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Two former top executives at a Midwestern utility who resigned last year amid allegations of self-dealing have sued Cadwalader, Wickersham & Taft and its top mergers and acquisitions partner Dennis J. Block for breach of fiduciary duty. Peter H. Forster, the former chairman of Dayton Power & Light Co., and Caroline E. Muhlenkamp, the utility’s former chief financial officer, claim they were individual clients of Cadwalader and Block who were betrayed when the firm began representing the utility itself. In particular, Forster and Muhlenkamp claim the law firm, which represented Dayton Power & Light in the $1 billion sale last month of the company’s private investment portfolio, advised the utility to exclude from the terms of sale profit participation rights for the executives. According to the executives, they had received 5 percent of the portfolio’s annual return, with 2.75 percent going to Forster and 2.25 percent going to Muhlenkamp. They claim Block and Cadwalader advised both them and the utility on a Feb. 2, 2004, agreement which stated that the arrangement would continue in the event of a sale. The suit, filed Tuesday in Manhattan Supreme Court, also names defendants Alpinvest Partners and Lexington Partners, the private equity groups that acquired the utility’s investment portfolio. A spokeswoman for Cadwalader said yesterday that neither the firm nor Block would comment on the matter. Stanley S. Arkin of Arkin Kaplin, the lawyer for Forster and Muhlenkamp, also declined comment. The two executives are themselves facing a suit charging breach of fiduciary duty. Dayton Power & Light filed suit in Ohio last August charging that Forster, Muhlenkamp and former chief executive officer Stephen Koziar deceived the board into allowing the executives’ early withdrawal of $33 million in deferred compensation. The utility’s suit also charged that Forster and Muhlenkamp failed to cooperate with its audit committee, delaying the filing of its Form 10-K with the U.S. Securities and Exchange Commission. The three executives resigned last May, with the company under investigation by the SEC, the Department of Justice and the Ohio Public Utilities Commission. Forster, who had previously been Dayton Power & Light’s CEO, served primarily as manager of the company’s investment portfolio, along with Muhlenkamp. In announcing the sale of the portfolio, which invested in other private equity funds, the utility said it was moving to focus on its core energy business. According to Forster and Muhlenkamp’s suit, they hired Block on an individual basis before he began representing the utility. They claim he personally advised them on issues relating to their employment at Dayton Power & Light, including both their withdrawal of deferred compensation and their profit participation in the investment portfolio. They also claim that, before their resignations, Block repeatedly confirmed to them that their profit participation arrangement would continue to be honored.

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