A messy internal fight at Duane Morris over a $1.5 million origination fee, which sparked a lawyer’s departure from the Newark office, has spilled into the courts.
In a New Jersey Superior Court action, William Katchen claims that he brought in Reserve Management Co. of New York as a client and it paid $10 million for representation in a suit by the Securities and Exchange Commission.
Katchen’s contract with Duane Morris entitled him to 15 percent of billings but he allegedly was stiffed when another attorney, New York office head Michael Grohman, improperly claimed credit for bringing in Reserve.
Katchen, a bankruptcy and restructuring attorney who joined Duane Morris as a partner in 2000 and became of counsel in 2006, resigned in protest this past May.
The complaint in Katchen v. Grohman, filed in Essex County, includes counts of fraud, misappropriation, conversion, unjust enrichment, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and interference with contractual relations with Duane Morris.
The suit alleges that Duane Morris engaged in breach of contract, fiduciary duty and duty of loyalty, and aided and abetted Grohman in fraud and conversion.
According to Katchen’s suit, his compensation was based on a draw against annual budgeted profits and a distribution of extra profits when available.
In addition, he was entitled to 15 percent of billings to clients who retained him or Duane Morris as a result of his efforts.
Katchen says he got a referral in April 2008 from an out-of-state attorney with whom he has a professional relationship.
The referring attorney, who could not take the case because of a conflict. asked Katchen whether he could represent the Reserve, of New York, in the SEC suit.
The SEC action alleged that Reserve, two of its principals and its Reserve Primary Fund made false statements to investors just after Lehman Brothers declared bankruptcy in September 2008.
The fund had significant investments in bonds issued by Lehman and that company’s collapse prompted a run on the fund.
Katchen and other Duane Morris attorneys met with Reserve representatives to discuss the representation.
Katchen invited Grohman, of the firm’s wealth planning group, to attend because he had done estate planning work for a Reserve principal, Bruce Bent II, son of company founder Bruce Bent Sr.
According to the suit, Reserve did not contact Grohman about having Duane Morris represent it in the SEC case.
Reserve ended up retaining Duane Morris, and, soon after, Grohman sent Katchen an e-mail congratulating him for securing the representation, Katchen claims.
Katchen then drafted an engagement letter.
But before it was sent, Grohman “improperly intercepted the letter and designated himself as the originating partner and client contact on a substitute engagement letter so that he, and not Katchen, would receive credit for originating the matter,” according to the suit.
Katchen complained to senior management at Duane Morris, including firm chairman John Soroko, and was repeatedly assured the claim would be investigated, but was never told whether a determination had been made, Katchen alleges.
Katchen was not part of the Duane Morris team that represented Reserve and the Bents as the job fell to attorneys with SEC litigation experience, says Katchen’s attorney, David Freeman of Mazie, Slater, Katz & Freeman in Roseland.
But Freeman says that has no bearing on Katchen’s entitlement to his origination fee. And although Bent II had a prior dealing with Grohman, he never contacted him about representation in the SEC case, Freeman says.
Katchen is now a solo in Florham Park.
On Sept. 30 of this year, U.S. District Judge Paul Gardephe of the Southern District of New York imposed civil fines of $650,000 on the company and $100,000 on Bent II in the SEC case. The elder Bent was not fined.
Grohman did not return a call.
Duane Morris spokesman Joshua Peck says only that “it seems clear from a first reading that this is an entirely unjustified claim.”