$20 million for trust will be put in escrow

By Andrew Wolfson                  Reprinted from The Courier-Journal March 10, 2006

The three lawyers who represented plaintiffs in Kentucky's fen-phen settlement passed "out money to themselves and others like it was theirs to do with as they wished," a special judge said this week.

Judge William Wehr of Campbell County ruled that attorneys Shirley Cunningham Jr., William Gallion and Melbourne Mills Jr. breached their duty to their 431 clients when they paid themselves and others more than half of the $200 million settlement and put $20 million more into a charitable trust, the Fund for Healthy Living.

Wehr ordered the lawyers to surrender the trust's $20 million and place it in escrow so it can be distributed to their former clients if they win a pending suit against the attorneys.

The judge noted that the lawyers and other directors of the fund paid themselves more in fees during its first two years than they paid out in grants.

Jacqueline McMurtry, of Louisville, who suffered heart damage from taking fen-phen, the once popular diet drug combination, and was represented by Cunningham, said she was "ecstatic" with the ruling.

Cunningham and Gallion, of Lexington, and Mills, of Versailles, did not respond to requests for comment, and their attorney, William Johnson, couldn't be reached.

Wehr's findings mirror those in a public reprimand issued last month to the presiding judge in the fen-phen litigation, Senior Judge Joseph F. Bamberger, who resigned rather than face removal from office for approving huge fees for the attorneys and a close friend, trial consultant Mark Modlin.

Bamberger approved transfer of the $20 million to the fund, then became one of its paid directors, along with Modlin. The Judicial Conduct Commission said in its reprimand that Bamberger's actions "shocked the conscience."

In an order issued Wednesday, Wehr said Cunningham, Gallion and Mills signed contracts with clients limiting their recovery to 33 1/3 percent -- and that they agreed to make no settlements without their clients' consent. But they eventually paid themselves more than 50 percent of the total settlement and falsely told Bamberger it was with their clients' approval, Wehr said.

He said the attorneys' defense -- that their pay was approved by "a now reprimanded judge" -- falls short because the lawyers never told Bamberger about the contingency contracts, nor the amount of money being transferred to the Fund for Healthy Living.

"To get the vague order of approval from the court," Wehr said, "they represented that all proceeds were handled in accordance with the intentions of the parties. In reality, they were passing out money to themselves and others like it was theirs to do with as they wished."

Wehr said the settlement included contingency payments to nonlawyers, including $2 million to Modlin, although such payments cannot be made to nonlawyers in Kentucky

In the original lawsuit, five Kentuckians filed a complaint in 1998 in Boone Circuit Court against American Home Products Corp., which made one of the drugs in fen-phen. Eventually, 431 Kentuckians, opting out of a national case, joined in the Boone County suit. In 2001, they received settlements, in confidential amounts, based on their specific injuries.

In December 2004, after finding that $20 million in supposedly leftover funds had been diverted into the Fund for Healthy Living, a couple dozen plaintiffs filed a new lawsuit against their former lawyers asking for a full accounting of the settlement.

The plaintiffs, whose number has grown to about 200, now are asking that the lawyers be forced to give back excessive fees -- and that the money placed in the fund go to their former clients.

Wehr scheduled a hearing for April 12 on their motions.

According to Wehr's accounting, Cunningham, Gallion and Mills paid themselves $20 million each. A fourth attorney, Stan Chesley of Cincinnati, who was counsel to the other attorneys, was paid another $20 million. The total in fees and other costs was $106 million, plus $20 million for the fund, which left $74 million for the plaintiffs to share. Chesley was not included in Wehr's order because he has separate counsel who had requested a delay in ruling on his case.