severance agreements would increase the chance that KPMG would be indicted. It was only after that report that KPMG decided to (1) pay pre-indictment expenses up to $400,000 only for employees who cooperated with the government and waived the Fifth Amendment, (2) cut off legal expense payments to anyone who was indicted, and (3) make an abrupt about face and refuse to sign the Smith contract that it had agreed to only days earlier. KPMG would have paid the legal expenses of thirteen of the defendants (and signed Smith’s contract) had the government not interfered both by the Thompson Memorandum and the actions of the USAO. As will appear below, however, the Court, upon consideration of matters not previously focused upon by the parties, is not so persuaded as to three defendants. III. The Due Process Arguments Both sides discuss whether the government’s conduct in this case shocks the conscience, a term that carries special significance in the context of substantive due process analysis. The KPMG Defendants urge that the government’s inducement of KPMG’s cut off of defense costs was part of a broader pattern of government misconduct that shocks the conscience and violated their right to substantive due process. They argue that this constitutes a separate constitutional violation, independent of those found in Stein /. They contend further that a finding that the government’s actions shock the conscience would make deterrence of future misconduct a pertinent consideration in determining the remedy and independently warrant dismissal. The government concedes that a finding that its actions shock the conscience is not an element of a substantive due process violation in the circumstances of this case — i.e., where there is no adequate remedy short of dismissal. In consequence, it urges the Court not to consider defendants’ argument. But it is reasonably plain that the government’s concession with respect to dismissal, whether so motivated or not, is a prelude to an appeal. It therefore is appropriate for the Court to consider the defendants’ argument because it may prove significant to a reviewing court. A. The KPMG Defendants’ Pattern Argument The KPMG Defendants argue that the government not only coerced KPMG into cutting off payment of legal fees, but improperly coerced some of them to make statements to prosecutors, coerced KPMG into admitting to an unduly one-sided Statement of Facts as part of the deferred prosecution agreement, improperly joined nineteen defendants in a single indictment and resisted any severance for the purpose of coercing guilty pleas by the threat of an unmanageable and costly trial, and dissembled to the Court in the fee proceedings. The Court already has ruled on certain elements of this argument. In its decision on certain defendants’ motions to suppress, the Court found that the government improperly used its leverage over KPMG to induce KPMG to coerce proffers by certain defendants. It found previously that the USAO was “economical with the truth” in its effort to avoid an eviden-tiary hearing on the defendants’ motion with respect to the fee issues. From a factual perspective, nothing else need be said on these points. The argument concerning the Statement of Facts is, at least in part, a recycling of an argument previously rejected. In summary, it boils down to the contention that the government largely dictated the terms of the Statement of Facts to which KPMG was forced to assent in order to avoid indictment, while at the same time forbidding KPMG from conducting an internal investigation to determine exactly what had transpired. The government, the argument goes, did so, at least in some degree, because it wanted to use the extensive admissions of wrongdoing that it demanded against “taxpayers and other professional service providers, such as E & Y [Ernst & Young], Sidley [Austin LLP and] Deutsche Bank.” But this would add little if anything to the KPMG Defendants’ position, even if it were entirely accurate, a point the Court need not reach. For even if the government’s actions vis-a-vis the Statement of Facts were reprehensible, they would not have affected these defendants. The argument concerning the government’s tactics with respect to joinder and severance has substance to the extent that it now seems that the government never expected or intended to try together anything approaching the nineteen defendants named in the indictment. It mistakenly expected a substantial number of guilty pleas. Nevertheless, the government until very recently stoutly resisted any severance, a course that, as defendants argue, may have increased the pressure on them to enter guilty pleas. Defendants therefore impute to the government a motive to coerce guilty pleas. But this argument is readily answered. While the return of indictments with so many defendants is not favored, it is not forbidden. Common experience, moreover, teaches that the vast majority of criminal defendants plead guilty regardless of the number of individuals included in the instruments in which they are charged. On the face of it, the government’s joinder of these nineteen defendants and its opposition to severance, which always were subject to the Court’s power to grant a severance if that were warranted, cannot be faulted. In the absence of evidence that the joinder and the government’s litigation posture were specifically intended to pressure individuals to enter guilty pleas, the Court finds no impropriety notwithstanding that the government’s tactics perhaps were ill-advised. In the last analysis, then, the KPMG Defendants’ contention that the government has engaged in a conscience-shocking pattern of misconduct stands or falls on the findings that the Court made in Stein I and Stein II: that the government improperly coerced KPMG into refusing to pay the KPMG Defendants’ defense costs, was less than candid with the Court in its effort to avoid a hearing on that issue, and improperly used KPMG to coerce proffers from KPMG personnel. B. The Legal Standard The substantive component of the Due Process Clause protects the individual against “the [government’s] exercise of power without any reasonable justification in the service of a legitimate governmental objective.” In County of Sacramento v. Lewis, the Supreme Court held that “criteria to identify what is fatally arbitrary differ depending on whether it is legislation or a specific act of a governmental officer that is at issue.” Where the challenged government action