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Dallas-based Jenkens & Gilchrist has moved significantly closer to finalizing a proposed class-action settlement with former clients who sued the firm over its tax advice. A unanimous three-judge panel of the 2nd U.S. Circuit Court of Appeals issued an opinion last week denying the objections to the proposed settlement raised by two former Jenkens clients who were members of the class but objected to the settlement terms and propriety of class certification. The 2nd Circuit opinion provides “the relief we are seeking,” says Thomas Cantrill, chairman and president of Jenkens. Cantrill calls the opinion “a home run,” and says, “We are very happy to have the 2nd Circuit confirm what we thought they would.” The 2nd Circuit’s March 31 opinion clears away most of the likely objections to Jenkens’ proposed $85 million settlement with some 1,000 former clients. Those clients sued Jenkens after receiving tax-shelter advice starting in the late 1990s from several of the firm’s partners — some of whom have since left Jenkens. The Internal Revenue Service subsequently questioned that tax advice. More than two years ago, U.S. District Judge Schira A. Scheindlin issued a ruling in Thomas Denney, et al. v. Deutsche Bank AG, et al. approving the proposed settlement between Jenkens and its former clients. Scheindlin’s ruling certified the former Jenkens clients as a class of plaintiffs and approved a proposed settlement of the class’ claims with the Dallas firm. Two different groups appealed Scheindlin’s approval of Jenkens’ settlement of its portion of the Denney claims to the 2nd Circuit. One group included plaintiffs (former Jenkens clients) who objected to the proposed settlement. The second group consisted of defendant banks and accountants who allegedly had promoted the tax shelters but refused to settle with the plaintiff class. In its 49-page opinion, the 2nd Circuit overruled most of the two groups’ objections to Scheindlin’s ruling. The 2nd Circuit affirmed Scheindlin’s approval of the plaintiff class and approved Jenkens’ settlement, rejecting the arguments of the two former clients who had appealed. Robert Clary, a partner in Dallas’ Owens, Clary & Aiken who represents the plaintiffs who appealed to the 2nd Circuit, says his clients have not decided whether they will appeal to the U.S. Supreme Court. They have 90 days to file a writ of certiorari with the high court, Clary says. But the 2nd Circuit handed the remaining nonsettling defendant — Deutsche Bank — a small victory. The judges remanded the case to Scheindlin, ordering her to revise provisions of the proposed Jenkens settlement that focus on the potential liability of other defendants in the tax shelter litigation with the plaintiff class. The nonsettling defendants had argued that the provisions of the Jenkens settlement that focus on the nonsettling defendants’ potential liability needed to be more precise, and the 2nd Circuit agreed. Lawrence Hill, a partner in New York’s Dewey Ballantine, who represents Deutsche Bank, declines to comment about 2nd Circuit opinion. In November 2005, defendants BDO Seidman and one of its accountants dropped their appeal after arguments at the 2nd Circuit. Michael Young, a partner in New York’s Wilkie Farr & Gallagher, who represents BDO Seidman and the accountant, declines to comment on the 2nd Circuit opinion or his clients’ reasons for dropping their appeal. Regardless of how Scheindlin decides to revise the provisions that relate to the liabilities of Deutsche Bank and other defendants, Jenkens isn’t paying any more to the class of plaintiffs than its proposed $85 million, says Blair C. Fensterstock, a partner in New York’s Fensterstock & Partners. Fensterstock represents former Jenkens’ clients who opted out of the settlement but have begun negotiating deals of their own with the firm. “Jenkens’ liability is now fixed. The only issue now is how the nonsettling defendants will receive credit for that liability in future judgments or settlements,” Fensterstock says. “The bottom line is that the court has certified the class, approved the settlement, overruled all the objections and told us exactly what we need to do to fix a mechanical part of the settlement,” says David Deary, a partner in Dallas’ Deary Montgomery DeFeo & Canada who represents former Jenkens clients who are part of the plaintiff class that agreed to settle with the firm. Jenkens’ Cantrill says he expects the class counsel and Deutsche Bank lawyers to negotiate a proposal to revise provisions in the settlement about the potential liability of nonsettling defendants, as the 2nd Circuit ordered. Notes Cantrill, “I am optimistic those parties will get together sooner rather than later and lead to a quick resolution of the whole thing.”

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