SUPREME COURT OF KENTUCKY ~^Y CLERK

KBA FILE 13785 MAY 1 0 ^

STANLEY M. CHESLEY RESPO LLANT

v.

KENTUCKY BAR ASSOCIATION COMPLAINANT/APPELLEE

KBA'S RESPONSE BRIEF TO THE BOARD OF GOVERNORS

Linda'A. Gosnell
Chief Bar Counsel
Cary B. Howard
Deputy Bar Counsel
Office of Bar Counsel
Kentucky Bar Association
514 West Main Street
Frankfort, Kentucky 40601
502-564-3795

CERTIFICATE OF SERVICE

This is to certify that, pursuant to SCR 3.290, this Brief to the Board of Governors has been
filed with Susan Greenwell, Disciplinary Clerk, 514 West Main Street, Frankfort, Kentucky 40601-
1883, with a copy for distribution by mail or email to the following this 7 / ^ c i a y of May, 2011.

Frank Benton IV Mark Miller

Frank Benton m 600 West Main St Ste 300
Benton Benton & Luedeke Louisville KY 40202
528 Overton St
Newport KY 41071-0218 Sheryl G. Snyder
Frost Brown ToddLLC
Scott C. Cox 400 W Market St 32nd Fl
Michael Mazzoli Louisville KY 40202
600 West Main St Ste 300
Louisville KY 40202 R. KentWestberry
Landrum & Shouse
James M. Gary 220 W Main St Ste 1900
Weber & Rose PSC Louisville KY 40202
471 W. Main St. Ste. 400
Louisville KY 40202
r
_ ^v^Q
Counsel for the KBA
 INTRODUCTION

Trial Commissioner, William Graham, after hearing and evaluating testimony of 43

witnesses and reviewing 349 exhibits, found the Respondent guilty of 8 of 9 counts of the

Amended Charge and recommended permanent disbarment and restitution of $7,555,000.00 in

fees to the clients. The KBA urges adoption of this Report by the Board in this appeal

proceeding filed by the Respondent.

i
 COUNTER STATEMENT OF POINTS AND AUTHORITIES

PAGE

I. COUNTER STATEMENT OF RELEVANT FACTS AND PROCEEDINGS 1

A. FACTS OF THE MISCONDUCT 1

1. The Respondent was co-counsel for the Plaintiffs in Guard. 1

a. The Respondent manipulated the proceedings of the Guard, Courtney, and

Feltner litigation to insert himself into Guard 1

b. Following the deadline for opting out of the national diet drug settlement the
Respondent signed a written agreement to be co-counsel for the Guard
Plaintiffs 7

2. The Respondent actively participated in multiple efforts to settle the Guard case with
AHP 8

a. He settled several Guard Plaintiffs' cases individually and made numerous

efforts to reach settlement with AHP for the entire "inventory" of the Guard
Plaintiffs'claims 8

b. He attended a mediation of the Guard case on April 30 and May 1, 2001, at

which he negotiated settlement of the remaining "inventory' of Guard Plaintiffs'
claims against AHP 9

c. He appeared on May 9, 2001 before Judge Bamberger and convinced him to

decertify the class and dismiss the lawsuit 13

3. The Respondent's co-counsel then defrauded the 440 clients, convincing them to
accept amounts far below the appropriate amounts calculated under the allocations
contained in the agreement 18

4. The Respondent orchestrated and participated in a complicated attempt to cover up the

theft 20

a. He was paid an additional $4,000,000.00 in 2002 for successfully assisting his

co-counsel in procuring orders from Judge Bamberger that were used to conceal
the fraud from the KBA and from their clients 20

b. He gave directions and a document to Helmers to use to further deceive the

clients regarding the true nature of the settlement 24

ii
 c. Even after the KB A, JCC, two of his cohorts' partners and numerous clients began
asking questions about details of the handling of the settlement funds and even filed civil
claims against him, he continued his efforts to cover-up the fraud 31

B. PROCEDURAL HISTORY 34

II. COUNTERARGUMENT 36

A. THE BOARD SHOULD ADOPT THE TRIAL COMMISSIONER'S FINDINGS OF

FACT AND CONCLUSIONS OF LAW 36

1. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
1.5(a) 39

2. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
1.5(c) 44

3. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
1.5(e) 46

4. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
1.8(g) 47

Shirley A. Cunningham, Jr. v. Kentucky Bar Association, 266 S.W.3d 808

(Ky. 2UU5) 47

rrltllulTl J. VJilllWYl V, r^dnlUCKy DOT A.SSOClQllOn, ZOO S . W . J Q oUZ ^JN-y. Z U U o J Hr I

&£ntucky Beit Association v. Melbourne iviiiis, 318 S.W.3d 89 (ivy. 201uj 47

5. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
3.3(a) 49

6. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
8.1(a) 52

7. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
8.3(c) 54

8. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-
5.1(c)(1) 55

B. THE TRIAL COMMISSIONER'S RECOMMENDATION OF PERMANENT

DISBARMENT AND RESTITUTION IS APPROPRIATE 57

iii
1. The appropriate sanction for the Respondent's misconduct in this case is nothing short
of permanent disbarment 57

Kentucky Bar Association v. Collis, 535 S.W.2d95 (Ky. 1976)..'. 57

7wreZj/«c/i,238S.W.2dll8(Ky. 1951) .58

Kentucky Bar Association v. Matthews, 131 S.W.3d 744 (Ky. 2004) 59

Pooh v. Kentucky Bar Association, 128 S.W.3d 833 (Ky. 2004) ..59

Kentucky Bar Association v. Johnson, 660 S.W.2d 671 (Ky. 1983) 60

Kentucky Bar Association v. Tucker, Ky., 535 S.W.2d 97, cert, den., 423 U.S. 1054,
96 S.Ct. 785(1975) 60

Kentucky Bar Association v. Collis, Ky.s 535 S.W.2d 95, cert, den., 423 U.S. 1049
(1975) 60

Kentucky Bar Association v. Zimmerman, 69 S.W.3d465 (Ky. 2001)..'. 60

Kentucky Bar Association v. Steiner, 157 S.W.3d 209 (Ky. 2005) 60

Kentucky Bar Association v. Catron, 229 S.W.3d 910 (Ky. 2007) 60

2. The Trial Commissioner correctly held that there are numerous aggravating factors
further supporting permanent disbarment 61

Anderson v. Kentucky Bar Association, 262 S.W. 3d 636 (Ky. 2008) ..61

3. The Trial Commissioner correctly discounted the impact of any mitigating evidence
presented by the Respondent 62

4. The recommendation by the Trial Commissioner of an order by the Court of restitution

is appropriate in this case under Kentucky law

Kentucky Bar Association v. Kersey, 320 S.W.3d 682 (Ky. 2010)..... 64

Kentucky Bar Association v. Marcum, 308 S.W.3d 200 (Ky. 2010) 65

Kentucky Bar Association v Mathews, 308 S.W.3d 194 (Ky. 2010) 65

Kentucky Bar Association v Justice, 302 S.W.3d 70 (Ky. 2010) 65

Kentucky Bar Association v Menefee, 296 S.W.3d423 (Ky. 2009) 66

iv
 In matter ofAckerman, 330 N.E.2d 322 (Ind. 1975) 66

In matter ofHailey, 792 N.E.2d 851 (Ind. 2003) 67

In matter of Cotton, 939N.E.2d 619 (Ind. 2010) 67

Lovellv. Winchester, 941 S.W.2d466 (Ky. 1997) 68

C. THE BOARD SHOULD REJECT THE RESPONDENT'S CONTINUED

MISSTATEMENTS OF FACT AND OMISSIONS OF FACT, AS DID THE TRIAL
COMMISSIONER IN REVIEWING THIS VOLUMINOUS RECORD 67

1. Several examples of these misstatements are sufficient to demonstrate the

disingenuousness of the Respondent regarding even obvious facts 67

2. The Trial Commissioner properly analyzed and weighed the credibility of the
witnesses, including the Respondent, and found many aspects of the Respondent's
testimony and his responses to the Inquiry Commission to be "misleading, if not outright
lies." 69

3. Many of the Respondent's criticisms of the Trial Commissioner's Report are

invalid 72

CarlCoe, et al. v. Roman Catholic Diocese ofCovington 73

III. CONCLUSION 74

IV. INDEX TO APPENDIX 76

V
"It may be profitable to you to reflect, in future, that there never were greed and cunning in the
world yet, that did not do too much, and overreach themselves. It is as certain as death."
- David Copperfield

I. COUNTER STATEMENT OF RELEVANT FACTS AND PROCEEDINGS

A. FACTS OF THE MISCONDUCT

This case is about the misconduct of Stanley Chesley, a participant in a scheme to cover

up the unethical and criminal misconduct of his co-counsel in defrauding their mutual clients.

