FEN PHEN DECISION HANDED DOWN BY CT. OF APPEALS- SUMMARY JUDGMENT ON MAIN PORTION OF THE APPEAL REVERSED –

FEN PHEN DECISION HANDED DOWN BY CT. OF APPEALS-   SUMMARY JUDGMENT ON MAIN PORTION OF THE APPEAL REVERSED –

 VENUE UPHELD –  FUND FOR HEALTHY LIVING RULING UPHELD- CASE REMANDED FOR TRIAL –  ALL CIRCUIT COURT ORDERS SUBSEQUENT TO THE SUMMARY JUDGMENT REVERSED.

 On Friday Feb. 4th. The Court of Appeals held that the:  “… portion of the order of the Boone Circuit Court entered on March 8, 2006, awarding partial summary judgment in favor of Abbott (the plaintiffs) on its breach of fiduciary duty claim, is reversed and this matter is remanded for further proceedings consistent with this Opinion. Subsequent orders stemming from the improvident grant of partial summary judgment are necessarily vacated. ”

The court upheld a ruling of  Special Circuit Judge William Wehr that his ruling denying a change of venue to Fayette County . 

The Court of Appeals refused to entertain an appeal by a director of the  Fund For Healthy Living LLC.  The ruling upheld Judge Wehr’s ruling seizing some $20,000,000 from the charitable LLC.  

Wehr had previously entered an order denying the right of the trust to pay its attorney to prosecute an appeal. When that ruling was issued, the attorney for the charitable trust understandable withdrew from further representation of the trust.

The import of the case appears to be that the summary judgment granted by Judge Wehr is set aside, as a material facts were still at issue.

One signifcant finding of the court is a ruling that the $200 million dollar settlement was not just for the benefit of the 431 plaintiffs, but was partially to settle other claims that had not been filed by Gallion, Cunningham and Mills.   This was a major contention by Gallion, Cunningham and Mills, and therefore the amount of money that should be awarded to the 431 plaintiffs is still undecided.

No supercedas bond on the court rulings was filed by the defendants, and this author does not know how much money was taken into possession by the plaintiffs.  Final distribution of funds awarded as a result of Judge Wehr’s summary judgment are now in limbo until the case is tried and any future appeals are completed. 

LawReader reported last month that the U.S. Attorney’s office had intervened in the judicial sale of William Gallions house in a judicial sale.  The purchaser of the home was Angela Ford the attorney for many of the class plaintiffs who turned on Gallion, Cunningham and Mills.

The U.S. Attorney argued in the court which had ordered the judicial sale, that the funds with which Angela Ford intended to purchase the home was being held not only for her clients but for other clients she did not represent.  The local circuit court set aside the judicial sale.

   The Court of Appeals gave great weight to an affidavit of Hon. Kenneth R. Feinberg, a “class action expert” and concluded the settlement entered in the Guard action was “reasonable” and the “side letter” agreement supported the conclusion that the $200,000,000.00 paid by AHP was not intended to compensate only the 431 plaintiffs, but was also intended “to provide for other payments, including potential claims or (sic) other Phen-Fen (sic) users, subrogation claim holders, and other unforeseen claims.”  This affidavit apparently convinced the Appeals Court that the summary judgment was improper, and the issues should be heard by a jury.

The side letter agreement was said by Gallion, Cunningham and Mills, to justify not dispersing all settlement funds to the original plaintiffs, as the settlement required the attorneys to have a continuing liability if any additional claims were filed.

Feinberg testified in his affidavit, “There was nothing out of the ordinary in the Boone Circuit Court approving the use of approximately twenty million dollars from Guard for cy pres purposes or in approving the formation of a charitable foundation, the Kentucky Fund for Healthy Living, Inc. (Kentucky Fund), to administer the cy pres funds. …In my opinion, the case was handled properly and ethically.”

This ruling can only be considered as a major setback to the Fen Phen plaintiffs, who now must present their claims at trial, as the case was remanded by the Court of Appeals.

The Court of Appeals upheld Judge Wehr’s ruling that Boone County was a proper forum to the plaintiffs complaint and that it was timely filed. 

The right of the Fen Phen plaintiffs to obtain possession of any funds held by their attorney pending this appeal is further confused by the criminal rulings in U.S. District Court which ordered substantial restitution by Gallion and Cunningham.  Melbourne Mills was acquitted at the federal criminal trial.

