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Kentucky fen-phen settlement fraud

Former mass tort star Stanley Chesley “escaped criminal sanctions and so far has paid nothing for taking $7.55 million more than he was owed in Kentucky’s scandalous fen-phen case. But a Boone Circuit Court judge ruled this week that Chesley is liable for the uncollected portion of a $42 million judgment that former clients won in the diet drug case against three Lexington lawyers who defrauded them.” [Louisville Courier-Journal] Chesley “was disbarred in Kentucky but allowed to retire in Ohio.” [ABA Journal]

Ethics roundup

by Walter Olson on October 23, 2013

  • Eliciting false testimony among sins: “Ninth Circuit finds ‘textbook prosecutorial misconduct'” [Legal Ethics Forum]
  • Syracuse: jurors say insurance company lawyer observing trial got uncomfortably close [Above the Law]
  • South Carolina: “Prosecuting attorney is accused of dismissing charges in exchange for sexual favors” [ABA Journal]
  • Judge, handing down six-year sentence, calls defense lawyer’s briefing of witness a “playbook on how to lie without getting caught” [Providence Journal]
  • Kentucky high court reinstates $42 M verdict against lawyers for fleecing fen-phen clients [Point of Law] Accused of bilking clients, prominent S.C. lawyer surrenders license, pleads to mail fraud [ABA Journal]
  • Former Kansas attorney general accused of multiple professional violations: “Phill Kline is indefinitely suspended from practicing law” [Kansas City Star]
  • “Nonrefundable ‘Minimum Fee’ Is Unethical When Fired Lawyer Will Not Refund Any of It” [BNA]

Four-part series on rise and fall of front-rank mass tort lawyer Stan Chesley [WCPO]

Part one: How Chesley, born in modest circumstances in Cincinnati, helped pave the way for modern mass tort law by suing dozens upon dozens of defendants — in particular, makers of furnishings and furniture — over the Beverly Hills Supper Club nightclub fire (scroll for more). Advice from Robert Gettys, the only lawyer to hold out and beat Chesley in that case: “Don’t listen to his B.S.”

Part two: “in a 2004 interview, Chesley estimated his firm had recovered nearly $7 billion for clients since he began doing mass tort litigation in the 1970s.”

Part three: he dishes out generously to both Democratic and Republican parties in Ohio, as well as to philanthropies that subsequently undergo embarrassment when the Kentucky Supreme Court finds Chesley “engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation following the initial distribution of client funds and concealed unethical handling of client funds by others.”

Part four: “Chesley’s friends call his professional demise a ‘personal tragedy.’ But his detractors call him a bully who manipulates the media to help his causes. Plenty of local lawyers dislike him. Most, however, declined to be quoted. That’s partly because, although he’s no longer practicing law, Chesley still is married to a federal judge.” Also: why Jacquelyn McMurtry, a fen-phen claimant who attended the civil trial over fee finagling in the Kentucky case, doesn’t share the opinion of settlement guru Kenneth Feinberg that Chesley was somehow the victim of others’ fraud.

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We told you the Kentucky fen-phen scandal — which we’ve been covering since 2005 — was serious. Now it’s resulted in the permanent revocation of the Kentucky license to practice of famed “Master of Disaster” tort specialist Stanley Chesley, whose office is across the river in Cincinnati, Ohio. Two lawyers who directly represented fen-phen clients in Kentucky, “Shirley Cunningham Jr. and William Gallion, are serving prison sentences for bilking clients out of $94 million in settlement money.” While Chesley did not represent Cunningham’s or Gallion’s clients, and denied holding any legal responsibility toward them, he accepted a $20 million fee, far in excess of negotiated sums, for representing the lawyers themselves in the settlement that brought in the cash, a sum that “was unreasonable, especially in light of his professed ignorance and lack of responsibility for any aspect of the litigation except showing up at the mediation and going through the motions of announcing the agreement,” the Kentucky Supreme Court concluded. Chesley participated in the diversion of the pilfered funds into a trust (pleasantly named “Kentucky Fund for Healthy Living“) intended to conceal the skimming, and helped orchestrate the lawyers’ cover-up. Wrote the court: “The vast amount of evidence compiled and presented in this matter demonstrates convincingly that respondent knowingly participated in a scheme to skim millions of dollars in excess attorney’s fees from unknowing clients.” [ABA Journal; court order, PDF; Louisville Courier-Journal; Daniel Fisher, Forbes; David Lat, Above the Law]

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Among the departing lawyers are those representing the state of Ohio in a public employee retirement fund-led class action; the state may not appreciate the fallout from Chesley’s efforts to fight disbarment in Kentucky over the fen-phen scandal. [Cincinnati Enquirer] Many of the one-time “Master of Disaster’s” bipartisan political ties, however, remain cozy:

Chesley noted that Hamilton County [= Cincinnati] Prosecutor Joe Deters, who has worked for Chesley as a private attorney for four years, continues to work at the firm.

