Kentucky High Court Reinstates $ 42M Judgment Against 3 Fen-Phen Attorneys

by Tara Arick on September 6, 2013 · 0 comments

in Ethics

The Kentucky Supreme Court on Aug. 29 reinstated a $ 42 million judgment against three fen-phen attorneys who allegedly took excessive fees and costs from a $ 200 million diet drug settlement for 431 plaintiffs (Mildred Abbott, et al. v., No. 2011-SC-000291-DG, Ky. Sup.; 2013 Ky. LEXIS 367).

Plaintiff attorneys Shirley A. Cunningham Jr., William J. Gallion, Melbourne Mills Jr.

and Stanley M. Chesley represented 431 Kentucky state court plaintiffs who alleged that they were injured by fen-phen, which was a combination of fenfluramine and phentermine. Although defendant American Home Products Corp. (AHP, later Wyeth, now Pfizer Inc.) agreed to a national master settlement, the Kentucky plaintiffs opted out.

AHP later agreed to settle the Kentucky plaintiffs’ claims through an aggregate payment of $ 200 million for the plaintiff attorneys to distribute.

The plaintiffs later alleged that their attorneys did not inform them about the terms of the settlement, about the amount of the settlement or that the attorneys would determine how much money the plaintiffs would receive. The plaintiffs say they later learned that they were paid $ 73.2 million, that $ 20 million was given to a nonprofit organization and that some $ 106 million was divided among the attorneys.

Fiduciary Duty Breached

The plaintiffs sued their attorneys, alleging that the attorneys breached their fiduciary duties by wrongfully retaining or improperly disbursing a substantial portion of the settlement money that should have gone to them. The case was filed in the Fayette County Circuit Court but was later transferred to the Boone County Circuit Court.

The Boone County court concluded that as a matter of law, Cunningham, Gallion and Mills violated their contingency fee agreements and breached their fiduciary duty to the plaintiffs. The court granted partial summary judgment to the plaintiffs on that issue.

Later, the trial court also granted the plaintiffs summary judgment for compensatory damages for breach of fiduciary duty. Crediting Cunningham, Gallion and Mills $ 1.5 million for undocumented and previously undisclosed expenses claimed by Mills, the court found that the lawyers wrongfully withheld $ 64.2 million.

Trial Court Judgment

Deducting $ 20.5 million given to the nonprofit, the court entered judgment of $ 42 million in favor of the plaintiffs against Cunningham, Gallion and Mills. The court also held that the three were jointly and severally liable to the plaintiffs.

The court also found the plaintiffs were entitled to judgment imposing a constructive trust on funds remaining with the nonprofit.

Left for trial were the issues of the lawyers’ liability for negligent or fraudulent misrepresentation, punitive damages and whether the lawyers should be denied the right to claim any fees.

The trial court denied summary judgment against Chesley, saying the factual issues for him differed from those of the other three attorneys and that there were genuine issues of material fact about his role in the disbursement of the settlement monies.

Appeals Court Reverses

On appeal, the Kentucky Court of Appeals reversed the partial summary judgment against Cunningham, Gallion and Mills and remanded the case for further proceedings. The appeals court also declined to review the denial of summary judgment against Chesley.

The plaintiffs appealed to the Kentucky Supreme Court.

The Supreme Court reversed the Court of Appeals’ reversal of summary judgment against Cunningham, Gallion and Mills on the issue of breach of fiduciary duty and reinstated summary judgment.

On other appeals issues, the state high court said the imposition of joint and several liability against Cunningham, Gallion and Mills was proper and reversed the appeals court on that issue.

Chesley Ruling Not Appealable

In addition, the Supreme Court affirmed that the denial of summary judgment against Chesley was not appealable.

The high court also affirmed the Court of Appeals’ determination that the Boone County court properly refused a motion by the plaintiffs to remand the case to the Fayette County court.

Finally, the Supreme Court said the trial court erred in crediting Cunningham, Gallion and Mills with undocumented expenses claimed by Mills.

Criminal, Disciplinary Actions

Cunningham, Gallion, Mills and Chesley were all disbarred in Kentucky. Chesley retired earlier this year, reportedly as his home state of Ohio was contemplating disciplinary action in connection with the Kentucky case.

Cunningham and Gallion were convicted of federal charges of wire fraud, and Mills was acquitted. Cunningham and Gallion were ordered to repay the settlement amount in restitution and fines.

Justices, Counsel

Justice Daniel J. Venters wrote the opinion. Concurring were Chief Justice John D. Minton and Justices Lisabeth Hughes Abramson, Michelle M. Keller, Mary C. Noble and Will T. Scott.

Justice Bill Cunningham did not participate in the case.

The plaintiffs are represented by Angela Margaret Ford in Lexington, Ky.

Cunningham and Gallion are represented by Andrew F. Regard of Regard Law Group in Lexington. Mills is represented by Calvin R. Fulkerson of Fulkerson, Kindel & Marrs in Lexington, James A. Shuffett in Lexington and John Christian Lewis.

Chesley is represented by Frank V. Benton IV in Newport, Ky., James M. Gary of Webber & Rose in Louisville, Ky., and Sheryl G. Snyder, Griffin T. Sumner and John K. Wells IV of Frost Brown Todd in Louisville.

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