The fraud was commenced through the improper administration of funds paid in the aggregate

settlement of the clients' claims against the pharmaceutical company American Home Products

(AHP). The fraud initially resulted in the distribution of only $45,000,000.00 of the

$20.0,000,000.00 paid by AHP to the attorneys to settle the claims of these 440 clients. The Trial

Commissioner, retired Judge William Graham, with 23 years of experience on the Franklin

Circuit Court bench, has made extensive findings of fact. They are correct and supported by the

evidence. A copy of his Report is attached as Appendix 1. A summary of the facts contained in

the record is set forth below. The KBA urges adoption of the Report.

1. The Respondent was co-counsel for the Plaintiffs in Guard.

a. The Respondent manipulated the proceedings of the Guard, Courtney, and Feltner
litigation to insert himself into Guard.

On August 24, 1998, three former Kentucky lawyers, William Gallion (with the

assistance of his associate David Helmers), Shirley Cunningham, Jr. and Melbourne Mills, Jr.

jointly filed a Class Action Complaint in the Boone County Circuit Court. (Tr.II, p. 243; KBA

Exh. 68) The lawsuit, Darla Guard, et al. or Jonetta Moore, et al. v. A. H. Robins Company, et

al, Boone County Circuit Court, Case No. 98-CI-795, ( Guard) was filed on behalf of several

named individual plaintiffs and on behalf of all others similarly situated who claimed injury

resulting from the ingestion of certain pharmaceutical products, referred to in this Brief as diet

1
drugs. (Tr. II, p. 243)l This case, referred to as Guard, was filed against numerous Defendants

including AHP, which later became Wyeth, and Dr. Rex Duff.2 (Tr.I, p. 862)

Cunningham and Mills had signed up thousands of clients between them for

representation in potential tort claims against the manufacturers and distributors of. (Tr.II, pp.

121-124) Gallion, the more seasoned litigator of the three, provided courtroom expertise to the

joint venture and the other two provided their substantial book of clients. (Tr.II, pp. 122)

Throughout the litigation of the case, Gallion, with substantial assistance from his associate,

David Helmers, almost exclusively handled the discovery, motion practice and courtroom work

for the plaintiffs. (Tr.I, pp. 866-867; Tr.II, pp. 123, 241)

At the time Guard was filed many other diet drug lawsuits from around the country were

being either filed in or removed to federal court thereafter and consolidated for discovery

purposes pursuant to federal procedural rules on multidistrict consolidated litigation, or MDL.

(Tr.I, p. 858; Tr.II, p. 243) The Respondent was involved in representing plaintiffs in that

litigation which was based in the United States District Court for the Eastern District of

Pennsylvania at Philadelphia. (Tr.II, p. 248) As the federal litigation progressed he became a

member of the nationwide Plaintiffs' Management Committee (PMC). The PMC orchestrated

negotiations with AHP ultimately resulting in the certification of a nationwide settlement class to

administer a settlement agreement of diet drug claims from across the country. (Tr.II, p. 248) At

1
Throughout this Brief, citations to testimony from the pre-deconsolidation portion of the hearing are
denoted in the format (Tr.I, p. X). Citations to testimony from the post-consolidation portion are denoted as (Tr.II,
p. X). Citations to testimony from the depositions of witnesses Vardaman, Levine, Madonick, Stilz, Dominguez and
Baker are denoted respectively as (Vard., p. X; Lev., p. X; Mad., p. X; Stilz, p. X; Dom., p. X; and Baker, p.X).
2
Dr. Duff (whose license to practice medicine in this Commonwealth has since been revoked) operated multiple
clinics in Kentucky incorporated under the name of Bariatrics, Inc. (also named as a defendant in Guard) and
reportedly prescribed and distributed to thousands of individuals from across the Commonwealth of Kentucky and
elsewhere. (Tr.IT, p. 252)

2
least one of the Respondent's experts who testified in this case also testified for the Respondent

in support of the settlement agreement in that action.

Unlike many other diet drug lawsuits filed in state courts around the country, the Guard

case was not removed to federal court. It remained in the Boone Circuit Court, which, by Order

entered May 4, 1999, certified a plaintiff class initially defined as consisting of all Kentuckians

who had consumed diet-drugs obtained from Dr. Duff (Tr.I, p. 863; Tr.II, p. 243; KBA Exh. 69)

Shortly thereafter, another class action lawsuit was filed in a different Kentucky state court

involving diet drug claims of Kentuckians, Feltner et al v. AHP et al, Case No. 99-CI-127,

Leslie County Circuit Court ( Feltner). (Tr.I, pp. 1032-1033; KBA Exh. 95) That case was filed

on May 26, 1999 on behalf of Feltner and four other named individuals by a team of four

attorneys, Kenneth Buckle (a Hyden, Kentucky attorney who testified), Alva Hollon (a Kentucky

licensed attorney located in Florida), Michael Gallagher (from Houston, Texas), and Robert

Arledge (from Vicksburg, Mississippi). (Tr.I, p. 1033)

On the very same day that the lawsuit was filed, then-presiding Leslie Circuit Judge

Cletus Maricle certified a plaintiff class defined to include "all current and/or former residents of

the Commonwealth of Kentucky who have ingested the Pondimin, Fenfluramine,

Dexfenfluramine and/or Redux manufactured, marketed, sold, distributed, designed, created

and/or prescribed by the defendants." (Tr.I, p. 875; KBA Exh. 96) Kentucky counsel for AHP in

both this case and Guard was David Schaeffer, who testified in the disciplinary case.

Among the several problems created by what AHP's counsel referred to as this "drive-by

certification," an issue arose for the Guard attorneys and the Boone Circuit Court in that this

newly certified class, by definition, overlapped the Guard class. (Tr.I, pp. 875, 881) Since the

Feltner class was defined to include all Kentuckians that had taken the (necessarily including at

3
least some of those that obtained the drugs from Dr. Duff), something would presumably need to

be done to deal with this duplication. (Tr.I, pp. 871-876) This problem was seemingly resolved

rather quickly, though, by Feltner's nearly immediate removal to the United States District Court

for the Eastern District of Kentucky at London on June 16, 1999. (KBA Exh. 97) At that point

Feltner appeared highly likely to be transferred to the MDL in Philadelphia and subsumed within

that litigation. (Tr.I, p. 878)

But then, on July 30, 1999, (after the Guard class had already been certified) the

Respondent filed his own Class Action Complaint and Jury Demand in Boone County, Courtney

et al, v. AHP et at, Case No. 99-CI-842, Boone County Circuit Court (hereafter Courtney), on

behalf of three individuals. (Tr.I, pp. 873-874; KBA Exh. 100) One of these, Debra Courtney,

had previously been advised by the Chesley firm to go to the national class action, but then was

contacted and ended up becoming a plaintiff in this new suit. (Tr.II, p. 743; KBA Exhs. 274 &

275) The Respondent had previously tried to enter the Guard case as co-counsel but Gallion had

refused. (Tr.II, p. 746) The putative Courtney class was to be comprised of "all persons who

were residents and citizens of the Commonwealth of Kentucky at the time they consumed

Pondimin and Redux". (KBA Exh. 100) Just two weeks later, on August 13, 1999, the

Respondent filed a Motion to Consolidate in the Courtney case supported by a Memorandum of

Law explaining why the Courtney and Guard cases should be consolidated. (KBA Exh. 101)

Gallion then filed, in direct response to the Respondent, an Objection to Motion to

Consolidate Actions on September 24, 1999. (KBA Exh. 71) Documents exchanged

contemporaneously between Helmers and Gallion inter-office demonstrates their negative

reaction to this attempt by the Respondent to enter their case. (Tr.II, p. 244; KBA Exhs. 150 &

4
151) This is contrary to Respondent's oft-stated claim that he was hired by the lawyers to help

them in this suit because of his reputation.

