Judge: Disbarred attorney Chesley owes $42 million to former clients in diet drug case

A Kentucky judge has ordered a once-prominent and now disbarred class-action attorney to pay $42 million to settle allegations he improperly took too much money in a diet drug lawsuit.

The ruling from Boone County Circuit Judge James P. Schrand comes 17 months after the Kentucky Supreme Court found that Stanley Chesley of Cincinnati, once dubbed the "Master of Disaster," engaged in unethical conduct in the settlement of a $200 million lawsuit involving the makers of the diet drug fen-phen.

The judge ordered Chesley to repay more than 380 clients.

Chesley, 78, took more than $20 million in attorney's fees from the settlement, which exceeded the amount established by his client contracts and his contracts with co-counsel.

Schrand found that Chesley should have received about $14 million — no more than 21 percent of one-third of the total settlement — and yet he accepted $6.4 million over that total. The four attorneys involved diverted much of the settlement to themselves and left about a third of the total to their clients.

"Chesley's conduct caused plaintiffs to receive only a portion of the settlement monies they were entitled to," Schrand wrote.

Attorneys Melbourne Mills Jr., William Gallion and Shirley Cunningham, all from the Lexington area, all lost their law licenses over their involvement in the case. David Helmers, an associate with Gallion, was disbarred in 2011. A Boone County judge ruled in 2007 that Gallion, Cunningham and Mills were also liable for the money.

The Kentucky Supreme Court also yanked the law license of state court Judge Jay Bamberger, who approved the 2001 settlement and later served on a board of a nonprofit that was started with proceeds from the $200 million settlement. The high court disbarred Chesley in March 2013. He subsequently retired from legal practice in Ohio, precluding any disciplinary action in that state.

Gallion and Cunningham, former owners of 2007 Preakness Stakes winner Curlin, were convicted on federal charges related to taking more than $94 million that should have gone to their former clients. Both are in federal prison, with Gallion serving a sentence until 2029 and Cunningham until 2025.

Mills was acquitted of all charges after his attorney successfully argued that Mills was too drunk during settlement negotiations and when the funds were disbursed to know what was going on.

Chesley has not been charged criminally and has repeatedly denied wrongdoing in the case. Chesley had argued that he represented the attorneys in the case and not the clients who sued him over the handling of the settlement. Schrand rejected that argument, noting that Chesley signed a fee-division contract with Gallion, Cunningham and Mills.

"Chesley shared the common purpose to be carried with Gallion, Cunningham and Mills. They agreed on how they would share the work and how they would share the profits," Schrand wrote.

The makers of fen-phen pulled the drug from the market in 1997 after users developed heart problems. The move spawned litigation across the country.

Chesley's attorney in the disbarment procedure did not immediately respond to phone messages Tuesday.

In one of Chesley's early cases, he won $50 million for victims of the deadly 1977 Beverly Hills Supper Club fire in northern Kentucky. His many major cases also included the 1980 MGM Grand hotel fire in Las Vegas, landmark national tobacco litigation, and more recently an $85 million settlement from the Roman Catholic Diocese of Covington, Kentucky, over priest sexual abuse.

He also has been a prolific fundraiser for politicians including Bill and Hillary Clinton.


Follow Associated Press reporter Brett Barrouquere on Twitter: http://twitter.com/BBarrouquereAP