Keyes Law Firm, LLC v. Napoli Bern Ripka Shkolnik LLP, 20-1067

Background

KLF (Keyes Law Firm) handled asbestos referrals from David Law Firm (DLF) and entered 2,174 written association agreements with NBRS (a New York firm) to share contingency fees (typical split: NBRS largest, KLF and DLF smaller shares).
NBRS owners Napoli and Bern split in 2015; Napoli received assignment/allocation of the 2,174 asbestos matters and continued as attorney in charge; NBRS ceased performing services and went into receivership.
KLF alleges NBRS/Napoli (and multiple related firm entities—Legacy and Napoli Firm Defendants) failed to provide complete accountings and stopped paying KLF; KLF sued for breach of the association agreements and related relief.
District court: extensive discovery fight → sanctions against defendants (fees awarded, state interest applied), partial summary judgment holding NBRS/Napoli liable for failure to account across all 2,174 matters, trial (nine days) and jury verdict for KLF finding many defendants liable (alter-ego/assignment theories); postverdict adjustments included error-rate and setoff for a prior Bern settlement; court denied constructive trust claim.
Fourth Circuit affirmed all rulings except vacated the application of Maryland’s 10% postjudgment interest on the discovery-sanctions award and remanded to apply the federal §1961 rate.

Issues

Issue	Plaintiff's Argument (KLF)	Defendant's Argument (Napoli/NBRS/other firms)	Held
Discovery sanctions & interest rate	Sanctions appropriate for woeful discovery; state interest applied was fine	Sanctions too large/insufficient explanation; state (MD) postjudgment interest used incorrectly	Sanctions and explanation upheld; remanded to apply federal postjudgment interest under 28 U.S.C. §1961
Personal jurisdiction over NBRS and Napoli	Maryland specific jurisdiction exists from contracts, communications, payments, Maryland cases	Contacts are insufficient; most business occurred in NY; Napoli acted only on behalf of NBRS	Specific jurisdiction affirmed as to NBRS and Napoli (contacts related to agreements and in-state dealings)
Assignment/assumption of NBRS agreements to Napoli	Napoli assumed/was assigned the 2,174 matters and duties; thus liable	Napoli did not individually assume obligations; acted only as NBRS agent	District court’s finding that Napoli was assigned/affirmatively assumed the agreements affirmed
Aggregate treatment of 2,174 agreements / partial SJ on accounting breach	Agreements implied duty to account jointly; collective treatment appropriate given defendants’ failure to produce usable accounting	Each agreement must be proven separately; late production was sufficient to avoid SJ	Grant of partial summary judgment for breach (failure to provide a complete accounting across all agreements) affirmed
Denial of special master under Rule 53	N/A (KLF opposed)	Requested master to perform accounting late, close to trial	Denial affirmed as untimely and within court’s case-management discretion
Exclusion of Dec. 4 spreadsheets & jury adverse-inference instruction	N/A (KLF argued belated production prejudicial)	Exclusion prejudiced defense; they should be allowed to present and explain the data	Exclusion of late spreadsheets affirmed; court permissibly allowed expert comment and gave adverse-inference instruction; no mistrial error
Alter-ego and assignment jury instructions; verdict form	N/A (KLF relied on these theories to reach related firms)	Instructions confused jury, improperly allowed liability among defendants before predicate findings; verdict should apportion damages among defendants	Instructions and verdict form upheld; any assignment-instruction error harmless because alter-ego finding supported liability
Damages burden ("wrongdoer" instruction)	Defendants breached accounting duty so uncertainty as to amount should be resolved against them	New York law not applicable or inapplicable to this instruction; improper allocation of burden	Instruction affirmed under NY law: once breach and fact of damages proven, defendants bear uncertainty of amount
Jury’s use of error-rate multiplier and post-trial adjustment	Error-rate multiplier permissible to account for unreliable data; court should accept jury’s chosen rate	Jury’s 151% multiplier speculative and aberrant	Court permissibly reduced jury’s rate (set aside outliers) and applied a lower error multiplier; affirmed
Setoff for KLF–Bern settlement	District court should not offset or should offset differently; KLF argues settlement addendum precludes setoff	Defendants seek credit (50% or dollar-for-dollar) under NY General Obligations Law	Court applied NY law and gave dollar-for-dollar setoff (NY-GOL §15-103) rather than 50% reduction; affirmed
Constructive trust claim re: DLF share	KLF asserted constructive trust over DLF’s share because agreements required KLF to collect and remit DLF’s portion	DLF disavowed interest and released KLF from obligation in pretrial letter	Judgment as a matter of law for defendants on constructive-trust claim affirmed (DLF disavowal extinguished KLF’s cognizable claim)

Key Cases Cited

Hoyle v. Freightliner, LLC, 650 F.3d 321 (4th Cir. 2011) (abuse-of-discretion review for discovery sanctions)
Berry v. Schulman, 807 F.3d 600 (4th Cir. 2015) (standard for reviewing fee awards)
Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614 (4th Cir. 1999) (federal law governs postjudgment interest in diversity cases)
Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S. 1985) (minimum contacts and purposeful availment for specific jurisdiction)
English & Smith v. Metzger, 901 F.2d 36 (4th Cir. 1990) (contacts sufficient for specific jurisdiction analysis)
Columbia Briargate Co. v. First Nat’l Bank in Dallas, 713 F.2d 1052 (4th Cir. 1983) (rejecting fiduciary-shield doctrine for jurisdiction)
S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592 (4th Cir. 2003) (Rule 37(c) exclusion and sanctions analysis)
Vodusek v. Bayliner Marine Corp., 71 F.3d 148 (4th Cir. 1995) (permitting adverse inference for failure to produce evidence)
In re Refco Inc. Sec. Litig., 826 F. Supp. 2d 478 (S.D.N.Y. 2011) (affirmative assumption/assignment analysis)
Janati, United States v., 374 F.3d 263 (4th Cir. 2004) (broad trial-management discretion)