FEN PHEN DEFENDANT FILES BRIEF FOR RECONSIDERATION BY KY. SUP. CT. IN BOONE COUNTY CASE

BRIEF FILED:

SUPREME COURT OF KENTUCKY
FILE NO. 2011-SC-000291-D

MILDRED ABBOTT, ET AL APPELLANTS
VS. PETITION FOR REHEARING
STANLEY M. CHESLEY, ET AL APPELLEES
ON REVIEW FROM THE COURT OF APPEALS,
CASE NOS. 2007-CA-1971, 2007-CA-1981, 2007-CA-2173
AND 2007-CA-2174, BOONE CIRCUIT COURT NO. 05-CI-OO436
COME NOW APPELLEES, GALLION AND CUNNINGHAM, BY COUNSEL,
AND RESPECTFULLY SUBMIT THE FOLLOWING PETITION FOR REHEARING.
. The Court states that the $200 million settlement was for 440 clients with a reserve of $7.5 million for future claims. How does the Court reach that conclusion? The Court never mentions Ex.3 that the Appellants alleged was the “smoking gun” that entitled them to the $200 million settlement. The Appellees disputed the Appellants’ allegations in both criminal trials.
There is no Record before the Court showing American Home Products (AHP) attorneys and the Appellees disagreement over the law and the interpretation of the Settlement and Side Letters concerning the extent of the Appellees’ undertaking to indemnify AHP for claims made by the Duff Class and the meaning of Exhibit 3.
Judge Reeves’ comment at trial is not of Record: “For example, Exhibit 3, the that’s been discussed so much in Exhibit 3. There’s been lots of conflicting testimony about this particular paragraph.” clause Ordinarily jurors decide conflicts in the evidence.
The contingency fee agreements and the receipts and disbursements were undisputed. These documents had no bearing on the dispute surrounding Ex. 3 and on the interpretation of the Settlement and Side Letters. The express language of the Settlement Letter, quoted below, does not support the Court’s interpretation of the Settlement Letter.
Kenneth Feinberg opined that the protocol necessary to implement the Settlement and reasonable inferences from the language of the Settlement Letter mean that settlement funds were provided for other purposes than compensating the known clients.
Kenneth Feinberg opined that the purpose for Ex. 3 was set out in paragraphs 7, 10 and 14. If the allocation in Ex. 3 was the Clients’ money, what was the significance in the Settlement Letter of the differences noted in the terms “allocation” and “appropriate” in paragraphs 5 and 6? Paragraph 5 says Ex. 3 concerned the allocation of the $200 million settlement fund, not its distribution. Paragraph 6 of the Settlement Letter states, “The settling attorneys [Appellees] represent that the appropriate amounts will be distributed promptly to the settling claimants.” In the Settlement Letter, paragraph 14 (a) (1) says that Ex. 3 “will be prepared, signed and notarized by the settling attorneys on or before the date that you first submit a batch of executed releases…and will be disclosed to AHP at such time.” Ex. 3 was not notarized.
How then would the Appellees know what the clients would receive on Ex. 3 prior to the clients signing a release? The Settlement Letter itself says AHP wanted no responsibility for distributing settlement funds. They did not even want to know how the funds were distributed. AHP just walked away totally from the settlement, once they obtained Releases and funded the Settlement.
According to the Court’s Opinion AHP should be liable to the clients for entrusting settlement funds to the attorneys that the clients, who having no notice, did not receive . Was it really AHP’s intent to give 440 clients virtually $200 million dollars without verifying the clients received the money? That is the reasonable deduction one must make from the Courts opinion.
The Record before the Court does not show, and it should, the comparison of the settlements in Boone Co. with the Fairness Values established in the National Settlement.
Why would AHP settle 263 claims for $95,000 in Boone County, when they were settling comparable claims for $500.00 in the National Settlement? Where was the $200 million dollars going if not just for 440 clients? The Appellees are entitled to a jury trial to answer this question.
The State Court Judge certified a class action against Dr. Duff for Medical Malpractice. AHP agreed to indemnify Dr. Duff for claims against him. Did AHP anticipate it would be indemnifying Dr. Duff for malpractice claims?
