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Hon. Ira Warshawsky Noted in NYLJ, “Receiver Appointed to Forestall Crisis at Napoli Bern”

Nov 19, 2014Alternative Dispute ResolutionLitigation & Dispute Resolution

Media Source: New York Law Journal

Napoli Bern Ripka Shkolnik, a well-known personal injury firm, is facing implosion and a court-appointed receiver has been designated to oversee firm finances.

A brutal breach of contract suit between managing partners Paul Napoli and Marc Bern, in addition to several other litigations and arbitration actions among firm lawyers, has brought the firm to the brink of disaster.

'Right now, this firm is in a state of total crisis,' said Justice Eileen Bransten (See Profile) at a Nov. 7 court conference in Napoli v. Bern, 159576/2014. 'It is on the verge of going into free fall to complete disaster. I am hoping very much that a receiver can indeed forestall that very sad happening, to a very distinguished firm.'

In court conferences this month, Bransten raised the possibility of a firm dissolution or a Chapter 11 reorganization and she implored the parties to act like adults.

'For some reason, the depth of hatred in this instance is extraordinary. I do business divorces all the time, but this has got to be one of the most unhappy situations I have ever heard,' Bransten said.

On Monday, Bransten appointed Ira Warshawsky, the former Nassau County Supreme Court justice who is now of counsel at Meyer Suozzi, English & Klein, to collect funds generated by the firm to preserve its assets and make disbursements—an unusual step for a still-functioning law firm (See Order). Warshawsky's role is administrative and does not involve working with clients.

Napoli Bern Ripka Shkolnik, a firm with about 10 different partnership iterations in multiple offices and up to 80 attorneys and 200 support staff, has litigated large and high-profile personal injury and product liability cases, recently winning multimillion dollar settlements on behalf of World Trade Center first responders.

Litigation between Napoli and Bern has been particularly contentious, with each accusing the other of attempting to ruin the partnership.

In an Oct. 1 suit, Napoli said he was diagnosed with leukemia last May and has been undergoing treatment, and that Bern sought to capitalize on his illness and wrest control of the partnership.

Napoli, represented by Luke Nikas, a partner with Boies Schiller & Flexner, claims Bern squandered more than $1 million in partnership funds; endangered the partnership's ability to meet its financial obligations, including payroll; has jeopardized the partnership they built together; and restrained Napoli's access to the partnership's bank accounts.

'Bern's unlawful and immoral actions must stop,' Napoli said. 'Bern continues to damage the firm in an attempt to extract all the personal profit he can.'

Napoli also alleges that Bern has been conspiring with a nonequity partner, Alan Ripka, and other employees to hack into the firm's server and upload files.

On another front, Napoli accuses Bern of engaging in 'multiple affairs and even now continues to frequent prostitutes.'

'I have supported Bern throughout his self-inflicted struggles: I comforted Bern following his fourth divorce, served as best man at Bern's wedding, and helped identify his son's body' after his death, Napoli said. 'Even so, Bern attacked me when I was at my most vulnerable.'

Bern, represented by Clifford Robert of Robert & Robert, shot back with counterclaims for breach of fiduciary duty and breach of contract.

Bern claims that he was forced to become more involved in the firm's daily operations as a result of Napoli's illness, and that he uncovered 'evidence of Napoli's misconduct' and financial irregularities and debts, including money owed to referring attorneys.

Bern claims Napoli looted the firm's New York office by removing all financial records, has taken control of Bern's cellphone account and office telephone system, and cancelled Bern's firm credit card.

Bern said Napoli tried to lock him out of the New York office and Bern said he found his computer lying on its side and someone had rummaged through his desk.

'While Napoli's recent actions have already made clear that his mental capacity is impaired and/or that he is deliberately attempting to destroy the partnership, his efforts to lock me out of the partnership last night have created a clear and present danger to the continued operation of the partnership,' Bern said in papers filed Nov. 5, adding that he reported the computer incident to police.

Napoli's actions, Bern said, have left him unable to continue operating the partnership and protect the interests of the firm's clients.

Bern included in his court papers a draft defamation complaint by former associate, Vanessa Dennis, in which she claims Marie Napoli sought to terrorize her after discovering Paul Napoli had an affair with her. 'Paul took advantage of his position of authority and preyed on a young female associate working at his firm,' Dennis' draft complaint said.

Dennis filed a summons with notice against the Napolis, Bern and the law firm in Dennis v. Napoli, 153857-2014, but a complaint has not yet been filed.

Marie Napoli has 'continually harassed, threatened and defamed' Dennis through text messages, emails and social media to Vanessa's husband, family and current and past employers, said Dennis, who is now at Texas firm Shrader & Associates.

Meanwhile, Marie Napoli, an attorney, has sued Dennis in Illinois, claiming Dennis is in violation of the Illinois Alienation of Affection Act, which allows a wounded spouse to sue for damages arising from a marital affair.

In a separate action, Paul Napoli last week brought an arbitration against Ripka and past and current employees, claiming Ripka has attempted to siphon firm clients and assets.

In addition, the partnership is facing litigation brought by Worby Groner Edelman, which paired with Napoli Bern & Associates to handle thousands of cases on behalf of World Trade Center first responders who had illnesses. Worby Groner disputes the division of litigation expenses between the two firms.

After an arbitration panel found that Napoli Bern owed Worby Groner more than $17 million, Worby sued to confirm the arbitration award. That suit, Worby Groner v. Napoli Bern, 651797/2014, is pending.

In Need of 'Goodwill'

On Nov. 5, Bransten granted Bern's request for a temporary restraining order, directing Napoli to restore Bern's access to firm property and records; to return all property that was removed from the office; and to require both Bern and Napoli's consent for all expenditures of more than $5,000. Her order enjoins Napoli from soliciting any former or prospective client for his own benefit.

Bransten ordered 'absolute status quo ante,' such as the return of credit cards and phones reactivated.

The situation, Bransten said, needs 'goodwill because this can go way out of even more proportion than it is now, to explode into a public scandal and everybody will be laughing about it.'

At a court hearing the next day, Bern's attorney, Robert, told Bransten that Napoli had fired Ripka 'in direct violation of your order' and financial records were not delivered by the deadline.

Bransten, addressing Nikas, said, 'My order was very, very clear.' She said Napoli was at risk of being held in contempt if he disobeyed court orders. 'I have the power to incarcerate him,' she said. Nikas said in an interview that his client is in compliance with court orders.

Ripka remains at the firm.

Robert, Bern's attorney, said in a statement: 'It is truly unfortunate that Paul and Marie Napoli have made baseless allegations simply to divert attention away from the very serious claims made against them.'

Meanwhile, Napoli has moved to compel arbitration. Nikas, his attorney, said the parties will try to work this out amicably and that he is hopeful the litigation will end this year. The firm is still operating, he said. 'We expect no interruption whatsoever in Napoli Bern's ability to deliver to its clients,' Nikas said.

Reprinted with permission from the November 19, 2014 online issue of New York Law Journal. © 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.