FRANKFORT — The Kentucky Supreme Court heard oral arguments Wednesday in a high-profile diet-drug case against three disbarred Lexington-area lawyers.
The Kentucky Court of Appeals ruled in February 2011 that a trial court judge erred when he awarded more than $42 million to the former clients of Melbourne Mills Jr., Shirley Allen Cunningham and William Gallion. Special Judge William Wehr had ruled that the former attorneys owed their clients the money after finding that the bulk of a $200 million fen-phen settlement went to the attorneys instead of the 431 people they represented.
After the Court of Appeals ruling, Angela Ford, an attorney who represents former clients of Gallion, Cunningham and Mills, filed an appeal to the state Supreme Court.
More than a decade ago, Gallion, Cunningham and Mills filed a lawsuit on behalf of more than 400 people who took the diet drug fen-phen, saying the medication caused heart and other problems. The case was settled in Boone Circuit Court in 2001 for $200 million.
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But Ford later sued the lawyers, asking for a full accounting of the settlement money. Wehr ruled in 2006 that Gallion, Cunningham and Mills had kept more money than their contracts with their clients said was allowed.
The Court of Appeals found that Wehr was incorrect when he ruled that the attorneys should have to repay their clients. Wehr granted the summary judgment without a trial, but the Court of Appeals said that there still were unanswered questions about the case and that Wehr's ruling was premature.
On Wednesday, Ford argued that Wehr— after looking at several key documents — ruled the three attorneys had breached their fiduciary duty.
Those documents included contracts between the lawyers and their clients. The contracts said the lawyers were entitled to 30 percent and 33 percent of the total settlement. But documents in the case show the clients received only $74 million of the $200 million settlement.
"The trial court found that these documents established that the defendants kept settlement funds that vastly exceeded their fee contracts with their clients," Ford said.
The Court of Appeals said that an affidavit by an expert witness, attorney Kenneth Feinberg, raised questions about the case, and those questions should have been answered before summary judgment was granted.
But Feinberg later recanted his affidavit, saying he was not aware of all of the facts of the case and said he relied on information provided by Gallion.
Ford told the court Wednesday that Wehr did not need Feinberg or other expert affidavits to determine where the lawyers had breached their fiduciary duty to their clients.
Andre Regard, a lawyer representing Gallion and Cunningham, argued Wednesday that the case was a class-action settlement, which means that the contracts with the clients were void and that the court could set attorney fees. Regard also argued that the three lawyers thought they had to withhold some of the money in case new defendants stepped forward with claims against the fen-phen manufacturer.
But Supreme Court Justice Lisabeth Hughes Abramson said she didn't understand how the lawyers could say it was a class-action settlement when the case was clearly dismissed as a class action by a Boone Circuit Court judge in 2001. Abramson also said there was little evidence in the settlement documents that the three attorneys had to withhold part of that $200 million settlement in case of future claims.
If the Supreme Court upholds the Court of Appeals ruling, the case could be remanded for a trial. If the court sides with Wehr, the $42 million judgement could be reinstated.
Jim Shuffett, a lawyer for Mills, argued Wednesday that the courts should determine how much each attorney should have to pay of the $42 million judgment. Mills knew very little about the details of the $200 million settlement and should have to pay the least, he argued.
The civil case is just one of many legal actions born out of the 2001 settlement. The Kentucky Supreme Court later disbarred Gallion, Cunningham and Mills. Cunningham and Gallion were convicted in 2009 of federal conspiracy and wire-fraud charges stemming from their handling of the fen-phen case. Mills was acquitted.
Gallion is serving a 25-year sentence in federal prison in Louisiana.
Cunningham is serving a 20-year sentence in a federal prison in Mississippi.
In early May, a three-judge panel of the 6th Circuit U.S. Court of Appeals denied Cunningham's and Gallion's appeal of their criminal convictions.
The original judge on the 2001 fen-phen case resigned rather than face disciplinary action by the Judicial Conduct Commission. The commission found that Judge Joseph "Jay" Bamberger later served on a non-profit board that was started with $20 million in fen-phen settlement money.
Bamberger and the attorneys on the fen-phen case were paid as directors of the non-profit.