FRANKFORT — Three disbarred Lexington-area lawyers disguised attorneys' fees as litigation expenses when billing former clients in a $200 million lawsuit settlement, well-known trial lawyer Stanley Chesley testified Wednesday.
Chesley, who negotiated the settlement of a Boone County class-action lawsuit against the manufacturer of the diet drug fen-phen, was not called by prosecutors in the first trial of Shirley Cunningham Jr. and William Gallion. Instead, he was called by the defense.
But federal prosecutors called Chesley on Wednesday. In short, matter-of-fact answers, Chesley said Cunningham, Gallion and Melbourne Mills Jr. — who was acquitted in the first trial — withheld more money than they were entitled to when disbursing settlement money to 440 clients.
Cunningham's and Gallion's first trial ended in a mistrial when the jury could not reach a verdict.
The former lawyers are accused of cheating their former clients out of $94 million.
Earlier Wednesday, the son of a woman who died after taking fen-phen testified that he was suspicious of the $677,333 that was deducted for expenses from his family's $2.6 million settlement. Despite promises of receiving at least $5 million, the family got $1.6 million.
Under the fee agreement Haywood Ferguson Sr. signed with Cunningham, the lawyers were to get 33.33 percent of his gross settlement. Litigation expenses — like deposition costs and payments to expert witnesses — would also be deducted. Ferguson's wife, Alma Mae, died in 1999.
Ferguson's son, Haywood Jr., persuaded his father to request an itemized list of expenses, the son testified.
It listed several payments to plaintiff lawyers who worked on the case, including $277,000 for Chesley.
"I had no idea who these guys were," Ferguson Jr. said. "All I know is they got a lot of my dad's money."
Cunningham's office had earlier asked for a 10 percent bigger cut of the settlement. Ferguson Sr. refused.
"They got their 10 percent cut anyway," his son said.
During questioning by the government, Chesley was shown a breakdown of expenses taken from Ferguson Sr.'s settlement. He said that it was inappropriate for his fees to have been charged as expenses. Chesley said his money should have came from the other lawyers' cut, not Ferguson Sr.'s.
Chesley said he had no contact with the clients. The disbursement of settlements was left to Gallion, Cunningham and Mills, he said.
Chesley repeated his testimony from the first trial that some of the settlement money had to be set aside for future claimants, which is one of Gallion's and Cunningham's primary defenses.
But Chesley said the money should have been placed in an interest-bearing account. When no claimants stepped forward after a year, the money should have been paid with interest to the clients.