Without a final court ruling from the Kentucky Circuit Court, and in light of the Federal criminal court ordering restitution, the contingent fee agreement of Angela Ford appears to be at issue.

Without a circuit court decision in her client’s favor, is she entitled to her contingent fee?  If the payments by Cunningham and Gallion are paid as a result of the Federal restitution order does Ford qualify for her contingent fee from her clients. 

At this point the only funds obtained by Angela Ford for her clients appears to be the funds that were held by the Fund for Healthy Living, LLC.  This issue could mean a substantial windfall for Ford’s clients if she is denied her contingent fee.   The issue of whether or not the Fund for Healthy Living was entitled to participate in the appeal to the Court of Appeals may be appealed to the Ky. Supreme Court.

Another issue that has not been decided, is what per centage is to be paid to each of the Fen Phen plaintiffs out of any funds finally released by a court having jurisdiction.    Federal precedent seems to suggest that a method of disbursement similar to the one originally used should be followed.   Each claim of the 431 plaintiffs should be evaluated so that plaintiffs who suffered substantial injuries from the diet drug should receive more than those plaintiffs who received no injuries from the drug.  We are not aware of any ruling that has settled this issue.

It has taken over five years for the litigation to get this far, and years of additional litigation appear to be in the cards.

FEN PHEN DECISION SYNOPSIS BY LAWREADER

 

( Editor: The Court of Appeals has issued a 36 page decision in the Fen Phen appeal.   The court partially upheld the Boone Circuit Court and partially reversed and partially remanded.  

NICKELL (PRESIDING JUDGE) STUMBO (CONCURS) AND WINE (CONCURS)

 SYNOPSIS

The arguments presented on appeal by GMC are as follows: (1) Was the independent action filed by Abbott an impermissible collateral attack on orders entered by Bamberger in the Guard action? 2) Did the trial court err in denying GMC’s motion for summary judgment? 3) Did the trial court err in granting partial summary judgment to Abbott in light of disputed material facts?

The arguments presented by Abbott on cross-appeal are as follows:

(1) Did the trial court err in denying Abbott’s motion to transfer venue from Boone County back to Fayette County for purposes of trial? (2) Did the trial court err in denying Abbott a partial summary judgment regarding Chesley? (3) Should the trial court have found Mills lacked standing to appeal dismissal of KFHL’s counterclaim and imposition of a constructive trust on its funds? (4) Whether the trial court erred in awarding Mills unsubstantiated expenses?

Upon discovering that GMC (Gallion, Mills, Cunningham) had made unauthorized use and disbursements of settlement funds, it was too late for Abbott to appeal those orders, or seek to have them altered, amended or vacated. We will not allow GMC to benefit from its own dilatory and allegedly fraudulent tactics.

We can infer, then, that Abbott was “lulled, gulled, or seduced” into inactivity during the course of the Guard litigation and was unable to discover GMC and Chesley’s misdeeds until after time had passed to file an appeal. Grubb v. Wurtland Water Dist., 384 S.W.2d 321, 323 (Ky. 1964). Although Abbott received a settlement from the manufacturer and distributors of Fen-Phen, in a sense it was still defeated because it did not receive as great a settlement as it might have received had GMC and Chesley only paid itself the amounts for which it had contracted.

As noted in Judge Wehr’s orders, GMC knew and controlled the details of the settlement. Because it did not apprise its clients of those details, the clients fully relied upon GMC to protect their interests. GMC did not. Abbott had no reason to question Bamberger’s orders or ask that they be rescinded—indeed, Bamberger’s orders establish GMC’s conflict of interest and pursuit of its own self-interest over that of its clients. For the foregoing reasons, we are convinced an independent action was properly filed to review GMC’s alleged misconduct.

GMC’s next argument is that the trial court erred in awarding partial summary judgment to Abbott when genuine issues of material fact were in dispute.

We agree and for that reason reverse and remand for proceedings consistent with this opinion.

In response to Abbott’s motion for partial summary judgment, the seventeen-page affidavit of Hon. Kenneth R. Feinberg, a practicing attorney and an expert in mass tort litigation, was submitted. Feinberg’s affidavit concluded the settlement entered in the Guard action was “reasonable” and the “side letter” agreement supported the conclusion that the $200,000,000.00 paid by AHP was not intended to compensate only the 431 plaintiffs, but was also intended “to provide for other payments, including potential claims or (sic) other Phen-Fen (sic) users, subrogation claim holders, and other unforeseen claims.”

