In the Matter of New York Diet Drug Litigation

Users of the diet drug fen-phen (plaintiffs) filed personal-injury claims against the drug’s manufacturer, American Home Products (AHP) (defendant). A settlement agreement was reached in which AHP would pay a large sum of money to settle nearly all of the fen-phen claims. The settlement was negotiated by the law firm Napoli Kaiser & Bern (Napoli), which represented its own original clients and also represented plaintiffs referred by other attorneys. Per the terms of the settlement, AHP agreed to pay a lump sum, and Napoli would then divide the sum and determine the individual settlement offers. Attorney’s fees for both Napoli and the law firms that referred clients to Napoli would also be paid from the individual settlement amounts. The settlement was successfully presented to the trial court for approval, but one of the referring law firms, Parker and Waichman LLP (P&W), challenged the approval. P&W claimed that when Napoli determined the individual settlement offers from the lump sum paid by AHP, Napoli violated rules of professional conduct by offering its own clients inflated individual offers to increase Napoli’s collection of fees, failing to inform clients that individual offers were determined by Napoli rather than negotiated by AHP and thus conflicts of interest may exist, and misrepresenting the special master’s evaluation of individual offers. Napoli denied wrongdoing and claimed that it owed no duty to inform clients of potential conflicts of interest because the settlement was not an aggregate settlement that necessitated disclosure of potential conflicts. The trial court considered P&W’s objections but denied P&W’s motion and directed that it be made in a pending companion case. P&W moved to renew its motion to intervene, and other plaintiffs also sought leave to intervene.