FRANKFORT — Opening statements began Wednesday in the retrial of two Lexington-area lawyers accused of taking $94 million that should have gone to 440 clients.
Disbarred attorneys Shirley Cunningham Jr. and William Gallion are accused of conspiracy and wire fraud over the 2001 settlement of a lawsuit against the maker of the fen-phen diet drug. The suit settled for $200 million.
The lawyers disregarded ethics rules by refusing to disclose the settlement amount to their clients, paying them less than they were entitled to and falsely telling clients they could go to jail if they told anyone what they received, Assistant U.S. Attorney Laura Voorhees said.
The lawyers used the settlement's confidentiality clause to keep their clients in the dark, Voorhees said.
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"They used this provision like it was a club," she said. They "intimidated their clients into silence."
Under their contracts, the lawyers were entitled to one-third of the settlement. They took nearly half, Voorhees said, and planned to keep more if not for a Kentucky Bar Association inquiry.
The lawyers also wrongfully diverted $20 million of the settlement into a charitable trust, she said. The defense, in the first trial, argued that those funds were needed to pay future fen-phen victims who were not in the lawsuit. It has said the settlement made the lawyers personally liable for paying those claims.
But Voorhees, anticipating such arguments, said the settlement limited the lawyers' liability to $7.5 million.
Attorney O. Hale Almand, who represents Gallion, said that portion of the agreement was intended to make the lawyers liable for anything over $7.5 million. A word was inserted that changed its entire meaning, he said.
Almand said his client followed the advice of Cincinnati trial lawyer Stan Chesley, who negotiated the settlement.
A key dispute is whether the lawsuit was settled as a class-action lawsuit or normal lawsuit. Class-action suits have different rules for settlements. The settlements are public, for example, and the judge sets the attorney fees.
A class-action is a lawsuit on behalf of many individuals not named or known.
The class-action was not decertified until after the 2001 settlement, Almand said. That means the lawyers were not obligated to share with clients the settlement amount or other terms, he said.
Almand said the lawyers never intended to defraud their clients. The charitable trust was approved by an independent lawyer hired by the court, he said.
Lawyer Stephen Dobson, who represents Cunningham, said Chesley was the driving force behind the settlement.
Cunningham, Gallion and Melbourne Mills, another lawyer on the case who was acquitted in the first trial, had never handled a class-action before. Chesley, who was involved in a national class-action lawsuit involving fen-phen, filed a lawsuit in Boone County on behalf of three clients, then moved to consolidate the class-action into his lawsuit. As another lawyer involved in the case put it, Chesley was attempting a "hostile takeover" of the litigation, Dobson said.
The lawyers cut a deal in which Chesley would get 20 percent of their attorney fees if he negotiated a settlement. Chesley received $20.5 million for "minimal" work on the case, Dobson said.
Chesley is known for a ground-breaking lawsuit on behalf of victims' families in the 1977 Beverly Hills Supper Club fire in Northern Kentucky, which killed 165 people.
But Voorhees also noted that Chesley had told the trial judge in the case that the lawyers "could not be responsible" to pay future claimants. That contradicts the defense claim that they had to set money from the settlement aside, she said.