Appeals court reverses $42 million judgment in fen-phen case

Shirley Cunningham, left, and William Gallion
Shirley Cunningham, left, and William Gallion

The Kentucky Court of Appeals has reversed a $42 million judgment against three disbarred lawyers accused of unlawfully taking millions of dollars from their clients in a $200 million fen-phen diet drug settlement a decade ago.

In a ruling released Friday, the appeals court said that Special Judge William Wehr acted improperly in March 2006 when he ruled, without holding a trial, that Lexington-area lawyers Melbourne Mills Jr., Shirley Allen Cunningham and William Gallion had breached their fiduciary duty to their clients in the settlement.

Wehr had ruled in August 2007 that Gallion, Cunningham and Mills had to pay $42 million to the former clients. That is the judgment the appeals court has ordered vacated.

Lexington attorney Angela Ford, who represented the former clients seeking restitution from the three lawyers, said Friday night that she will file a request with the state Supreme Court for a discretionary review of the appeals decision.

Ford said in an e-mail that she had been busy talking with the clients she represents. "Disappointment would be an understatement," she wrote.

Efforts to reach attorneys for Gallion, Mills and Cunningham were not successful.

Friday's appeals ruling does not affect federal criminal sentences that Gallion and Cunningham received.

The appeals court said in its ruling that several "foregoing questions of fact" in the case "justified going forward with trial.

"Therefore reversal is necessary."

The court said that as a result "several issues stemming from the order entered on March 8, 2006, are rendered moot including the award of $42 million in baseline compensatory damages."

Issues in the case stemmed from a fen-phen class-action lawsuit filed by Cunningham, Mills and Gallion on behalf of more than 400 people who had used the diet drug combination fen-phen.

Hugely popular when it first arrived on the market, fen-phen eventually was banned after it was determined that the drug caused heart-valve problems in some users. A wave of class-action lawsuits against the makers of fen-phen followed, including the one filed by Cunningham, Mills and Gallion.

The suit was settled for $200 million in 2001.

But in late 2004, Mills, Gallion and Cunningham were sued in Fayette Circuit Court by clients who alleged that the three lawyers improperly kept from them millions of dollars from the fen-phen settlement. The case later was moved to Boone Circuit Court and Wehr was assigned to hear it.

The key ruling in the case came on March 8, 2006, when Wehr held that Gallion, Cunningham and Mills had committed breach of contract by keeping more compensation than was provided in contracts with their clients. Wehr said the lawyers kept roughly $20 million each and, with their consultants, collectively received more money than their 400-plus clients.

The order, however, was wrong, the appeals court said Friday.

In the federal court case not affected by Friday's ruling, Cunningham and Gallion were convicted in April 2009 on federal conspiracy and wire-fraud charges stemming from their handling of the fen-phen settlement money. Mills was acquitted of all criminal charges.

Gallion and Cunningham were sentenced to 25 and 20 years in prison respectively. They have appealed their convictions.

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