Deters also works as a private attorney for the new firm created by Chesley’s former lawyers. Deters, a leader in Hamilton County’s Republican Party, praises Chesley, who has helped raise millions for Democrats…

Further update roundup

by Walter Olson on December 5, 2011

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Chesley’s cautionary tale

by Walter Olson on November 17, 2011

What went wrong with one of the biggest names in the plaintiff’s bar. [Corporate Counsel]

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June 14 roundup

by Walter Olson on June 14, 2011

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February 25 roundup

by Walter Olson on February 25, 2011

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February 17 roundup

by Walter Olson on February 17, 2011

August 30 roundup

by Walter Olson on August 30, 2010

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August 19 roundup

by Walter Olson on August 19, 2010

  • Judge bans $1.35 billion sugar beet crop for lack of environmental impact statement [NY Times]
  • Brennan Center, Justice at Stake attracting attention with new report on money in state court judicial races [report in PDF, Kang/ConcurOp]
  • Obama signs “libel tourism” bill into law [Levy, CL&P]
  • “Zach Scruggs claims new evidence clears him” [Patsy Brumfield, NE Mississippi Daily Journal via YallPolitics]
  • Second Circuit panel blasts 1980s abuse-accusation panic in ruling on Friedman case [opinion via NYT and Bernstein/Volokh]
  • Famed Cincinnati lawyer Stanley Chesley may face disciplinary action before Kentucky bar over role in fen-phen scandal [Courier-Journal via Dan Fisher and PoL]
  • Sexual harassment verdict against California casino “amounts to 2/3 of the company’s net worth” [Fox, Jottings]
  • Every White House needs to hire some partisan brawlers. But with “ethics czar” duties? [Matt Welch, Reason]

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October 2 roundup

by Walter Olson on October 2, 2009

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The Louisville Courier-Journal profiles Angela Ford, who took the lead in exposing Kentucky’s massive fen-phen settlement fraud.

Stiff sentences for the two lawyers most closely identified with the Kentucky fen-phen settlement scandal. [Louisville Courier-Journal, Lexington Herald-Leader, Bloomberg, ABA Journal]. More: Howard Erichson, Mass Tort Lit Blog.

April 4 roundup

by Walter Olson on April 4, 2009

  • The wages of addiction: former basketball star Roy Tarpley settles his $6.5 million ADA lawsuit against NBA and Dallas Mavericks [Randy Galloway, Fort Worth Star-Telegram, Sports Law Blog]
  • One result of litigation-fed “vaccines cause autism” scare: parents turn to dangerous quack treatments [Arthur Allen, Slate; in-depth coverage at Kathleen Seidel's and Orac's sites]
  • Julie Hilden on First Circuit “true statements can be defamatory” ruling [FindLaw, earlier here and here]
  • More coverage of conviction of Kentucky lawyers for grabbing much of fen-phen settlement [Louisville Courier-Journal, earlier]
  • Judge dismisses most counts in lawsuit against Richard Laminack of Texas’s O’Quinn law firm [Texas Lawyer, earlier; FLSA overtime claims remain]
  • All but three of the outstanding 9/11 airline suits due to settle for $500 million [AP/NorthJersey.com]
  • One needn’t make the Community Reinvestment Act a scapegoat for unrelated credit woes to recognize it as an ill-conceived law [Bank Lawyer's Blog]
  • U.K.: Woman who plays classical music to soothe horses told she must pay for public performance license [Telegraph]

You may recall the earlier trial of the Kentucky fen-phen attorneys who had stolen tens of millions of dollars from their clients ended in a mistrial for two and an acquittal for their third compatriot. This time around, a federal court jury, after ten hours of deliberation, found William Gallion and Shirley Cunningham Jr. guilty of eight counts of fraud and one count of conspiracy. A streamlined prosecution case no doubt helped make a difference; defense attorneys sought to blame the matter on Stan Chesley, who negotiated the underlying settlement and received millions more than he was contracted to receive, and it remains mysterious why he was not charged. [Courier-Journal]

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The retrial of disbarred lawyers William Gallion and Shirley Cunningham began this week after an earlier jury deadlocked; a third defendant, Melbourne Mills, Jr., was acquitted. The three had diverted to their own use large portions of a $200 million settlement fund for fen-phen plaintiffs. We’ve covered the seedy saga in depth since it hit the headlines.