LOUISVILLE — Federal prosecutors may seize a home from the son of a former attorney serving prison time for bilking his clients out of millions from a diet drug settlement after the family member failed to contest the forfeiture in time, a federal appeals court ruled Monday.
The Lexington home will go to help settle part of the balance of $127.6 million in restitution owed by two disbarred lawyers, William Gallion, 62, and an associate, Shirley Cunningham Jr., 58. The two men are serving decades in prison for their roles in a scheme to deprive clients out of $94.6 million from a $200 million settlement over the diet drug fen-phen.
The appeals court's ruling rejected a claim made by Gallion's son, Joseph Gallion, that prosecutors failed to timely notify him of plans to seize the home and an adjoining lot.
Judge Jane B. Stranch wrote for the court that despite prosecution missteps, Joseph Gallion received ample warning by sending the notice of forfeiture to his former attorney, even though the lawyer no longer represented him.
"There is no question that the government could have avoided this litigation through basic attention to detail in its service of notice to Gallion," Stranch wrote.
Prosecutors have sought to seize the house, which Gallion has been living in, and a lot owned by a company called WJG Holdings, a corporate arm of the Gallion family. Stranch wrote that Joseph Gallion had notice of the forfeiture plans because the government sent him a notice about the corporate-owned lot.
"The government here did not simply sit on its hands," Stranch wrote.
William Gallion and Cunningham, the original owners of 2007 and 2008 Horse of the Year Curlin, were convicted in 2009 of scamming more than 400 clients out of millions they had won against American Home Products, which renamed itself Wyeth and is now a subsidiary of Pfizer. Fen-phen was pulled from the market in 1997 after users had heart problems related to the drug. Prosecutors say Gallion and Cunningham illegally kept the bulk of the settlement, but made more money available to their clients after the federal government began a criminal investigation.
The appeals court in May 2012 upheld the convictions of both men. Gallion is scheduled for release from a federal prison in Oakdale, La., in 2029. Cunningham is scheduled for release from a federal prison in Yazoo City, Miss., in 2025.
The lawyers sued the drug maker in 2001. The men, along with now-disbarred Lexington attorney Melbourne Mills Jr., brought now-disbarred class-action guru Stanley Chesley of Cincinnati into the case. They also created a charity, the Kentucky Fund for Healthy Living, with money from the settlement and named themselves and former state judge Joseph Bamberger as directors.
From the settlement, Cunningham received $21 million, Gallion nearly $31 million, Mills, almost $24 million, Chesley more than $20 million, the Kentucky Fund for Healthy Living received $20 million and several other lawyers divided up $10.5 million. After two distributions, the clients received $73.5 million — just less than 37 percent of the total settlement.
The first trial of the men ended with Mills being acquitted and a mistrial for Gallion and Cunningham.
Gallion and Cunningham purchased Curlin for $57,000 as a yearling through their Midnight Cry Stable. They sold an 80 percent stake in the horse in February 2007 for $3.5 million to a group led by Jess Jackson, founder of Kendall-Jackson wines. Jackson later bought out his partners.
Curlin retired from racing in 2008. He sired a foal with 2009 Horse of the Year Rachel Alexandra.