Meanwhile, in Feltner, while the case was under stay in federal court pending transfer to

the MDL, the Respondent entered his appearance as counsel for that plaintiff class on September

29, 1999. (Tr.I, pp. 876, 1037-1038; KBA Exh. 98) Oddly, at the hearing in this discipline case,

he denied representing these Feltner plaintiffs. Furthermore, in his civil deposition he denied

knowing Hollon or Buckle, his co-counsel in Feltnerl (Tr.II, pp. 752-753; KBA Exh. 322) Mr.

Buckle's signature on the Order of Remand contains the initials "SMC." Schaefer testified that

the remand had been worked out with AHP by the Respondent. (Tr. I, pp. 879-880) In fact, the

Order to Remand was mailed by the Respondent to the federal court with his entry of appearance

on September 29, 1999. (KBA Exh. 282) Once the Feltner action had been remanded, the

Respondent's co-counsel in Feltner quickly filed a Motion to Intervene in the Guard case on

October 5, 1999. (KBA Exh. 72)

Simultaneously, on October 5, the Respondent filed a "Status Report" in Courtney

regarding the current status of his negotiations with Gallion to work together in Guard. (KBA

Exh. 102) The Status Report contended that the Court should consolidate the Courtney and

Guard cases despite the inability of the attorneys themselves to come to an agreement to do so.

(KBA Exh. 102) The Status Report also informed Judge Bamberger of the Agreed Order to

Remand the Feltner case having been filed. (KBA Exh. 102) The Respondent reported to the

Judge that the existence of Feltner, back at the state court level in Leslie County, was an

additional reason that his case, Courtney, should be consolidated with Guard. (KBA Exh. 102)

However, he made no mention to the Boone Court of the fact that it was the Respondent himself

who had arranged for the remand, or that he had entered his appearance to represent the Feltner

5
plaintiffs as co-counsel. (KBA Exh. 102) These maneuvers were not fully disclosed until the

hearing in this case. On October 12, 1999, a notice of the Agreed Order to Remand the case to

Leslie County Circuit Court was filed in that Circuit. (KBA Exh. 99)

It was at around this time that Gallion and his team gave up their efforts to resist the

involvement of the Respondent in their case. They acquiesced by way of entering into a written

Stipulation to Consolidate and the Respondent's case was thereby consolidated by the Court with

Guard for "all purposes". (KBA Exh. 105; Appendix 2) The Respondent later, under oath,

falsely claimed the cases were not consolidated for all purposes. (Tr. II, pp. 746-748; KBA Exh.

322 pp. 72-73, 113-115, 746-748)

Following the consolidation of Courtney with the ongoing Guard class action, the

Respondent did nothing further in the Feltner matter although he also never withdrew from

representation of those plaintiffs. (Tr.II, p. 757) A series of letters was sent by Gallion to the

Respondent finally consenting to the intrusion of the Respondent into the Guard case as co-

counsel. (KBA Exhs. 283, 284 & 285) The many clients of Buckle and Hollon, including Ms.

Feltner, ultimately had their claims settled as part of an inventory settlement administered in

another state. (Tr.I, p. 1057) Likewise the Courtney plaintiffs would not receive any of the

Guard settlement, but were sent back to the national case. (Tr.II, p. 753) The Respondent

admitted on cross-examination that he used these Courtney plaintiffs as a "power play" to get

into Guard. (Tr.II, pp. 753-756)

The entry of this Stipulation occurred at roughly the same time that the Federal District

Court for the Eastern District of Pennsylvania in Philadelphia overseeing the multi-district

litigation approved a national settlement agreement which covered the claims of most diet-drug

plaintiffs including most of the Guard attorneys' clients. (Tr.I, pp. 858-860) Under the terms of

6
the national settlement agreement, the deadline to opt-out was March 30, 2000. (Tr.II, p. 249)

The attorneys, aided largely by Rebecca Phipps and other paralegals, submitted forms opting-out

of the national settlement class on behalf of approximately 491 of their clients. (Tr.I, pp. 1280-

1281) These included several very serious injury and death cases and some claims not covered

by the national class definition. (Tr.II, pp. 249-250)

b. Following the deadline for opting out of the national diet drug settlement the
Respondent signed a written agreement to be co-counsel for the Guard Plaintiffs.

Immediately following the expiration of the March 31, 2000, opt-out deadline for the

national settlement, Gallion, Cunningham and Mills entered into a fee-splitting contract with the

Respondent and another Cincinnati attorney, Richard Lawrence in April of 2000.3 (Tr. II, pp.

767; KBA Exh. 147; Exh. 1 to Appendix 3a) This agreement was reached following several

hours of negotiation between all of the attorneys who had gathered in Cincinnati. (Tr.II, pp. 124-

125,767) The key aspect of the attorneys' agreement was that they agreed to split any fees from

settlement of the claims of any of the lawyers' clients who had opted out of the national

settlement.4 (KBA Exh. 147; Exh. 1 to Appendix 3a).

Under the terms of the written agreement all of the attorneys agreed to be co-counsel in

the Guard class action, but the agreement designated certain roles for various counsel. (KBA

Exh. 147; Exh. 1 to Appendix 3a) Specifically, the Respondent was to act as "lead negotiator" in

attempts at settlement for which he was to receive 27% of any fees generated by the settlement

of any individual opted out cases or by settlement of the class action as a whole. (KBA Exh. 147;

Exh. 1 to Appendix 3a) Gallion was to be lead trial counsel in the event that Guard had to be

tried. (KBA Exh. 147; Exh. 1 to 3a) If the Respondent was unable to effectuate a settlement but

3 The Respondent and Lawrence both independently maintain offices in Ohio where they are licensed attorneys but
they are also licensed to practice law in Kentucky.

7
the plaintiffs prevailed at trial, the Respondent's portion of any gross attorney fee would be just

15%. (KBA Exh. 147; Exh. 1 to Appendix 3a)

The agreement had an expiration date of December 31, 2000. (KBA Exh. 147; Exh. 1 to

Appendix 3a) All counsel had the express right to review each other's client fee contracts, which

were referred to in the agreement, but the Respondent never did so. The clients were to be

notified under the terms of the agreement but never were. The Respondent never inquired

whether they had been notified. (Tr.IL p. 766) His role as co-counsel for the class is

demonstrated and confirmed in documents of record in the Guard case, including orders and

motions and in the video at the final legitimate hearing on May 9, 2001. (KBA Exh. 74;

Appendix 4, and KBA Exhs. 75, & 120)

2. The Respondent actively participated in multiple efforts to settle the Guard case with
AHP.

a. He successfully settled several Guard Plaintiffs' cases individually and made numerous
efforts to reach settlement with AHP for the entire "inventory" of the Guard Plaintiffs'
claims.

The Respondent, sometimes with Gallion and Helmers, during the remainder of the year

2000, made several attempts to negotiate a settlement with AHP of the claims contained within

the Guard case. The Respondent had several conversations with John "Jack" Vardaman, a

partner in the Washington law firm of Williams & Connelly, who represented AHP, but was

unable to reach an agreement by the end of the year to settle all of the claims of the attorneys'

"inventory" of opt-out clients. He was able, however, to reach agreement to settle the individual

claims of some of the clients. These agreements were reached between the Respondent and

Helene Madonick (from the law firm of Arnold and Porter, LLP). At least one of these was a

4
Individually contracting clients of the Respondent who had opted-out of the national settlement were specifically
excluded from the agreement. He settled those separately.

8
named class representative. (Tr.I, p. 993; KBA Exh. 75) Contractual fees were paid to the

lawyers by the client. No "judicial" approval was, nor should have been, sought.

