By Michael Dowling an attorney and friend of William Gallion * April 6, 2013

The Kentucky Bar Association has seriously misinterpreted the Phen-Fen Settlement in Boone County made in May 2001 presided over by Judge Joseph Bamberger.

In the beginning it is necessary to put one in the shoes of the attorneys representing some 4500 clients who had been solicited by television commercials to file claims against American Home Products.

Contemporaneous with the actions of the Kentucky lawyers there were legal actions occurring throughout the nation. As a consequence a Multi District Class Action was created in the US District Court in Philadelphia., Pa. This culminated in a National Class Action Settlement and produced an Order of some 150 pages that was disseminated throughout the country. In September 1999 a copy of this Order was sent to Joseph Bamberger due to his involvement in the State Court Action that had been certified as a Class Action. Inter alia a class action had been certified for Medical Malpractice against Bariatrics Inc of Ky. and Dr. Rex Duff.

The attorneys had for a period of approximately one year copied medical records of some 12,000 individuals Dr. Duff had prescribed the diet drug medication. These records were evaluated by medical experts engaged by the attorneys and correlated with the medical conditions evaluated and valued for compensation in the National Settlement.

In the National Settlement the parties took evidence and negotiated the compensation that would be paid to individuals who participated in the National Settlement. The US District Judge presided over the Negotiations and approved the compensation values reached by the parties.

As a consequence of their knowledge of the medical conditions of their clients the attorneys wrote some 500 clients advising them to opt out of the National Settlement in favor of a settlement in State Court. The attorneys represented their belief that the clients would receive more compensation in Boone Co. than in the National Settlement.

Some 4000 clients were referred to the National Settlement.

Judge Bamberger referred the certified class action to Mediation on April 30, 2001. The parties met and concluded a $200 million dollar settlement. One of the conditions of the settlement was decertification of the class action.

At the time of Mediation a trial date had been scheduled and Notice of the Certified Class Action would have been necessary to notify the Duff Class of the existence of the Medical Malpractice claim against Dr. Duff.

Prior to Mediation AHP had made an offer of settlement of $20 million dollars. As a result of Mediation they SETTLED 440 known claims and scattered to the wind some 60,000 potential claims of individuals Dr. Duff had prescribed the diet drug medication. Mr. Vardaman testified he told the FBI that AHP wanted decertification to keep clients from coming out of the word work suing AHP over the claims it had agreed to indemnify Dr.Duff. This testimony came during the criminal trial of William Gallion in Frankfort, Kentucky.

Mr. Vardaman also testified that Stan Chesley argued at Mediation that the indemnification of the Duff Class created a substantial risk of loss for AHP.

Kenneth Feinberg in the civil litigation gave an Affidavit that the theory of the civil litigation against the attorneys was based on a naïve interpretation of the LANGUAGE OF THE SETTLEMENT AGREEMENT.

The Settlement Letter itself was a form letter used by AHP in reaching settlements that were not certified class actions. The form had to be modified to provide for decertification and several provisions in the form were not followed in the implementation of the settlement agreement. This was corroborated and not disputed by testimony in both criminal trials.

The unforgivable error made by the Bar concerns its interpretation of Ex 3 of the Settlement Agreement and the failure to acknowledge the existence of Potential Claims other than the known claims of 440 clients.

The Kentucky Bar Association made its legal opinion that this was an Aggregate Settlement the sine qua non of a charge of ethical misconduct. William Johnson told the Kentucky Supreme Court that this was a class action settlement at the hearing on the temporary suspension of Mr. Gallion and others from the practice of law. As the court knows Mr. Johnson has an ethical duty as an officer of the court to make this representation in good faith.

Mr. Johnson is not alone. Judge Bertelsman in the first trial ruled this was a class action settlement and Judge Bamberger had the authority to approve attorney fees. Accord Arthur Miller re Bamberger’s authority. Stan Chesley testified this was a Class Action Settlement. The Affidavit of Kenneth Feinberg says the Settlement was not just for 440 known claimants. Richard Robbins, a defense expert witness in the first trial.

The language of the aggregate settlement rule says counsel cannot go to a Mediation settlement without the informed consent of his or her client. In the Boone Co. litigation the parties went to Mediation in litigation that had been certified as a Class Action. The express language of the rule shows that it had no application to the Boone Co. litigation.

The language of the Settlement Letter does not support an interpretation that Ex 3 was money negotiated for only 440 clients. The protocol necessary to implement the terms of the Agreement says otherwise.

First in the national settlement compensation was based on age, length of use and severity of injury. 263 clients on Ex 3 were not classified as injuries in the National Settlement. They would have been entitled to reimbursement of up to $500.00 for monies spent on prescriptions. A major witness in the criminal trial who testified some 8 or more years she had taken the diet drug saw a doctor One time after taking the drug with no follow up. She and the Bar Association say she was entitled to $181,000 + dollars correlated to her name as shown on Ex 3. She received $26,326.49 clear in settlement, not including attorney fees and expenses.

A number of clients received more compensation than shown on Ex. 3 showing the attorneys did not follow the exhibit.