is legislation, the question is whether a fundamental liberty interest was infringed and, if so, whether the legislation survives strict scrutiny. Where, however, the challenged government action is the conduct of a particular government employee or official, County of Sacramento held that the question is whether the conduct “shocks the conscience.” It is not clear that the Supreme Court still adheres to the County of Sacramento framework. The Second Circuit has done so in some cases and, it appears, departed from it in others. Given the uncertainty, it is appropriate to consider the substantive due process question under the County of Sacramento rubric notwithstanding the parties’ agreement that a finding that the government’s ' actions shock the conscience is not essential to the conclusion that the government violated the defendants’ rights to substantive due process. Stein I discussed two closely related matters: the Thompson Memorandum itself and the actions of the USAO. The Thompson Memorandum in substance was a regulation. The Second Circuit has held that regulations fall into the legislative category. In consequence, a substantive due process challenge to the Thompson Memorandum properly is analyzed first by determining whether it impinged upon a fundamental right and, if it did, by then considering whether it was narrowly tailored to serve a compelling governmental interest. Stein I employed exactly this analysis and thus conformed precisely to County of Sacramento and its Second Circuit progeny. It is unnecessary to consider whether the Thompson Memorandum shocked the conscience. Stein I concluded also that individual AUSAs unjustifiably acted in a manner that improperly impinged on the KPMG Defendants’ right to fairness in the criminal process. Given the relationship between their actions and the Thompson Memorandum, the Court sees their conduct as more analogous to regulatory action than to the action of an individual officer reacting to an unanticipated situation. In consequence, the analysis in Stein I is sufficient to conclude that their actions were part and parcel of the deprivation of the KPMG Defendants’ rights to substantive due process that was inherent in the Thompson Memorandum. Nevertheless, the Court recognizes that this perhaps is unfamiliar ground and that a determination whether their actions independently shock the conscience in the constitutional sense may prove significant for one or more purposes. C. The Actions of the USAO “Shock the Conscience” The “shocks the conscience” standard, sometimes referred to as the “outrageous government conduct” standard, is “necessarily imprecise.” Justice Scalia has criticized it as being the “ne plus ultra ... of subjectivity.” Nevertheless, it remains a part of our constitutional jurisprudence. At the extremes, the test is comparatively easy of application. “[Liability for negligently inflicted harm is categorically beneath the threshold of constitutional due process” while “conduct intended to injure in some way unjustifiable by any government interest is the sort of official action most likely to rise to the conscience-shocking level.” The closer questions occur between these extremes- — where government officials act neither for the purpose of inflicting injury nor negligently. In this case, the USAO pressured KPMG to withhold payment of legal fees. As Stein I found, the prosecutors understood “that the threat inherent in the Thompson Memorandum, coupled with their own reinforcement of that threat, was likely to produce exactly the result that occurred — KPMG’s determination to cut off the payment of legal fees for any employees or former employees who were indicted and to limit and condition their payment during the investigative stage.” The actions of the prosecutors with respect to legal fees may be considered also in light of their actions with respect to obtaining proffers from KPMG employees under suspicion, all of whom had a Fifth Amendment right to decline to speak to the government. The prosecutors knew that the Thompson Memorandum effectively compelled KPMG to make its personnel available for interviews by the government. They knew, as the government said at the fee hearing, that “there are two ways the company could get their people in. One is they could hold over their head their job. The other is they could cut off their legal fees.” They therefore understood that KPMG would threaten to fire or cut off payment of legal fees for employees and former employees whom prosecutors reported were not cooperating — i.e., who were refusing to submit to interviews with the government. Yet the prosecutors identified such persons to KPMG anyway. These actions are significant not only in themselves, but also for the insight they provide into the prosecutors’ actions with respect to payment of legal fees. For they demonstrate a willingness by the prosecutors to use their life and death power over KPMG to induce KPMG to coerce its personnel to bend to the government’s wishes notwithstanding the fact that the Constitution barred the government from doing directly what it forced KPMG to do for it. Just as prosecutors used KPMG to coerce interviews with KPMG personnel that the government could not coerce directly, they used KPMG to strip any of its employees who were indicted of means of defending themselves that KPMG otherwise would have provided to them. Their actions were not justified by any legitimate governmental interest. Their deliberate interference with the defendants’ rights was outrageous and shocking in the constitutional sense because it was fundamentally at odds with two of our most basic constitutional values — the right to counsel and the right to fair criminal proceedings. But the Court does not rest on this finding alone. It would reach the same conclusion even if the conduct reflected only deliberate indifference to the defendants’ constitutional rights as opposed to an unjustified intention to injure them. The question whether deliberately indifferent government conduct is outrageous or shocking depends on the circumstances. In a high-speed police chase, for example, an officer has but a moment to decide how to respond. In that context, an officer’s conduct “shocks the conscience” only if there is an actual intent to cause harm, principally because there is no time for sober reflection on the possible consequences of the officer’s actions. To take another example, a governmental actor’s thoughtful choice between equally