Parker & Waichman v. Napoli

• Citation: 29 A.D.3d 396,2006 NY Slip Op 03967,815 N.Y.S.2d 71
• Decision Date: 18 May 2006
• Docket Number: 6894N.,6893.
• Parties: PARKER & WAICHMAN, Respondent, v. PAUL J. NAPOLI et al., Appellants. (And a Third-Party Action.)
• Court: New York Supreme Court — Appellate Division

29 A.D.3d 396

815 N.Y.S.2d 71

2006 NY Slip Op 03967

PARKER & WAICHMAN, Respondent, v. PAUL J. NAPOLI et al., Appellants. (And a Third-Party Action.)

6893.

6894N.

Appellate Division of the Supreme Court of the State of New York, First Department.

May 18, 2006.

Order, Supreme Court, New York County (Charles E. Ramos, J.), entered February 2, 2005, which, to the extent appealed from, denied defendants' motion to dismiss the first and fourth causes of action, unanimously modified, on the law, and the motion granted to the extent that the first cause of action is dismissed insofar as it alleges breach of contract between defendants and referred clients, and the fourth cause of action is dismissed insofar as it seeks an accounting and disclosure of documents relating to a global settlement agreement and payment of monies owed by defendants to the referred clients, and otherwise affirmed, without costs. Order, same court and Justice, entered on or about April 1, 2005, which granted plaintiff's motion to compel production of documents to the extent of conducting an in camera review, unanimously modified, on the law, to direct an in camera review and then, depending on whether and to what extent the documents are found to

be subject to disclosure and relevant to the remaining breach of contract cause of action, production of copies in which the identities of the nonreferred clients are redacted, and otherwise affirmed, without costs.

In the late 1990s, numerous personal injury actions were commenced throughout the country after the United States Food and Drug Administration recalled certain diet drugs, including Fenfluramine-Phentermine (Fen-Phen). Plaintiff law firm referred about 500 of these individuals to defendants. The actions were consolidated in federal court, but many of the plaintiffs in these actions opted out on defendants' advice and brought lawsuits in state court (the underlying settlement action).

Defendants successfully negotiated a global settlement with American Home Products Corp., the manufacturer and distributor of Fen-Phen. As part of the settlement process, defendants retained a law school legal ethics professor, who rendered an opinion that defendants had complied with their ethical obligation to provide sufficient information for their clients to make an informed decision regarding the offer.

The court appointed a special master to review the settlement offers for fairness and to mediate disputes, if necessary. The special master concluded the settlement offers conformed to all ethical requirements and were reasonable and fair based on several criteria including the injuries sustained, causation, plaintiff's age, duration of use, and special damages. The special master specifically concluded the offers "bore no relation to attorney referral."

Thereafter, by order dated November 7, 2001, the court (Helen E. Freedman, J.), confirmed the report, findings and confirmations of the special master and retained jurisdiction over any future matters involving the settlement. The court also issued a sealing order which applied to all of defendants' Fen-Phen litigation cases in New York.

As a result of the settlement, plaintiff received approximately $5.3 million in referral fees pursuant to its fee-splitting agreements with defendants, which provided that plaintiff was entitled to between 40% and 50% of defendants' fees.

Two days after the court approved the settlement, plaintiff commenced the instant lawsuit alleging, inter alia, that defendants breached their contracts with plaintiff and with their referred clients. Plaintiff also sought an accounting. In May 2003, many of the referred clients and plaintiff commenced a virtually identical action against defendants.

As relevant to this appeal, the underlying complaint asserts that defendants deliberately allocated more money to their direct clients than to plaintiff's referred clients so as to minimize the amount of referral fees owed to plaintiff. In addition, the pleading further alleges that defendants assessed millions of dollars in phony disbursements and expenses, thus decreasing the net settlement amount and thereby reducing plaintiff's referral fees. In January 2002, defendants moved to dismiss all but the fifth and sixth causes of action (both of which were unrelated to the Fen-Phen litigation) in plaintiff's complaint on the grounds of standing, collateral estoppel, documentary evidence and failure to state a cause of action.

In the meantime, plaintiff sought to intervene in the underlying...