At a July 23 conference, Southern District of New York Judge Lewis A. Kaplan refused to allow defense counsel for KPMG's former vice chairman of tax Richard Smith to resign from the case. “Having signed on for the voyage, they are on for the voyage unless relieved by the court,” Kaplan said.

Kaplan's order comes on the heels of his July 16 dismissal of tax fraud indictments against Smith and 12 codefendants–an order predicated on the fact that prosecutors had demanded accounting firm KPMG stop paying the defendants' legal fees, thus “deliberately or callously” depriving them of a fair trial.

Attorneys Robert Fink and Caroline Rule, of Manhattan law firm Kostelanetz & Fink, faxed a letter to the court late on the day of the dismissal, reporting they were withdrawing as defense counsel for Smith. (A July 18 Wall Street Journal Law Blog post quotes Fink as saying ongoing appeals and trials could “wipe out his life savings” since KPMG is no longer paying legal fees.)

Kaplan cited SDNY Local Civil Rule 1.4, which states, “An attorney who has appeared as attorney of record for a party may be relieved or displaced only by order of the court and may not withdraw from a case without leave of the court granted by order.” Fink argued that the judge no longer had jurisdiction in this case and therefore could not prevent him from resigning. Kaplan rebutted, “The power of the district court remains standing notwithstanding the notice of appeal.”

Charges against three former KPMG employees still stand–Kaplan said in the July 16 opinion they had not established that KPMG would have paid their defense costs even without pressure from prosecutors to stop. Prosecutors have filed an appeal of the July 16 dismissal.