Kentucky Supreme Court Reinsytates $42 Million Phen Fen Verdict Against Now-disbarred lawyers William Gallion, Shirley Cunningham Jr., and Melbourne Mills.
The unanimous decision moves the group closer to reclaiming the millions improperly kept by now-disbarred lawyers William Gallion, Shirley Cunningham Jr., and Melbourne Mills. Justice Daniel J. Venters, writing for a unanimous court, found that there is enough evidence to back the claims that the trio of attorneys grabbed far more than their contract with clients entitled them to.
"The attorney-client relationship is a fiduciary relationship that subjects the attorney to the duties of honesty, loyalty and good faith," Venters wrote.
Failing to honor a contract with a client violates the "most elementary aspect" of an attorney's duty to the client, Venters wrote.
The former clients sued Gallion, Cunningham and Mills in 2005, claiming they mishandled the settlement and improperly kept a significant portion of the funds for themselves, while keeping clients in the dark about the full amount of the agreement to end the litigation.
Special Judge William Wehr awarded the former clients $42 million in 2007, saying the evidence supported their claims that the attorneys raided a $200 million settlement. Wehr found that Gallion, Cunningham and Mills kept $126 million, more than 63 percent of the settlement, for themselves and took another $20 million in "excess funds." The men distributed about $74 million to their clients, who were never told about the total amount of the settlement or the fees kept by the lawyers.
The Kentucky Court of Appeals overturned the judgment in 2011. The ruling Thursday reinstated the damages award.
Wehr declined to include former class-action specialist Stanley Chesley of Cincinnati in the judgment, even though he had been sued with the others. Wehr ruled that there were genuine issues of fact to be decided when it came to Chesley. The high court upheld that decision.
Any damages or liability on Chesley's part have yet to be determined by the trial court in Boone County.
"Since I believe that Chesley was the chief architect behind the cover up of the fraud, we will be seeking a very large verdict on punitive damages," said Angela Ford, who represents many of the 400 plaintiffs.
The fen-phen case has evolved over more than a decade from a $200 million settlement into a series of criminal, civil and legal disciplinary cases that claimed the careers of at least six of the lawyers involved.
Gallion and Cunningham, one-time owners of champion racehorse Curlin, are serving federal sentences after being convicted of bilking their clients out of millions from the settlement. Both resigned from the bar. Mills was acquitted at a federal criminal trial, but disbarred for his role in the scheme.
Gallion, 62, is serving a sentence in a federal prison in Oakdale, La., and is not scheduled to be released from federal prison until 2029; Cunningham, 58, is being held in a federal prison in Yazoo City, Miss., and won't get out until 2025. A federal appeals court upheld their convictions in January 2012.
Federal prosecutors have seized hundreds of thousands of dollars in earnings by Curlin to disburse as restitution to victims in the criminal case.
The high court disbarred Chesley in April for his role in the settlement. Chesley, who has denied any wrongdoing in the settlement, has since retired from the legal profession.
A former associate of Gallion's, David Helmers of Lexington, and retired state judge Joseph F. "Jay" Bamberger, have also been disbarred in connection with the fen-phen settlement. Bamberger, a circuit court judge in Boone and Gallatin counties from 1992 until his retirement in 2004, signed off on a deal that gave attorneys nearly two-thirds of the settlement and didn't disclose to clients the terms of the deal.
The state's high court disbarred Bamberger in 2011, finding he mishandled the settlement and later received money from the settlement.