Ky. Bar Ass'n v. Chesley

• Decision Date: 21 March 2013
• Docket Number: No. 2011–SC–000382–KB.,2011–SC–000382–KB.
• Citation: 393 S.W.3d 584
• Parties: KENTUCKY BAR ASSOCIATION, Movant v. Stanley M. CHESLEY, Respondent.
• Court: United States State Supreme Court — District of Kentucky

393 S.W.3d 584

KENTUCKY BAR ASSOCIATION, Movant

v.Stanley M. CHESLEY, Respondent.

No. 2011–SC–000382–KB.

Supreme Court of Kentucky.

March 21, 2013.

OPINION AND ORDER

The Board of Governors of the Kentucky Bar Association has recommended to this Court that Respondent, Stanley M. Chesley, KBA Number 11810, be permanently disbarred for committing eight counts of professional misconduct as charged in KBA File 13785. Chesley was admitted to the practice of law in Kentucky on November 29, 1978, and maintains a bar roster address of Fourth and Vine Tower, Suite 1513, Cincinnati, Ohio 45202.

The Board found that Respondent had violated the following provisions of SCR 3.130, the Kentucky Rules of Professional Conduct:

a) SCR 3.130–1.5(a)—a lawyer's fee shall be reasonable. Attorney's fee of over $20 million exceeded amount established by client contract and contract with co-counsel, and was otherwise unreasonable;

b) SCR 3.130–1.5(c)—contingent fee agreement. Attorney and co-counsel failed to provide clients with a writtenstatement stating the outcome of the matter and showing the remittance to the client and method of its determination;

c) SCR 3.130–1.5(e)(2)—division of fees among lawyers of different firms. Attorneys dividing fees without the consent of clients confirmed in writing;

d) SCR 3.130–5.1(c)(1)—responsibility for partners. Attorney knowingly ratified specific misconduct of other lawyers.

e) SCR 3.130–1.8(g)—conflict of interest. Attorney representing two or more clients participated in making an aggregate settlement of the claims of the clients ... without consent of clients and without disclosure of the existence and nature of all the claims ... and of the participation of each person included in the settlement;

f) SCR 3.130–3.3(a)—candor to the tribunal. Attorney knowingly made a false statement of material fact or law to a tribunal; Attorney failed to disclose a material fact to the tribunal to avoid a fraud upon the tribunal;

g) SCR 3.130–8.1(a)—disciplinary matters. Attorney made a false statement of a material fact in connection with a disciplinary matter; and

h) SCR 3.130–8.3(c) [now codified as SCR 3.130–8.4(c) ]—Attorney engaged in conduct involving dishonesty, fraud, deceit, or misrepresentation following the initial distribution of client funds and concealed unethical handling of client funds by others.

The Board recommended the permanent disbarment of Respondent and further requests an order of this Court awarding restitution to the affected former clients in the amount of $7,555,000.00. Pursuant to SCR 3.370(8), Respondent filed with this Court a notice to review the Board's recommendation. Upon review, we find that Respondent is guilty of eight of the alleged violations, specifically those charged under SCR 3.130–1:5(a), SCR 3.130–1.5(c), SCR 3.130–1.5(e), SCR 3.130–1.8(g), SCR 3.130–3.3(a), SCR 3.130–8.3(c), SCR 3.130–8.3(c) [now codified as SCR 3.130–8.4(c) ], and SCR 3.130–5.1(c)(1). We permanently disbar him from the practice of law in the Commonwealth of Kentucky. We decline to order restitution, as that remedy is not appropriate in a case of permanent disbarment, and the claims are being litigated in separate, civil litigation.

I. FACTUAL AND PROCEDURAL BACKGROUND

The following facts and procedural history are taken from the record of the trial commissioner hearings, and report of the trial commissioner, Honorable William L. Graham, which was presented to the Board of Governors.

In March 2006, the Inquiry Commission, acting under rules established by this Court for the adjudication of attorney disciplinary actions, formally began an investigation of Respondent, Stanley Chesley, for his conduct in the settlement of the case of Darla Guard, et al. v. A.H. Robins Company, et al, (the Guard case) ¹ in the Boone Circuit Court, Boone County, Kentucky, including his conduct in the disbursement of funds generated by the settlement of that case. The Inquiry Commission had already been investigating the conduct of other lawyers in connection with that case, namely William Gallion, Shirley Cunningham, Melbourne Mills, and David Helmers, an employee of the Gallion firm.² In December 2006, the Inquiry Commission issued formal charges against Respondent.

