Tuesday, August 18, 2009

Kentucky Fen-Phen Lawyers Given Long Prison Sentences

Attorneys William Gallion and Shirley Cunningham Jr. were sentenced yesterday to 25 and 20 years, respectively, for defrauding clients out of millions of dollars in connection with a settlement of fen-phen claims.  They were ordered, in addition, to pay over $127 million in restitution and to forfeit $30 million to the government.  Both were already disbarred.  Although lighter than the prosecutors recommended, these sentences mean that Gallion and Cunningham will probably spend most of the remainder of their lives in prison; both men are in their 50s and the federal system does not allow parole.  The defendants plan to appeal.

According to this news report from the Louisville Courier-Journal, U.S. District Judge Danny Reeves said that both lawyers were guilty of "unbridled greed" and neither showed "a grain of remorse."  Had they taken what they were entitled to, each would have earned millions of dollars in legitimate fees, but Judge Reeves said that it “appears to the court that they just wanted more.”  Bloomberg reports that the judge stated that the sentences are intended to deter other lawyers from stealing settlement funds.

The case involved a settlement of over 400 fen-phen plaintiffs who had opted out of the nationwide diet drugs settlement class action reached by Wyeth (formerly American Home Products).  After thousands of plaintiffs nationwide opted out of the settlement class action, Wyeth proceeded to negotiate aggregate settlements with plaintiffs' law firms around the country.  In Kentucky, a state court had certified a fen-phen class action for litigation but Wyeth negotiated a settlement of the individual clients' claims on condition that the class be decertified.  The attorneys -- Gallion, Cunningham, and Melbourne Mills -- had individual retainer agreements with their clients that provided for contingent fees of 30% and 33%.  The government charged that the lawyers took far more than they were entitled to.  It charged that the lawyers lied to their clients about the settlement allocations, took millions of dollars in court-awarded fees in addition to their contingent fees, and took millions more to set up a foundation called the Kentucky Fund for Healthy Living that would pay them as salaried managers.  Mills was initially charged along with Gallion and Cunningham, but he was acquitted in an earlier trial where he successfully contended that he was too drunk to have been guilty of the crime.  According to the Bloomberg report, Gallion and Cunningham tried to avoid responsibility by arguing that they didn't understand what they were doing and were following another lawyer's advice:  "Lawyers for Gallion and Cunningham argued that they were innocent, inexperienced in handling large awards in class-action suits and made mistakes. They tried to blame Cincinnati lawyer Stan Chesley for many of the men’s decisions."

At the trial, I testified for the government as an expert on questions of civil procedure and legal ethics.  The case raised questions about the intersection of class actions and non-class aggregate settlements and about lawyers' duties in connection with class and non-class settlements.  The court, after a Daubert hearing, agreed with my analysis of the issues and disqualified the defendant's expert from testifying, finding his proposed testimony unreliable.  U.S. v. Gallion, 257 F.R.D. 141 (E.D. Ky. 2009).

In one of many odd twists, the case captured the attention of sports fans because Gallion and Cunningham were part owners of the champion racehorse Curlin.

HME

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