The Appellees evidence would substantiate the following details of the Settlement.
The parties, in April/May 2001, went to Mediation in order to settle a Certified Class Action. They did not go to Mediation to settle an Aggregate Settlement. Client consent was not required. The Clients knew the value of their claims in the National Settlement and willing signed Releases for settlements greatly exceeding National Settlement Fairness Values.
A trial date had been scheduled. Notice had not been given to some 60,000 Kentucky residents who had taken the diet drugs prescribed by Dr. Duff. Had the case not settled, notice would have been given to the 60,000. Stan Chesley used the malpractice claims as leverage to increase the settlement demands.
There is no record before the Court, and there should be, explaining what the Settlement funds were for besides the 440 known clients
Testimony in the second trial confirmed by Ms. Madonick that prior to mediation Stan Chesley and Jack Vardaman had reached a tentative agreement that the case would be settled for $200 million. AHP had a problem. The solution fashioned by Stan Chesley and Jack Vardaman, counsel for AHP was two- fold:
Decertification of the Class Action; Personal Indemnification by the Plaintiff Attorneys for claims made against Dr. Duff for a period of one year.
The troubling Side Letter calling for Personal Indemnification by the Appellees was created by Stan Chesley and Jack Vardaman. Gallion was the unfortunate recipient of the ethical quagmire it created. Richard Robbins testified in the first trial that he had never seen a settlement agreement that made the Attorneys representing the plaintiffs accept financial obligations. He faulted Vardaman in the first trial for putting the Appellees in that position. (Docket # 540, p. 108, 114)
Jack Vardaman testified in the second trial that they wanted Decertification to prevent Notice from going out to Kentucky residents of the malpractice claims certified against Dr. Duff:”…that would bring more plaintiffs out of the woodwork…And so if you are going to have to give notice, I think that’s one of the–one of the problems that we had in the case.”
Judge Reeves misinterpreted paragraph 3 of the Settlement Letter, saying the Settlement Letter only provided compensation for 440 known clients. The Settlement Letter set out three groups of Settling Claimants. The “which” in paragraph 3 in the Settlement Letter referred to by Judge Reeves covers the known clients of the Appellees who have opted out of the National Settlement. There are two additional groups of Settling Claimants, most prominently including the Malpractice claims against Dr.Duff Class, feared by Mr. Vardaman from “coming out of the woodwork” that were not compensable in the National Settlement.
The Settlement Letter required Releases to be provided by September 1. This afforded the Appellees four months to obtain Releases. The Duff Class Indemnity obligations ended in June 2002. The National Settlement was approved on appeal in January 2002. The settlement itself was structured to provide Excess Funds if the National Settlement on appeal was affirmed and if no claims were filed by the Duff Class.
The Record before the Court does not show, and it should, excess funds was discussed at the Mediation by the plaintiffs’ counsel in the presence of David Schaefer and two other Counsel for AHP which was corroborated by a notation of $50 million to Charity made at Mediation by David Helmers.
The documents saying this were created prior to litigation when there was no reason to fabricate. These documents support a finding of fact that the settlement in Boone County was not just for 440 clients.
In a meeting on 2/28/02, Gallion informed Ms. Gosnell of the details of the Boone County Settlement: the fee was $100 million divided among five law firms; clients received approximately $50 million; there would be a second distribution to the clients; there were potentially excess funds for promoting health issues.
The Appellees case, if permitted, would establish the following.
Several months after this meeting Ms. Gosnell, in reviewing the Settlement Letter and Ex. 3, concluded (and the Court accepted her conclusions) that Ex. 3 was money directly allocated and belonging to the 440 clients. Gosnell’s interpretation was inaccurate. It was made without knowledge of the medical conditions of the clients, the Fairness Values of their claims in the National Settlement, and the criteria for evaluating claims used by the Appellees that corresponded with the criteria used in the National Settlement. Claims were valued individually on a one-to-one basis. They were not grouped in the manner shown on Ex.3. Age was a factor in the Boone County settlements; age was not a factor in grouping claims on Ex. 3.
