891 F.3d 603 (6th Cir. 2018), 17-3519, McGirr v. Rehme

Docket Nº:17-3519
Citation:891 F.3d 603
Opinion Judge:SUHRHEINRICH, Circuit Judge.
Party Name:Connie MCGIRR, et al., Plaintiffs-Appellees, v. Thomas F. REHME; Waite, Schneider, Bayless & Chesley Co., L.P.A., Defendants-Appellants.
Attorney:Donald J. Rafferty, Cohen, Todd, Kite & Stanford, Cincinnati, Ohio, for Appellants. Angela M. Ford, Lexington, Kentucky, for Appellees. Donald J. Rafferty, Cohen, Todd, Kite & Stanford, Cincinnati, Ohio, for Appellants. Angela M. Ford, Lexington, Kentucky, Brian S. Sullivan, Dinsmore & Shohl, LLP...
Judge Panel:Before: SUHRHEINRICH, GIBBONS, and KETHLEDGE, Circuit Judges.
Case Date:May 31, 2018
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 603

891 F.3d 603 (6th Cir. 2018)

Connie MCGIRR, et al., Plaintiffs-Appellees,


Thomas F. REHME; Waite, Schneider, Bayless & Chesley Co., L.P.A., Defendants-Appellants.

No. 17-3519

United States Court of Appeals, Sixth Circuit

May 31, 2018

Argued: May 3, 2018

Page 604

[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Southern District of Ohio at Cincinnati, No. 1:16-cv-00464— Robert H. Cleland, District Judge.


Donald J. Rafferty, Cohen, Todd, Kite & Stanford, Cincinnati, Ohio, for Appellants.

Angela M. Ford, Lexington, Kentucky, for Appellees.


Donald J. Rafferty, Cohen, Todd, Kite & Stanford, Cincinnati, Ohio, for Appellants.

Angela M. Ford, Lexington, Kentucky, Brian S. Sullivan, Dinsmore & Shohl, LLP, Cincinnati, Ohio, for Appellees.



SUHRHEINRICH, Circuit Judge.

For years, plaintiffs’ attorney Stanley Chesley[1] appears to have been orchestrating a high-stakes shell game in an effort to escape a long-overdue multi-million dollar judgment. In the process, he has defrauded hundreds of judgment creditors, many of whom are plaintiffs here.

Three-and-a-half years ago, a Kentucky state court issued a judgment in plaintiffs’ favor against Chesley for $42 million. Since then, the plaintiffs have been trying to collect on that judgment and Chesley has been successfully evading them with the help of his confidantes. In the process, five lawyers have been disbarred; two have been put in jail. Through it all, Chesley has managed to transfer most of his assets elsewhere, rendering himself judgment-proof and forcing the plaintiffs to file the fraudulent conveyance action underlying this appeal.

While that fraudulent conveyance action was pending, Chesley initiated an Ohio state probate court action. He claims the action was started for legitimate purposes— to pay off his law firm’s creditors in a judicially-supervised forum. The district court disagreed. Sensing Chesley was using the probate action to continue to conceal his assets, it issued a preliminary injunction freezing those assets. In the time since the injunction was entered (and this appeal was filed), that probate action was dismissed and declared fraudulent.

The preliminary injunction— which is worded broadly enough to remain effective despite the probate action’s dismissal— is the subject of our review in this interlocutory appeal. Because the injunction is still adequately supported by the record evidence and because it is still necessary, we affirm.

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Fen-Phen Lawsuit and Settlement .

The story behind this lawsuit, as chronicled by several courts,2 begins in 1998. Three now-disbarred attorneys named Gallion, Cunningham, and Mills gathered a class of plaintiffs to sue American Home Products, manufacturer of the popular diet drug fenfluramine/phentermine (or "fen-phen"), for injuries sustained as a result of the drug’s side effects. Stanley Chesley, seeing the profit-wielding potential of such a lawsuit, started his own class action against American Home Products. He then convinced the other attorneys to merge their case with his. That case moved forward under the caption of Darla Guard, et al. v. A.H. Robins Company et al., No. 98-CI-795 (Ky. Cir. Ct. 1998) (the "Guard case").

In 2001, the parties negotiated a settlement for over $200 million and the case was dismissed, all unbeknownst to and without the approval of the class-action plaintiffs. American Home Products left it to Chesley and the other lawyers to divvy up the settlement among the class members as they saw fit. Trusting the attorneys with such a task proved to be a mistake.

