Sixth Circuit upholds convictions of Ky. lawyers in fen-phen settlement

Jessica M. Karmasek May 4, 2012, 2:45pm




CINCINNATI (Legal Newsline) - A federal appeals court has upheld the convictions of two Kentucky attorneys, each of whom has been sentenced to 20 years in a federal prison for their roles in duping clients out of millions in settlement money.

The U.S. Court of Appeals for the Sixth Circuit heard the case of Lexington, Ky.-area lawyers Shirley Cunningham Jr. and William Gallion in January.

In 2009, Cunningham and Gallion were convicted of defrauding their clients and taking millions from them in a settlement over the diet drug fen-phen. The drug was eventually pulled from the market after users started experiencing heart problems.

The attorneys, including Lexington-area lawyer Melbourne Mills Jr., received at least 50 percent of the $200 million settlement. Their 431 clients received the rest.

The clients later sued the lawyers for allegedly breaching their duties by diverting most of the settlement money to themselves.

Cunningham is scheduled to be released from prison in 2025 and Gallion in 2009. Both terms are to be followed by three years of supervised release.

In addition, a federal district court ordered them to pay more than $127 million in restitution to their clients.

On appeal, they challenged the sufficiency of the evidence, disputed the restitution amount and argued that the district court erred by not granting a mistrial due to the health problems of Gallion's counsel, among other things.

"As Gallion sees the situation, his 'good faith reliance on (Stanley) Chesley's advice and guidance, as well as Judge (Joseph F.) Bamberger's approval of all significant aspects of the state court action, negated any alleged criminal intent.' But Gallion's interpretation of the evidence is just that: his interpretation," Judge Ronald Lee Gilman wrote in the Sixth Circuit's 39-page opinion.

"Viewing the evidence as legally required -- in the light most favorable to the government -- there is little doubt that the evidence was sufficient to support the jury's conclusion that Gallion intended to defraud his clients out of money that was rightfully theirs."

As to the restitution amount, Gallion argued that the district court erred by not deducting the one-third contingent attorney fee pursuant to his contract with his clients.

The Sixth Circuit rejected that argument.

The settlement sum, it said, does not belong jointly to the attorney and client, but to the plaintiff alone.

As for the district court's not granting a mistrial, the Sixth Circuit said Gallion failed to make a motion in the lower court. Therefore, his claim can be reviewed "only for plain error."

"Gallion has not even attempted to meet this high bar here, and any such attempt would be futile," Gilman wrote.

"When his counsel became ill during the trial, the district court appointed interim counsel to represent him and then continued the case. The trial resumed when Gallion's regular counsel returned a week later.

"We find no error, plain or otherwise, in utilizing this procedure."

Gallion, Cunningham and Mills -- who was acquitted of all charges -- have since lost their law licenses in Kentucky and Ohio. The two states have a reciprocal agreement.

The Kentucky Supreme Court also recently disbarred David Helmers, who was a relatively new associate at the law firm Gallion, Baker and Bray at the time of the settlement.

The Court also permanently disbarred Bamberger, a senior status special judge who approved the settlement.

It was revealed that Bamberger, who had resigned, was paid $5,000 a month as a director of a phony charitable entity, The Kentucky Fund for Healthy Living, which was funded by the settlement and allegedly directed by the lawyers.

Chesley, a prominent plaintiffs lawyer, still faces possible disbarment. He, alone, collected a $20.5 million fee for negotiating the settlement.

However, he has maintained he was not co-counsel for the plaintiffs in the controversial class action lawsuit. He also has said he was not aware that other attorneys were deceiving their clients. He contends he was simply brought in to negotiate the 2001 settlement.

The Kentucky Bar Association's Board of Governors recommended Chesley's disbarment in June.

The board also recommended that the Cincinnati trial lawyer, known for winning billions of dollars for his clients in other mass torts, should return $7.5 million in fees he received in the settlement.

However, Chesley filed a motion with the Kentucky Supreme Court in December to consider delaying the disbarment process.

His lawyers argued that his disbarment shouldn't be considered until they can find out why the KBA's chief disciplinary lawyer, Linda Gosnell, was fired in November. The KBA has refused to say why Gosnell was terminated.

From Legal Newsline: Reach Jessica Karmasek by email at

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