The Record does not show, and it should, that David Helmers prepared Ex. 3 in about 1 hour. Is it reasonable to believe that these 440 claims would be properly addressed in one hour?
In disbarment proceedings the Court did not know the Appellees’ explanation of the Settlement. AHP attorneys’ version of what was agreed to was not challenged. The Appellees challenged Mr. Vardaman’s testimony in both criminal trials that the allocations on Ex. 3 were monies intended for 440 clients.
The universe where these disputes occurred was comprised of the small group of individuals present at the Mediation meetings on April 30 and May 1, 2001. The parties went to Mediation to settle a Certified Class Action. A trial date had been scheduled. AHP had opposed the Appellees’ efforts to give Notice to some 60,000 Kentucky residents who had taken the diet drugs prescribed by Dr. Duff.
The Record before the court does not show that Tracey Curtis, who testified for the government, saw a physician only one time in connection with the diet drug. Ms. Curtis was allocated $181,000 in Ex.3.
In a fair jury trial in Covington, 10 jurors voted to acquit the Appellees of fraud (i.e., of stealing their clients’ money). The Court is asked to take Judicial Notice of the juror split in this Covington trial. The Appellees contend that the trial that convicted them was not fair. Their conviction will be challenged in post-conviction proceedings.
The Record before the Court is devoid of the details of the Boone County Settlement. The Appellees were indicted by the United States in June 2007 for not following Class Action law. There was a plenary trial lasting several weeks. It is beyond dispute that this trial where 10 jurors were unable to find the Appellees guilty of fraud shows the existence of genuine issues of fact concerning what the parties agreed to at the Mediation.
The same fact witnesses describing what occurred during Mediation testified in both trials disputing the interpretation of the agreements and the meaning and purpose of Ex.3. Apart from legal rulings, the principal difference in the second trial was the introduction of the Disbarment Orders and the testimony of the Kentucky Bar Counsel.
The Court, on page 9 of its Opinion, makes findings that the Appellees negotiated a $200 million settlement for 440 clients and knowingly engaged in willful misconduct to steal clients’ settlement funds—and the Court does so without giving the Appellees an opportunity to be heard. AHP and the Appellees gave diametrically opposed testimony concerning the Settlement and Side Letters and concerning what the parties had agreed to. Where there is diametrically opposed testimony, it goes to a jury to decide. How can this not be a jury issue?
The Court writes: “It is beyond rational dispute that CGM breached their fee agreements with Appellants by claiming excessive fees and, in doing so, that CGM failed to ensure that each Appellant received his or her share of the settlement.”
The Court’s statement decides a fact disputed in both criminal trials. In the first trial that was fair the government did not establish the truth of what the court says is beyond rational dispute. There were facts on the Defendants side that caused the mistrial. For the Court to decide that the $200 million settlement was an aggregate settlement for only 440 clients without a trial is a Miscarriage of Justice.
If the facts recited by the Court on page 9 of its Opinion were true, there would be no need to address issues of fiduciary duty or contract law. Were this true and Gallion and Chesley both knew they negotiated a $200 million settlement for only 440 clients, they belong in prison. It would not be a question of fiduciary duty or contract law, its simply stealing . That’s what Professor Erichson, whose opinion Judge Reeves would not allow to be challenged, testified to in the trial that convicted the Appellees. In Kenneth Feinberg’s opinion Professor Erichson did not know what he was talking about.
If an attorney settles a claim for a $10,000 and tells the client it was settled for $5,000 that is a just plain stealing. The contingency fee contract issue would be unnecessary. Whether the clients were informed or not informed would not matter. How the settlement funds were apportioned would not matter. An attorney who steals money from a client is not entitled to a fee. A party guilty of fraud forfeits all rights and benefit from the transaction surrounding the fraud.
The Record does not show the cross examination of Professor Erichson or the testimony given by Richard Robbins in the first trial.
Professor Erichson testified he did not understand the Side Letter, i.e., Indemnification that was an essential condition of the Settlement Letter. Indemnification was to solve AHP’s problem. AHP had given Dr. Duff unlimited indemnity.
