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Fen-Phen Decision Affirmed by New York Supreme Court

Feb 1, 2008 | Parker Waichman Alonso LLP

The New York Supreme Court has affirmed a decision by a New York State Judge to allow the Long Island law firm, Parker Waichman Alonso LLP, to intervene and seek disclosure of documents related to a November 2001 fen-phen settlement.  Last March, New York Supreme Court Justice Charles E. Ramos had ordered a new trial in the so-called “New York Diet Drug Litigation” case.  Parker Waichman had alleged that Napoli, Kaiser & Bern, LLP,  the firm  that negotiated a massive settlement with the maker of the banned diet drug fen-phen,  violated ethical rules by apportioning the settlement in a manner that favored Napoli’s own clients and  inflated its own share of the settlement.   Parker Waichman had referred hundreds of its fen-phen clients to Napoli.

In 2001, Napoli Kaiser & Bern, LLP (now known as Napoli Bern Ripka) sued American Home Products, now known as Wyeth, on behalf of thousands of former  fen-phen users.  The diet drug fen-phen had been 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 last March, Judge Ramose wrote that there were serious questions about the way Napoli distributed the settlement among the fen-phen clients.  One of the major points of contention in the New York Diet Drug Litigation was whether or not the fen-phen settlement was an aggregate settlement, whereby American Home Products would pay a lump sum to be divided among numerous plaintiffs.  Because such a settlement puts clients in competition with each other, a settlement law firm like Napoli has a duty to inform its clients of its implications.

Napoli had argued that the fen-phen settlement was not an aggregate settlement, noting that it 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 to oversee the settlement.  But in his opinion, Judge Ramos wrote that it was unclear if Napoli had been completely truthful with Green and that it did not appear that the Special Master had actually examined each individual settlement offer or had just examined a random sample for fairness.

In his opinion, Judge Ramos also wrote that it appeared that Napoli had not disclosed the exact aggregate nature of the settlement to clients.  A former lawyer at Napoli, Stephen David Murakami, who had worked on the fen-phen case said in an affidavit that Napoli 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.    According to Murakami’s affidavit, Napoli allegedly inflated the settlement payments of its direct clients because its fees from those clients would not be reduced by referral fees. The vast majority of Napoli’s fen-phen clients were referred by other firms.  

Judge Ramos ruled in his March opinion that he ethical questions posed by the “New York Diet Drug Litigation” could only be addressed in a new trial.

In yesterday’s affirmation, the New York Supreme Court said Judge Ramos properly allowed Parker Waichman, as well as a group of its clients, to intervene and seek disclosure of documents previously under seal relating to the fen-phen settlement.  If disclosed at trial, those documents could reveal exactly how Napoli determined settlement amounts for each fen-phen client, and whether or not the firm committed serious ethical violations in doing so.