The Respondent wrote a letter to Gallion late in the year requesting that the fee

agreement be renewed and referred to the "groundwork we have laid" being helpful for a desired

settlement of the remaining cases. (KBA Exh. 286, 287, 288) This resulted in renewal of the fee-

splitting agreement, but with the Respondent's portion should he successfully negotiate any

settlement was reduced to 21%. (KBA Exh. 148; Exh. 2 to Appendix 1) It was this agreement

that governed what the Respondent would receive. According to AOC Accountant, Vicki

Hamm's undisputed testimony that amount would have been $12,941,638.46. (KBA Exh. 223)

In 2001 he therefore received $3,555,438.41 over any possible amount of a legitimate fee. (KBA

Exh. 122) In his brief he never discusses the testimony of the accountant, preferring to

hypothesize some 27% of 40% figure that is simply invented.

b. He attended a mediation of the Guard case on April 30 and May 1, 2001, at which he
negotiated settlement of the remaining "inventory' of Guard Plaintiffs' claims against AHP.

The Boone Circuit Court set the matter for trial in the summer of 2001 but directed the

parties to first once again attempt settlement of the case, this time in mediation. (Tr.I, pp. 887-

888) Counsel for the parties agreed to attempt mediation and met for two days, April 30 and May

1, 2001 in Lexington, Kentucky. (Tr.I, pp. 894-896) Two mediators were present, Daniel

Weinstein (from California) and Pierce Hamblin (a Lexington, Kentucky attorney). (Tr.I, pp.

894-896) Counsel present for the defendant AHP included Jack Vardaman, Helene Madonick

and local counsel David Schaeffer. (Tr.I, pp. 894-896) Counsel present for the plaintiffs

included Gallion, Cunningham (present only on the second day), Helmers and the Respondent.

(Vard., pp. 33-34) Also present with plaintiffs' counsel was their non-attorney "trial consultant",

9
Mark Modlin, a longtime close, personal friend of presiding Boone County Circuit Judge

Bamberger. (Tr.II, p. 270) Mills and Lawrence did not attend.

In advance of the mediation Helmers sent both mediators and defendant's counsel binders

of material relating to the individual medical conditions of the "inventory" of clients. He sent

voluminous letters and medical records of the "inventory" of cases to AHP. He also sent

materials to the Respondent which included a detailed chart breaking down proposed settlement

ranges for their many clients in various injury classes. This chart clearly reflected that numerous

clients in the inventory were claiming to have the serious condition of PPH, which was never

covered in the national case, and also noted that the fee contract rate to be applied to the

settlement amounts was 30%. (KBA Exh. 261) This conforms to the prior knowledge he had of

the existence of these fee contracts. The contract rates ranged from 30% for Mills cases, which

were the bulk, to 33% for Cunningham and 33 1/3% for Gallion and Helmers.

Following two full days of negotiation between and among the attorneys, an agreement

was reached to aggregately settle the diet drug claims of 440 individuals who were represented

by Gallion, Cunningham, Lawrence and Mills for a total payment of $200,000,000.00. (Mad., p.

45) None of these clients had signed an individual contract with the Respondent. Which

particular individuals properly comprised this "inventory" of clients had been the subject of

numerous items of correspondence between Helmers and Levine prior to the mediation. (KBA

Exhs.11-26) The Respondent's brief is very silent on his role as so-called lead negotiator. Of

course, if that is what he was, and he was admittedly there, then he was folly aware of all the

terms.

After an agreement in principle was reached on the second day of mediation, the parties

worked to craft a written agreement tailored to the specifics of this particular settlement. (Vard.,

10
p. 38; KBA Exh. 6; Exh. 3 to Appendix 3c) This agreement was initially drafted by counsel for

AHP utilizing a form agreement used by the company in other similar "inventory" settlements

with lawyers around the country. (Vard., p. 37) The letter agreement incorporated and contained

reference to three Exhibits, two of which were, at the time the letter was signed, not yet in

existence. (Tr.II, pp. 273-274; KBA Exh. 6; Exh. 3 to Appendix 3c) Exhibits 2 and 3 to the

settlement letter were to be part of the agreement, but were to be created and provided to AHP by

the plaintiffs' settling attorneys later. (Tr.II, pp. 273-274) Exhibit 2 was to contain the names of

each individual client whose claims were settled by the aggregate agreement, which defined

these individuals collectively as the "settling claimants." (KBA Exh. 6; Exh. 3 to Appendix 3c) It

ultimately paralleled the lists sent pre-mediation to AHP. Exhibit 3 was to be a list of amounts

designated to be the allocations of the total settlement fund to each of the settling individual

clients. (KBA Exh. 6; Exh. 3 to Appendix 3c) The plaintiffs' counsel was to arrive at the

allocations.

Among the numerous provisions of the settlement letter were two clearly delineated

conditions precedent to the agreement's effectiveness that could only be satisfied by Order of the

Boone Circuit Court. (KBA Exh. 6; Exh. 3 to Appendix 3c) One of those conditions was

decertification of the previously certified class and another was dismissal of the Guard lawsuit.

(KBA Exh. 6, p. KBA 6540, H 13; Exh. 3 to Appendix 3c) AHP's counsel made absolutely

clear both prior to and at the mediation that the company would not want to settle Guard as a

class action and instead required that the class be decertified and the Guard litigation dismissed

by the Court prior to binding itself to any proposed settlement. (Vard., pp. 16, 40) Among other

things, AHP and its counsel quite rationally did not want to settle a class action which had been

11
defined as containing all of the opt-outs from another class action and create that precedent.

(Vard.,p.41)

In accordance with that objective, the agreement itself provided that the agreement would

not be effective unless the Guard class was decertified and the case dismissed. (KBA Exh. 6, p.

KBA 6540, % 13; Exh. 3 to Appendix 3c) The agreement was signed by Helmers, Gallion,

Cunningham and Mills but contained a notation that it was being copied to the Respondent. His

brief omits that fact. He later produced a copy of the agreement in Mildred Abbott, et al. v.

Stanley M. Chesley, et al Boone Circuit Court, Case Number 05-CI-4365 with that notation

deleted. (KBA Exh. 116; last page is Appendix 5) His brief omits that fact, which is a very

illuminating act and an equally illuminating omission. Those misrepresentations to the court in

the civil case are material, and are several. He also redacted the above referenced fee splitting

agreements to remove the portion in which he agreed he was co-counsel (KBA Exh. 301;

Appendix 6) The fee splitting agreements, of course, eliminate many of his claims, so the severe

redaction is, once again illuminating.

The agreement also made reference to and incorporated a "side letter" which was to

outline an agreement by the settling attorneys and their clients to indemnify AHP. It was limited

to $7,500,000.00 for any claims brought within a year against Dr. Duff or his clinic, Bariatrics

Inc. (KBA Exh. 9, p. KBA 6540, | 18; Exh. 4 to Appendix 3d) Despite bizarre and seemingly

self-contradictory testimony from the Respondent in this hearing and in his deposition in Abbott

v. Chesley, (Tr.II pp. 974-978; KBA Exh. 322) it is plain that a maximum exposure existed for

this indemnity. He has misrepresented this repeatedly. In fact at the hearing, while reading

directly from the text of this letter during cross-examination, the Respondent deliberately omitted

5
Abbott is the lawsuit brought against the Respondent by his former clients alleging breach of fiduciary duty and
fraud among other claims.

12
the word "not" in order to support his argument that the indemnity was unlimited. (Tr.II p. 976)

He misrepresented that in Abbott, as well as tried to misrepresent it herein, but Judge Graham

detected this. He continues in his brief to argue this could have the "holdback" involved in early

2002. He goes so far as to argue that part of the client's money, had it really been held in

escrow, would then have been eligible for the cy pres doctrine, a theory which he came up with

in February 2002! Aside from the fallacy that the client's money somehow transformed into

"extra" money, the one year was not up. In his federal court testimony he agreed that it was the

clients.

