Clients conned in phen-fen suit, judge rules

Investigation opens over whether lawyers kept settlement funds

March 24, 2007|By New York Times News Service

LEXINGTON, Ky. -- W.L. Carter knew there was something fishy going on when he went to his lawyers' office a few years ago to pick up his settlement check for the heart damage he had sustained from taking the diet drug phen-fen.

The check was, for starters, much smaller than he had expected. And his own lawyers threatened to retaliate against him if he ever told anyone, including his family, how much he had been paid. "You will be fined $100,000, you will go to jail and you will be sued," Carter recalled them saying.

Carter was right to have been suspicious. The lawyers defrauded their clients, a state judge has ruled, when they settled phen-fen lawsuits on behalf of 440 of them for $200 million but kept the bulk of the money for themselves. Legal experts said the fraud may be one of the biggest and most brazen in legal history.

This week, several clients testified before a federal grand jury that has begun to investigate the settlement.

"It enrages me," said Sonja Pickett, a retail manager, who testified before the grand jury on Thursday. "They robbed us."

The settlement, paid by American Home Products Corp. in 2001, was meant to compensate the plaintiffs for claims of heart damage caused by the drug, which has since been withdrawn from the market at the request of the Food and Drug Administration.

Lawyers for William J. Gallion and Shirley A. Cunningham Jr., two of the lawyers who handled the phen-fen settlement, said in court papers this week that their clients have been told by federal prosecutors that they are targets of the grand jury's investigation. James A. Shuffett, who represents the third lawyer, Melbourne Mills Jr., said "you can assume" that his client had also received a target letter and that he would not be surprised if his client were indicted.

"Mills denies any criminal wrongdoing," Shuffett said. "He may be liable for a little money if he was overpaid." Lawyers for Gallion and Cunningham did not respond to requests for comment.

Courtney Norris, a spokeswoman for the U.S. attorney's office here, said she could not confirm or comment on the grand jury investigation.

The basic facts are not in dispute. When the clients sued the drug maker, they agreed to pay the lawyers 30 percent to 33 percent of any money that was recovered, plus expenses. In this case with a $200 million settlement, that would have left the 440 clients to divide perhaps $135 million.

But the clients received only $74 million, and $20 million more went to a questionable "charitable fund." The rest - $106 million - went to lawyers.

Though amounts of the individual settlements remain sealed, court papers suggest that they ranged from $100,000 to $5 million. On average, plaintiffs received less than 40 percent of what the settlement agreement specified, instead of the roughly 70 percent to which they were entitled.

Had the lawyers merely taken what they were contractually entitled to, they would have become very rich men, said Tracy Curtis, a mortgage loan officer who is also suing her former lawyers. "They could have taken the high road," she said. "They would have made plenty of money."

In court papers, the three lawyers denied wrongdoing and defended accepting fees above their contingent-fee agreements as reasonable in the circumstances and approved by the court.

Their efforts resulted in, they said, what "may conceivably be the largest settlement in the history of this commonwealth." At a hearing in 2002, they noted, the original judge in the case said they deserved the higher compensation "for their services and for the incredible risks they took" and for "the administrative headaches that came with that."

But the judge who made that statement and who approved the settlement, Joseph F. Bamberger, received a financial benefit from the windfall. After retiring from the bench in 2004, Bamberger became a director of the $20 million charity for a $5,000 monthly fee. He has since repaid what he received.

Bamberger was reprimanded by Kentucky's Judicial Conduct Commission last year. The commission said his actions were disturbing, inexcusable and shocking to the conscience. It said it would have removed him from the bench had he not already retired. He declined to comment for this article.

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