Aug 03

Jenkens & Gilchrist Wins Millions in Suit Against Former IP Client

DALLAS - Dallas firm Jenkens & Gilchrist closed its doors more than two years ago, but despite a $4 million courthouse win late last month in a battle over fees with an old client, the firm won’t be ready to close the books until next year at the earliest. 

“I would be a little surprised to see things wrapped up before 2010, and then it just depends,” says Roger Hayse, a former executive at Jenkens who returned to take the job of president of the firm as it liquidates. “Trying to guess when it’s going to end is very, very difficult.” 

Hayse, owner of The Hayse Group in Dallas, says a number of claims remain outstanding against the firm, with the largest the firm is “wrestling with” coming in at $15 million. Some of the claims are in litigation, he says. “In the $15 million situation, which I can’t go into a lot of detail about . . . there are other defendants, so where it ultimately goes and shakes out . . . there is absolutely no telling,” Hayse says. But in the suit Jenkens won last week, the firm was the plaintiff. 

On July 23, a jury in 134th District Judge James Stanton’s court in Dallas returned a verdict awarding Jenkens $3.14 million in actual damages and up to $1.15 million in attorneys’ fees, plus prejudgment interest, in Jenkens & Gilchrist PC v. Forgent Networks Inc., et al. Since September 2007, Austin-based Forgent has been known as Asure Software Inc.

If a judgment in the suit leads to Asure paying money to the firm, Hayse says the cash will go into a pot the firm is holding to cover creditor claims. “It was an expensive case for us to have . . . so it’s very pleasing to see it concluded in the firm’s favor,” he says.

Stanton held a hearing to enter judgment on July 30, but Mark Werbner, a partner in Sayles Werbner in Dallas who represents Jenkens, says the judge took the matter under advisement until Aug. 4 because the parties disagree over how to calculate prejudgment interest. Werbner says Jenkens asked for about $500,000 in prejudgment interest in the proposed judgment, but Asure argues the interest should be less.

The litigation stemmed from a dispute that arose after Forgent ended an attorney-client relationship with Jenkens, which had handled its intellectual property licensing program from 2001 through 2004.

Jenkens alleged in its June second amended petition in the suit that Forgent had agreed in 2004 to pay the firm a certain percentage of fees stemming from its patent licensing program — which netted the company nearly $100 million between April 2001 and December 2004 — but the company stopped making payments beginning in May 2007 and contends Jenkens is only due half of what the agreement entitles it to under certain licenses.

Werbner says the payments ceased after the firm closed in 2007.

“Forgent’s nonpayment was trying to exploit Jenkens & Gilchrist [after] stopping the practice of law, and we felt very vindicated by the jury’s finding that this was a just and proper debt that was due,” Werbner says.

In a unanimous verdict, the jury found Forgent failed to comply with a resolution agreement that would pay the firm a share of money Forgent recovered from companies infringing on its patents, and that failure to comply was not excused by estoppel or waiver.

Defense attorney Donald Taylor, a partner in Taylor Dunham & Burgess in Austin, says Asure will oppose a judgment that follows the verdict. “We do feel like the verdict was unfair, and we have some complaints about the issues that were submitted and the way they were submitted,” Taylor says.

In a written statement, Nancy Harris, chief executive officer at Asure, writes, “Although we respect the jury’s verdict, we are very disappointed in the results of the trial and are currently looking at all of our available options, including an appeal.”

The relationship between Jenkens and Forgent turned rocky in October 2004 when the company terminated its relationship with Jenkens. [See “Jenkens Loses Client Forgent Networks to Winstead, Godwin Gruber,” Texas Lawyer, Nov. 8, 2004, page 5.]

In March 2007, Jenkens closed after negotiating a nonprosecution cooperation agreement for alleged criminal tax violations linked to the firm’s former Chicago-based tax-shelter practice. The firm also negotiated a civil settlement with the Internal Revenue Service and agreed it was subject to a penalty of $76 million, resulting from the firm’s alleged promotion of what the IRS called “abusive and fraudulent tax shelters.”

In June, three former shareholders in the Chicago office of Jenkens were among seven professionals charged in a 78-page indictment that alleges they “participated in a scheme to defraud the IRS by designing, marketing, implementing and defending tax shelters” from 1994 through 2004. The 27-count indictment filed in the U.S. District Court for the Southern District of New York names, among several defendants, Paul Daugerdas, a former Jenkens shareholder who led the firm’s tax practice, and former Jenkens shareholders Erwin Mayer and Donna Guerin.

Among other things, the indictment charges the three former Jenkens lawyers with conspiracy to defraud the IRS and to evade taxes, and with multiple counts of tax evasion in connection with the alleged use of tax shelters for clients. The indictment also charges Daugerdas and Mayer with tax evasion based on their alleged use of fraudulent tax shelters to eliminate or reduce their personal taxes between 1999 and 2001.

All three lawyers have pleaded not guilty to the charges.

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