Forfeited Capital Contributions

Beginning in the fall of 2004, partners in Dallas-based Jenkens & Gilchrist who left the firm also left behind their capital contributions, which in some cases totaled hundreds of thousands of dollars, due to the firm's 'contingent liabilities.'

The former Jenkens partners who left their cash behind may never see a penny of it, or they may recoup some of it, depending on what's left over after the firm covers all of its financial obligations in the wake of its closing on March 31.

Roger Hayse, a former executive at Jenkens who returned to take the
job of president of Jenkens & Gilchrist as it liquidates, says 'job one' is making sure all of the firm's creditors are paid.

'If things evolve in the way that there's money left over for the firm's owners ' to repay them some or all of the monies they are due ' that would be fantastic,' says Hayse, owner of Hayse Consulting in Dallas.

John Gilliam, a retired Jenkens partner who is working with Hayse on the firm's wind-down, says that until the fall of 2004, shareholders who left the firm could take their capital contributions. But that policy changed in 2004 because of the firm's contingent liabilities, says Gilliam, who has been of counsel at the firm, handling risk management, since January 2004.

The 56-year-old firm, which once had 600 lawyers and offices that stretched from New York City to Los Angeles, had already started to shrink by the fall of 2004. But the prospect of forfeiting a capital contribution may have made some partners reluctant to leave the firm, thereby slowing the departures.

'It was probably a disincentive to leave,' says one former partner who requests anonymity. But the former partner, who says his capital contribution is valued at roughly $200,000, adds that losing the money was not a huge factor in his decision to leave Jenkens earlier this year for another firm.

Legal and Financial Liabilities

Jenkens' March 31 closure came five days after its leaders signed a nonprosecution cooperation agreement with the U.S. Attorney's Office for the Southern District of New York to resolve alleged criminal tax violations linked to the firm's former Chicago-based tax-shelter practice.

The agreement U.S. Attorney Michael Garcia made public on March 29 resolves a criminal investigation conducted by Garcia's office into Jenkens' tax-shelter activities from 1989 through 2004. In a 'Statement of Responsibility' sent to Garcia's office, Jenkens admitted to developing and marketing fraudulent tax shelters and issuing fraudulent opinion letters.

Jenkens also reached a civil settlement with the IRS, and the firm agreed it is subject to a penalty of $76 million. According to the IRS, the penalty results from the firm's promotion of 'abusive and fraudulent tax shelters' and violation of the tax law concerning tax-shelter investor lists and tax-shelter registration and maintenance.

Questions about the firm's tax practice surfaced in 2003, after some former clients filed a class action suit, Thomas Denney, et al. v. Jenkens & Gilchrist, over tax-shelter advice given by Jenkens that the IRS subsequently declared improper. In 2004, the firm negotiated a settlement in the class action that totaled about $81.6 million.

The firm paid its $5.25 million share in 2006, and a judge approved a settlement in January. Jenkens' insurer and some of the firm's individual tax shareholders paid the rest of the settlement.

Mass Lateral Transfer

Jenkens closed its doors on March 31, and the next day 93 lawyers joined Virginia-based Hunton & Williams LLP in Texas, including 87 in Dallas, five in Austin, and one in Houston. With the influx of Jenkens lawyers, Hunton & Williams, which has had an office in Dallas since 2002 and one in Houston since 2005, also moved into the Austin market with an office that opened on April 1.

Management at Jenkens and Hunton had been negotiating the mass lateral move for weeks, and partner Thomas Cantrill, a vice chairman of Jenkens, confirmed on March 30 that close to 100 lawyers from the firm would move to Hunton & Williams on April 1.

Hunton & Williams' Dallas office now has 157 lawyers.

Wally Martinez, managing partner for Hunton & Williams, which has 969 lawyers in 19 offices worldwide, says the firm decided to hire so many Jenkens lawyers because it was a 'truly unique opportunity for us to significantly expand in a key legal market.'

