Chesley v. Abbott
| Decision Date | 10 March 2017 |
| Docket Number | NO. 2014-CA-001984-MR,NO. 2014-CA-001725-MR,NO. 2014-CA-001900-MR,2014-CA-001725-MR,2014-CA-001900-MR,2014-CA-001984-MR |
| Parties | STANLEY M. CHESLEY APPELLANT v. MILDRED ABBOTT, ET AL. APPELLEES |
| Court | Kentucky Court of Appeals |
TO BE PUBLISHED
APPEALS FROM BOONE CIRCUIT COURT
This appeal relates to the conduct of Stanley Chesley and his role in the settlement of Darla S. Guard, et al. v. American Home Products, Inc. (the Guard case),2 commenced in 1998 to prosecute the claims of individuals injured after ingesting the diet drug known as "Fen-Phen."
The manufacturers of the drug agreed to a settlement in gross of $200,450,000.00. However, the plaintiffs received only $73,296,864.96. Approximately $20,500,000.00 was diverted to fund a sham non-profit organization created by the attorneys involved in the litigation. The attorneys divided the balance of the settlement proceeds, amounting to roughly $106,000,000.00. However, the agreement to engage the attorneys limited the contingency fee to $60,798,783.14. Chesley's share of the fee should have been about $12,767,744.45. In fact, Chesley received a total of $20,497,121.87.
The former Plaintiffs in the Guard case brought a new action claiming breach of fiduciary duty against their former attorneys, Gallion, Cunningham,Mills, and Chesley. More specifically, those former plaintiffs - Appellees here - alleged the attorneys had wrongfully retained more of their client's settlement funds than that to which they were entitled or improperly disbursed a portion of the settlement funds.
Appellees moved for summary judgment on their breach of fiduciary duty claims against all four attorneys in 2007. The circuit court granted the motion as against Gallion, Cunningham, and Mills, but denied the motion as to Chesley, finding there were still genuine issues of material fact regarding his liability.
The summary judgment against Gallion, Cunningham, and Mills was joint and several. It included an award to Appellees of "baseline" compensatory damages equaling $42,000,000.00, plus interest at 8%.3 The Kentucky Supreme Court affirmed the judgments against Gallion, Cunningham, and Mills in Abbott v. Chesley, 413 S.W.3d 589 (Ky. 2013) ("Chesley I"). The Court declined to consider the appeal relating to Chesley because of the interlocutory nature of the denial of summary judgment as to him. Id. at 602. Notwithstanding that ruling, the Court pointed out that Chesley's relationship with the clients and his role in the enterprise appeared to differ from that of the other three attorneys, and then stated:"[w]hether the differences prove to be material is a matter that can only be determined as the case against him proceeds in the trial court." Id. at 605.
While Chesley I was pending before the Supreme Court, the Kentucky Bar Association (KBA) investigated claims of professional misconduct against all the attorneys involved.4 On December 4, 2006, the KBA Inquiry Commission issued its Complaint of Misconduct against Chesley alleging violations of eight Rules of Professional Conduct. In 2009, an additional violation was alleged. After an extensive hearing including the testimony of some 43 witnesses and the submission and review of over one hundred exhibits, the Trial Commissioner issued a report finding that Chesley had violated all nine ethics rules alleged. In light of the number and severity of the violations, the Trial Commissioner recommended Chesley be permanently disbarred from the practice of law in Kentucky. Additionally, the Trial Commissioner recommended that Chesley pay $7,555,000.00 in restitution to the Guard case clients.
The Board of Governors then heard argument and reviewed the matter. The Board adopted the Trial Commissioner's report and his recommendations by a vote of eighteen to zero. Chesley sought review by the Kentucky Supreme Court.
The Supreme Court found Chesley guilty of eight of the alleged violations and permanently disbarred him from the practice of law in the Commonwealth of Kentucky. The Court declined to order Chesley to pay restitution, "as that remedy is not appropriate in a case of permanent disbarment, and the claims are being litigated in a separate, civil litigation." Kentucky Bar Ass'n v. Chesley, 393 S.W.3d 584, 586 (Ky. 2013) ("Chesley II").