compelling competing obligations is unlikely to be shocking. “In the apparent absence of harmless options at the time decisions must be made, an attempt to choose the least of evils is not itself shocking.” Conversely, where a government agent has “time to make unhurried judgments, upon the chance for repeated reflection, largely uncomplicated by the pulls of competing obligations,” deliberate indifference to a person’s rights can be shocking. As the Second Circuit has noted, “County of Sacramento strongly suggests that in those circumstances when actual deliberation is possible, a showing of deliberate indifference will establish Fourteenth Amendment liability.” In this case, the AUSAs had ample time for deliberation and in fact deliberated before acting. They met privately before the February 25, 2004 meeting with KPMG and decided to inquire as to whether KPMG intended to pay legal fees of its personnel. It is entirely likely, and the Court finds, that they then decided the substance of their intended reaction to KPMG’s possible responses. Nevertheless, they made clear that any discretionary payment of legal fees by KPMG would be looked at “under a microscope” and responded to a comment concerning payment of legal fees by emphasizing that misconduct should not be rewarded— threats if ever there were any. In any case, KPMG made clear when it left the meeting that it had made no decisions concerning legal fees and did not get back to the government even with its preliminary view until March. The AUSAs therefore had even more time — time in which to reflect upon what had transpired at the meeting and to make the USAO’s views entirely clear if any ambiguity or misimpression had been left at the meeting. They easily could have called KPMG and said, for example, that payment of legal fees would not affect the USAO’s view of whether to indict KPMG unless it became clear that it was part of a scheme to obstruct the investigation — the view they claim to have held of when consideration of payment of legal fees would have been appropriate in deciding when to indict a business entity. But they did not. Nor did they tell KPMG in March, when its lawyers called to convey the firm’s decision on payment of legal fees, that KPMG had gone further than the government thought was necessary or appropriate. They did not do so because they did not want KPMG to assist its employees. Indeed, AUSA Okula frankly admitted that he did not think KPMG should pay for attorneys for its personnel. The government’s actions with respect to legal fees were at least deliberately indifferent to the rights of the defendants and others. In all the circumstances, this behavior shocks the conscience in the constitutional sense whether prosecutors were merely deliberately indifferent to the KPMG Defendants’ rights or acted more culpably. IV. The Impact on the KPMG Defendants A. Deprivation of Counsel of Choice It now is clear, and the Court finds, that four defendants have been deprived of counsel of their choice, quite apart from any other consequences of the government’s actions. As an initial matter, the government does not dispute that defendants Hasting and Watson engaged counsel prior to indictment, wished to be defended by those attorneys after indictment, but were forced to terminate these attorneys following or on the eve of indictment because KPMG cut off payment of their legal fees and these defendants could not otherwise afford them. Mr. Gremminger’s position is virtually identical. While he still was employed by KPMG, he hired the Jones Day firm. KPMG paid the fees until Mr. Gremminger was told by the USAO that he had become a target of the investigation, at which point KPMG fired him effective immediately and reneged on a previous promise to pay. the severance package to which he was entitled as a KPMG partner, just as KPMG had reneged on Mr. Stein’s contract and refused to sign the contract that it had agreed upon with Mr. Smith. At that point, Jones Day “was far too expensive” for Mr. Gremminger, so he replaced it with his present counsel (at approximately half the hourly rate). Mr. Ritchie is in a comparable but slightly different position. In 2004, he retained Cadwalader Wickersham & Taft (“CWT”) to defend him in the government’s investigation. Once the indictment was returned, he wished to continue the services of CWT through trial. He hired also Arguedas, Cassman & Headley, a much smaller firm, as co-counsel. KPMG’s refusal to pay his defense costs, however, left him with insufficient resources to pay both firms despite the fact than another employer is advancing half of his legal expenses. Accordingly, he terminated CWT. He now is represented only by the Arguedas firm and a solo practitioner. Mr. Greenberg makes a similar claim. He initially was represented by Arent Fox LLP and after indictment retained also the New York office of Goodwin Procter as well as a trial attorney from Denver, Pamela Mackey. He ultimately decided in light of the expense, he says, to terminate both Arent Fox and Ms. Mackey and avers that he would not have done so if KPMG had been funding his defense. Mr. Greenberg resigned from KPMG in February 2003, effective August 31, 2003, and gave KPMG a release. While he requested in 2004, after retaining Arent Fox, that KPMG pay his legal fees, KPMG immediately refused. He first retained Ms. Mackey after he was indicted in 2005. He terminated Arent Fox as counsel on or about February 13, 2006, more than four months after he was indicted and after Arent Fox lost a motion to release Mr. Greenberg on bail. Thus, Mr. Greenberg first hired Ms. Mackey after he knew that KPMG would not pay his fees and continued the services of Arent Fox for more than a year after KPMG made its intentions toward him plain. Moreover, the termination of Arent Fox may well have been a product of its loss of the bail application. In all the circumstances, the Court is not persuaded that Mr. Greenberg was deprived of counsel of his choice by the government’s actions. B. The Other Practical Consequences None of the other KPMG Defendants claims to have been deprived of counsel of his or her choice. That is not to say, however, that the government’s actions have not impacted the ability of any of them to defend themselves. In order to appreciate that impact, it first is necessary to understand the exceptional demands that this case places on the defendants. 1. The Scope and Nature of this Case (a) Discovery The volume of documents produced by the go