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A Philadelphia Common Pleas Court jury will have to wend its way through a complex series of financial transactions to determine whether Duane, Morris & Heckscher betrayed one client to benefit another and therefore owes more than $400 million in damages. Jury selection is set to start today in Judge Allan L. Tereshko’s courtroom. Jackson National Life Insurance Co., which now controls the client alleged to have been betrayed, Benchmark Holdings Inc., filed its lawsuit in July 1999. The trial, with opening statements scheduled for Dec. 3, is expected to last three weeks, with about 30 witnesses expected to testify, at least 12 of whom are likely to be experts in legal ethics, transactional law and finance, according to attorneys for both sides. Plaintiffs’ counsel said he will call Duane Morris attorneys to the stand. The case began in 1992, when Philadelphia-based Duane Morris represented both Benchmark, a manufacturer of plastic tableware, and Michael T. Kennedy, a takeover specialist with a controlling interest in Benchmark. Duane Morris assisted Kennedy in purchasing foam-cup manufacturing assets from Scott Paper Co. Those assets were purchased not by Benchmark, but by a newly created sister company, WinCup. Jay Eisenhofer of Wilmington, Del.’s Grant & Eisenhofer, who represents both Benchmark and Jackson, claims that Kennedy and Duane Morris structured the deal that way to deprive Jackson, which owned Benchmark nonvoting preferred stock, of a say in the use of the assets. That was a sign that Duane Morris had “lost its ethical bearings” because the assets would have benefited its client Benchmark, an allegation that Eisenhofer will try to prove with the testimony of Monroe Freedman, a legal ethics expert at Hofstra University Law School, and Joseph E. Donahue, a financial consultant at Jedetel Associates, among others. Eisenhofer claims that Duane Morris’ alleged double-dealing continued in 1994, when it failed to protest Kennedy’s decision not to notify Jackson about a Benchmark loan default, and in 1995, when it advised Kennedy on how he could sell all of Benchmark’s assets without tipping off Jackson, despite language in Jackson’s preferred shares giving the company voting rights in the event of certain financial calamities. Acting on Duane Morris’ advice, the suit claims, Kennedy used the $55 million proceeds to pay debts owed by both WinCup and Benchmark, but allocated a disproportionate share to WinCup. By the time Jackson learned of the transaction in 1996, he says, it had a voting interest in an “empty corporate shell.” Duane Morris’ attorney sees things a different way. Joseph A. Tate of the Philadelphia office of Dechert, chalks up the lawsuit to Jackson’s refusal to face financial realities. Benchmark inherited financial difficulties and continued to do badly throughout its short life, he claims. He plans to line up ethics experts of his own, including former University of Pennsylvania Law School Dean Robert H. Mundheim, to show that Duane Morris had no conflict because the interests of Kennedy, WinCup and Benchmark were aligned. Because both Scott and the bank that financed the transaction refused to deal with Benchmark, the firm benefited Benchmark by helping keep the Scott opportunity within the corporate family, Tate says, claiming that WinCup ultimately transferred $20 million to its troubled sister corporation. He says Duane Morris counseled Kennedy to have an independent examiner review the allocation of proceeds from the sale of Benchmark assets, and he will present expert testimony that, given Benchmark’s indebtedness, it would have been left with no assets even if it had received all $55 million. Finally, Tate argues that Jackson had no right to advance notice of the company’s dissolution as Kennedy had ceded preferred shareholder status to Jackson on the understanding that if the company failed, he would “turn out the lights and hand over the keys.” Eisenhofer counters by saying Donahue will testify that Benchmark was not so financially strapped that it couldn’t have found a way to take advantage of the Scott opportunity, such as through a subsidiary free of Benchmark’s debt burden. He will present testimony by past and present Duane Morris attorneys who, he claims, will contradict what Vincent F. Garrity Jr., a Duane Morris partner who was lead attorney for Benchmark and Kennedy, has said he was told by Scott and the bank about their refusal to deal with Benchmark. Finally, Eisenhofer claims that Duane Morris had a conflict of interest even if Benchmark was not financially able to take advantage of corporate opportunities. If Eisenhofer proves an ethical lapse, his claim for damages ultimately rests on the proposition that, but for Duane Morris’ double-dealing, Benchmark would have the financial health that WinCup now enjoys.

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