Sidley Ordered to Give Up Names of Former Tax Shelter Clients
Sidley & Austin, one of the largest and oldest law firms in Chicago, acquired Brown & Wood in 2001. Last month, Dallas lawyer David Deary told  the Chicago Sun-Times he expects to bring more than 20 suits against the combined firm within six months.
The suits and a federal investigation arose from tax shelters sold by former Brown & Wood partner Raymond Ruble, which he claimed, would offset capital gains and reduce tax bills significantly. That was until the IRS declared the shelter invalid.
"They marketed, sold and implemented tax strategies that they knew were invalid, or should have known were invalid based on the IRS' positions," Deary told the Sun-Times last month.
Sidley spokesman Paul Verbinnen told the Sun-Times last month that the "cases have no merit, and we are not going to comment." The combined entity of Sidley Austin Brown & Wood ranked No. 5 among U.S. law firms, bringing in gross revenues of $831 million in 2002, according to American Lawyer magazine.
Last week’s order stems from an IRS investigation into the tax shelters, which brought in $46 million in legal fees before the IRS determined they were invalid. Last October, the IRS served a "John Doe" summons on Sidley to get the names about 600 clients who participated. The firm turned over the names of about 400 clients who agreed to be identified but awaited a court ruling to decide what to do about the others, the Sun-Times reported
"They did not step up to the plate and oppose the summons," Harvey Silets of Katten Muchin Zavis Rosenman, told the Sun-Times. He represents 27 of the anonymous Sidley clients.
Some of their former clients are annoyed by Sidley’s failure to fight the government summons, citing attorney-client privilege whereby attorneys do not give up client information, including their identities, without their permission.
"Identifying these clients would effectively be breaching the attorney-client privilege," Silets told the Sun-Times.
Though Silets and others fought the "John Doe" summons, U.S. District Judge Matthew Kennelly ruled Wednesday that Sidley had to give up the names. On Thursday, Kennelly stayed his ruling pending an appeal, the Sun-Times reported, adding that Sidley has indicated the firm will comply with the judge’s decision.
"While the court upheld the summons as we expected, and we will abide by the court's decision, the former clients who have objected will -- given the stay -- have an opportunity to offer their arguments to the court of appeals," the Sidley spokesman said.