Patrick Mitchell, who had been the chairman of Jenkens, is the new managing partner of the Dallas office of Hunton, and longtime Hunton & Williams partner Curtis Carlson is administrative partner in Dallas. Wm. Stephen Boyd, who had been the managing partner of Hunton in Dallas for the past three years, will return to his litigation practice full time.

While Jenkens leadership tried to hold the firm together, Mitchell says, they were looking at a number of options by 2006, 'including the option we ended up deciding to pursue ' which were these transactions on a market-by-market basis where individual lawyers would leave to join new law firms.'

Other options included a merger with another firm, but the dismantling of the firm was a go by early 2007, Mitchell says.

In 2007, Jenkens began closing offices, and lawyers from the various outposts negotiated deals at other firms, with the blessing of firm management.

Martinez says he and others at Hunton & Williams tried to recruit a few lawyers from Jenkens last fall, but the negotiations for a large group of lawyers from Jenkens to move laterally didn't begin until sometime in January. He says the April 1 date, when the 93 Jenkens lawyers moved to Hunton & Williams, is due to his firm's March 31 fiscal-year end.

Meanwhile at Jenkens, Hayse says he will work full time at the firm until this fall, at which time he believes the liquidation team will have turned most of the firm's hard assets into cash, collected accounts receivable and paid off creditors. As to whether that includes the $76 million penalty to the IRS, Hayse says, 'I would expect that by the time I finish doing the work for the law firm, we will have fulfilled our obligations to the government.'

Gilliam, a commercial litigator, says his primary job is to address litigation against the firm and to try to resolve 15 pending suits, which primarily are legal malpractice cases filed in state courts in Texas, New Jersey, and California. He says the firm has 'large exposure' in a couple of the suits, but 'in those cases we feel like we have viable defenses.'

Gilliam says, 'If we have to try them, we will. … If we have the financial means to settle them, we will.' He notes, 'It could take a couple of years. We hope to do it as expeditiously as we can.'

This article was abridged for A&FP.

Brenda Sapino Jeffreys writes for Texas Lawyer, an affiliate of A&FP. Reporter Miriam Rozen also contributed to this article.

Beginning in the fall of 2004, partners in Dallas-based Jenkens & Gilchrist who left the firm also left behind their capital contributions, which in some cases totaled hundreds of thousands of dollars, due to the firm's 'contingent liabilities.'

The former Jenkens partners who left their cash behind may never see a penny of it, or they may recoup some of it, depending on what's left over after the firm covers all of its financial obligations in the wake of its closing on March 31.

Roger Hayse, a former executive at Jenkens who returned to take the
job of president of Jenkens & Gilchrist as it liquidates, says 'job one' is making sure all of the firm's creditors are paid.

'If things evolve in the way that there's money left over for the firm's owners ' to repay them some or all of the monies they are due ' that would be fantastic,' says Hayse, owner of Hayse Consulting in Dallas.

John Gilliam, a retired Jenkens partner who is working with Hayse on the firm's wind-down, says that until the fall of 2004, shareholders who left the firm could take their capital contributions. But that policy changed in 2004 because of the firm's contingent liabilities, says Gilliam, who has been of counsel at the firm, handling risk management, since January 2004.

The 56-year-old firm, which once had 600 lawyers and offices that stretched from New York City to Los Angeles, had already started to shrink by the fall of 2004. But the prospect of forfeiting a capital contribution may have made some partners reluctant to leave the firm, thereby slowing the departures.

'It was probably a disincentive to leave,' says one former partner who requests anonymity. But the former partner, who says his capital contribution is valued at roughly $200,000, adds that losing the money was not a huge factor in his decision to leave Jenkens earlier this year for another firm.

Legal and Financial Liabilities

Jenkens' March 31 closure came five days after its leaders signed a nonprosecution cooperation agreement with the U.S. Attorney's Office for the Southern District of New York to resolve alleged criminal tax violations linked to the firm's former Chicago-based tax-shelter practice.

