A Philadelphia jury yesterday cleared Duane Morris of a claim of legal malpractice for its representation of a former client in settlement negotiations, according to attorneys in the case.
The eight-member jury found the firm did not breach the standard of care or breach any fiduciary duty when its client signed a settlement agreement that provided no security, the attorneys said.
The case was held before Philadelphia Common Pleas Judge Howland W. Abramson in the Commerce Court Program.
The eight-member jury began deliberating at about 3 p.m. on Tuesday for three-and-a-half hours and came back to deliberate at 1 p.m. yesterday, handing down a verdict at 3 p.m. The jury was selected on Feb. 4, and closing arguments were held on Tuesday.
Joseph K. Adlerstein sued Duane Morris in 2004 after he failed to receive $1.6 million of a $1.8 million settlement with his former company, SpectruMedix. He claimed the firm committed legal malpractice by failing to ensure the settlement agreement included some form of security in the event SpectruMedix didn’t pay up.
The case, Adlerstein v. Duane Morris, was filed a year after Duane Morris sued Adlerstein for not paying more than half of his $480,000 legal bill. He had paid the firm $200,000 – the only portion of the settlement with SpectruMedix he actually received.
Throughout the trial, Duane Morris had argued that it asked SpectruMedix and its then-new Chairman Ilan Reich for security but Reich refused.
Duane Morris’ counsel, Nicholas M. Centrella of Conrad O’Brien Gellman & Rohn, said in court that it was Adlerstein’s fault for walking away from an earlier settlement agreement that would have guaranteed $800,000 to be paid in five days. He made a second mistake, Centrella had said, when he signed the agreement for the $1.8 million even after he allegedly knew there was no security.
Clifford E. Haines of Clifford E. Haines & Associates represented Adlerstein and argued in court that it was Duane Morris’ duty to ensure security or advise Adlerstein that he might be making a bad decision by signing an agreement with no security.
The jurors came back with a 7-to-1 verdict in favor of Duane Morris. Haines said it was the seven women against the one male juror.
The attorneys did get a chance to talk to the jury after the verdict was given. Haines said the jurors seemed to feel that Adlerstein should have understood the terms of the agreement.
“They were troubled by the fact that Dr. Adlerstein had in fact signed the agreement,” he said.
Haines said he and his client would file the appropriate motions and decide whether they would appeal. He said that while the legal profession holds itself to a higher standard, sometimes the general public is more forgiving of mistakes made by professionals.
Duane Morris General Counsel Michael Silverman sat at the defense table throughout the trial.
“We are pleased that the jury found that Duane Morris fulfilled its duties to the firm’s former client and appreciated the jury’s diligence in evaluating the evidence,” he said.
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, Haines 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 Duane Morris corporate partner Scott Penwell in Harrisburg – now of Stevens & Lee, who ultimately brought on Wilmington litigation partner John Reed – now of Edwards Angell Palmer & Dodge. SpectruMedix was incorporated in Delaware, and a trial against the company was held in late 2001 before Delaware Chancery Court Vice Chancellor Stephen P. Lamb.
After recommendations were requested for how the company could operate going forward, mediation between the two sides ensued.
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 in court that Adlerstein started pressing his attorneys to be more specific in the agreement because they were dealing with Reich.
Centrella said in his opening statement 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 in his opening statement. 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.
Adlerstein received the first payment, which he sent right to Duane Morris, and never received another payment from SpectruMedix, Haines said.
Haines said Reich declared liquidation in the fall of 2006 and sold the intellectual property behind the DNA synthesizers for $2.5 million.
In an interview yesterday, Reed said he wasn’t that surprised over the verdict because the case shouldn’t have been brought in the first place. He said it was the result of an underlying case that he and Penwell won for Adlerstein.
“Lawyers are not guarantors of the success of businesses,” Reed said.
He said the suit was “extremely unfair” to both him and Penwell and proves the adage that “no good deed goes unpunished.”
This may not be the end of the Adlerstein-Duane Morris affair.
After a bench trial in Duane Morris’ fee case against Adlerstein, 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.
The case was overturned by the Superior Court, which ruled that Haines should have been allowed to amend his complaint in the middle of the case. The case was remanded to Philadelphia Common Pleas Court and was stayed pending the outcome of Adlerstein v. Duane Morris. Silverman said the firm has plans to continue the case but he isn’t sure exactly how that will go at this point.