Law Offices of David G. Arganian, Seattle, WA

The Cautionary Tale of Plaintiffs Attorney Stanley Chesley

Stanley Chesley settled just one case too many.

For decades the Cincinnati plaintiffs lawyer negotiated lucrative ends to big class actions: a $200 million settlement in 1985 for Vietnam War veterans injured by Agent Orange; a $3.4 billion settlement in 1994 for breast implant plaintiffs; the $246 billion tobacco settlement in 1998, where he was one of the lawyers who represented state governments. At the age of 75, he still maintained an active practice: Up until last June, he was plaintiffs counsel for the massive consumer fraud class action filed against Fannie Mae by two Ohio pension funds.
But the man whom Forbes dubbed the "Master of Disaster" is in a tailspin of his own.

For the past six years, Chesley has been under scrutiny for having a hand in allegedly helping other lawyers bilk $65 million in excess fees from fen-phen clients. At the heart of the case is the $200 million settlement of a Kentucky fen-phen class action that Chesley negotiated in 2001 against American Home Products Corporation (AHP). Only $74 million of that money found its way to clients, according to a criminal indictment targeting his three cocounsel on the case. Two of those lawyers have gone to prison for their involvement. Chesley, who testified against them under a grant of immunity, has faced no criminal charges, but a civil suit brought by former fen-phen clients accuses him of fraudulent misrepresentation and breach of fiduciary duty. Earlier this year, a report by a trial commissioner appointed by the Supreme Court of Kentucky, Judge William Graham, recommended that Chesley be disbarred, and in June the board of governors of the Kentucky Bar Association accepted Graham's recommendation. Because Kentucky and Chesley's home state of Ohio have reciprocal law licenses, disbarment in the Bluegrass State would likely mean disbarment in Ohio too, essentially bringing Chesley's 50-year legal career to an end.

Chesley has appealed the pending disbarment. His lawyer, Sheryl Snyder of Frost Brown Todd, says that Chesley was hired solely to settle the fen-phen case and was not involved in the distribution of the $200 million.

Chesley declined to comment for this article. However, the testimony from him and other witnesses in the criminal trials, the report that Graham prepared for the Kentucky Bar Association's inquiry commission, and the complaint and discovery findings in the civil suit against Chesley and his cocounsel provide a detailed account of the fen-phen settlement and its aftermath. How Chesley ended up in a downward spiral, Graham says in his report, is "a sordid tale worthy of the pen of Charles Dickens were he alive and well. Alas, this tale is not fiction."

Chesley has always been a controversial figure. Some in the plaintiffs bar have complained that he has elbowed his way into cases and then settled them too early ["Et Tu, Stan?," January/February 1994]. Yet others commend the work ethic that propelled the former shoe salesman into the upper echelon of the legal industry. "Every morning Chesley would make a list of people he wanted to talk to that day, there were sometimes 100 or 150 people on it. He was the epitome of a multitasker," says James Helmer, Jr., of Helmer, Martins, Rice & Popham, who has worked with and against Chesley on securities and personal injury cases. When his hard work paid off, Chesley basked in the rewards. "He was certainly proud to drive a Rolls Royce," says Stephen Schlegel, who worked with Chesley in the Agent Orange litigation, "but he's also one of the most charitable people I know. He still refers cases to me all these years later." Chesley's peers may have mixed opinions of his tactics, but as Helmer puts it, "There's no denying that Stan is a world-class lawyer."

Perhaps this time Chesley simply elbowed his way into the wrong case.
The Diet drug fenfluramine-phentermine — better known as fen-phen — supressed a person's appetite and melted away pounds. It also caused serious heart-valve damage in some users. The Food and Drug Administration yanked fen-phen from the market in 1997, as its manufacturer, AHP, was hit with a tidal wave of litigation.
Chesley was cochair of the plaintiffs management committee for the nationwide fen-phen litigation, which was consolidated in federal district court in Philadelphia in December 1997. While the $4 billion settlement was being hammered out, Chesley also filed a separate fen-phen class action on behalf of three individuals in state court in Boone County, Kentucky.

Three other lawyers — William Gallion, Shirley Cunningham, and Melbourne Mills — had just filed their own class action lawsuit against AHP in the same court, on behalf of Darla Guard and 430 other Kentucky fen-phen users who had also opted out of the national settlement. They also sued W. Rex Duff, an Ashland, Kentucky, doctor who had prescribed the drug to thousands.

Gallion, of Lexington, Kentucky's Gallion, Baker & Bray, a medical malpractice lawyer who frequently represented the University of Kentucky, was the team's lead lawyer. This was the largest case he'd ever worked on, he later testified at his criminal trial. All three lawyers knew each other: Gallion and Mills, a partner at a small Versailles, Kentucky, firm, had worked alongside each other on medical malpractice cases, according to Gallion's testimony, and Gallion and Cunningham, a partner at a small Lexington firm, had opposed each other on a few workers' compensation and personal injury cases.

Two weeks after filing his suit, Chesley moved to consolidate his case with the one filed by Gallion, Cunningham, and Mills, according to Graham's report. Gallion opposed the consolidation, he later testified at trial, because he feared that Chesley would "take over the case." Given Chesley's greater experience, it wasn't an irrational fear. Gallion happened to run into Chesley at a restaurant soon after Chesley filed his motion. Gallion introduced himself: "I essentially told him, 'I do not wish to have you involved in my case,' " Gallion testified. As Gallion recalled it, Chesley responded: "Well, you're going to have to live with it."

Gallion and his cocounsel eventually decided that they would have to live with it. Gallion and Chesley agreed that all four lawyers would serve as cocounsel. (Chesley's three clients were sent to the national fen-phen case.) Gallion was lead trial counsel, and Chesley would be "lead negotiator" in settlement talks. For reaching a settlement, Chesley would earn 27 percent of the total attorneys' fees, according to Gallion's testimony and Graham's report.





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