Fen Phen Trial Update May 30 – May 31


     Key Diet Drug Witness Expected – Informat taped accused lawyers

By Andrew Wolfson  Louisville Courier-Journal  May 30, 2008
The government is expected to present what could be its star witness today in the federal fraud trial of three lawyers accused of plundering Kentucky’s $200million fen-phen settlement.

Rebecca Phipps, who worked for defendant Melbourne Mills Jr. but later turned government informant, is expected to testify about an alleged secret meeting where the defendants divvied up the money, then tore up or burned their notes, the prosecution has said.

Halfway into a trial that may last as long as six weeks, prosecutors already have elicited strong evidence from a pair of attorneys for the diet drug’s manufacturer.

Contradicting the core of the defense argument, the lawyers for the company told a U.S. District Court jury in Covington last week that there was no reason for the defendants to hold back tens of millions of dollars from their clients, as they have claimed they needed to do, in case additional claims arose.

Jack Vardaman and Helene Madonick, lawyers for American Home Products, now known as Wyeth, testified that the $200million settlement won by Shirley Cunningham Jr., William Gallion and Mills was strictly for their 440 clients.

Madonick noted that when as many as 100 additional claims arose in Kentucky after the settlement, the drug company paid them, not the lawyers.

“Did you come back and ask Mr. Gallion and his group to pay you some money to settle those cases?” Assistant U.S. Attorney E.J. Walbourn asked her.

“No,” she said. “I didn’t think there was any basis to do so.”

Vardaman and Madonick also insisted there was no requirement that the lawyers keep the settlement amount secret from their clients — and that they violated ethics rules in failing to disclose it.

`Unbridled greed’

The trial of Gallion, Mills and Cunningham, who are each charged with one count of conspiracy to commit wire fraud, was continued Wednesday after Mills, 77, was hospitalized for a condition that Senior U.S. District Judge William O. Bertelsman said isn’t life threatening. The defendants have been housed in Boone County Jail, unable to post bond.

The case is scheduled to resume today, when the government presents Phipps, who secretly taped the defendants for the government. The lawyers paid her more than $1million for her work on the case.

The prosecution has described the case as one of “unbridled greed” in which the three lawyers allegedly defrauded their clients by taking $65million more than set out in their contracts.

The defense has yet to present any witnesses, but defense lawyers said in opening statements that their clients had no criminal intent. They have tried to shift the blame to others, including Stan Chesley, a prominent Cincinnati mass torts lawyer who negotiated the settlement, and former Judge Joseph “Jay” Bamberger, who presided over the underlying case and approved the lawyers’ fees.

They also contended that once the fen-phen plaintiffs were fully compensated for the value of their claims, the excess money left over didn’t belong to them.

Walbourn and Mills’ lawyer, James Shuffett, said they couldn’t comment on the evidence, and lawyers for the other defendants didn’t respond to requests for comment.

Angela Ford, who represents more than 400 of the former fen-phen plaintiffs and is attending the trial as the official court-appointed victim representative, said her clients believe “the truth is coming out, but they are frustrated with the process.”

Defense did well early

According to court records and news accounts, the defense seemed to have its way during the first week of trial, when for three days defense lawyers cross-examined a prosecution witness — Gallion’s associate, David Helmers — who said that at the time, he didn’t think the defendants did anything wrong.

“You certainly didn’t think you were part of a criminal conspiracy in 2001, did you?” asked Cunningham’s co-counsel, Stephen Dobson.

“I didn’t think there was a criminal conspiracy,” said Helmers, who was paid a $3million bonus for his work.

But as the government began presenting alleged victims, the tide seemed to turn.

Connie Mason of Mason County testified that she was told by one of Mills’ employees to keep her $27,000 settlement secret, to tell anyone who asked that it was an inheritance, and to put the money in a safe at home because placing it in a bank might generate “too many questions.”

Tracy Curtis testified that she “smelled a rat” when the lawyers refused to give her documentation for her $25,000 payment and was suspicious even after they presented a letter from a mediator who falsely assured her American Home Products had designated that she get that amount.

Joyce Brown of Lexington, who suffered more severe injuries, said she was initially offered $250,000 and that only after she complained was that amount doubled. But according to a list of allocations attached to the settlement agreement, she should have been given $1.5million.

The defendants have kept that list out of evidence so far, arguing that its authorship is unclear, but it has been cited in court by the government.

Vardaman and Madonick testified that the clients deserved the amount allocated for them individually, rejecting the defendants’ claims that the dollar figure listed next to each client’s name represented only what would be repaid to the drug maker if they didn’t settle.

“So if Suzy Q was allocated a sum of money, that money was supposed to go to Suzy Q?” Walbourn asked Vardaman, who supervised settlement negotiation for American Home Products.

“Yes,” Vardaman said.

Judge `embarrassed’

Testifying over three days, Bamberger, the judge who approved the settlement, said he was “deeply embarrassed” by how he handled the case and never would have approved fees of 49 percent for the defendants had they told him that they had signed a contract with each defendant that called for them to get about one-third in fees.