So the fraud began. First, Gallion, Cunningham, and Mills met with each client separately. In each meeting, the attorneys lied and told their client that American Home Products had made the client an individualized settlement offer. Then, the attorneys offered an amount well-below what they would later report to American Home Products. For instance, the lawyers might tell a client that he had been offered $100,000 as a settlement and then report to American Home Products that the same client would be receiving $200,000— the lawyers kept the difference. Counseled exclusively by their self-serving attorneys, all of the clients assented and the settlement was finalized. In the event that a client refused, the lawyers came back a few days later with a slightly larger (but still inadequate) offer, explaining that they had successfully negotiated a higher settlement. That too was a lie.

To preserve the scheme’s secrecy, the attorneys told the clients that the individualized settlements were confidential and that, should the client reveal how much he had been paid, he could be sent to jail. Thus, the lawyers guaranteed the clients’ discretion and, in turn, their own protection.

The lawyers, at least for the time being, made out like bandits. American Home Products distributed a total of $200,450,000.00 in a few installments. For his part, Chesley’s contingency fee arrangement entitled him to $12,767,744.45 of that settlement. Due to the fraudulent scheme, he initially received $16,497,121.87 (and would later receive more). The clients were scheduled to receive some two-thirds of the total settlement amount, roughly $134 million. In total, they received just over $74 million.

The scheme did not go unnoticed for long. The Office of Bar Counsel in Kentucky grew suspicious and began to ask questions about the settlement. Sensing that they were about to be caught, Chesley and his co-counsel sought to cover their tracks.

Page 607

Chesley arranged an off-the-record meeting with Kentucky state judge Bamberger, who had presided over the Guard case. In that meeting, Chesley managed to convince Judge Bamberger to retroactively award attorneys’ fees amounting to 49% of the settlement, despite the fact that all four attorneys had previously negotiated lesser contingency fee arrangements with their clients. Judge Bamberger signed an order that concealed the details of this new fee arrangement and also sealed the record— thereby preserving the secrecy of this meeting and giving the lawyers the cover they sought.3 A few months after the meeting, Chesley received a check for another $4 million from the settlement funds— bringing his plunder to nearly $20.5 million. It bears noting that even the new 49% fee arrangement under-reported the amount the lawyers received— the lawyers and their agents kept $126,255,422.87 of the settlement funds, some 63%. Bamberger, 354 S.W.3d at 578.

The fallout from this scheme has been sweeping. Five lawyers and a judge have been permanently disbarred. See

Chesley, 393 S.W.3d 584; Bamberger, 354 S.W.3d 576; Ky. Bar Ass’n v. Helmers, 353 S.W.3d 599 (Ky. 2011); Ky. Bar Ass’n v. Mills, 318 S.W.3d 89 (Ky. 2010); Cunningham v. Ky. Bar Ass’n, 266 S.W.3d 808 (Ky. 2008); Gallion v. Ky. Bar Ass’n, 266 S.W.3d 802 (Ky. 2008). Two of Chesley’s accomplices were convicted of wire fraud. See Cunningham, 679 F.3d 355. They are serving prison sentences of 240 months and 300 months, respectively. Id. at 370. Chesley avoided prosecution by testifying against his co-counsel. Id. at 384.

The $42 Million Judgment .

Once the scheme became clear to the class plaintiffs, they filed another lawsuit— this time against their lawyers. In December 2004, they brought suit alleging misconduct and mismanagement of the Guard case funds. The lawsuit, styled Abbott v. Chesley, was brought in the Boone County Circuit Court in Kentucky. In March 2006, that court granted summary judgment against Chesley’s accomplices, but not yet against Chesley. It then entered a $42 million judgment against those lawyers on August 1, 2007, representing the amount that the plaintiffs had been deprived of.

Meanwhile, the Kentucky Bar Association investigated Chesley for his role in the Guard case settlement. That investigation led the Kentucky Bar to issue a complaint against Chesley, which was then presented to a state Trial Commissioner. The Commissioner held that Chesley had violated eight separate rules of professional conduct[4] and recommended his permanent disbarment. In June 2011, the Board of Governors unanimously agreed, and in 2013 the Kentucky Supreme Court affirmed that decision. Chesley, 393 S.W.3d at 601-02. Chesley’s time as an attorney in Kentucky had come to an end.

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But that wasnt the end of Chesleys problems. He was required to report his Kentucky disbarment to the Ohio Bar Association too, which would likely impose reciprocal discipline and disbar him from Ohio. See Ohio Supreme Court Rules for the Govt of the Bar V(20). Instead...

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