The U.S. Court of Appeals for the Sixth Circuit has affirmed the convictions of disbarred Kentucky lawyers Shirley Cunningham Jr. and William Gallion for a scheme to bilk clients of settlement money in the “fen-phen” diet drug litigation.

On May 1, a unanimous panel affirmed, in combined appeals, the convictions issued by Judge Danny Reeves of the Eastern District of Kentucky in U.S. v. Cunningham and U.S. v. Gallion.

Cunningham and Gallion were two of three lawyers who represented about 431 clients in a Kentucky state court fen-phen case against American Home Products. The third is former Kentucky attorney Melbourne Mills Jr. In April, a unanimous Sixth Circuit panel declared that Continental Casualty Co. could rescind Mills’ malpractice policy because he failed to disclose a bar association investigation on a renewal application.

The fen-phen case, which alleged that the drug caused heart valve problems, settled for about $200 million, plus an extra $450,000 to settle new claims. The three lawyers’ retainer agreements with their individual clients called for each client’s lawyer to collect about one-third of what the client recovered.

According to the Sixth Circuit ruling, the clients ultimately received a total of about $73.5 million — less than 37 percent of the total settlement. Meanwhile, Cunningham collected $21 million, Gallion got nearly $31 million and Mills took $24 million. Other lawyers that they brought into the case got $30.5 million.

The three main lawyers put another $20 million into a charitable trust, the Kentucky Fund for Healthy Living Inc., without informing the clients how much would be put in the fund. Some clients who asked were told that “it would be a very small amount,” according to the Sixth Circuit ruling.

Cunningham, Gallion and Mills each received nearly $150,000 to serve as a director of the fund from June 2003 and June 2005. The state court judge in the case, Judge Joseph Bamberger, collected more than $50,000 in fees as a paid director of the fund from July 2004 and April 2005.

After receiving a complaint about Mills, the Kentucky Bar Association initiated a disciplinary investigation against him in January 2002.

In June 2007, a federal grand jury indicted Cunningham, Gallion, and Mills with one count of conspiring to commit wire. Mills was found not guilty but the judge declared a mistrial for Cunningham and Gallion.

In September 2008, Cunningham and Gallion filed voluntary permanent disbarment motions with the bar association.

That same month, a superseding indictment charged Cunningham and Gallion with one count of conspiracy to commit wire fraud, and eight wire fraud counts.

After their convictions, they were sentenced in August 2009: Cunningham to 20 years in prison and Gallion to 25 years. Each also received three years of supervised release following the prison terms. They were also ordered to pay more than $127 million in restitution to their clients.

Senior Judge Ronald Lee Gilman authored the Sixth Circuit ruling, joined by Chief Judge Alice Batchelder and Judge Eric Clay.

“The evidence of the defendants’ guilt in this case was overwhelming and independently supported all the factual findings from the disbarment proceedings,” Gilman wrote. “For example, the Kentucky Supreme Court determined that many of the defendants’ clients were told that they could go to jail if they discussed the terms of the settlement with others, but this fact had already been established by the trial testimony of numerous clients. The Kentucky Supreme Court also found that some of the settlement money had been improperly deposited by the defendants into their personal bank accounts, but that determination too had been established by other evidence, including the defendants’ admissions, bank records, and client testimony.”

T. Clifton Harviel, a Memphis lawyer who represented Cunningham, said, “We’re disappointed that we lost, but expect to continue the litigation, probably by requesting en banc review.”

Louis Sirkin of Cincinnati-based Sirkin & Kinsley, who represented Gallion, also said he intends to file a petition for en banc rehearing and a petition for certiorari to the Supreme Court if necessary. “We had hoped the court would find there were structural errors of constitutional magnitude,” Sirkin said, adding that those errors included the use of experts and the confrontation clause of the Sixth Amendment. “There were disciplinary proceedings pending against three of the major government witnesses. The trial lawyers were not permitted to get into that issue.”

Kerry Harvey, the U.S. attorney for the Eastern District of Kentucky, said, “We certainly think justice has been done. We hope this will allow us to proceed with returning as much restitution to the victims of these crimes as we possibly can.”

Sheri Qualters can be contacted at squalters@alm.com.