The agreement U.S. Attorney Michael Garcia made public on March 29 resolves a criminal investigation conducted by Garcia's office into Jenkens' tax-shelter activities from 1989 through 2004. In a 'Statement of Responsibility' sent to Garcia's office, Jenkens admitted to developing and marketing fraudulent tax shelters and issuing fraudulent opinion letters.

Jenkens also reached a civil settlement with the IRS, and the firm agreed it is subject to a penalty of $76 million. According to the IRS, the penalty results from the firm's promotion of 'abusive and fraudulent tax shelters' and violation of the tax law concerning tax-shelter investor lists and tax-shelter registration and maintenance.

Questions about the firm's tax practice surfaced in 2003, after some former clients filed a class action suit, Thomas Denney, et al. v. Jenkens & Gilchrist, over tax-shelter advice given by Jenkens that the IRS subsequently declared improper. In 2004, the firm negotiated a settlement in the class action that totaled about $81.6 million.

The firm paid its $5.25 million share in 2006, and a judge approved a settlement in January. Jenkens' insurer and some of the firm's individual tax shareholders paid the rest of the settlement.

Mass Lateral Transfer

Jenkens closed its doors on March 31, and the next day 93 lawyers joined Virginia-based Hunton & Williams LLP in Texas, including 87 in Dallas, five in Austin, and one in Houston. With the influx of Jenkens lawyers, Hunton & Williams, which has had an office in Dallas since 2002 and one in Houston since 2005, also moved into the Austin market with an office that opened on April 1.

Management at Jenkens and Hunton had been negotiating the mass lateral move for weeks, and partner Thomas Cantrill, a vice chairman of Jenkens, confirmed on March 30 that close to 100 lawyers from the firm would move to Hunton & Williams on April 1.

Hunton & Williams' Dallas office now has 157 lawyers.

Wally Martinez, managing partner for Hunton & Williams, which has 969 lawyers in 19 offices worldwide, says the firm decided to hire so many Jenkens lawyers because it was a 'truly unique opportunity for us to significantly expand in a key legal market.'

Patrick Mitchell, who had been the chairman of Jenkens, is the new managing partner of the Dallas office of Hunton, and longtime Hunton & Williams partner Curtis Carlson is administrative partner in Dallas. Wm. Stephen Boyd, who had been the managing partner of Hunton in Dallas for the past three years, will return to his litigation practice full time.

While Jenkens leadership tried to hold the firm together, Mitchell says, they were looking at a number of options by 2006, 'including the option we ended up deciding to pursue ' which were these transactions on a market-by-market basis where individual lawyers would leave to join new law firms.'

Other options included a merger with another firm, but the dismantling of the firm was a go by early 2007, Mitchell says.

In 2007, Jenkens began closing offices, and lawyers from the various outposts negotiated deals at other firms, with the blessing of firm management.

Martinez says he and others at Hunton & Williams tried to recruit a few lawyers from Jenkens last fall, but the negotiations for a large group of lawyers from Jenkens to move laterally didn't begin until sometime in January. He says the April 1 date, when the 93 Jenkens lawyers moved to Hunton & Williams, is due to his firm's March 31 fiscal-year end.

Meanwhile at Jenkens, Hayse says he will work full time at the firm until this fall, at which time he believes the liquidation team will have turned most of the firm's hard assets into cash, collected accounts receivable and paid off creditors. As to whether that includes the $76 million penalty to the IRS, Hayse says, 'I would expect that by the time I finish doing the work for the law firm, we will have fulfilled our obligations to the government.'

Gilliam, a commercial litigator, says his primary job is to address litigation against the firm and to try to resolve 15 pending suits, which primarily are legal malpractice cases filed in state courts in Texas, New Jersey, and California. He says the firm has 'large exposure' in a couple of the suits, but 'in those cases we feel like we have viable defenses.'

Gilliam says, 'If we have to try them, we will. … If we have the financial means to settle them, we will.' He notes, 'It could take a couple of years. We hope to do it as expeditiously as we can.'

This article was abridged for A&FP.

Brenda Sapino Jeffreys writes for Texas Lawyer, an affiliate of A&FP. Reporter Miriam Rozen also contributed to this article.