Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Three years ago, homeland security technology was in high demand and Gregory Webb was looking to cash in. A former consultant to powerhouses such as Lockheed Martin, Webb hired Patton Boggs to shop his products to the government and help set up his latest venture, Intelagents Inc., an emerging company that would focus on developing technologies to prevent terrorist attacks. Over the course of eight months, Patton Boggs organized the company’s corporate structure, found capital investors, and registered its trademarks. It appeared Intelagents was starting to flourish. The company secured contracts with the federal government science and engineering lab Argonne National Laboratory and worked with software developer Security Information Systems Inc. But by November 2003, Webb was starting to believe that Patton Boggs wasn’t operating in the company’s best interest. So Webb launched an internal investigation that he claims uncovered a plot by Patton Boggs lawyers to mount a hostile takeover of Intelagents. In particular, Webb alleges that Patton Boggs’ lawyers drafted fraudulent minutes of a board of directors meeting, misrepresenting the amount of stock held by Webb and giving themselves and others authority to buy company stock at a reduced rate. They also, according to Webb, tried to broker a deal with a potential investor that would have quickly increased the value of those stocks but would have divested Webb of his controlling stock. Webb says he also discovered other problems with Patton Boggs’ lawyering that created difficulties with the Securities and Exchange Commission and led to the company having to change its name. Intelagents is now suing Patton Boggs in a federal court in Illinois. Also named as defendants are partners Mario Mirabelli, Lloyd Spencer, and Jonathan Pavony. The suit accuses Patton Boggs of professional negligence and breach of contract. “The Defendants violated their duties to the Plaintiff by failing to protect its interests, engaging in unethical and unlawful practices and drafting and filing documents with material errors, omissions or misrepresentations,” the complaint states. The company, now known as InfrAegis, alleges that these actions caused it to lose out on “bright business prospects.” Patton Boggs has responded with a motion to dismiss and has filed a countersuit alleging that Intelagents still owes the firm more than $200,000 in unpaid legal bills. “I’m confident that the firm and the individual attorneys conducted themselves properly, and we will vigorously defend the case,” says Stuart Pape, managing partner of Patton Boggs. Mirabelli, Spencer, and Pavony did not return calls. Intelagents seeks unspecified monetary damages to cover attorney fees, potential loss of business, and a return of the fees the company paid Patton Boggs, which total more than $300,000. HIGH HOPES In 1998, after working with companies such as Bell Labs and AT&T, Webb formed CityMainStreet Technologies, a wireless-technology company. Three years later, he sought legal help to formalize a corporate structure and lobby government agencies to buy his inventions. Webb chose Patton Boggs and Mirabelli, a former SEC trial attorney who headed up the Washington office of the now-defunct Shea & Gould for 14 years. Mirabelli brought along his junior partner Spencer and then-associate Pavony to work on the CityMainStreet account. By 2002 the company was doing more than $2 million in sales and was contracting business with Argonne National Laboratory to create a crisis-management system that would alert first responders in the event of a terrorist attack or the presence of radioactive or chemical agents. Webb’s team also built a nuclear-radiation detection system, maritime radiation detectors for cranes in seaports, and public-messaging systems for national crises. Webb’s success in the homeland security industry led him to form Intelagents. He again sought Patton Boggs’ legal assistance to help draft the company’s bylaws and aid in registering the company’s names and products, according to the complaint. (Webb did not return calls for comment for this article.) Over the next several months, Webb used Patton Boggs to draft the initial private placement memorandum, which was supposed to outline the company’s formal operations and provide regulations for buying and selling stock in the privately held company, the complaint states. Patton Boggs, according to the complaint, was also in charge of drafting corporate minutes of board meetings. Instead of holding regular board meetings while the company was getting off the ground, Mirabelli and Spencer drafted written consent forms for board members to sign, according to the complaint. By June 2003 the company had entered into teaming agreements to develop technologies with Security Information Systems Inc. and Meteorological Equipment Services Inc. The complaint does not state how much these deals were worth. That August the company was scheduled to have a meeting with the board of directors present. The complaint states that Mirabelli and Spencer flew to Illinois to prepare the agenda and attend the meeting at a hotel in Willowbrook — a fitting choice given the hotel was adjacent to Argonne National Laboratory, where Intelagents had entered into a contract with the University of Chicago to develop technologies there. Webb appointed Spencer to act as secretary for the meeting. But he later discovered that Spencer’s “minutes” of the meeting did not accurately represent what took place, the complaint alleges. The minutes, Webb claims, did not follow the agenda and stated the board approved for investors and the Patton Boggs attorneys to obtain stock at one-tenth of a cent per