Plaintiffs attorney Stanley Chesley has been disbarred from practicing law in Kentucky, and the move may crimp his ability to practice in Ohio, where his firm, Waite Schneider Bayless & Chesley, is based. 

The Kentucky Supreme Court’s March 21 disbarment order capped an ethics investigation that followed complaints that plaintiffs suing over heart problems associated with diet drug fen-phen received only $46 million of a $200 million settlement in Boone County, Ky., Circuit Court. The Kentucky Bar Association’s board of governors had recommended that Chesley, lead negotiator of that settlement, be ejected from the practice of law.

His disbarment took effect immediately.

"We are aware of Respondent’s reputation and we do not doubt the veracity of the witnesses that attested to his character," the court wrote. "While the good reputation he has enjoyed and his generosity serves to exacerbate the tragedy of his fall, they cannot atone for the serious misconduct he has committed in connection with this matter. Therefore, we find that permanently disbarring Respondent is an appropriate penalty for his ethical violations."

Chesley’s attorney, Sheryl Snyder, a partner at Frost Brown Todd in Louisville, Ky., issued a response via email. "Stan Chesley has been a distinguished lawyer and continues to be a philanthropic supporter of his community," he wrote. "He has a previously unblemished record of legal service and we are therefore disappointed with the Court’s decision to impose such a severe sanction, especially in light of its finding that ‘it is not shown that he had specific knowledge of the deception practiced on each client’ by the other lawyers."

Chesley, 76, was admitted to practice law in Kentucky in 1978.

The fen-phen case involved individuals who opted out of nationwide multidistrict litigation over the drug that was pending at the time in federal court in Philadelphia. Chesley served on the plaintiffs’ management committee in that action.

The settlement, reached in 2001, resolved claims brought by more than 430 plaintiffs who had retained Chesley and four other attorneys on a contingent basis to sue American Home Products Corp., the drug’s manufacturer. Under their client contracts, each attorney was to receive about 30 percent of his or client’s share of the settlement fund. Chesley was to receive 21 percent.

In 2006, the bar launched an inquiry into Chesley and his co-counsel in the fen-phen case: William Gallion, Shirley Cunningham and Melbourne Mills of Lexington, Ky., and David Helmers, an associate at Gallion’s firm.

Gallion and Cunningham were disbarred in 2008, Mills in 2010 and Helmers in 2011 — all for their roles in the fen-phen settlement. Gallion and Cunningham were convicted in 2009 on federal charges related to the case and are serving prison sentences of 25 years and 20 years, respectively. Mills was acquitted of all charges after he claimed he was too drunk during settlement negotiations to know what was going on. Chesley was never charged. The judge who approved the settlement, Joseph Bamberger, resigned in 2006.

The ethics case focused on events that occurred one year following the settlement, according to the opinion. As part of a lawsuit his partner had filed against him, Mills discovered that the settlement had been for $200 million — not $150 million, as he had thought — and demanded a meeting with the judge regarding the excess money. During that meeting, Chesley told Bamberger that the extra money should go to a charitable institution under the cy pres doctrine. He convinced the judge to give plaintiffs counsel what amounted to 49 percent of the settlement in attorney fees.

Partners of Gallion and Mills then began questioning the fee distribution and asked the Kentucky Bar Association to look into potential misconduct. The bar launched its inquiry and in 2011 trial commissioner Judge William Graham issued a scathing report recommending that Chesley be disbarred permanently from practicing law in Kentucky and return the $7.5 million in excess fees. Later that year, the bar’s board adopted the report’s findings by a unanimous vote.

The Kentucky Supreme Court agreed with the board that Chesley had violated eight provisions of the state’s rules for professional conduct, including failure to tell clients about the total dollar value of the settlement or his fees, according to the opinion. The court acknowledged that the other attorneys, not Chesley, had drafted the client contracts. "He did not meet directly with any of the clients to effectuate the settlement and it is not shown that he had specific knowledge of the deception practiced upon each client to secure the signed release," the court concluded.

But Chesley shouldn’t have abandoned his responsibilities to those clients just because he negotiated the settlement, the court wrote. "When Respondent signed on as co-counsel, he undertook the ethical responsibilities attendant thereto."

The high court agreed that Chesley’s $20 million fee was unreasonable given the circumstances. "He has shown nothing to demonstrate that he expended a great deal of time and labor in the case," the justices wrote. Furthermore, his award was far higher than the $13 million he should have received under his contingent contract. "An attorney’s fee in a contingency fee case that so grossly exceeds the fee provided for in the fee agreement is unreasonable per se," the court said.

The court found that Chesley had failed to tell Bamberger about his fee agreement when asking for 49 percent of the settlement, and that he lied to bar investigators about discussions he had with the judge during that meeting. The court held him responsible for having supported the misconduct of other attorneys in the case.

"The vast amount of evidence compiled and presented in this matter demonstrates convincingly that Respondent knowingly participated in a scheme to skim millions of dollars in excess attorney’s fees from unknowing clients," the court said. "We find several such circumstances, which when taken together, convincingly establish that Respondent was aware of the misconduct of Mills, Cunningham, and Gallion, and that he actively aided in its concealment to prevent or delay discovery of the excessive funds he had enjoyed."

As for the $7.5 million the bar recommended be returned to clients, the high court ruled that restitution was "not appropriate in a case of permanent disbarment."

Because of the Kentucky outcome, Chesley, once dubbed the "Master of Disaster," could lose his Ohio license — in effect ending his career. Under Ohio Supreme Court rules, an attorney disciplined in another state must notify the high court’s disciplinary counsel within 30 days. After that, the Ohio Supreme Court "shall impose the identical or comparable discipline imposed in the other jurisdiction," barring mitigating circumstances, according to the rules.

Already, Chesley has had to bow out of several large cases pending the ethics investigation. The Ohio attorney general’s office fired him from shareholder litigation against mortgage lender Fannie Mae in which he represented two Ohio pension funds. He also stepped down from the plaintiffs steering committee in the economic damages litigation against Toyota Motor Corp. over sudden acceleration defects.

Excluding Chesley, his firm has seven attorneys in a single Cincinnati office. Founded in 1860 as a defense firm called Cleveland & Borer, it shifted focus during the 1980s after Chesley obtained more than $40 million for family members of victims of a Kentucky supper club fire that killed 165 people. Chesley’s other successes included a $200 million settlement in 1983 for Vietnam War veterans exposed to Agent Orange; a $3.2 billion settlement with Dow Corning in 1998 for women claiming diseases caused by silicone breast implants; and a $2.7 billion settlement in 2003 with the government of Libya for families of victims of Pan Am Flight 103, destroyed by a bomb over Scotland.

Chesley is married to U.S. District Judge Susan Dlott in Cincinnati.

Contact Amanda Bronstad at abronstad@alm.com.