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The $1.6 million legal malpractice claim against Duane Morris revolves in large part around whether a settlement agreement the firm helped its client reach should have provided security in the event the other side did not pay up, according to attorneys in the case. In opening statements yesterday in Adlerstein v. Duane Morris, physicist Joseph K. Adlerstein’s attorney, Clifford E. Haines, said Duane Morris was responsible for his client only receiving $200,000 of a $1.8 million settlement with SpectruMedix, the company he founded. And that $200,000, he said, ultimately went toward rising legal bills from Duane Morris. Haines is the name partner with Clifford E. Haines & Associates. SpectruMedix had ousted Adlerstein from the company’s three-member board, fired him and replaced him with another investor in July 2001, according to opening statements. That led to Adlerstein hiring Duane Morris attorneys out of the firm’s Harrisburg and Wilmington offices. Duane Morris, through its attorney Nicholas M. Centrella of Conrad O’Brien Gellman & Rohn, said evidence would show that the settlement agreement would never have included security because SpectruMedix declined to guarantee payment. Centrella said the company, and its then-new investor Ilan Reich, would not agree to guarantee the settlement and Adlerstein still signed off on the deal. The trial, expected to last about a week, is being held in Philadelphia’s Commerce Court Program before Common Pleas Judge Howland W. Abramson. Seven women and one man make up the eight-member jury. The jury did not hear in opening statements about the fee case that was brought by Duane Morris against Adlerstein when he did not pay all of the nearly $480,000 in legal fees generated by the firm’s representation of him during trial against SpectruMedix and in subsequent settlement talks. That case, Duane Morris v. Adlerstein, was brought in 2003, about a year before Adlerstein filed his legal malpractice claim. After a bench trial, then-Judge Gene D. Cohen had awarded Duane Morris $315,700 in legal fees to be paid by Adlerstein, according to an opinion in that case. That included the $280,000 that was remaining of the bill plus interest, Cohen said. At opening statements in Adlerstein’s case against the firm, Haines said his client was originally told by Duane Morris Harrisburg partner Scott Penwell – who is no longer with the firm – that the bills would probably be around $75,000. Centrella said testimony would show that never happened. Prior to the start of the trial, Abramson ruled on a few motions in limine. He precluded any mention of Reich’s prior felony conviction or other prior alleged conduct. Abramson said Haines’ own expert did not note that Duane Morris should be held to a higher standard for its settlement negotiations when dealing with someone known to be a felon. Because the expert did not include a higher standard, the judge said he wasn’t inclined to let the jury think it had to impose the higher standard after hearing that Reich was a convicted felon. Adlerstein created what was ultimately known as SpectruMedix in 1991. The company made what Haines called DNA synthesizers. Haines said that as with any start-up, the public company went through its ups and downs over the years and Adlerstein was always looking for investors. The two board members other than Adlerstein had found a potential investor – Reich – but he had wanted the whole stake in the company, according to Haines. On July 9, 2001, the two board members and Reich held a meeting to which they invited Adlerstein, he said. They told him that they issued new stock that would all go to Reich and Adlerstein was fired, according to Haines’ opening statement. Adlerstein went to corporate partner Penwell in Harrisburg who ultimately brought on a Duane Morris partner out of Wilmington who has since left the firm, litigator John Reed. SpectruMedix was incorporated in Delaware and a trial against the company was held in late 2001 before Vice Chancellor Stephen P. Lamb of the Delaware Court of Chancery. Lamb ruled in favor of Adlerstein and gave him back control of his company, Haines said. Lamb said, however, that he was troubled by the state of the company and its financial liability and asked the respective attorneys to propose recommendations for how the company could operate going forward, Haines said. That request spawned mediation between the two sides. Haines said Adlerstein wanted nothing more than to keep his company, but he was getting pressure from Lamb and his attorneys to sign some sort of settlement agreement. Adlerstein was being charged monthly, based on an hourly rate. At this point, his legal bills were about $480,000 and he had paid $65,000, according to Haines. In February 2002, a handwritten agreement was created that said SpectruMedix would give Adlerstein $800,000 and a limited stake in the company. The agreement only needed to be formalized to go into effect, but Haines said Adlerstein started pressing his attorneys to be more specific in the agreement because they were dealing with Reich. Centrella said in his opening statements that the deal provided for 15 percent interest in the company along with $800,000, but Adlerstein decided after he signed that he wanted to be able to independently sue the other two board members. “As soon as the agreement was signed, Dr. Adlerstein had buyer’s remorse,” Centrella said. On July 24, 2002, a second agreement was signed that provided for Adlerstein to be paid $1.2 million plus a salary of about $600,000 over five years, Haines said. Adlerstein was supposed to receive $200,000 immediately and another $200,000 every six months, Haines said. He received the first payment, which he sent right to Duane Morris, and never received another payment from SpectruMedix. Haines said Adlerstein couldn’t sue SpectruMedix over the contract because the company would have filed for bankruptcy and Reich would have taken all of the remaining proceeds. He said Reich declared liquidation in the fall of 2006 and sold the intellectual property behind the DNA synthesizers for $2.5 million. “Reich got paid. Duane Morris got $200,000. Adlerstein got nothing,” Haines said. Centrella said the case is really about two decisions made by Adlerstein. The first was to reject the $800,000 settlement that did not need security because it included a promise to pay within five days, he said. “He walked away from $800,000 cash,” Centrella said. The second mistake was to sign a settlement agreement that he knew did not provide him security, Centrella said. Both Penwell and Reed are expected to testify in the case. Sitting at the defense table for Duane Morris was the firm’s general counsel, Michael Silverman.

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