The "side letter" was not drafted at the time the settlement agreement was signed but its

essential terms had been discussed and agreed to at the mediation. (Vard., pp. 43-44) The

function of the "side letter" was allegedly to address certain potential claims of members of the

Guard class that the plaintiffs' attorneys, especially the Respondent, claimed exposed AHP to

enormous liability. (Vard., pp. 43-44) During the course of litigating the Guard case the

plaintiffs' attorneys had discovered that AHP had entered into a written contractual agreement

with doctors around the country, including Dr. Duff, for any and all claims that might be brought

against them related to their prescription and distribution of the . As it turned out there were

never any such claims made. (Vard., pp. 43-44) This letter, like the main agreement, was not

signed by the Respondent but contained a notation that he was provided a copy. (KBA Exh. 9)

The clients were never told of the indemnity they were giving. (Tr.II, p. 60)

c. The Respondent appeared on May 9, 2001 before Judge Bamberger and convinced him
to decertify the class and dismiss the lawsuit.

On May 9, 2001, the Respondent, Helmers, Cunningham and David Schaeffer, a lawyer

for AHP, appeared at a hearing before the Boone Court. (Tr.I, p. 907) The hearing was for the

parties to jointly request the Court to decertify the existing class and to dismiss the Guard case

13
so that the agreement that had been reached by the parties at mediation could be effectuated.

(Tr.I, p. 907) This was not a class settlement "fairness hearing" as the Respondent has claimed;

in fact, no notice of the hearing was ever sent to the class. (KBA Exh. 120) Prior to the

commencement of the hearing, counsel presented the Judge with a jointly drafted and proposed

Order Decertifying Class and Dismissing Action. (Tr.I, p. 907) Helmers said that draft was

circulated to Chesley. That lengthy and detailed Order explained the history of the case and its

relation to the federal litigation and national class settlement. (KBA Exh. 78; Exh. 5 to

Appendix 3e)

...8. During a two-day mediation on April 30 and May 1, 2001, the

parties negotiated a settlement of claims of the 431 opt-outs represented by
Plaintiffs' Counsel (the "Settling Claimants"). The parties did not have sufficient
information concerning, and were not able to reach a settlement of, the claims of
other class members....

...10. In light of the settlement, the Court finds that there is no longer a
need or adequate basis for maintaining this action as a class action against AHP,
Dr. Duff or Bariatrics. The potential class members have been greatly reduced
from the number thought to exist when the Court previously certified a class.
Many of the remaining claimants against AHP have indicated that they have
retained their own attorneys to represent them and, as noted, some of them have
filed their own lawsuits, which are pending in various courts in Kentucky.
Moreover, whether or not they have sued, all of the remaining claimants are
persons who did not retain Plaintiffs' Counsel herein to represent them and who
elected to of a prior class action, thereby suggesting a decision on their part to
pursue their claims, if any, outside of a class action. These facts, in conjunction
with the fact that individual lawsuits would no longer impose an unmanageable
burden on the judicial system, warrant the entry of an order decertifying the class
in this action....

The video and transcript of the May 9, 2001, hearing reveal that the lawyers present were

aware of the practical complications presented by their decertification and dismissal proposal.

(KBA Exh. 120; Appendix 7) However, at no point before, during or after the hearing did the

lawyers show Bamberger the letter agreement itself. The integral Exhibits 2 and 3 to the

agreement and its incorporated "side letter" had seemingly not even been created at that time.

14
(Tr.II, p. 274) At the hearing, Bamberger addressed an issue brought to his attention by the

wording of the tendered Order:

Judge Bamberger (JB): I have one question about it. I didn't do the math, but
you, when you go through the numbers, you go through how many people are
represented and how many people of the national settlement. How many, ah,
have, ah, individual lawyers and it looks like, let me see, you have five hundred
seventy-four perspective participants in this case; four hundred thirty, four
hundred thirty-one are represented by plaintiffs' counsel; the remaining one
hundred forty-three, seventy-three indicate they of the national class and retained .
their own attorney to represent them, and some twenty have filed their own
lawsuits. It looks like that leaves about, the other approximately seventy did not
indicate whether or not they had planned to or retained counsel to represent them
individually. Have those seventy been notified about this class action?

David Helmers (DH): No, your Honor.

JB: Okay.

Stanley Chesley (SC): Judge, let me speak to that, I think there's a simple
approach to this. We, we just feel that these seventy people will have two
remedies. The good news for you is there is no other case pending in front of
Your Honor, but the good news for these folks is they have several remedies, one
of which is they would be able to request to go back into the class. I talked to
some friends of mine in West Virginia who because they didn't want to make a
claim. Period. For religious beliefs. There are people who said they don't want to
make a claim, and if we're able to find out who they are, we will see to it that they
are, gotten to an attorney. We won't represent them anymore. Get them to an
attorney or in the alternative, do what they did in West Virginia and elect to have
most of those people go back into the national class and we'll explain it to them
with no charge to tell them what it is. But the idea was that that mass group of
people was four hundred and what fifty-four that we had?

DH: Almost, we had four hundred and forty or four hundred forty-one, ah...

SC: Four hundred forty-one was...

JB: Four hundred thirty-one was...

SC: ... really, really was representative of the bulk of what this class was, and in
view of the kind of money that was received, it more than compensates them, ah.
for their claims and therefore, the class is no longer necessary. Also, there was a
national class of which the, a multitude, a large multitude of people went into the
national class. There were about three thousand of their clients that went into the

15
 national class, and AHP, American Home Products, has made it an opportunity so
that any late person wants to opt into that class can get into that class.

(KBA Exh.120; Appendix 7) (Underlining added)

The Respondent stepped in to make argument and use his influence as the "expert" in the

room, to explain to the Judge that the agreement reached was only for the particular opt-out

clients that the group represented and that they could not and did not resolve the claims of any

other people. (KBA Exh.120; Appendix 7) The Judge was rightly concerned about whether

notice of this agreement should be sent to the absent class members.

JB: My concern is whether or not this court has an obligation to have those
seventy people contacted, and I know that we acted under, ah, and, probably over
some objection. We're a little bit pressing, you know, with the trial date and, ah,
you know, but af... after our last couple of meetings, we were trying to ascertain
who of the federal settlement and who was left in Kentucky in order that we
might give them proper notice. And the question I have is whether or not we
have an obligation to mail notice to those people.

SC: If we have a motion to decertify.the class, there is one request and, ah,
because the class was never noticed, in other words, the class was never noticed.
There was never a notice.

It was the Respondent who explained to the Judge the various reasons that he believed

the agreement that had been reached, even though it benefitted only a discrete subset of the class,

did not prejudice the absent class members. (KBA Exh. 120; Appendix 7) He explained that

those people would not be able to recover under this settlement but would be able to pursue their

own claims or opt back into the national class. (KBA Exh. 120; Appendix 7)

SC: We talked about it, ah, and we did have extensive conversation and the
question is, who could best take the responsibility of these people who are still out
there. And it was determined, ah, and I think the mediators were very helpful, in
this, that we could not take that, responsibility, ah, to pay them, ah but at the same
time, we don't know whether they're represen ... we do not believe they're
represented. And so American Home Products was, decided that they would take
that responsibility, but we indicated that we would help and we plan to help. We
have to notify those people, talk to those people, and (UI).

16
 JB: And we, you know, we certainly don't know if those seventy have injury,
don't have injury, are...

DH: We don't know anything about them, no. If., if...

SC: In other words, we could not take, take it upon ourselves, nor, nor, I will say
this, You Honor I found, ah, American Home Products has very good faith in the
negotiations in the entire period, and I've dealt with them now going on five
years, and this one, ah, they understood our problem, nor did they, were they
willing to put up a fund of money to bid against themselves when we don't know
that maybe, maybe half of them have religious pursuits. That they don't want to
pursue a case or religious preferences of some, and not to pursue a case, and some
of them may not even be injured. But if they are injured, I think that AHP
understands that and, ah, probably work those, are probably the best people to do
it and, ah, I have talked with the American Home Products' people and they
indicated that they'd be willing to help them in that resolution. Er. not as part of
this but so as to protect them, The rest of the people are represented by counsel
and they, counsel (UI), and we're not sure if they really are sick. But I think we
share your concern, Judge, and we will follow that up.