He also said he was not told the Kentucky Bar Association had launched an investigation into the settlement before he approved the lawyers’ fees. Such investigations are confidential until a lawyer is found guilty.

“Would knowing that have affected how you handled this case?” Assistant U.S. Attorney Laura Voorhees asked Bamberger.

“Dramatically,” Bamberger said.

He also disclosed that he was reprimanded by the Judicial Conduct Commission for his actions in the case, prompting the defense lawyers to demand a mistrial on the grounds that the jury might conclude their clients did something wrong. Bertelsman denied the motion but admonished the jury not to consider the reprimand.

Through counsel, the defendants have claimed that Bamberger’s approval of the settlement and their fees shows they did not break the law. But Bertelsman has instructed the jury that Bamberger and the lawyers didn’t follow Kentucky rules for class-action suits.

Reporter Andrew Wolfson can be reached at (502) 582-7189.


Diet-drug case witness says lawyer wanted documents destroyed – Aide tells of request to destroy records
       By Andrew Wolfson -  Louisville Coureir-Journal  May 31, 2008
COVINGTON, Ky. — One of the three lawyers charged with plundering Kentucky’s $200 million fen-phen settlement told a legal assistant to destroy documents showing how the clients were paid, the aide told a federal jury yesterday.
Rebecca Phipps testified in U.S. District Court that she instead locked the records in a cabinet and hid the key after attorney William Gallion told her “to get rid of the documents.”
Phipps, who worked for another defendant, attorney Melbourne Mills Jr., but later turned government witness, offered the most dramatic testimony yet in the federal trial of Gallion, Mills and Shirley Cunningham Jr., who are charged with conspiracy to commit fraud.
Phipps, who was spared prosecution in exchange for her testimony, also said Mills “laughed” when she told him about a plan Gallion came up with to pay the lawyers based on the maximum each client could have received, rather than the much smaller amounts they were actually paid.
“He was very pleased,” she said.
But Mills was furious, Phipps said, when he found out in January 2002 that the settlement had been for $50 million more than the $150 million that Gallion had told him.
“He was upset, and I was scared,” she said.
Phipps testified that a week later, Mills, at a celebration of his birthday, called Gallion “a liar and a thief” and asked him to leave the party.
Phipps’ testimony ended the third week of a trial in which the three suspended lawyers are each charged with one count of conspiracy to commit wire fraud for allegedly defrauding clients out of $65 million from the 2001 accord.
On cross-examination by the defense, Phipps acknowledged that she was promised immunity from prosecution by the government and was not required to return $1.4 million in fees she was paid by the lawyers.
Questioned by Gallion’s lawyer, O. Hale Almand, Phipps also acknowledged that she had exaggerated her role in the case when she asked the presiding judge to put her on the board of a charitable fund to which $20 million in settlement funds were transferred.
Almand suggested that she lied so she could get $5,000 a month in director’s fees, as the lawyers were getting, but she said it was not about the money.
Phipps conceded on cross-examination by Mills’ counsel, James Shuffett, that Mills was drunk when he laughed at Gallion’s plan for increasing attorney fees.
Asked by Almand, she also acknowledged that Gallion told Mills the $150 million was a preliminary offer, and that Gallion might have told Mills later, when he was drunk, that the final figure was $200 million.
Phipps said Mills was drinking “around the clock” about the time the case was settled in May 2001 and only later was hospitalized and treated for alcoholism.
Mills, 77, was hospitalized this week for a possible heart condition but returned to the courtroom yesterday.
Testifying on direct examination yesterday morning, Phipps said that one of the defendant lawyers told her to settle cases with clients “for as low as possible” and that those with the most minor injuries, who could have gotten up to $95,000 each, instead were offered $15,000.
She said the lawyers told her they needed to preserve the $200 million settlement in case a national class action over the diet drug broke down and thousands of additional claims emerged. Lawyers for the company that made fen-phen have previously testified that wasn’t true.
Phipps’ testimony, portions of which emerged previously in a lawsuit filed against the lawyers by their former clients, further undercut the defendants’ claims that they paid out the additional money when various “contingent liabilities” failed to arise.
The three lawyers, who have been suspended from practice and slapped with a $42 million civil judgment, could be sentenced to 20 years in prison if convicted.
Questioned by defense counsel, Phipps yesterday denied that she ever told any of the clients that they could go to jail if they disclosed the terms of the settlement, as some of the plaintiffs previously testified.
She also acknowledged that even the lower amounts that the clients were paid were far more than they would have received under a national class-action settlement.
Also testifying yesterday was former client Katherine Hutchison, of Cynthiana, who said she was paid a total of $38,000.
While questioning her, Shuffett tried to suggest that as a plaintiff in the pending lawsuit against the lawyers, Hutchison is being greedy by seeking yet more money.
“We should have received more money to begin with,” Hutchison said. “Some people no longer with us today might still be here, if they had gotten the money they should have, when they should have.”
Testimony is to continue Monday in the trial, which could last another three weeks.


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