The Guard case began in 1998. Gallion, Cunningham, and Mills had contingent fee contracts with some 431 ³ persons who claimed to have been injured by the diet drug commonly known as “fen-phen.” Mills, because of his aggressive advertising, had secured the great majority of those clients and his contingent fee contracts provided for an attorney's fee of 30% of the sum recovered for the client; Cunningham's contracts provided a 33% fee, and the Gallion/Helmers contracts provided for a contingent fee of 33 1/3%. The Boone Circuit Court certified the case as a class action on behalf of the 431 individually-named Kentucky residents and others similarly situated who had been injured by fen-phen. The manufacturer of fen-phen, American Home Products, was the principal defendant in the action.

When the Guard case was filed, other similar claims against American Home Products were being pursued in other jurisdictions. A vast number of such claims were consolidated into a single “national” class action pending in a Pennsylvania federal district court. Respondent served as a member of the management committee in the Pennsylvania litigation and participated in the negotiations that reached a settlement of that case. As a result of his involvement in that case, Respondent became familiar with American Home's settlement policies and he became acquainted with its settlement personnel. All of the Guard case plaintiffs opted-out of the national settlement with the hope of achieving a more favorable settlement in the Kentucky litigation.

Independently of his involvement in the national case, Respondent initiated a fen-phen lawsuit on behalf of his own clients in the Boone Circuit Court, which he promptly attempted to have consolidated with the Guard case. The Guard case plaintiffs' counsel voiced strong objections to Respondent's effort to merge the cases. Eventually, however, they relented and accepted the consolidation. Respondent's national reputation and his experience in the national fen-phen settlement was a factor that induced them to drop their opposition to his intrusion into their case.

With the claims of their clients merged, Respondent, Gallion, Cunningham, Mills, and Richard Lawrence, an attorney from Cincinnati who also represented a few individual fen-phen claimants, entered into a collaborative agreement outlining the role each attorney was to perform in the litigation. They also agreed upon a method of dividing the attorneys' fees earned in the case. Gallion would serve as lead trial counsel in the event the case was tried, and would prepare the case accordingly. Cunningham and Mills would enroll clients and maintain client contact information. Respondent would act as “lead negotiator” in the effort to secure a settlement of the claims. Originally, the agreement provided that Respondent would take 27% of the total attorney's fee earned from any of the individual claims he might settle and from an aggregate settlement that resolved all of the claims.

The fee-apportionment agreement was reduced to writing and it expressly provided that “all parties to this agreement shall have the right to review all contracts between themselves and any other parties that may affect the fees earned and all clients shall be advised of this agreement.” (emphasis added). The agreement also stated clearly that “all parties to this agreement shall be identified as co-counsel in the class action styled Guard v. American Home Products in Boone Circuit Court in Kentucky.” The agreement provided that it could be terminated by any of the attorneys on December 31, 2000. Respondent, Gallion, Cunningham, Mills, and Lawrence all signed the agreement. Respondent did not inform any clients of the agreement and he undertook no effort to determine whether any of his “co-counsel” informed the clients of the division of effort and fee-sharing arrangements. None of the clients were so informed. Respondent attempted to negotiate a collective settlement of all the Guard claims before the December 31 termination date, but he was not successful. He did, however, achieve individual settlements of a few cases. In those cases, the attorney's fees taken were based upon the specific contingency fee agreement with that client.

In late 2000, Respondent corresponded with his co-counsel about extending the arrangement. As a result, a new agreement was reached. The new agreement was similar in all material aspects to the original agreement except that it reduced Respondent's fee for negotiating a settlement of the claims to 21% of the total attorney fees earned. The new agreement contained the same express provisions requiring that all clients receive notice of the fee agreement and that all of the attorneys be “identified as co-counsel in the class action styled Guard v. American Home Products in Boone Circuit Court in Kentucky.”

The Guard case trial was scheduled to begin in the summer of 2001. A pretrial mediation conference was scheduled. Respondent suggests that his ongoing discussions with opposing counsel actually settled the case before the mediation conference, and that the mediation itself was merely for show. Regardless, a settlement agreement was announced on the second day of the mediation.

The settlement agreement provided that plaintiffs' counsel would obtain the decertification of the Guard case as a class action and the dismissal of all claims. American Home Products would pay an aggregate sum of $200 million to be divided among the 431 individual clients who had fee contracts with Mills, Cunningham, Gallion, and Lawrence. Those claims would be dismissed with prejudice. The remaining members of the class who had joined the action, approximately 143 individuals,...