(KBA Exh. 120; Appendix 7) (Underlining added)

This of course is contrary to the theory later developed by the Respondent and Mr. Mills,

that this was not really an aggregate settlement, but some sort of complex proceeding with

judicial oversight and "extra" money. The Order's only reference is to enforcement. Mr. Miller

and others can talk about judicial supervision in the abstract, but we are here on this set of facts.

In any event, following the hearing the Judge signed the Order Decertifying Class and

Dismissing Action that same day but it was not filed in the record of the Boone Circuit Clerk

until May 16, 2001. (Tr.II, p. 452; KBA Exh. 78; Exh. 5 of Appendix 3e) The entry of the Order

satisfied the two primary contingencies prerequisite to the. effectiveness of the aggregate

settlement agreement. Specifically the order decertified the class and dismissed with prejudice

all claims of the individual clients of the attorneys who were included in the settlement

agreement. (KBA Exh. 78; Exh. 5 of Appendix 3e) It further dismissed without prejudice the

claims of any other individuals (approximately 70) who would have fallen within the definition

17
of the previously certified Guard class but were not a part of the settlement agreement because

they were not known to or represented by these lawyers. (KBA Exh. 78; Exh. 5 of Appendix 3e)

They were not "settling" parties under the defined terms of the agreement.

3. The Respondent's co-counsel then defrauded the 440 clients, convincing them to accept
amounts far below the appropriate amounts calculated under the allocations contained in
the agreement.

Seventeen clients testified at the hearing of this matter regarding the settlement of their

diet drug claims. Every single client that testified revealed that their attorneys failed to disclose

to them several critical facts they clearly would needed to have known to make informed

decisions as to whether to accept a settlement. (Tr.I, pp. 19-665) Had the KBA produced every

one of the clients that were still living, they all would presumably have testified consistently. In

any event, the Respondent produced no witnesses to give any contrary testimony.

As a matter of fact, he did not even attend the first two days of his own disciplinary

hearing which were set aside by the Trial Commissioner, Roderick Messer, for his own clients'

testimony.

His brief claims he was denied discovery, but he did not even show up to see them or

hear them. No one has argued he ever met with them, nor is he charged with such.

Nevertheless, it is the clients who were cheated, a fact that the Respondent's brief overlooks. In

fact, he complains that the clients testified and were discussed in the KBA's brief. Rebecca

Phipps, who met with the largest number of clients, followed the same script as the others who

met with the clients which script included material failures to disclose and outright

misrepresentations. (Tr.II, pp. 53-62)

None of the clients were told anything about the fact that their settlement offer was part

of an aggregate settlement of 440 individuals for a total of $200,000,000.00. None of them were

18
told the amount that was allocated to them in Exhibit 3 to the settlement agreement or that the

allocation was made by their counsel. None of them were told that by the time they met to

discuss settlement their claims had been dismissed by the Boone Circuit Court. None of them

were told anything about the "side letter" indemnity agreement that their counsel had signed and

entered into on their behalf. None of them were told that the release forms they signed were

being forwarded to AHP with a false and fraudulent certification that either Gallion,

Cunningham or Mills had read over the release with them and fully explained the release to

them. (Tr.I,pp. 19-665)

The chart below shows that the testifying sample of witnesses were allocated a total of

approximately $29,000,000.00, but were paid only just over $9,000,000.00 in exchange for their

full and final release of the Defendant.

Client's Name 1st Exh.3

distribution Allocations
1 Tracy Curtis 16,675.00 181,159.42
2 Bonnie Henderson 833,750.00 1,500,000.00
3 Connie McGirr 1,334,000.00 5,000,000.00
4 Debbie M. Carman-Staton 1,000,500.00 5,000,000.00
5 Elizabeth Fannin 210,000.00 181,159.42
6 Connie Centers 1,000,500.00 3,750,000.00
7 Berenda Ford 122,500.00 181,159.42
8 Phyllis J. Combs 16,675.00 95,057.03
9 Deborah K. Turner 1,334,000.00 3,750,000.00
10 Angela Peace 46,900.00 95,057.03
11 Orene Miller 667,000.00 1,500,000.00
12 Kathy Daniels Stephenson 667,000.00 1,500,000.00
13 Angie Lynn Bowman 16,675.00 95,057.03
14 Lora Hoover 16,675.00 95,057.03
15 Georgia/Jordan Coots 333,500.00 750,000.00
16 Carla Baldwin 1,334,000.00 5,000,000.00
17 JacquelynMcMurtry 50,025.00 181,159.42
TOTALS 9,000,375.00 28,854,865.80

19
 During the course of that same summer, the Respondent received $16,497,121.87 in fees

from the Guard settlement. The chart prepared by Vicki Hamm (KBA Exh. 223) shows he was

entitled to receive at most a total of $12,941,638.46. He received exactly 75%, or

$12,372,534.37, of the total amount he was paid in 2001 on June 19, 2001. (In reality, he was

paid the contractual fee on that first day.) His money was wired from Cunningham's client trust

account just hours following the transfer by AHP to Cunningham of 75%, or $150,000,000.00, of

the total $200,000,000.00 settlement amount. He received this amount before any client had been

paid a dime. This was the first distribution, made after he insisted Helmers fly to New York to

hand deliver the releases for the clients who had been grouped with the bulk of the money

allocated to 39 of the clients in order to collect $150,000,000.00 of the total. (Tr. II, pp. 276-277)

He received two more payments, one on July 5, and another on August 14, 2001, each

constituting exactly 12.5% of his total fee, or $2,062,143.75 each. (KBA Exh. 122) His brief

ignores the fact that he was very much still involved. The brief glosses over this important fact,

in order to make it appear he was not seen again after the court hearing.

On the Friday following the Respondent's final 2001 payment of his fee, August 17,

2001, he treated some of his Guard co-counsel and their wives to a lavish celebratory dinner.

(Tr.II, pp. 282-283, 836-837; KBA Exh. 206)

4. The Respondent orchestrated and participated in a complicated attempt to cover up the

theft.

a. He was paid an additional $4,000,000.00 in 2002 for successfully assisting his co-counsel
in procuring orders from Judge Bamberger that were used to conceal the theft from the
KBA and their from clients.

In the late summer and fall of 2001, Gallion's law partner, Mike Baker, became

suspicious of the activities of Gallion and Helmers regarding the handling of the proceeds of the

Guard settlement money. (Mike Baker deposition taken August 16, 2010, hereafter Baker, pp.

20
11-12) In October of 2001, when Baker confronted Helmers about various documents and emails

he had uncovered in the office and on the firm's computers he demanded that Helmers explain

what was going on, specifically how the fees from the Guard settlement were being handled.

(Baker, pp. 22-24) When Helmers refused to answer his questions, Baker fired him. (Baker, p.

22) Shortly thereafter Helmers opened his own law office right next to Mills' new Lexington

office. Baker then sued Gallion to dissolve their law firm and Gallion quickly and quietly settled

that lawsuit. (Baker, p. 21)

Controversy was also brewing between Mills and his law partner, David Stuart. At first

those issues revolved primarily around Mills' excessive drinking. (Tr.II, p. 441) But over a

period of a few months, as Mills' behavior became more secretive and bizarre, Stuart, too, began

to make inquiries into the handling of the funds from the settlement. When he did not receive an

adequate accounting from Mills of the firm's fees and expenses in Guard, he contacted Baker

who informed him of some of the information that he had uncovered on his end. (Tr.II, pp. 439,

442)

In June 2001, at the time Guard was settled, Gallion had called Mills (who had not

attended the mediation) and lied to him, stating that the Guard case had settled for

$150,000,000.00. (Tr.II, pp. 128-129) In early 2002, Mills began asking questions of Gallion

regarding the handling of the Guard settlement funds because he had just discovered at around

that time that the actual amount of the settlement was $200,000,000.00. (Tr.II, p. 133) Mills

discovered that fact from Stuart who had gotten that information from Baker. (Tr.II, p. 441)

During that time, Baker and Stuart, having not at all been assured by their law partners

that the money was being properly handled, contacted the KBA. (Tr.II, p. 445; Baker, p. 26)

Partly as a result of information provided by them, an Application requesting authorization by

21
the Inquiry Commission for issuance of a series of subpoenas to Gallion, Cunningham, Mills and

Bank One was filed and served upon Mills' office on January 30, 2001. (Tr.II, p. 132) The

Application was set to be heard by the Inquiry Commission on February 11, 2002 at 9:30 a.m.

