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Plaintiffs who charged that a New York law firm settled fen-phen diet drug claims for lower amounts and used pressure tactics to force settlements and secure large fees have had their case thrown out of federal court. Southern District of New York Judge Laura Taylor Swain dismissed a putative class action brought by some 5,600 plaintiffs against Napoli, Kaiser & Bern, finding that their claims fall within arbitration agreements. She also found there was no evidence that fraud was used in the firm’s retainer agreements. In Buckwalter v. Napoli, Bern & Kaiser, 01 Civ. 10868, Judge Swain also found that the claims for violations of the racketeering statute; breach of duty of care/malpractice; breach of fiduciary duty; and conspiracy against the law firm and name partners was clearly within the scope of the arbitration clauses. The 1997 announcement by the Food and Drug Administration that serious health risks were prompting the agency to recall two diet drugs — known under the umbrella fen-phen — triggered the filing of thousands of cases across the country that were ultimately consolidated in the Eastern District of Pennsylvania. One of the drugs’ manufacturers, American Home Products, settled many of the claims in 1999, agreeing to pay up to $3.75 billion. The settlement, which capped attorney fees at 9 percent, was approved in 2000 by U.S. District Judge Louis Bechtle in Philadelphia. Napoli, Kaiser & Bern opposed the settlement and urged many of its clients to opt-out. In mailings, it promised that individualized treatment of their claims would produce “staggering” results. The firm also recruited additional clients and accepted referrals from other firms around the country — with the other firms acting as brokers who would receive a share of the fees. Napoli Kaiser began filing claims on behalf of some 5,600 individuals in Manhattan Supreme Court. The claims were consolidated before Justice Helen Freedman. A settlement was eventually reached with American Home Products that was believed to be worth hundreds of millions of dollars and, the plaintiffs alleged, called for Napoli Kaiser to receive a contingency fee of one-third the total amount. Plaintiffs, represented in New York by Lovell & Stewart as well as firms in Seattle and Los Angeles, claimed that Napoli Kaiser and name partners Paul J. Napoli, Gerald Kaiser and Marc Jay Bern, conspired to settle some claims for lower amounts in order to minimize the referral fees that Napoli Kaiser owed other firms. SCHEME ALLEGED They also charged, Swain said, that Napoli Kaiser tried to convince them to accept settlement amounts “through various pressure tactics, including misleading and inaccurate letters, coercive telephone conversations and hotel room meetings with clients, and testimonials from a registered nurse on the NKB payroll that the settlement amounts offered to individual clients provided accurate compensation for the injuries suffered.” Plaintiffs alleged that Napoli Kaiser was driven by a desire to maximize its fees while minimizing the amount of work performed, leaving plaintiffs who opted out of the national settlement worse off than those who took part. Attorneys with Paul, Weiss, Rifkind, Wharton & Garrison represented Napoli Kaiser and the individual partners. They argued that the plaintiffs’ claims against Napoli Kaiser were “inextricably intertwined” with Freedman’s approval of the state settlement and, therefore, the case should be dismissed for lack of federal subject matter jurisdiction under the Rooker-Feldman doctrine. But Swain said she did not have to reach the issue. “While Plaintiffs’ claims regarding the manner in which the settlements were effected and the way that settlement amounts were distributed do implicate the validity of the state court order affirming the fairness, reasonableness and ethical propriety of the settlements, the Court notes that some questions have been raised regarding the propriety of applying the Rooker-Feldman doctrine in a legal malpractice action such as this one,” the judge said. But she said that issue need not be resolved because she was declining to exercise subject matter jurisdiction “given that the parties exercised valid arbitration agreements and Plaintiffs’ claims are within the scope of those agreements.” While agreeing that their claims fell within the scope of the arbitration clauses in the retainer agreements they signed with Napoli Kaiser, the plaintiffs nonetheless contended the inclusion of the clauses constituted a breach of fiduciary duty. They said they had no idea the retainer agreements mailed to them contained arbitration clauses and Napoli Kaiser made no effort to highlight the causes, or explain their meaning — which they alleged violated the attorneys’ obligations as outlined in certain ethics opinions. But Swain, noting federal and New York state public policies favoring enforcement of arbitration agreements, said “the ethics opinions cited by Plaintiffs are not binding in the Court and plaintiffs have not demonstrated fraud or the use of undue influence on the part of the Defendants.” Moreover, she said, “an arbitration clause does not necessarily favor one party over another” and the plaintiffs have not shown that Napoli Kaiser “had reason to believe that the named Plaintiffs did not fully comprehend the arbitration clause in their respective retainer agreements.” The judge then dismissed the cases without prejudice for the plaintiffs to pursue arbitration. Appearing were Christopher Lovell and Gary S. Jacobson of Lovell & Stewart, and Gerard E. Harper, John Baughman and Eric Alan Stone of Paul Weiss.

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