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Anthony Lin
New York Law Journal
03-28-2007

A New York state judge has ordered a trial to determine whether the law firm that negotiated a massive settlement with the maker of banned diet drug fen-phen violated ethical rules by apportioning the settlement in a manner designed to inflate the firm's share of the funds.

In 2001, the firm now known as Napoli Bern Ripka sued American Home Products (AHP), now known as Wyeth, on behalf of around 5,000 former users of fen-phen (dexfenfluramine), a diet drug recalled by the Food and Drug Administration after studies linked it to heart valve damage. American Home settled the suit under confidential terms, though the settlement has been estimated to be over $1 billion.

But in a decision issued Tuesday, Manhattan Supreme Court Justice Charles E. Ramos said there were serious questions about Napoli Bern's conduct in dividing and distributing the settlement that needed to be addressed in a trial. He cited in particular an affidavit submitted by a former attorney at Napoli Bern who said the firm had misled clients about the process.

The lawyer, Stephen David Murakami, worked on fen-phen litigation at Napoli Bern before being terminated in 2001 and then unsuccessfully sued the firm for allegedly unpaid bonuses. In his affidavit, Murakami said the firm had told clients their portions of the settlement had been individually negotiated with American Home, when in fact they had been solely determined by Napoli Bern.

"The representation to a client that a specific dollar amount was offered in a negotiation with the defendant to settle the client's case, when in fact the settlement offer was by the client's own attorney made upon the attorney's evaluation, if true, represents a serious breach of duty to the client," Ramos wrote in New York Diet Drug Litigation, 700000/98.

According to Murakami, a major determinant in the size of a client's share was whether he or she had retained Napoli Bern directly or been referred by another firm. Napoli Bern allegedly inflated the settlement payments of its direct clients because its fees from those clients would not be reduced by referral fees.

A hearing raises the possibility that the prior settlement could be modified or even vacated. The judge said the allocation of settlement funds, expenses and legal fees would all be at issue in trial.

The vast majority of Napoli Bern's fen-phen clients were referred by other firms. One of those other firms, Parker & Waichman, had earlier sued Napoli Bern individually over its alleged shortchanging but its suit was thrown out by Appellate Division, 1st Department. Ramos on Tuesday permitted Parker & Waichman to intervene in the action that produced the settlement.

The judge said his review of the sealed settlement agreement had convinced him that the parties had intended an aggregate settlement, whereby American Home Products would pay a lump sum to be divided among numerous plaintiffs. An aggregate settlement carries a considerable disclosure requirement, said the judge, because of the potential for conflicts.

"This settlement agreement matched each client against the other clients of the firm because they each were in competition with the others for a share of the lump sum settlement," Ramos said. "This triggered conflicts, lawyer-client and client-client."

Napoli Bern had argued that the settlement was not in fact an aggregate, noting that a small number of its clients did not accept the settlement, with their portions of the settlement being refunded to American Home. The firm also noted that the settlement had been reviewed by Professor Bruce Green of Fordham University School of Law and former Manhattan Supreme Court Justice Michael Dontzin, who served as special master.

Ramos said it was unclear from the record whether Napoli Bern had been completely forthright with Green and he said it was unclear whether Dontzin had endeavored to examine each settlement offer or had just examined a random sample for fairness.

Anthony Gentile of Godosky & Gentile, who represents Napoli Bern, said the firm had acted appropriately from the beginning. He said Ramos' ruling reflected the judge's "singular and idiosyncratic" view of the case. Many of the allegations had already been aired and dismissed in the previous suits brought by Parker & Waichman and by Murakami, he added.

Gentile said the firm would appeal the decision and expected the appellate court to rule in its favor. He said no one else besides Ramos and Parker & Waichman had yet to express dissatisfaction with the settlement.

"Not one client has complained about the settlement of this case in six years," he said.