(Tr.II, pp. 132; KBAExh.l l2)

On February 6, 2002 (at a party for Mills' birthday held in his office), Mills angrily

confronted Gallion and demanded another distribution to the clients out of the $50 million of

"extra" money. (Tr.II, pp. 133-134) Gallion assured Mills that he would see to it that more

money would be distributed to the clients. (Tr.II, p. 134) That evening Gallion, Cunningham,

Modlin and the Respondent met in Boone County and visited with Judge Bamberger. (Tr.II, p.

134) Chesley picked up Modlin in his car. (Tr.II, p. 609) Remember that Modlin was also later

used by Chesley in the Diocese case, resulting in an allegation of improper influence by Modlin.

The meeting with Bamberger that evening occurred without any motion having been

filed. No notice was given to any of the clients. No notice was given to AHP's counsel. The

meeting was held off-the-record and behind the closed doors apparently in the jury room in the

old Boone Circuit courthouse. (Tr.II, p. 445) Bamberger had not heard anything from the

attorneys regarding the Guard case since the decertification hearing held nine months earlier just

before the case was dismissed and testified that he was surprised to see them again. (Tr.II, p.

461) In his brief Respondent makes an argument that if the meeting was in the courtroom it

would have been recorded. The record shows that the Judge could turn off the recording, and, in

fact, was asked to do so by the Respondent in 2001, so he could state off-the-record the amount

of the settlement.

The Respondent provided the Judge a memorandum of law and gave oral argument

regarding the appropriateness of the cy pres doctrine to address the "extra" funds remaining in

22
the possession of the attorneys. (Tr.II, pp. 457-458) Of course, as "lead negotiator" and primary

person who argued for decertification in 2001, he knew that there was no "extra" money. The

Respondent also provided the Judge a copy of a case called Grinnell v. City of Detroit, claiming

that it governed the issue of how attorney fees could be appropriately awarded by the Court in

the Guard case. (Tr.II, p. 459) The fee discussion resulted in the Judge's oral approval of an

attorney fee totaling 49% of the total $200,000,000.00. (Tr.II, p. 505) The attorneys, knowing

that the Judge had not ever been provided a copy of the settlement agreement, did not provide a

copy to him at this meeting either. (Tr.II, p. 455) The Judge was likewise not provided with any

financial or accounting documents showing what had been done with any of the money. (Tr.II, p.

456)

On February 11, 2002, at the subpoena Application hearing, the Inquiry Commission,

over the in-person objection of Mills' counsel, authorized the issuance of the requested

subpoenas demanding bank records and other records related to the receipt and distribution of

settlement funds from the Guard case. (KBA Exh. 112) That afternoon, five wire transfers

totaling approximately $59,000,000.00 were made by Gallion and Cunningham from several of

their personal accounts where they had cached their ill-gotten gains in 2001, into an already

existing bank account at First Union Bank in the joint names of Gallion, Cunningham and Mills,

where a relatively small amount of funds had previously been stashed.6 (Dom., pp. 70-71; KBA

Exh. 46) As mentioned above, the testimony and charts of Vicki Hamm confirm that all of the

money that had not been paid out to clients had been almost immediately distributed to the

attorneys (including the Respondent) and others working for or with them as soon as it was

received from AHP the previous year. (Tr.I, pp. 989-990; KBA Exh. 123)

' This was the conclusion of the wire transfers that were the subject of the federal criminal action.

23
 On February 15, 2002, the Judge signed an Order which, among other things, approved

all attorneys fees paid but made no mention of the amount, either in nominal terms or as a

percentage. (KBA Exh. 81) That Order also authorized a further distribution of funds to clients

of half of the remaining funds, the amount of which was similarly unspecified. (KBA Exh. 81)

The Order was not filed until June, 6, 2002 and even then was filed under seal with copies going

only to Gallion, Mills, Cunningham, Helmers and the Respondent. However, a copy was

provided to the KBA by Mills (who wasn't even at the February meeting) in April,

approximately two months prior to somehow finding its way into the Boone County Circuit

Clerk's office. (KBA Exh. 149; Appendix 8) The Respondent never mentions in his long

discussion of his purported lack of knowledge that he received this and many other very

enlightening orders. Even had he not attended the early 2002 "hearing," he received multiple

orders furthering the scheme.

b. He gave directions and a document to Helmers to use to further deceive the clients
regarding the true nature of the settlement.

Shortly after the February meeting with Bamberger, the Respondent and Gallion

contacted Helmers, now established in his new firm and asked him to participate in a "second

distribution" of money to the clients. (Tr.II, pp. 306-308) Helmers was asked by the Respondent

to meet personally with each of the approximately forty clients with whom he had originally met

to hand them an additional check and have them sign a second receipt and release. (Tr.II, pp.

306-308) They were the more seriously injured, and were largely the group whose releases had

been hand delivered. He received a letter from the Respondent's office which he was instructed

to show to each client and have them sign. (Tr.II, p. 312; KBA Exh. 53E; Exh. 7 of Appendix

3g) Helmers followed these instructions, and employees from the other firms did likewise with

the other approximately 400 clients. (Tr.II, pp. 312-313)

24
 On April 1, 2002, the Respondent was issued a check for $4,000,000.00, drawn not on

Cunningham's client trust account from which his previous fee payments had been wired, but on

a different account in a bank not located in Kentucky. (KBA Exh. 49) The check listed the

drawee as being AHPC Settlement Fund and was deposited by the Respondent before any client

received any money from this "second distribution." (KBA Exh. 49)

After the second distribution referenced above was made, and $11,162,116.40 more was

paid to the attorneys in 2002 and early 2003, more than $20,000,000.00 remained undistributed.

At that point the 440 clients had been given a total of $74,194,577.13, and the lawyers and their

agents had divided up $126,255,422.87. (KBA Exh. 122) The clients received no additional

money after that until after they filed their civil suit, Abbott.

As stated before, two months after the second distribution checks were cut and four

months after Bamberger signed the Order approving additional fees and payments to the clients,

that Order was filed with the Boone Circuit Clerk on June 6, 2002. (KBA Exh. 81) At the same

time an Order was filed sealing the record and restricting the Clerk's Certificate of Service

henceforth in the Guard case to Mills, Gallion, Cunningham, Helmers and the Respondent.

(KBA Exh. 80) There would be several more orders entered over the following eighteen months

which the Respondent stated he would have received but testified that he paid no attention to

them! (Tr.II, pp. 809-810) Those orders all had him listed on the distribution list. He testified

that he did review the Order approving additional fees because he claimed to have relied on that

to authorize the additional money he was paid, although no amount is listed, there was no

hearing, he participated in no "fee application" petition such as would occur in a class action, and

there was no notice. (Tr.II, p. 676) He never even inquired about the client fee contracts, he

says, although he was aware of them. (KBA Exh. 322, pp. KBA 80-87)

25
 The Respondent received an Order dated June 19, 2002, stating, in part,

...the Boone Circuit Court, having retained jurisdiction over the above action
following mediation, dismissal of the class action, and resolution of the individual
claims, and makes the following findings and rulings:

1. Having specifically reviewed an accounting of the settlement

allocations in the individual cases, including the assessment and allocation of
attorney's fees, the court finds that the allocations are reasonable, fair and
satisfactory.

2. This review includes the disbursement of excess settlement proceeds

held for indemnification purpose and the Court finds that the distribution of said
excess funds was done correctly, and in compliance with, previous Orders of the
Court.

Wherefore, the Court ORDERS and reiterates that the individual cases are
DISMISSED WITH PREJUDICE AS SETTLED. The Court will retain
jurisdiction and enter specific Orders as necessary for clarification of the settled
status of individual claims or cases.

(KBAExh. 84)

The Order was not preceded by a written Motion of any kind from either party, nor was there any

hearing held. (KBA Exh. 84) The case had already been dismissed in 2001. The only

indemnification was $7,500,000.00 and that was not even discussed.