share. The minutes reported that Webb held 30.5 million shares when he claims he actually had 34 million shares, the complaint alleges. The minutes also allowed Samuel Swisher, then-chief financial officer, to authorize stock, when, according to the bylaws, Webb was the only officer who could issue it. The minutes also sped up the actualization period for restricted stock grants, which had originally been on a one-year schedule as an incentive for employees to stay at the company, according to the complaint. After the meeting, the complaint alleges, the three Patton Boggs attorneys circulated a stock subscription plan and drafted checks to purchase a combined 2.35 million shares of stock at the reduced rate. Mirabelli, Spencer, and Pavony wrote checks for $2,000, $250, and $100, respectively, the complaint states, though the three were never issued stock. Though receiving stock in lieu of payment was popular during the tech boom in the late 1990s, allowing lawyers to invest in stock based on opportunities that come to them from current clients is more uncommon. “At Patton Boggs, basically, a lawyer, any lawyer, cannot receive compensation for legal services, cash, or anything else separate from the firm,” says Brian Hale, a spokesman for the firm. But Patton Boggs partners are allowed to acquire stock and options as part of a “family and friends” provision. He would not comment on the Intelagents case. Legal ethicists say that allowing lawyers to have a vested interest in a client’s company can become problematic if their financial stake eventually conflicts with the client’s. “The lawyer owes complete fealty to the client and can do nothing to take advantage of the client,” says Stephen Gillers, a New York University Law School professor. Patton Boggs lawyers also had Webb and the board meet with investment company Jesup & Lamont in an attempt to get Intelagents to obtain a short-term $5 million loan, which, according to court documents, positioned Webb for a hostile takeover because he would have lost the controlling shares of the company. At the next board meeting, Swisher, who said he was there on Mirabelli’s behalf, tried to get Webb to authorize the lower-priced stock subscription plan as described in the Spencer minutes, the complaint alleges. Webb adamantly refused, and Swisher left the meeting. Mirabelli later called Webb and insisted he authorize Swisher to issue the stock plan, according to the complaint. INTERNAL PROBE Webb became suspicious of Swisher and Mirabelli’s intentions. He then e-mailed other board members and contacted former Illinois state Sen. Howard Carroll (D) to conduct an internal investigation, the complaint states. Carroll, also a member of the board, requested all of the communications and notes regarding the August board meeting at which Patton Boggs’ Spencer was secretary. Carroll, a partner at Carroll & Sain in Chicago, did not return calls seeking comment. Spencer did not initially turn over his records and denied any wrongdoing, saying that Swisher had acted alone, according to Intelagents’ complaint. According to the complaint, Carroll found that had the minutes been ratified, Patton Boggs and several then-Intelagents employees would have tried to engage in a hostile takeover. To circumvent that, Carroll redrafted the minutes, which were then circulated and ratified by the board. By November the company had hired independent auditor Oppenheim & Ostrick to investigate Patton Boggs’ billing. The auditors found irregular billing patterns and overbilling for basic legal work, the complaint states. The auditing firm also said that Patton Boggs used multiple lawyers in meetings when one would have been sufficient and the firm’s overall legal work was “grossly inadequate,” according to the complaint. The company also claims it had to change its name because Patton Boggs’ initial attempt to trademark “Intelagents” was met with a complaint from chip-maker Intel. The company also found that the initial private placement memorandum was inadequate because it did not explain the corporate structure of Intelagents or its holding company, NextWeb (formerly known as CityMainStreet). According to court documents, the memorandum violated SEC and state regulatory rules. Intelagents originally filed suit on Nov. 23 in the Circuit Court of Cook County, Ill. The complaint included five counts of malpractice. In February, Patton Boggs successfully moved the suit to the U.S. District Court for the Northern District of Illinois. The firm then filed a motion to dismiss, stating that the complaint was “duplicative, confusing and contains immaterial allegations.” In that motion, Chicago lawyer Kevin Forde, who is representing Patton Boggs, argues that the attorneys’ alleged attempt to buy stock and the short-term loan never materialized and that the complaint was “speculative” on possible business dealings that never happened. Further, he argues that Intelagents has been vague on the business and fiscal damage allegedly caused by Patton Boggs. Forde did not return calls. Last month, Intelagents revised its original complaint, limiting it to two counts of professional negligence and breach of contract. Patton Boggs has until June 15 to respond. Meanwhile, Judge John Grady has yet to rule on Patton Boggs’ motion to dismiss. Despite making serious allegations of misconduct, Intelagents has not lodged an ethics complaint against any of the Patton Boggs lawyers, who are all barred in Washington, according to company lawyer Edward Wallace of Chicago’s Wexler Toriseva Wallace. Says Wallace: “I don’t anticipate there being any significant developments until the court makes a ruling on the motion to dismiss.”
Anna Palmer can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.