Kentucky Bar Association v. Chesley

393 S.W.3d 584 (2013)

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Kentucky Bar Association v. Chesley

Kentucky Supreme Court
393 S.W.3d 584 (2013)

Facts

The Kentucky Bar Association (KBA) (plaintiff) brought disciplinary proceedings against attorney Stanley Chesley (defendant) for his conduct while representing members of a class action (class members) who were injured by the diet drug fen-phen. Kentucky attorneys Gallion, Cunningham, and Mills represented 431 Kentucky class members on a contingency-fee basis in the case Darla Guard v. A.H. Robins (Guard), primarily seeking damages from American Home Products (AHP). Chesley filed lawsuits on behalf of his own Kentucky fen-phen clients and promptly moved to consolidate his cases with Guard. Shortly thereafter, Chesley, Gallion, Cunningham, and Mills entered into an agreement that distributed roles for each attorney and set out a division of fees. Chesley’s role was lead settlement negotiator for 21 percent of the total attorney’s fees. Per the agreement, all attorneys were co-counsel, and all clients would be advised of the agreement, but none ever were. A settlement was reached at mediation: $200 million for the 431 Kentucky class members represented by Gallion, Cunningham, and Mills, with individual allocation to be determined by the class members’ co-counsel, in exchange for decertification of the class, dismissal of the lawsuits, and a schedule listing the allocation to each class member. Chesley did not sign the settlement, claiming he was only the negotiator. The co-counselors then successfully moved to decertify the class and dismiss the lawsuits, but none of the class members were notified of either action or the aggregate settlement. Instead, Gallion, Cunningham, and Mills falsely offered each client an amount that was far less than what the attorneys listed on the schedule. After law partners of Gallion and Mills grew suspicious of the fee distribution, Chesley and his co-counsel convinced the district-court judge to approve a 49 percent attorney’s fee. Ultimately, the pay-out to class members was $46 million, while the attorney’s fees totaled $99,220,500, with Chesley collecting $20 million. Chesley claimed to not know the source of or calculation used to determine that amount, which exceeded the 21 percent contracted rate, but he also argued that it was a fair fee. After the KBA opened inquiries into the conduct of the co-counsel, Chesley took actions to hide his involvement in the fee-skimming scheme. After a hearing, KBA recommended Chesley be disbarred and ordered to pay $7 million in restitution.

Rule of Law

Issue

Holding and Reasoning (Minton, C.J.)

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