The Kentucky Bar Association board of governors Tuesday recommended the disbarment of famed Cincinnati trial attorney Stanley Chesley.
The board also voted to follow the recommendation of a hearing officer who said Chesley should return more than $7 million in fees he received from a 2001 fen-phen settlement to his former clients.
The vote came after a more than hour-and-a-half oral argument before the board at its meeting at the Hyatt Regency in downtown Lexington.
The board's recommendation will be sent to the Kentucky Supreme Court, which has final say on attorney discipline cases. Sheryl Snyder, a lawyer for Chesley, said after Tuesday's decision that he will ask the Supreme Court to hear oral arguments in the disciplinary hearing against Chesley. The court rarely hears such arguments.
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"Today's decision is just a recommendation," Snyder said. "The final decision on Mr. Chesley's case will be made by the Supreme Court."
Kentucky and Ohio have reciprocal agreements. If Chesley is disbarred in Kentucky, he could also lose his law license in Ohio.
Chesley, one of the most well-known trial attorneys in the country, was charged with violating nine ethical rules, including taking an unreasonable fee and making false statements to the bar association.
Chesley was one of four lawyers involved in a 2001 Boone Circuit Court settlement with American Home Products over damages caused by the diet-drug fen-phen. The attorneys on the case received 49 percent of the $200 million settlement while the 440 clients received the remaining funds.
Lexington-area lawyers Melbourne Mills Jr., William Gallion and Shirley Cunningham have all lost their law licenses over their involvement in the case. Gallion and Cunningham were convicted on charges of taking $94 million that should have gone to their former clients in April 2009. They are in federal prison. Mills was acquitted of all charges.
Chesley was never charged in the criminal case.
Chesley has maintained through criminal and civil proceedings that he had no individual clients in the fen-phen settlement and was only acting as a lawyer for Mills, Gallion and Cunningham, who had little experience with class-action or mass tort cases.
But William Graham, the hearing officer in the disciplinary case against Chesley, said Chesley was key to covering up misdeeds of Gallion, Cunningham and Mills.
Graham, who recommended disbarment and the return of $7.5 million in excess fees to the fen-phen clients, said in a Feb. 22 order that Chesley's callous subordination of the interests of his clients to his own greed is "both shocking and reprehensible."
Graham made the ruling in February after presiding over a multi-day trial regarding Chesley's misconduct charges in September 2010. The board of directors voted Tuesday to accept Graham's recommendation.
Chesley's contract with the lawyers entitled him to receive about $13 million. Instead he received more than $20 million in fees.
"We deem ... Chesley to be reasonably conversant with fifth grade arithmetic," Graham wrote. "Even a rough calculation" would have told Chesley that he had received more than his contract said he should receive, Graham said.
Graham noted that Chesley even helped settle a lawsuit brought by one of Mills' former law partners in order to avoid testifying about the details of the fen-phen settlement.
Chesley also knowingly approved documents that were sent to the Kentucky Bar Association that showed inflated settlement amounts for the fen-phen clients in the original settlement, Graham said in his order.
But Snyder told the board during oral arguments on Tuesday that Chesley saw the document but did not know that the numbers were wrong or inflated.
Moreover, Snyder said that Chesley was not involved in the disbursement of the settlement proceeds to the clients and could not have known that the lawyers on the case were taking more money than their contracts with their clients said they should receive. All three of the lawyers — Gallion, Cunningham and Mills — had contracts that said they were entitled to either 30 or 33 1/3 percent of the client's settlement. Snyder said that Chesley says he did not know the amounts of the other lawyers' contingency fee contracts with their clients.
But members of the board questioned why Chesley did not question the additional $7 million in fees that he received.
"Did he believe that was a reasonable fee?" asked Thomas Rouse, a board member.
Snyder said that Chesley was entitled to the fee because American Home Products had only agreed to give the 431 clients $20 million before Chesley entered the case. Chesley was able to get American Home Products to increase the settlement to $200 million, Snyder said.
But Linda Gosnell, chief bar counsel, argued that Chesley not only knew that the fee he received was unreasonable and excessive but was part of efforts to thwart investigators from determining what happened to the money.
For example, Chesley tried to get an attorney for American Home Products to send a letter that would help boost the fen-phen lawyers' case. The American Home Products lawyer has testified that he did not send the letter because what Chesley wanted him to write was false.
"He helped them cover up the theft for a long time," Gosnell said.
Chesley, who first became famous representing families of victims in the Beverly Hills Supper Club fire in Northern Kentucky, has also been a lawyer on other high-profile cases, including lawsuits against Pan Am for the Lockerbie, Scotland, terrorist attacks and cases against the Archdiocese of Covington on behalf of sexual abuse victims.