Richard Robbins testified at the first trial concerning the Side Letter: Docket # 540, pp 105,107. What struck me about this letter is, it’s not very well written…. Williams & Connolly is one of the best law firms in the country. I don’t have a full indemnity that is in the second paragraph in the letter and then just throw in , oh, by the way, its limited to $7.5 million. Particularly doesn’t make sense if you’re paying an extra $150 million to settle the case but to limit the indemnity to 7.5 million. In the second trial there was confusion over who prepared the Side Letter.
Mr. Robbins testified: Case: 2:07-cr-00039 Docket # 519
Q. Contrary to what AHP did in this case by just walking away totally.
A. … AHP said were done here…. That was an unusual situation.
On cross examination Robbins testified, p. 73-76 :
A. What I said was when you went into the mediation, it was a class action. Mr. Vardaman knew it was a class action. The outcome of the mediation was to pay 400 some odd people, have indemnification obligations, and decertify the class so there would no longer be a class…. All you would have to be
dealing with were these individuals….The way the settlement was structured was that the claims of the 440 were settled. The class, everybody else who may have a claim, was decertified….. And the lawyers agreed to indemnify AHP if other people brought claims… That’s the way the settlement was structured.
Q. OK. You said Mr. Vardaman misspoke or knew better?… Because he said that this case was settled for 440 people.
A. No…. what I said was his concept that he was only there on behalf of the 440 and he wasn’t dealing with a class action, that is wrong and he knows that is wrong. When he went into the settlement, there was a class action. You can not ignore. … you can either deal with it by settling those class claims, or… by decertifying the class….
Q. What did these claimants and their attorneys have to do to get $150 million released to them?
A. They had to get releases of a certain number of people. When you got releases from the settling claimants, from all of them in 2A and half of them in 2B, you got $150 million. It doesn’t say of course, you have to pay those people those amounts…. It’s a payment mechanism.
A. …you can’t possibly know what should be paid to each up front. AHP is making it very clear they did not care what you were paying each person. Id. 116
A. … And AHP, in the Side letter , was saying if he’s sued, we’re responsible, and you three guys are responsible for that. They were buying peace in Kentucky by paying money to these three gentlemen. They were not only buying peace with these 431 people, they were buying peace period, in Kentucky is how I read the settlement and how it was explained as I read the documents.
Q. Now was there any limitation placed on this Indemnification ?
A. Well, as I interpret this, and as I have read testimony on it and reading it in context, there’s a limit on the indemnification for attorneys’ fee and expenses of $7.5 million.
Professor Erichson testified he did not know, one way or another, whether the medical malpractice claims or consumer product claims against Dr. Duff were settled by the National ClassAction. The 60,000 members of the Duff Class that AHP scattered to the wind by decertifying the Class were of no importance to Professor Erichson or to the government for that matter. The most critical part of Feinberg and Robbins opinions was the interpretation of the Settlement Letter that addressed Contract Language and the purpose of Ex. 3 not whether it was an Aggregate or Class Action settlement.
What is the significance of the near acquittal in the first trial, in the face of horrid adverse pre-trial publicity? Contrary to this Court, ten jurors and Judge Bertlesman did not believe the $200 million settlement was for only 440 clients. Was Judge Bertlesman so inept he did not see the Appellees stole their Clients money? There remain genuine issues of fact for a jury to decide regarding the distribution of the $200 million settlement.
For the reasons stated in this Petition, the Court’s decision to affirm Judge Wehr’s Summary Judgment denies the Appellees Due Process of Law and Equal Protection of the Law under the 14th Amendment of the United States Constitution. Truax v Corrigan, 257 US 312, 331, 425 S.Ct. 1234, 66 L.Ed. 2d 254 (1921). The decision reversing the Court of Appeals is manifestly unjust. Durham v Copley, Ky. 818 S.W.2d 610 (1991)
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RESPECTFULLY SUBMITTED
MICHAEL R. DOWLING
ATTORNEY AT LAW

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