Appeals Court Does Rare Reversal in Diet-Drug Case

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

A Long Island tort law firm that suffered abject defeat last year in a lawsuit challenging the calculation and distribution of millions of dollars in diet drug settlements recently won an extraordinarily rare court ruling breathing new life into the case.

The reversal by a New York appeals court is but a ripple in the dizzying eddies of litigation in the diet drug drama. The company that made the Fen-Phen combination, Wyeth, has set aside $22 billion for claims, attorneys’ fees, and other costs of the legal morass.

In the New York case, Parker & Waichman accused Napoli Kaiser & Bern LLP of deliberately shortchanging about 440 clients the Parker firm signed up for lawsuits over the fenfluramine-phentermine anti-obsesity medication, which was pulled from the market in 1997 after being linked to heart valve failures.

In December 2005, a four-judge panel from the state appellate division unanimously reversed a trial judge’s order allowing Parker & Waichman’s suit to go forward. The appeals judges said the Parker firm was improperly trying to use the fee dispute to reopen the roughly 5,600 Fen-Phen cases settled by Napoli Bern for a reported total of $1 billion.

“The real attack is to the underlying settlement, and, more particularly, whether defendants engaged in any fraudulent conduct,” the judges wrote last year. They also noted that a legal ethics professor and a special master oversaw the deal.

However, last month, in response to a request by the Parker firm, the appellate panel “recalled and vacated” its earlier decision. In the new ruling, the court echoed some of its earlier language about an “improper collateral at tack” on the settlement, but concluded that the Parker firm was entitled to pursue its claims that Napoli Bern mishandled cases, refused to split fees as promised, and caused some clients to seek new counsel, effectively cutting the Parker firm out. The judicial panel, which included three of the four judges who ruled on the case last year, said the Parker firm might even be entitled to details on Napoli Bern’s handling of its own cases and those brought in by other firms.

A professor at Albany Law School, Michael Hutter Jr., said the court’s move to reopen and revise its earlier decision was exceptional. “It really is unusual,” the professor told The New York Sun. “I would think a re-argument happens once every ten years. That may even be overstating it.”

Mr. Hutter said the judges deserved kudos for correcting their work. “It’s good of the court to recognize we made mistake, instead of burying it,” he said.

An attorney for Napoli Bern,Christopher Hitchcock, said the court’s revision was inconsequential. “It was a very slight modification of the earlier decision,” Mr. Hitchcock said in an interview. “The claims for fraud are all still dismissed. What remains are a handful of claimed accounting issues.”

A founding partner of Parker & Waichman, Jerrold Parker, who in 2004 predicted to the Sun that Mr. Napoli’s firm would “get fried” in the litigation, did not return a call seeking comment for this article.

The dispute also shines a light on a practice in which tort law firms known as “advertisers”gather up “inventories” of hundreds or thousands of clients and then shuffle them to other firms, known as “warehousers,” which combine the cases to negotiate a settlement.

A partner at Napoli Bern, Paul Napoli, complained to the Sun in 2004 that the Parker firm wanted fees on cases for which the firm had done no work, beyond placing an advertisement for clients. Asked why his firm agreed to pay up to 50% of the usual attorneys’ fees to a firm doing no work, Mr. Napoli said he had been tricked.

Given typical contingency arrangements, Mr. Napoli’s firm is likely to have received between $160 million and $330 million in connection with the settled diet drug cases. The Parker firm claims it got only $5.3 million for its cases.

While a billion-dollar settlement for a single law firm may seem large, it could be argued that the company, Wyeth, got a good deal. In 2004, a Texas jury returned a $1 billion verdict on behalf of an individual former fen-phen user who developed a fatal lung condition.The company is appealing.

Last year, a federal judge in Manhattan, Laura Swain, dismissed a class action lawsuit brought against the Napoli firm on behalf of the firm’s roughly 5,600 Fen-Phen clients. Judge Swain said arbitration clauses in retainer agreements signed by the clients were enforceable and foreclosed the federal suit.

A former associate at Napoli Bern also instituted a class action suit against Parker & Waichman, alleging that it cheated its clients by collecting referral fees when it had done to work.

In 2002, a federal judge in Philadelphia, Harvey Bartle, ordered a halt to payments in thousands of fen-phen cases after evidence emerged that doctors, including one that prepared hundreds of reports for the Napoli firm, used improper criteria in assessing heart damage. Napoli Bern denied the charge and accused Wyeth of trying to back out of the settlement.

More than two dozen people, including a Mississippi attorney, have been charged criminally in a federal investigation of fraud stemming from the fenphen litigation.

The New York Sun

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