FRANKFORT — The Kentucky Supreme Court has permanently disbarred famed Cincinnati trial attorney Stanley Chesley, often called the "master of disaster" for his handling of national headline-generating class-action lawsuits.
The state Supreme Court unanimously ruled Thursday that Chesley's law license should be revoked because of his conduct in a notorious $200 million settlement involving the diet drug fen-phen.
The high court upheld a 2011 recommendation by the Kentucky Bar Association's board, which agreed with a hearing officer that Chesley violated eight ethics rules and should return $7.5 million to his former clients.
In Thursday's decision, the court declined to order Chesley to repay the $7.5 million, saying there was no mechanism to order restitution through a disbarment proceeding.
Chesley, 76, is likely to now face disbarment in Ohio. The Ohio Supreme Court recognizes disbarment orders from Kentucky, but the process is not automatic, Ohio court officials said Thursday.
Chesley, a member of the University of Cincinnati Board of Trustees, is married to U.S. District Chief Judge Susan Dlott, chief judge of the federal court in southern Ohio.
Sheryl Snyder, a lawyer for Chesley, declined to say whether Chesley might ask the state Supreme Court to reconsider or whether Chesley would take the case to federal court.
"He has a previously unblemished record of legal service, and we are therefore disappointed with the court's decision to impose such a severe sanction, especially in light of its finding that 'it is not shown that he had specific knowledge of the deception practiced on each client' by the other lawyers," Snyder said.
Chesley is the highest-profile attorney to be disbarred in recent Kentucky history.
He rocketed to fame after winning nearly $50 million in settlements over the 1977 Beverly Hills Supper Club fire in Northern Kentucky. The fire killed 165 people.
Other high-profile cases Chesley has headed include a case against Pan Am after terrorists bombed one of its planes flying over Lockerbie, Scotland, and a case against the Archdiocese of Covington on behalf of sexual abuse victims.
Chesley is the latest of several attorneys to lose a law license after participating in a 2001 Boone Circuit Court settlement for $200 million over damages caused by the diet drug fen-phen, which damaged heart valves. The attorneys in that case received the bulk of the settlement even though contracts with their clients said they were entitled to about one-third of the settlement.
Lexington-area lawyers Melbourne Mills Jr., William Gallion and Shirley Cunningham all lost their law licenses over their involvement in the case. David Helmers, an associate with Gallion, was disbarred in 2011. The state Supreme Court also yanked the law license of state court Judge Jay Bamberger, who approved the 2001 settlement and later served on a board of a nonprofit that was started with proceeds from the $200 million settlement.
Gallion and Cunningham were convicted on federal charges related to taking more than $94 million that should have gone to their former clients. Both are in federal prison. Mills was acquitted of all charges after his attorney successfully argued that Mills was too drunk during settlement negotiations and when the funds were disbursed to know what was going on.
Chesley was key in covering up misdeeds by Gallion, Cunningham and Mills, according to William Graham, the hearing officer in the disciplinary case against Chesley.
Graham said in a Feb. 22, 2011, order that Chesley's greed and callous disregard for his clients' interests was "both shocking and reprehensible."
Chesley ultimately was found guilty of violating eight rules of professional conduct, including receiving excessive attorney fees, making false statements to investigators and concealing dishonest conduct of others.
Chesley was never criminally charged in the case and has maintained that he did nothing wrong.
Chesley has claimed that he acted as an attorney for the lawyers in the case, who had little experience with class-action lawsuits. His contract said he was entitled to $13 million, but he received $20 million.
Attorneys for Chesley have argued that before Chesley's involvement in the case, American Home Products, the maker of fen-phen, had offered the Lexington attorneys only $20 million for their 440 clients. Chesley was able to increase that settlement to $200 million.
But bar investigators have said Chesley actively tried to thwart any investigation into what happened to the $200 million settlement, even helping settle a civil lawsuit brought by one of Mills' former law partners so he wouldn't have to testify.
Chesley also signed off on documents sent to the Kentucky Bar Association that showed inflated settlement amounts for the fen-phen clients in the original settlement. Chesley has said he didn't know that the numbers were wrong or inflated.
Meanwhile, Chesley and his attorneys have raised questions in court proceedings about the settlement of a civil lawsuit brought against attorneys in the fen-phen case by their 440 former clients. In particular, Chesley has questioned whether lawyers involved in his disbarment proceedings received part of the $42 million civil judgement awarded to the 440 former clients.
Chesley's lawyers also have questioned why Linda Gosnell, who was chief bar counsel during Chesley's disciplinary proceedings, was later terminated. The Kentucky Bar Association has never explained Gosnell's departure.
Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.