Phil was Philip Seymour Hoffman, the actor and Mr. Katz’s good friend, who had been found dead three days earlier, apparently from an overdose of heroin. Mr. Katz, a playwright, was one of two people who had gone to his apartment and discovered his body.
“Things had already achieved the maximum level of surreality, and I thought this thing online was a big nothing,” Mr. Katz said.
In fact, the article, published by The National Enquirer, was the first pebble of a landslide of malignant fiction that sprawled across the web. It quoted Mr. Katz as saying he and Mr. Hoffman were lovers who had freebased cocaine the night before his death, and said Mr. Katz claimed to have seen him using heroin many times.
“After I dropped the kids at school, I looked at my phone, and I’ve gotten a million calls,” Mr. Katz said. Photographers were stalking him on the street.
Mr. Katz had not spoken with The Enquirer that week, or ever. Mr. Hoffman had never used drugs in his presence, he said, and had spoken often with him about addiction and his pursuit of sobriety. In a matter of hours, Mr. Katz signed the complaint in a libel suit. Within two days, The Enquirer had withdrawn the article and apologized.
And on Tuesday, less than three weeks after the article was published, Mr. Katz said he had formed the American Playwriting Foundation, which will give out an annual prize of $45,000 for an unproduced play. In honor of Mr. Hoffman’s dogged pursuit of artistic truth, it will be called the Relentless Award.
The foundation and the prize are being paid for by The Enquirer and its publisher, American Media Incorporated, under a settlement of the lawsuit, said Judd Burstein, the lawyer for Mr. Katz. As part of the agreement, The Enquirer has also bought a full-page advertisement in the main news section of The New York Times on Wednesday. In it, The Enquirer says it was duped by a person claiming to be the same Mr. Katz. Mr. Burstein provided the text of the ad.
The amount of money being paid by The Enquirer will not be disclosed, Mr. Burstein said, adding, “It’s enough for the foundation to give out these grants for years to come.” On Tuesday, he formally filed papers to dismiss the lawsuit.
He noted that Mr. Katz did not receive or seek any personal payments. Mr. Katz, 48, said he was trying to figure out what a meaningful settlement would be to a person as demanding as Mr. Hoffman. “It’s so awful and ludicrous,” he said. “We had talked so often that it’s a tragedy playwrights can’t survive being playwrights — about how nice it would be if you could make your rent and still have an occasional steak.”
Besides Mr. Katz, the selection committee will include the writers Eric Bogosian, John Patrick Shanley and Jonathan Marc Sherman.
Mr. Katz said he and Mr. Hoffman met about 15 years ago through friends in the film world, but became close when their children wound up in the same Greenwich Village school. They would often stop for breakfast after the school drop-off, Mr. Katz said, and one of Mr. Hoffman’s favorite pictures was of the two of them in the Waverly diner in December 2011.
The actor’s final text messages were with Mr. Katz, inviting him to watch the second half of a Knicks game on the last evening of his life. Mr. Katz did not pick up the texts and respond until late that night, but he got no reply from Mr. Hoffman.
“The fact that he wanted me to come over for the Knick game meant that he did not want to be doing the drugs, because he never did them in my presence,” Mr. Katz said. “He once said to me, ‘Addiction is when you do the thing you really, really most don’t want to be doing.’ He was rigorously sober and had an awful relapse.”
Most galling to him about The Enquirer article was the treachery of the “Katz” figure. “The issue was never me being outraged at being accused of being gay — we’re theater guys, who cares?” Mr. Katz said. “The issue was lying about the drugs, that I would betray my friend by telling confidences.”
The Enquirer, which did not respond to a request for comment, has not publicly explained how it came to publish the story. Mr. Burstein said its lawyers described an honest mistake.
“It sounds ridiculous,” Mr. Burstein said. “They did a search and found someone named David Katz who appeared to be the son of David’s father. They asked, ‘Are you the David Katz who is the playwright?’
“They believed him. He sounded distraught. They couldn’t believe that someone would be so callous to say, ‘I’m the real David Katz.’
“From what I understand, it was one senior reporter who worked on it with some researchers. The reporter did the interview and was convinced it was the right person.”
By any measure, it is a lightning reversal of events, which Mr. Katz attributed to insistence by friends that he immediately contact Mr. Burstein. “I probably would have just ignored it and it would have gotten worse and worse and worse,” Mr. Katz said.
As part of the settlement, The Enquirer has provided Mr. Burstein with contact details for the person it interviewed. He intends to sue him. “My goal is to have him living out of a cardboard box,” Mr. Burstein said.
He paused for an instant. “I haven’t filed yet — I have to be sure that I have the right Katz.”