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A New York judge has ruled that a plaintiff’s law firm that referred clients to another firm can sue the latter firm for allegedly shortchanging referred clients in a global settlement of “fen-phen” diet drug lawsuits. Following the 1997 Food and Drug Administration order withdrawing diet drug fen-phen (dexfenfluramine) for causing heart valve damage, Great Neck, N.Y., personal injury firm Parker & Waichman claims it referred between 400 and 500 fen-phen clients to New York’s Napoli Kaiser & Bern. Napoli Kaiser eventually settled under sealed terms thousands of cases with American Home Products Inc. (AHP), the makers of fen-phen. Parker & Waichman claims that Napoli Kaiser, in an attempt to avoid higher referral fees, allocated less of the settlement funds to referred clients rather than those it represented directly. Parker & Waichman said it believes the settlement amount could be as high as $1 billion. Parker & Waichman, which received more than $5 million in referral fees, is claiming it and its clients should have been paid millions more. In a Nov. 24 decision in Parker & Waichman v. Napoli, 605388/01, Manhattan Supreme Court Justice Charles E. Ramos denied a motion by Napoli Kaiser to dismiss Parker & Waichman’s breach of contract claims. He also said Parker & Waichman had third-party standing to pursue claims against Napoli Kaiser on behalf of its referred clients for fraud, breach of fiduciary duty, misappropriation and unjust enrichment. Ramos dismissed those claims brought on behalf of Parker & Waichman itself. The judge said some of the claims for the firm were redundant to the breach of contract claims and noted that the firm had an “arms length business relationship” with Napoli Kaiser rather than a fiduciary relationship. In finding the firm had third-party standing to bring claims on behalf of referred clients, the judge said the allegation of less than equal treatment to some fen-phen litigants merited special attention. He noted that Justice Helen Freedman, who had previously been assigned the matter and who oversaw the settlement, had recused herself. Ramos expressed concern that the allegations of referred clients being treated differently from direct clients might not otherwise be heard. He noted that individual clients could be hindered by confidentiality agreements or a lack of knowledge of how the settlements were allocated by Napoli Kaiser. He also noted that individual client losses might not be significant relative to the losses of all referred clients. Of Parker & Waichman’s breach of contract claims, Ramos said a reasonable person in Parker & Waichman’s position might agree that Napoli Kaiser had failed to pay the referral fee agreed to and had made unjustified deductions from such fees. Parker & Waichman claims it had agreements to receive 40 percent of the legal fees for some clients and half for others. But Wednesday, Marc J. Bern of Napoli Kaiser said his firm had filed counterclaims against Parker & Waichman seeking disgorgement of the fees already paid to Parker & Waichman. He said that firm had done no work on the matter other than referring some clients so was not entitled to any share of legal fees. In its counterclaims, Napoli Kaiser claims Parker & Waichman was satisfied with the fees it originally received and did not object even after hearing allegations about misallocation of settlement funds by a disgruntled former Napoli Kaiser attorney. Bern said his firm was seeking to hold Parker & Waichman responsible for damages to the clients it referred. “If they have standing, I have standing,” he said. Bern said overall he was pleased by Ramos’ decision because he dismissed the fraud claims brought by Parker & Waichman. “We believe we will be vindicated on the rest of the claims,” he said. Jerrold Parker of Parker & Waichman said he was glad that the case was moving forward. “We are very pleased by Justice Ramos’ decision because finally, after three years, we will get an answer and the case will be proceeding to discovery,” he said. Parker & Waichman is represented in this suit by Ted Trief of Trief & Olk.

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