$51 million, Jones, Day, Reavis & Pogue of Cleveland to settle a lawsuit by the Government in the savings and loan scandal

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Despite Big Settlement, Firm Feels Little Pinch
By JOHN H. CUSHMAN Jr.,
Published: Friday, April 23, 1993
What happens to a law firm when it has to pay more than $50 million -- an eighth of its estimated annual revenue -- to settle a lawsuit by the Government in the savings and loan scandal?

In the case of Jones, Day, Reavis & Pogue of Cleveland, apparently not very much.

Jones, Day's $51 million payment to the Resolution Trust Corporation -- the Federal agency that takes over failing thrift institutions and sells their assets -- is the largest amount paid so far by a law firm to settle professional liability suits stemming from the savings and loan debacle.

But Patrick F. McCartan, the firm's managing partner, said today that because the settlement is mostly covered by insurance and would be paid out in installments, the actual cost to the firm would be "rather insignificant" -- less than 1 percent of revenue, or a few thousand dollars a year per partner. Link to Lincoln Savings

It was the failure of the Lincoln Savings and Loan Association when it was owned by Charles H. Keating Jr. that brought on the lawsuit against Jones, Day. Mr. Keating, who is already serving a prison sentence after being convicted in Arizona on state charges, was convicted in January on Federal charges of fraud, conspiracy and racketeering and is to be sentenced next month.

It cost the Federal Government $2.5 billion to take over Lincoln. In its lawsuit the Government was seeking from $200 million to $500 million from Jones, Day, asserting that the firm's work for Lincoln Savings was partly to blame for its collapse.

That is an assertion that the firm disputes, but one that Mr. McCartan decided -- reluctantly, he said -- not to contest in a trial.

"The decision had nothing to do with the merits of the case," he said in a telephone interview from the Cleveland offices of Jones, Day, which has 1,100 lawyers and is one of the two or three biggest firms in the country. "This was a business judgment. It was really one based on my determination to put the entire matter behind us."

He said the firm had budgeted more than the amount of the settlement to contest the case, but had to contemplate the possibility that a jury verdict would prove even costlier. Another important factor was the firm's belief that it might be sued again for actions involving other savings and loans institutions; under the terms of the settlement, that threat has been eliminated.

Jones, Day will not discuss its finances in detail. But the annual report on big law firms by The American Lawyer, a legal journal, estimated that the firm's revenues in 1991 were $406 million and that the profits per partner were $315,000.

Mr. McCartan said the firm's involvement in the Keating case had not hampered its ability to attract and retain clients and lawyers.

But he said he was upset because one of the firm's lawyers, William J. Schilling, was unable to fight the Government in court. The Federal Office of Thrift Supervision, which regulates savings and loans, refused to settle with Jones, Day unless Mr. Schilling also accepted a consent order. Some Previous Penalties

Mr. Schilling had been a Federal bank examiner before joining the firm and working on the Lincoln case. Now he has agreed not to work on banking matters.

"Bill decided that he would not hold the firm hostage to his individual situation," Mr. McCartan said. "We are going to stand by him, and help him develop a new discipline."

Though the Jones, Day settlement is the largest by a law firm in the savings and loan scandal, it is hardly the only one. Big accounting firms have reached settlements in the hundreds of millions of dollars.

Jones, Day itself settled for $24 million last year with plaintiffs in the investment-fraud complaint. Kaye, Scholer, Fierman, Hays & Handler, aLos Angeles law firm that also represented Lincoln, also settled with the Government for $41 million and with the private investors for $20 million last year

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http://www.nytimes.com/1993/04/23/news/despite-big-settlement-firm-feels-little-pinch.html [1]

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