Jenkens & Gilchrist is trying to put its tax shelter nightmares to rest by settling with former clients for $75 million.
For starters, the controversy has left the firm in precarious financial shape. Plaintiffs counsel David Deary of Shore Deary in Dallas investigated Jenkens’s finances before agreeing to the settlement; he describes the firm as “very fragile.” Jenkens’s lawyer, Rod Phelan of Baker Botts in Dallas, says that the controversy has been “very hard” on the firm.
After months of scandal and Internal Revenue Service scrutiny, Jenkens put a stop to the tax shelter work done by Paul Daugerdas, a partner in the firm’s Chicago office. At its peak, his business was extraordinarily profitable — sources at the IRS and the U.S. Department of Justice estimate that Daugerdas earned hundreds of millions of dollars in fees since joining Jenkens in 1998.
The firm is suffering internal turbulence as well. In January, William Durbin resigned as chair, only two months after being reelected to the position. That move was caused, at least in part, by what Cantrill describes as “unrest” following the jettisoning of some unprofitable shareholders. And a throng of lawyers has left voluntarily, dropping the firm’s head count from more than 600 lawyers in 2001 to 466 today. Cantrill says the situation is calming.
The firm is “evaluating” Daugerdas’s status, according to Cantrill. Neither Daugerdas nor his lawyer, Larry Black of Austin, returned phone calls seeking comment.
The settlement calls for Daugerdas himself to pay about $4 million. Jenkens will pay $5.25 million, and tax partners Donna Guerin and Erwin Mayer will pay a total of about $2 million.