The United States District Court for the Southern District
of New York has held that the United States Attorney’s use of the Thompson
Memorandum to coerce a business entity to condition, limit, and deny
indemnification to its partners and employees was unconstitutional. In U.S. v. Stein, (S.D.N.Y. 2005), a Delaware
LLP, had a long-standing unwritten policy of paying the legal fees and expenses
of all its partners and employees in cases involving their actions as partners
and employees. The entity and some of its partners and employees became targets
of a criminal investigation. Consistent with the Thompson Memorandum and Department
of Justice policy, the government indicated that anything more than complying
with legal requirements to indemnify would be held against the firm in deciding
whether to seek criminal charges against the firm. In response, the entity
capped the fees it would indemnify, conditioned indemnification on a partner’s
or employee’s full cooperation with the government and terminated indemnification
of any partner or employee charged with criminal wrongdoing. The court held
that the government’s actions violated the partners’ and employees’ right to a
fair trail under the Fifth Amendment and their right to the effective
assistance of counsel under the Sixth Amendment. The remedy was a strong
suggestion that the court would order the entity to adhere to its prior
indemnification policy and would order the government not to consider that
adherence in deciding whether to charge the entity.