Chesley disbarment goes to Ky. Supreme Court

By Jessica M. Karmasek | Jun 15, 2011


LEXINGTON, Ky. (Legal Newsline) -- Prominent plaintiffs lawyer Stanley Chesley, whose disbarment was recommended Tuesday by the Kentucky Bar Association's Board of Governors, now will have to take his fight to the Kentucky Supreme Court.

The Bar's 15-member board also recommended that the Cincinnati trial lawyer, known for winning billions of dollars for his clients in other mass torts, will have to return $7.5 million in fees he received in a 2001 fen-phen settlement to his former clients.

The board's recommendation to accept the trial commissioner's order, made Tuesday evening after nearly 90 minutes of oral arguments at the Hyatt Regency in Lexington, is not final. Chesley can appeal the matter to the state's high court, which has the final say on disciplinary matters.

Chesley's lawyer, Sheryl G. Snyder, told the press following the board's decision that he intends to ask the Court to hear oral arguments in his client's disciplinary hearing. It is considered rare for the Court to hear such arguments.

However, if Chesley is ultimately disbarred in Kentucky, it could mean disbarment in his home state of Ohio as well. The two states have a reciprocal agreement.

Case background

The lawsuit at issue is Darla Guard, et al or Jonetta Moore, et al v. A.H. Robins Company, et al.

The suit, filed in Boone Circuit Court in 1998, sought damages for injuries from the diet drug known as fen-phen.

Chesley was one of the four attorneys involved in the 2001 settlement with American Home Products, the manufacturer of the drug. The others included Lexington-area lawyers Shirley Cunningham, William Gallion and Melbourne Mills Jr.

The lawyers received roughly 50 percent of the $200 million settlement. Their 431 clients received the rest. Chesley, himself, collected a $20.5 million fee for negotiating the settlement.

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

In 2009, Cunningham and Gallion were sentenced to 20 years in federal prison for their roles in stealing the settlement money. Mills was acquitted of all charges. All three have lost their law licenses.

Judge Joseph F. Bamberger, a senior status special judge who approved the settlement, later resigned when it was revealed he 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, never charged in the criminal case, has maintained he was not co-counsel for the plaintiffs and was not aware that the other attorneys were deceiving their clients. He simply was brought in to negotiate the settlement, he has said.

However, on Feb. 22, Kentucky Trial Commissioner William Graham issued a 29-page order finding otherwise and recommended Chesley be disbarred for his actions.

Tuesday's scene

A couple dozen so-called "observers" filled the lobby outside of the Regency Ballroom at the Hyatt Regency in downtown Lexington on Tuesday afternoon.

Some were other lawyers curious of the outcome. Many were those who have filed suits, or have suits pending, against Chesley. Some commented that they drove more than an hour to watch the arguments.

Chesley and his wife, U.S. District Judge Susan J. Dlott, who serves as the chief judge of the Southern District of Ohio, arrived shortly before 2 p.m. They didn't linger in the lobby outside of the ballroom long before being ushered inside, away from glaring eyes.

The arguments were set for 2 p.m., but didn't start until closer to 2:30 p.m.

Each side was given 30 minutes to argue instead of the usual 15 minutes.

Chief Bar Counsel Linda A. Gosnell argued for the KBA. Snyder, of Louisville, argued on behalf of Chesley.

The arguments

Snyder focused his argument on the ratification process and the restitution remedy. He also claimed that his client did not know how much in fees the other lawyers were receiving, just that he would receive a percentage of their fees.

Snyder also brushed off suggestions that the clients should have been made aware of Chesley's role in the case. The agreements signed by Chesley allowed the other lawyers to bring in extra attorneys and did not require that such an arrangement be ratified by the clients, he said.

Chesley had a "limited role," his lawyer argued. That is, to go in and settle the case.

But did he think that $20.5 million was a reasonable fee earned by his client? Board members wanted to know.

Ten percent, Snyder said, was not unreasonable or excessive.

"Prior to Mr. Chesley coming in, at most AHP had offered was $20 million," he explained.

He called the $200 million Chesley negotiated "a very positive contribution" to the clients.

As to the restitution issue, Snyder argued it required a jury trial. Case law, he said, doesn't suggest how exactly to pay the $7.5 million.

"We're better off leaving it to the civil justice system," Snyder said.

Gosnell, who called Tuesday's arguments the "final chapter" of "unbridled greed," said the restitution issue isn't that complex.

Simply put, it's up to Chesley to figure out, Gosnell said. It could be, she said, that he writes checks to each of the 431 clients.

Gosnell, in her argument, went as far to compare the fen-phen case to the Watergate scandal of the 1970s.

At the center of the case is whether Chesley charged an unreasonable fee, and that the details weren't put in writing.

"Clients need to know where their money is going," Gosnell said.

She also argued that Chesley knew exactly what the other lawyers were up to and was involved himself, "directing" it all.

"He isn't the worker on the ground," she said, "he's up here."

Chesley, Gosnell said, had "proven to be part of the fraud" since the beginning.

Only Tuesday's argument portion was open to the public. Under Supreme Court Rule 3.150, the board's deliberations and vote were not.

Amy Carman, communications director for the KBA, said a formal order would be entered by the board in the coming days. A written report, explaining the board's decision, is due in 30 days, she said.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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