Subsequent to the order disbarring Chesley from the practice of law in Kentucky, Appellees filed a motion for summary judgment in Boone Circuit Court. The motion argued that summary judgment was appropriate as to their breach of fiduciary duty claims against Chesley through the doctrine of collateral estoppel, also known as issue preclusion.5 Appellees asserted that Chesley was bound by the Court's findings and conclusions in Chesley II regarding his role and the scope of his duties in the Guard case. Additionally, Appellees insisted that Chesley be held jointly and severally liable with Gallion, Cunningham, and Mills for the amount judgment against them of approximately $42,000,000.00. Appellees further sought disgorgement of all fees Chesley had collected in the matter.
The circuit court determined that Chesley was bound by the factual findings and legal conclusions in the KBA disciplinary matter, Chesley II. Basedon the Supreme Court's findings, the circuit court determined that no genuine issue of material fact remained, and therefore, summary judgment was appropriate on the breach of the fiduciary duty claim. The court noted that Chesley II established that Chesley had entered into an attorney-client relationship with the plaintiffs in Guard; he breached his duty by accepting fees in excess of the amount he was entitled to receive; and Chesley's conduct caused Appellees to receive only a portion of the settlement funds to which they were entitled.
Further, the circuit court found that no genuine issue of material fact remained and, as a matter of law, held Chesley jointly and severally liable with Gallion, Cunningham, and Mills for the $42,000,000.00 in damages previously awarded to Appellees. The circuit court determined Chesley signed on as co-counsel in the Guard matter when he contracted with Gallion, Cunningham, and Mills; the attorneys had agreed as to how the work would be borne and how they would share the profits. The circuit court further found Chesley "maintained a voice in the managerial control of the enterprise." (R. 6172). The court denied the motion as to the disgorgement claim. The initial order granting Appellees' summary judgment, entered August 1, 2014, did not include the finality recitations required by Kentucky Rule of Civil Procedure (CR) 54.02. That order was amended on September 19, 2014, and again on October 22, 2014. The October 22, 2014 order is the judgment, as amended, from which this appeal was taken. The final judgment contains the finality recitations, incorporates previous orders, and adds an award of pre- and post-judgment interest. (R. 6166).
Chesley then filed a motion to clarify with respect to the identification of plaintiffs and the amount awarded to each plaintiff. He also filed a motion pursuant to CR 60.02 to vacate the judgment. The court denied Chesley's motions.
We must note here that, during post-judgment discovery, Chesley disclosed that he had transferred certain of his assets to an Ohio trust. Chesley v. Abbott, 503 S.W.3d 148, 151 (Ky. 2016) ("Chesley III"). On June 23, 2015, the circuit court entered an order requiring Chesley to transfer his beneficial interest in his Ohio trust to the Appellees to satisfy the $42 million judgment. We will discuss the relevance of this post-judgment order in our analysis.
Chesley brought the three appeals now before us to challenge the judgments of September and October 2014, and the November 2014 order denying CR 60.02 relief. Additional facts will be discussed as necessary.
"The standard of review on appeal of summary judgment is whether the trial court correctly found there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law." Carter v. Smith, 366 S.W.3d 414, 419 (Ky. 2012). "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). Our review is de novo. Mitchell v. University of Kentucky, 366 S.W.3d 895, 898 (Ky. 2012).
Before the trial court, "[t]he moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present" evidence establishing a triable issue of material fact. Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001). That is, "[t]he party opposing a properly presented summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing the existence of a genuine issue of material fact for trial." City of Florence, Kentucky v. Chipman, 38 S.W.3d 387, 390 (Ky. 2001).
Whether a circuit court ruling constitutes a final decision or judgment is a question of law. See First Nat. Bank of Mayfield v. Gardner, 330 S.W.2d 409, 411 (Ky. 1959).
In its Second Amended Judgment entered October 22, 2014, the circuit court found Chesley liable for breaching his fiduciary duty, determined the...
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