LOUISVILLE, Ky. - The Kentucky Supreme Court has disbarred class-action lawsuit specialist Stan Chesley of Cincinnati over his actions in a controversial Kentucky diet drug settlement.
Next, Chesley, 76, could face disbarment in Ohio because of a reciprocal agreement between the bars in the neighboring states.
The Kentucky high court concluded that Chesley acted unethically in helping negotiate a $200 million settlement for 431 users of the diet drug fen-phen in 2001. The court cited Chesley on eight counts of professional misconduct, including taking excessive fees and concealing misconduct by other attorneys in the case.
The claimants sued Chesley and several other lawyers after initially receiving just $46 million from the $200 million settlement.
"While the good reputation he has enjoyed and his generosity serves to exacerbate the tragedy of his fall, they cannot atone for the serious misconduct he has committed in connection with this matter," Chief Justice John Minton wrote for the court.
Chris Davey, a spokesman for the Supreme Court of Ohio, declined to speak specifically about Chesley's case. Davey said Ohio does recognize the discipline of other jurisdictions, but the court would have to take action to impose the same or similar discipline in Ohio.
The Kentucky high court unanimously upheld a 2011 recommendation by the Kentucky Bar Association board calling for Chesley to lose his law license and surrender $7.5 million of the $20 million he received in fees in the fen-phen case.
You can read the full case of the Kentucky Supreme Court against Stan Chesley below or at goo.gl/45jav .
Among Chesley's actions cited by the court:
Bar investigators said Chesley tried to thwart an investigation into the settlement, even paying $250,000 to help settle a civil suit against one of his co-attorneys in the case so Chesley wouldn't have to testify.
Chesley signed off on documents sent to the Kentucky Bar Association that showed inflated settlement amounts for the fen-phen claimants in the original settlement. Chesley has said he did not know the numbers were wrong or inflated.
Sheryl G. Snyder, the attorney who represented Chesley in the Kentucky Bar Association hearing, issued this statement Thursday:
"Stan Chesley has been a distinguished lawyer and continues to be a philanthropic supporter of his community. He has a previously unblemished record of legal service and we are therefore disappointed with the Court's decision to impose such a severe sanction, especially in light of its finding that ‘it is not shown that he had specific knowledge of the deception practiced on each client' by the other lawyers."
But the court record also states that several circumstances taken together "convincingly establlish that (Chesley) was aware of the misconduct" by the other lawyers.
A message left for one of Chesley's attorneys, Jim Gary, was not immediately returned Thursday.
Chesley is considered the godfather of the modern class-action lawsuit. He rose to legal prominence more than 30 years ago when he won $50 million for victims of the 1977 Beverly Hills Supper Club fire in Southgate, which killed 165 and injured 116. The lawsuit was one of the first large product liability cases to go to trial.
That and other high-profile cases earned Chesley the nickname "Master of Disaster" in the legal community.
Recently, Chesley has been involved in headline cases against Toyota over allegations that cars unintentionally accelerated, and a class-action lawsuit against BP on behalf of stockholders who lost money after an oil rig explosion and fire in 2010 that killed 11 workers and touched off the enormous spill.
Locally, he sued the Diocese of Covington on behalf of sexual abuse victims. Many of them sued Chesley for his handling of the $80 million settlement.
Chesley is the fifth lawyer for the fen-phen claimants to be disbarred. Two of them, William Gallion and Shirley Cunningham, were convicted and sent to prison on federal charges of scamming their clients out of millions.
No criminal charges were filed against Chesley, but he has been implicated in civil court proceedings.
The fen-phen claimants originally hired Gallion, Cunningham and Melbourne Mills Jr. to sue the drug maker, American Home Products, which renamed itself Wyeth and is now a subsidiary of Pfizer. Fen-phen was pulled from the market in 1997 after users had heart problems related to the drug.
Later, those lawyers brought in Chesley. He claimed he acted as a lawyer for the lawyers in the
case, who had little experience with class-action lawsuits.
Prosecutors said Gallion, Cunningham and Mills Jr. illegally kept the bulk of the settlement but made more money available to their clients after the federal government began a criminal investigation.
The three lawyers created a charity, the Kentucky Fund for Healthy Living, with money from the settlement and named themselves and former Boone Circuit Judge Joseph Bamberger as directors. Bamberger, who approved the settlement, also lost his law license in the scandal.
Cunningham took $21 million in fees; Gallion nearly $31 million and Mills almost $24 million. The Kentucky Fund for Healthy Living received $20 million, and several other lawyers divided up $10.5 million.
After two distributions, the claimants received $73.5 million -- just less than 37 percent of the total settlement.
At the Kentucky Bar Association hearings in 2011, Board Chief Counsel Linda Gosnell termed the case a matter of "unbridled greed." She compared it to the Watergate scandal of the 1970s.
"What happened to the money?" she asked. "Mr. Chesley has been, from the start, a part of the fraud."
Chesley's attorney maintained that there was no evidence that Chesley participated in any scheme to obtain more fees than was called for in his contracts. Snyder said American Home Products had offered the claimants just $20 million until Chesley got involved.
"He got the award from $20 million to $200 million and that brought substantial value to the settlement," Snyder said. "It's not excessive. He earned it."
Snyder insisted Chesley was not aware of a conspiracy by the other lawyers to take excessive fees.
"The process by which Gallion, Cunningham and Mills negotiated with their clients and kept more of the money than they should have is something Mr. Chesley was not involved in," Snyder said. "After the settlement was reached Mr. Chesley's job was completed."
Snyder also insisted that Chesley was never involved in the cover-up that followed.
"Why would you cover up a crime you didn't commit," he said. "The law on ratification of their misconduct requires that he had to have specific knowledge of what they did. We don't think the evidence supports that conclusion."