Cunningham v. Kentucky Bar Ass'n, No. 2008-SC-000630-KB.

• Decision Date: 23 October 2008
• Docket Number: No. 2008-SC-000630-KB.
• Citation: 266 S.W.3d 808
• Parties: Shirley A. CUNNINGHAM, Jr., Movant, v. KENTUCKY BAR ASSOCIATION, Respondent.
• Court: United States State Supreme Court — District of Kentucky

266 S.W.3d 808

Shirley A. CUNNINGHAM, Jr., Movant, v. KENTUCKY BAR ASSOCIATION, Respondent.

No. 2008-SC-000630-KB.

Supreme Court of Kentucky.

October 23, 2008.

OPINION AND ORDER

The Movant, Shirley A. Cunningham, Jr., KBA Member Number 16220, 3101 Richmond Road, Suite 304, Lexington, Kentucky 40509, moves this Court to withdraw his membership to the Kentucky Bar under terms of permanent disbarment. Pursuant to SCR 3.480, Movant admits that his conduct in the case, Darla Guard, et al. or Jonetta Moore, et al. v. A.H. Robins Company, et al.¹ (hereinafter the Fen-Phen case), violated certain Supreme Court Rules as charged in KBA File 9339. For the reasons set forth herein, we grant Movant's motion.

The charges against Movant stem from a class action lawsuit filed against American Home Products (AHP) in the Boone Circuit Court in July 1998, on behalf of several plaintiffs who claimed to have been injured by AHP's diet drug, Fen-Phen. All of the plaintiffs Movant represented entered into contingency fee contracts with him. A settlement agreement was reached in May 2001 between the plaintiffs and AHP resulting in one lump sum payment to be divided among all plaintiffs. The agreement also provided that a portion of the settlement would be paid to Movant and two other attorneys, William Gallion and Melbourne Mills, Jr., who were affiliated with the case. The agreement allowed Movant, Gallion, and Mills to divide the settlement amount between plaintiffs at their discretion and also determine how much they were to be paid. The total amount of settlement funds to be distributed was $200,450,000.

A staff member working with Movant, Gallion, or Mills contacted each of the plaintiffs and informed them how much settlement money he would receive. The plaintiffs were never informed that their lawyers actually determined the amount of money they were to be given. If a plaintiff complained about the settlement amount, he was coerced by the attorneys or their staff to take the amount offered under the guise that it was what AHP had specifically offered them. A confidentiality agreement was signed by each plaintiff and some plaintiffs were even told that they could go to jail if they discussed the terms of their individual settlement. At no point were the plaintiffs told about the total settlement arrangement from AHP. No plaintiff received a notice of the settlement process, the manner in which their settlement amounts were decided upon, or their right to opt out of the settlement and proceed to trial. Additionally, Movant previously entered into an agreement with attorney Stanley Chesley to share fees received from the case. Movant also agreed to pay fees directly from the settlement proceeds to David Helmers and Richard Lawrence. The plaintiffs were never informed of this fee-splitting arrangement.

In June 2002, nearly $70 million of the settlement funds had not yet been distributed. The money was improperly stored in the personal accounts of the attorneys. An order was entered by Judge Bamberger of the Boone Circuit Court to give fifty percent of the remaining funds to the plaintiffs, and fifty percent to Movant, Gallion, Mills, and several other attorneys for "indemnification or contingent liabilities." The record shows that there were no "contingent liabilities."

In July 2002, another order was issued by the Boone Circuit Court. This divided any remaining funds between the attorneys for "outstanding litigation and administrative expenses" and a charitable organization which was to be created. No statement exists showing what outstanding litigation or administrative expenses existed at that time. The July 2002 order implied that all plaintiffs had consented to the creation of the charity. However, the record clearly shows that the plaintiffs did not knowingly consent to the creation of a non-profit charity like the one being proposed.

In January 2003, The Kentucky Fund for Healthy Living, Inc., was registered with the Secretary of State as a 501(c)(3) corporation. Movant, Gallion, and Mills transferred $20 million of the remaining settlement from their own personal accounts in order to fund the entity. Movant was paid a salary for serving as one of the charity's board members.

In total, the attorneys received approximately $104,337,000 from the total settlement. Movant received fees in excess of approximately $50 million.

From these acts, Movant is charged with twenty-two violations of our Supreme Court Rules. These charges are:

1) The Movant violated SCR 3.130-1.4(a) by failing to adequately communicate with the plaintiffs that he represented in the Fen-Phen case, including but not limited to his failure to ever personally communicate with most of his clients in that case.

2) The Movant violated SCR 3.130-1.4(b) by failing to inform his clients in the Fen-Phen case of relevant information, including but not limited to: the failure to communicate the amount of the total settlement from AHP to his clients; the failure to explain to his clients the process for determining the amount that each of the Plaintiffs would receive; the failure to inform his clients of the options available in the event that the settlement amount for that individual client was rejected by the client; by never personally communicating with his clients about the case; and by instructing or allowing others to give his clients inaccurate information about multiple aspects of the case.

3) The Movant violated SCR 3.130-1.5(a) by receiving an excessive fee in the Fen-Phen case, by receiving both a contingency fee from each of his clients who were plaintiffs in the lawsuit and additional fees from the total settlement proceeds.

4) The Movant violated SCR 3.130-1.5(c) by failing to provide his clients with a written statement explaining the outcome of the matter, by failing to provide each of his clients with an accounting stating how the client's settlement, the attorney fee, and reimbursement for costs were calculated, and by providing incorrect information as to the method of determination of the client's portion of the statement.

5) The Movant violated SCR 3.130-1.5(e) by dividing fees with other lawyers not in proportion to their services performed, nor pursuant to a proper agreement, and by failing to disclose to his clients that he divided fees with Gallion, Mills, Chesley, Helmers, and Lawrence; by failing to gain the approval of his clients for splitting fees with other attorneys not in his law firm; and because the totality of the fees paid to the Respondent, Gallion, Mills, Chesley, Helmers, and Lawrence was unreasonable.

6) The Movant violated SCR 3.130-1.7(a) when in representing multiple clients who were competing for the same settlement funds he failed to explain the ramifications of the multiple client representation to his clients, and by failing to obtain his clients' consent in the multiple representation.

7) The Movant violated SCR 3.130-1.7(b) by accepting a lump sum settlement from AHP, assisting in allocating less than one-half of the settlement funds to the clients, and then receiving an excessive fee for himself and those under his control from the remainder of the settlement proceeds. This method of determining the individual settlement amounts of his clients while having a stake in retaining a large amount of the settlement funds for his own attorney fees or contractual obligations of fee-splitting with non-lawyers and other lawyers, violates SCR 3.130-1.7(b). In addition, the Movant failed to obtain consent of multiple clients in a single matter or to include any explanation of the implications of such an arrangement in the division of the money.

8) The Movant violated...