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Fen-Phen Zen

Wednesday, April 4, 2007

Some of the lawyers who committed massive fraud are finally being brought to justice.

It’s the hoariest of Hollywood clichés: adventurers discover a treasure, and then let greed overwhelm them as they try to split the proceeds. Here, three Kentucky lawyers, William J. Gallion, Melbourne Mills Jr., and Shirley A. Cunningham Jr., managed to snag for themselves a share of a $200 million settlement with American Home Products (now known as Wyeth) for 440 clients who claimed to be injured from their use of the diet drug fen-phen. But the lawyers weren’t satisfied with the tens of millions of dollars their contracts with their clients would have paid them, and administered the settlement to leave their clients with only $74 million, a fraction of what they were supposed to receive.

A “charity” was established with $20 million of leftover fund proceeds, with the attorneys hired as directors for $5,000 a month. $27.7 million more of that $74 million may have been intended to be diverted; it was distributed to clients only after the state bar started sniffing around in 2002. Of course, none of this could have happened had the judge not approved the settlement as “fair and equitable”—but Judge Joseph F. Bamberger was himself being paid $5,000 a month from the same charity as a director. Bamberger’s former law partner was paid a $2 million fee even as he was buying a Florida house jointly with the judge. (Bamberger’s defense is that he approved the settlement without reading it. Let’s hear it for judicial oversight.)

Some of the greed is farcical. Cunningham spent a million dollars to endow a chair in his own name at Florida A&M Law School—and negotiated to sit in his own chair for a six-digit salary. A school audit, according to a report in the St. Petersburg Times, says he never did any work. There was possibly even intramural greed: Court filings claim that Cunningham and Gallion at first hid $50 million of the settlement from Mills; Mills himself was sued by his secretary, who unsuccessfully claimed she had been stiffed of a promised Erin-Brockovich-sized share for her role in thinking up the business strategy of advertising for pharmaceutical plaintiffs.

Some of the greed is farcical. Cunningham spent a million dollars to endow a chair in his own name at Florida A&M Law School—and negotiated to sit in his own chair for a six-digit salary.

Now most of the former plaintiffs are suing their former lawyers (though their current lawyers will take a share of what they recover, and Gallion and Cunningham have followed O.J. Simpson’s lead to Florida, where they have the option of declaring bankruptcy and holding on to a large homestead there). A judge has found civil fraud by the lead three; Bamberger has resigned from the bench; the facts are egregious enough that the oxymoron of lawyer discipline has come into play. The three Kentucky attorneys were suspended in August.

Among the defendants in the suit to recover the diverted proceeds is a deep pocket: one of the biggest trial lawyers, Stanley Chesley, who negotiated the settlement with American Home Products, but claims not to owe any duty to the plaintiffs. Chesley, who made his fortune with junk science litigation against breast implants and Bendectin and in the questionable state tobacco settlement, is a Friend of Bill who raised sizable sums for the Democratic Party and both Clintons; his wife, Susan Dlott, received a federal judgeship; Bill Clinton presented Chesley’s granddaughter with a birthday cake. There’s a certain irony in Chesley’s predicament: he made his name suing deep-pocketed wire manufacturers who had nothing to do with the disastrous Beverly Hills Supper Club fire on a theory that the entire industry had “enterprise liability” for any wiring-related blaze. And when terrorists blew up a jet over Lockerbie, Scotland, Chesley brought the lawsuit against deep-pocket Pan Am, victimizing it a second time and contributing to its bankruptcy.

Chesley so far hasn’t been held accountable like the other three lawyers, who are also facing federal grand jury investigations, while Chesley’s attorney says he is not a grand jury target. But the plaintiffs argue, not implausibly, that Chesley is more than an innocent bystander. Chesley claims that he merely negotiated among the three lead plaintiffs’ lawyers and American Home. But filings identify Chesley as an attorney for the plaintiffs. A misleading letter to the plaintiffs was drafted on the computer of one of Chesley’s firm’s attorneys. And though Chesley’s contract called for him to receive $14.5 million, he was paid $20.5 million; Chesley claims never to have questioned why he received so much extra money. One wonders how a typical plaintiffs’ lawyer would treat a corporate CEO in the same situation.

As fen-phen litigation scandals go, this one is unique only because it is so brazen. Billions have been stolen over the years from Wyeth shareholders through perjured witness statements and falsified medical records; plaintiffs continue to bring lawsuits seeking millions alleging damage from failure to warn, even as they continue to take other diet drugs that disclose the same side effects. Two other grand juries in Mississippi and Pennsylvania are investigating, though only a single attorney and a handful of paralegals have been convicted.

One would like to see U.S. Attorneys more aggressively pursuing trial-lawyer fraud. One certainly cannot trust the bar to police its own: Chesley himself is a former chair of Ohio’s Board of Commissioners on Grievances and Discipline. A proposal from a committee of professors at the American Law Institute shows just how out of touch the legal academic community is on the question. Their solution? Hold defendants legally liable for ethical breaches by plaintiffs’ counsel in aggregate litigation like the Kentucky fen-phen settlement. With chutzpah and indifference like this, we have not seen the last of trial-lawyer fraud.

Ted Frank is a Resident Fellow at the American Enterprise Institute and director of the AEI Liability Project. He is working on a book on fraud in the plaintiffs’ bar.

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