(Feinberg affidavit) “There was nothing out of the ordinary in the Boone Circuit Court approving the use of approximately twenty million dollars from Guard for cy pres purposes or in approving the formation of a charitable foundation, the Kentucky Fund for Healthy Living, Inc. (Kentucky Fund), to administer the cy pres funds. …In my opinion, the case was handled properly and ethically. I have seen nothing that credibly suggests any misconduct by the attorneys or any inappropriate action by the judge who presided over the case. It appears that the instant action against the plaintiffs’ attorneys in Guard is based on nothing more than misinformation or lack of understanding of the procedures involved in class action or common fund or aggregate mass tort settlement.”

Feinberg’s affidavit was sufficient to create genuine issues of material fact.

The foregoing questions of fact justified going forward with trial. Steelvest, 807 S.W.2d at 480- 82; See also, Chalothorn v. Meade, 15 S.W.3d 391 (Ky. App. 1999).

 

Therefore, reversal is necessary. ….we have determined partial summary judgment was improvidently granted to Abbott,…

FUND FOR HEALTHY LIVING

…Mills additionally engages in a discussion regarding the appropriateness of the creation of KFHL as a cy pres trust utilizing the “excess funds” from the original settlement amount. He argues KFHL was properly created as a legitimate act of the discretion of the Boone Circuit Court in Guard.

Thus, he contends Judge Wehr, without authority to do so, effectively “dissolved” KFHL by seizing all of its assets and imposing a constructive trust on those funds.

We agree that creation of a cy pres trust is a valid option under the appropriate circumstances. However, Mills has failed to grasp that he has no standing to appeal on behalf of a corporate entity.

KFHL is a separate corporate entity which was a party to the Abbott action. KFHL participated in the instant litigation and had the ability to appeal from an adverse ruling, but it did not do so.

Thus, no further discussion of the issue is warranted, and that portion of the order of March 8, 2006, seizing all KFHL assets and imposing a constructive trust thereon shall stand.

(VENUE IN BOONE COUNTY)   Upon reviewing the various written pleadings and oral arguments of the parties, Judge Wehr ultimately determined a transfer of venue was unwarranted. After a careful review of the record before us, we discern no abuse

of discretion in Judge Wehr’s determination.

(CHESLEY)     contrary to Abbott’s assertions, there were issues of disputed facts remaining in relation to Abbott’s claims against Chesley, and discovery was still ongoing. Further, there has been no entry of a final judgment on any of Abbott’s claims against Chesley.

Therefore, the exception has no application in the case sub judice and we are thus without jurisdiction to consider this claim of error. Abbott’s contention that judicial economy would be served by addressing this issue may be laudable, but it is without justification under the well-settled law of this Commonwealth.

CONCLUSION

…That portion of the order of the Boone Circuit Court entered on March 8, 2006, awarding partial summary judgment in favor of Abbott on its breach of fiduciary duty claim, is reversed and this matter is remanded for further proceedings consistent with this Opinion. Subsequent orders stemming from the improvident grant of partial summary judgment are necessarily vacated.

Thus, the order of April 4, 2007, insofar as it partially granted compensatory damages to Abbott, is hereby vacated; and that portion of the order of August 1, 2007, awarding Abbott baseline compensatory damages in the amount of $42 million dollars and declaring GMC to be joint and severally liable is also vacated.

All other orders, or portions thereof, not specifically referenced are affirmed.

ALL CONCUR.

 

BRIEFS AND ORAL ARGUMENT

FOR APPELLANTS,SHIRLEY A.

CUNNINGHAM, ET AL.:

MARY E. MEADE-MCKENZIE

BRIEFS FOR APPELLANT,

MELBOURNE MILLS, JR.:

CALVIN R. FULKERSON

J. CHRISTIAN LEWIS

JAMES A. SHUFFETT

AT ORAL ARGUMENT:

JAMES M. SHUFFETT

CONSOLIDATED BRIEFS AND

ORAL ARGUMENT FOR

APPELLANTS, CHARLOTTE

BAKER, ET AL. AND

APPELLEES/CROSSAPPELLANTS,

MILDRED

ABBOTT, ET AL.:

ANGELA M. FORD

BRIEF AND ORAL ARGUMENT

FOR CROSS-APPELLEE STANLEY

M. CHESLEY:

C. ALEX ROSE

JAMES M. GARY

AT ORAL ARGUMENT:

JAMES M. GARY

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