Ex 3 was prepared by David Helmers in about a one hour period of time. Mr. Gallion at the direction of Stan Chesley told Mr. Helmers to change the allocation to make it more top heavy. Kenneth Feinberg said the allocation of the settlement funds among the claimants in the context of the settlement agreement letter was not a declaration of how much money any particular claimant was to receive from the settlement. The allocation was intended solely as part of the mechanism for determining how much the settlement amount would be reduced or how much would have to be repaid to the settling defendants in the event that either Settling Attorneys and Claimant failed to produce required proof of use of the diet drugs or if the settling attorneys failed to secure sufficient releases from claimants. Citing paragraphs 7, 10 and 14 of the settlement letter4 agreement.

The Settlement Letter gives the attorneys sole responsibility for giving “appropriate amounts” not “allocated amounts” to the claimants. AHP did not ask for verification of the amounts distributed to the claimants. AHP did not want to write individual checks to the claimants. AHP did not want settlement amounts on the Releases signed by the claimants. In short AHP wanted no accounting to show how the $200 million dollars was in fact distributed.

Ex 3 had to be prepared and in place ON OR BEFORE the attorneys FIRST SUBMIT A BATCH OF EXECUTED RELEASES. NOT ALL THE RELEASES. JUST A BATCH OF RELEASES. This correlates with Feinberg’s interpretation of Ex 3. How would the attorneys know what the client would agree to in return for their Release? Or if the client would agree to give a Release.

In the first criminal trial in Covington Judge Bertelsman disagreed with the government’s interpretation of Ex 3. In this trial Judge Bertelsman gave an instruction on Excess funds and left it to the Jury to decide whether the failure of the attorneys to give Notice on the disposition of Excess Funds was done with criminal intent.

At the hearing on Excess funds which the clients did not attend Judge Bamberger gave the clients half as much again as they had previously given Releases.

In the first trial the 150 page Order in the National Class Action was admitted. Also a Comparison Chart was admitted comparing values the clients would have received in the National Settlement with settlements in Boone Co.

Mr. Gallion explained why the clients were not given Notice of the Hearing on Excess funds. Under class action law the clients have no interest in excess funds. This was a Mass Tort. The possibility of Excess Funds was discussed at Mediation. The Potential was real for the failure of the National Settlement to be approved on Appeal. It was the attorneys’ belief that some 4000 clients would have had an interest in the $200 million dollar settlement under the terms of the Settlement letter which made the attorneys responsible for Settling Claimants with Potential Claims.

Stan Chesley who vast experience in Mass Torts has told Judge Bamberger and the other attorneys that funds remaining were excess and the court had several options at his disposal for dealing with these funds.

In the first trial notwithstanding going into trial, in custody due to a $52 million dollar bond and in the face of horrific pretrial publicity, 10 ordinary citizens voted to acquit them of acting with criminal intent.

The Kentucky Bar Association’s belief is totally wrong that Bill Gallion , Shirley Cunningham , Stan Chesley, David Helmers and Joseph Bamberger knew that the $200 million dollar settlement was only for 440 clients.

Mr. Gallion explained in both trials the reasons he did not to tell the 440 clients the total amount of the settlement. He feared a breach of confidentiality that would expose him to financial penalties. He feared infighting among the clients that would have torpedoed the settlement. The latter fear was later echoed by one of the jurors after the first trial.

In the second trial Judge Reeves told the jury that this was an aggregate settlement and that the attorneys had negotiated a settlement for only 440 clients. Judge Reeves and the Bar Association are like minded and both are believed seriously wrong concerning the Settlement for the reasons stated.

Bill Gallion outlined the Settlement as stated in an Affidavit he gave the Bar Association and in a face to face meeting with Linda Gosnell on 2/28/02. At that time Ms Gosnell had not seen the Settlement letter or Ex 3. It was her misinterpretation subsequently that led the Bar to extreme interpretations that if true would have justified findings of fraud.

David Helmers is a highly skilled attorney. He testified under oath he did nothing unethical much less fraudulent. Had the Bar Association’s belief been true that this was truly a negotiated settlement for 440 clients then David Helmers would have known that. Giving false testimony would have subjected him to criminal prosecution.

CR 23 in the Kentucky Civil Rules and case law in Kentucky gives no practical guidance for handling Mass Torts. Fair minded people would acknowledge that the customary professional attorney client relationship is not possible in the context of a Mass Tort. Was Bill Gallion’s belief that the clients got a great settlement true ? This can be answered in a proceeding where the medical records of the clients are examined in light of what they accepted in settlement for their claims. The Mediation Notebook of AHP and their counsel who testified under oath stated that the claims of the 440 clients were very weak.

In offering settlements to the clients Judge Bamberger knew the attorneys would follow the matrices established in the National Settlement. He believed the clients were generously compensated. The Comparison Chart used as an exhibit in the first trial shows Judge Bamberger’s belief to be demonstrably reasonable. Accepting the argument stated above shows the Kentucky Bar Association belief that the settlement was only for 440 clients to be demonstrably unreasonable.


*LAWREADER NOTE: Mr. Dowling has 14 dvd’s containing the entire transcription of the criminal trial, and has attended the entire trial.

Leave a Comment: