Mark Zauderer, court-appointed referee

The court-appointed referee overseeing the contentious breakup of Napoli Bern has declined to withdraw from the case following a disqualification bid by one of the New York plaintiffs firm's former leaders, Marc Bern, who argued the referee had a conflict because he briefly represented Quinn Emanuel Urquhart & Sullivan.

The referee, Mark Zauderer of Ganfer Shore Leeds & Zauderer, ruled Wednesday that there was no legitimate reason to question his impartiality in the long-running dispute in New York state court over Napoli Bern's breakup, which pits Bern against former law partner Paul Napoli.

Bern's lawyers, led by Clifford Robert of Robert & Robert, had argued that a recent series of events warranted Zauderer's withdrawal from the case. Specifically, Zauderer had entered an appearance for Quinn Emanuel in an unrelated dispute that involves the litigation powerhouse and former partners who spun off to form Selendy & Gay. In late June, however, a current Quinn Emanuel partner, Luke Nikas, wrote to Zauderer to say he would be representing Napoli. Shortly after that, Zauderer withdrew from his representation of Quinn Emanuel in the Selendy & Gay case.

In his ruling on Bern's disqualification bid, Zauderer said that in light of his dropping the Quinn Emanuel case, there was no conflict that would affect his role in deciding disputes between Napoli and Bern. Further, while Nikas is now at Quinn Emanuel, he had no involvement with the Selendy & Gay dispute and never had any discussions with Zauderer about that matter or the Napoli Bern case, the referee said.

Zauderer also noted that when Bern and Napoli agreed to have him serve as referee, they signed onto a conflict waiver and knew that as a longtime private practice lawyer in New York, Zauderer had relationships with a number of big New York and national firms.

“The parties 'expressly waived' in their settlement agreement any 'actual or potential' conflicts that could arise out of those relationships,” Zauderer wrote. “No reasonable litigant in the parties' position could reasonably question my impartiality, especially in light of the fact that I withdrew my representation of Quinn Emanuel, the law firm that Napoli recently retained.”

The ruling on the disqualification issue comes several years into the Napoli Bern litigation, which deals with the winding down of the former personal injury and mass tort firm—well-known for securing millions of dollars for workers injured in the Ground Zero cleanup efforts after the Sept. 11, 2001, terrorist attack in New York. The dispute started in 2014 with allegations that Bern froze Napoli out of the business at a time when Napoli was hospitalized with leukemia. Bern, meanwhile, alleged that once he took over day-to-day management of Napoli Bern, he discovered misconduct on Napoli's part.

In 2015, the two former law partners reached a settlement in which they agreed to split fees with their respective new firms and agreed to Zauderer's role as a referee to decide on disputes related to the winding down of Napoli Bern's business.

As ALM has previously reported, Zauderer has since issued dozens of rulings in his role as referee, with challenges of his decisions being appealed directly to the New York Supreme Court Appellate Division, First Department. Recently, the two sides have been moving toward what they're calling an “omnibus true-up” hearing. Akin to a trial, the omnibus hearing is meant to give Zauderer a chance to hear arguments and resolve the majority of disagreements that still remain between Napoli and Bern.

The alleged conflict issues with Zauderer's role for Quinn Emanuel stem from Napoli's choice of legal counsel. In April 2017, Nikas, who had served as Napoli's lawyer throughout most of the Napoli Bern dispute, withdrew, and Napoli represented himself from that point until June 2018. Meanwhile, Nikas, who had been at Boies Schiller Flexner when he initially worked on the Napoli Bern dispute, joined Quinn Emanuel in December.

With the omnibus hearing approaching, however, Nikas came back on board for Napoli in late June. Around that same time, Zauderer was in the midst of switching firms to Ganfer Shore, but on July 10, he notified the two sides in the Napoli Bern dispute that he intended to withdraw immediately from representing Quinn Emanuel to avoid the appearance of a conflict, according to Wednesday's ruling.

Bern's lawyers, led by Robert, were not satisfied that Zauderer had really left behind the conflict by simply dropping the Quinn Emanuel case. In a July 18 brief, arguing for Zauderer's withdrawal, Bern's lawyers wrote that a threat of bias remained because the referee might harbor resentment after abandoning a “highly publicized and potentially very lucrative” dispute.

“There might reasonably be a public perception that referee Zauderer would be hostile to the party and the attorneys whose actions had caused him and his firm to lose such a significant case,” wrote Bern's lawyers. “A reasonable person's questions about referee Zauderer's impartiality are unlikely to disappear quickly; rather, they are likely to linger because of the likely resentment he will have toward Mr. Bern and his counsel.”

Following Zauderer's decision to remain as referee and deny Bern's motion to disqualify, Robert said in a statement that he intends to challenge the ruling.

“We are deeply disappointed by the referee's decision which ignores compelling reasons warranting his disqualification and Mr. Bern intends to seek appellate review,” Robert said.

Nikas, meanwhile, has described Bern's efforts to disqualify Zauderer as a delay tactic ahead of the omnibus hearing, which is now scheduled for October. Nikas reiterated that stance on Friday in an email.

“Marc Bern filed this motion in a last-ditch effort to avoid judgment day,” Nikas said in the email. “Referee Zauderer's decision clears the way for the final trial in the case, where we will hold Bern accountable for his wrongdoing and the money he still owes.”