A recent Law 360 story by Rachel Rippetoe, “4th Circ. Mostly Backs Firm’s $1.5M Win in Napoli Fees Fight” reports that the Fourth Circuit has mostly upheld a $1.5 million outcome for Maryland law firm Keyes Law Firm LLC against a dozen defunct law firms connected to New York plaintiffs attorney Paul Napoli, rejecting all but one challenge on appeal — a question concerning the appropriate interest rate on sanctions stemming from the parties' discovery fights. The appeals court said in an opinion that it affirmed all of a Maryland district court's rulings in a fee-agreement battle between firms over the referral of asbestos clients, "with one small exception" — the verdict's application of Maryland's 10% post-judgement interest rate attached to the discovery sanctions inflicted on the defendants.
Among many other objections in their appeal of a December 2020 ruling that said Napoli and his many firms owed Keyes $1.5 million, the defendants argued that the district court gave no reason why the state interest rate should be applied instead of the federal rate. On that point, the Fourth Circuit agreed. The panel, including U.S. Circuit Judges Robert B. King, Allison J. Rushing and Eastern District of Virginia U.S. District Judge David J. Novak, who was sitting by designation, said that federal law trumps state law and no party had disputed this.
On all other matters though, despite both parties raising 24 issues "claiming almost limitless error" in the district court's handling of the case, the Fourth Circuit affirmed the lower court. "Judge Craven of our court once remarked that '[s]o many points of error suggest that none are valid.'" the opinion read. "His observation applies with equal force here. The defendants offer twenty-one grounds for reversal and [Keyes Law Firm] another three. After carefully considering each one, we conclude that, with one minor exception, they all lack merit."
The underlying suit alleges that Napoli's initial law firm Napoli Bern Ripka Shkolnik LLP never made good on many of its 2,174 referral agreements with Keyes Law Firm, particularly after the firm divided in a drama-filled break up of partners Napoli and Marc Bern. Before the breakup, Mary Keyes, founder of Keyes Law Firm, said she signed fee-sharing agreements with Napoli Bern and referred asbestos clients to the firm between 2012 and 2014.
Keyes Law Firm, which specializes in representing clients in asbestos cases, was working with bankruptcy firm David Law Firm, which is now Cooper Hart Leggiero & Whitehead PLLC. The bankruptcy firm would send its asbestos clients that were not facing bankruptcy to Keyes for a small referral fee. But soon Keyes was flush with clients and entered a partnership with Napoli Bern, referring some of its asbestos clients to the national plaintiffs firm, which had more trial resources.
Keyes eventually served as a "sort of middle man" between the bankruptcy firm and Napoli Bern, the opinion said, with Keyes Law Firm receiving 6% of the settlements, the bankruptcy firm receiving 10% and Napoli Bern receiving 24%. All was going smoothly until the Napoli Bern breakup, Keyes said. Napoli and Bern together made tens of millions of dollars representing New York City workers injured during the cleanup after the Sept. 11, 2001, terror attacks. But in 2014, the pair were embroiled in a battle over who would control the firm, following Napoli's battle with lymphoma.
The falling-out resulted in litigation on both sides, an even split of the firm's clients granted to both Napoli and Bern, and Napoli Bern being placed in a receivership, where it remains today. But it had another side effect, according to Keyes — her payments from Napoli from the ongoing settlements in the asbestos cases dwindled, and eventually discontinued. In 2017, Keyes sued 17 defendants, representing several offspring of Napoli Bern, who she claims were simply alter egos for the original firm and Napoli himself, claiming breach of the association agreements.