The Respondent also received two other substantially similar Orders signed on the same

date concerning individual clients, one being the Estate of Linda Toler, and the other being Lisa

Swiger. These Orders stated, in part,

It is hereby ordered and reiterated that the above claim is ORDERED

DISMISSED WITH PREJUDICE AS SETTLED. Moreover, the Settlement is
specifically approved as adequate, reasonable and fair.

(KBA Exh. 82 & 83) Both Orders also stated that the individual client "did receive the full

settlement value as agreed less the contracted attorney's fees." (Underlining added) These cases

had been dismissed in 2001, with all the others. This is yet another reference to contractual

26
attorneys' fees, contrary to.his odd analysis claiming a class action fee that was to receive

approval by the court.

The Respondent then received a series of orders purporting to create a non-profit

corporation funded by the undistributed millions at the request of the attorneys. He makes no

mention of any of this evidence in his brief. These Orders commenced following June 24, 2002,

when Gallion filed a pleading with the Boone Circuit Clerk styled Motion For Directives

Regarding Distribution of Remaining Settlement Proceeds which contained no certificate of

service whatsoever. The one sentence Motion requested the Court to "issue directives >

concerning how the remaining proceeds from the settlement of this action are to be distributed."

(KBA Exh. 85) The Motion also contained a Notice that the Motion would be heard three days

later on June 27, 2002. (KBA Exh. 85)

An ex parte hearing was held on June 27, 2002, before the Court at which Gallion,

Cunningham, and Modlin (as well as an investment adviser named Robinson) appeared. (KBA

Exh. 245) Bamberger ordered from the bench that the $7,500,000.00 that had been set aside for

the contingent Dr. Duff claims was to be simply split up and kept by Mills, Gallion, and

Cunningham because of the "enormous risks that they undertook." (KBA Exh. 245) Actually,

nothing had been set aside in any event. In addition, they took no risks. Chesley got this order

giving the clients' money to the lawyers. He did nothing, although one would expect an honest

lawyer to make inquiry if he truly had no knowledge at that point.

Following the hearing, the Respondent received an Order dated July 31, 2002, stating in

part that the Court in entering its Order had:

...consulted with counsel for the plaintiffs, outside counsel regarding appropriate
use of funds for charitable purposes, having reviewed the accounting of the funds,
having been advised of the consent of the individual plaintiffs who received
settlements for use of the remaining funds for charitable purposes, having

27
 reviewed the file, and being generally familiar with the status of the case status
and being fully advised...

(KBA Exhibit 87) The court further directed in the same Order that all remaining settlement

funds be placed in a "trust" and ordered that 5% (or $1,000,000.00) of the assets could be used

for the expense of establishing the trust and up to "30% (or $6,000,000.00) of the assets available

for distribution on an annual basis shall be used to pay fees and expenses incurred by the

trustees." (KBA Exhibit 87) (Parentheticals added) The video reveals that Gallion and the

Judge discussed the consent of the clients. That "consent," albeit based on false facts, related to

the very letter Chesley's office prepared and the clients all signed. (KBA Exh. 53E; Exh. 7 of

Appendix 3g)

Meanwhile, in 2002, Bill Johnson was representing Mills in responding to the Inquiry

Commission's subpoena and investigation. Whitney Wallingford was representing Gallion and

Cunningham in responding to the subpoenas they had been issued and the Inquiry Commission

investigation as to them. (Tr.I, p. 1070) By August, 2002, Wallingford's clients had only

partially complied with the production required. (Tr.I, p. 1077)

A meeting was called at Bill Johnson's office which was attended by Wallingford, Mills,

Phipps, Johnson, Gallion, Cunningham and the Respondent. (Tr.I, p. 1081) At that meeting the

Respondent insisted that Wallingford be fired and that Mills, Gallion and Cunningham all be

represented by Mr. Johnson in the Bar investigation. (Tr.I, p. 1082) It appears that was the

purpose of the meeting. No explanation was given as to why Respondent would have been

involved. However the Trial Commissioner concluded that he was guiding and assisting the

cover-up. There is no other logical conclusion.

Wallingford agreed to withdraw but before doing so he completed a supplemental

submission to the KBA on which he had already been working. (Tr.I, p. 1082) Before filing it, he

28
sent a copy of that submission to the Respondent for his approval. (Tr.I, pp. 1085-1087) The

submission contained a chart which inaccurately and grossly inflated the amounts that had

actually been paid to the clients. (KBA Exh. 134) Shortly thereafter the Respondent called

Wallingford and told him to go ahead and file the submission with the KBA, and he did. (Tr.I, p.

1087) Why was he involved at all other than to hide the facts?

Later, the Respondent received an Amended Order dated January 6, 2003 amending the

prior July 31, 2002 Order which had authorized the creation of the cy pres trust for which the

Respondent had argued. (KBA Exh. 89) Once again, this Order was not preceded by any Motion

nor is there any record of a hearing. No notice of any kind went anywhere but to the lawyers who

took the clients' money. The Respondent received another Amended Order dated January 15,

2003, stating in part, that,

2. Section 4 of the Order is further amended to provide that the following

persons be and hereby are appointed as the initial directors of such nonprofit
corporation: Mark Modlin, Shirley A. Cunningham, Jr. (sic) William J. Gallion,
and Melbourne Mills, Jr.

3. Section 4 of the Order is further amended to provide that the Court shall
retain ongoing jurisdiction and authority over such nonprofit corporation and shall
approve any change in the mission or purpose of such nonprofit corporation and
shall approve any change in the persons serving as directors of such nonprofit
coiporation.

(KBA Exh. 90) Again the Respondent claimed to have received but paid no attention to these

Orders. (Tr.IL, pp. 809-811, 819-825) Perhaps that is true because the plan seemed to be

working.

Then, in February of 2003, Stuart filed a lawsuit against Mills relating to dissolving their

partnership. He was demanding, among other things, that Mills provide him an accounting of the

firm's total income, including the amount received by the firm from the diet-drug litigation.

(Tr.II, p. 428) Stuart was represented in that lawsuit by Mindi Barfield, Esq. Mills was

29
represented in that matter by Bill Johnson. (Tr.II, p. 145) Whitney Wallingford represented Mills

with respect to tax issues and was therefore in contact with Mills and Johnson in relation to the

tax effect of any settlement that might occur. (Tr.II, p. 145) As part of Stuart's discovery

regarding the actual fees paid in Guard to Mills and Phipps he obtained a Commission from the

Fayette Circuit Court authorizing the out-of-state deposition of the Respondent and authorization

of the issuance of appropriate subpoena. (Tr.II, p. 145; KBA Exh. 109) With disclosure

imminent, the Respondent attempted to persuade Bill Johnson to file a motion to disqualify Ms.

Barfield. He refused. The Respondent then tried to get Mr. Wallingford to do that, and he

refused. (Tr.I p. 1104) Why was he inserting himself into another lawyer's firm dissolution?

With that lawsuit pending, the Respondent was also receiving correspondence from Rebecca

Phipps, Mills' assistant, relating to her desire to be appointed as a director to the Kentucky Fund

for Healthy Living. (Tr.II, pp. 74-76; KBA Exh. 144)

On April 2, 2003, the Respondent came to Lexington to meet with Mills, Gallion, Phipps,

Bill Johnson and Wallingford. (Tr.I, pp. 142-144; 1095-1099) The Respondent used this

meeting to insist that Mills settle his lawsuit with his partner. According to Mills, the

Respondent thought "it would be better if the case could be quietly- if it could be done quietly,

settle it, instead of going to court and drawing media attention." (Tr.II, p. 144)

So, in an effort to settle the litigation with his law partner, Mills attended mediation with,

Stuart, Bill Johnson, Phipps and others. (Tr.I, p. 430; Tr.II, pp. 144-145) Prior to this mediation

on July 24, 2003, the Respondent made arrangements with Rebecca Phipps to secretly contact

him if it looked like the parties were not going to be able to settle. (Tr.II, pp. 74-76; KBA Exh.

145) The mediation did not know and Mills did not know. Stuart did not know. When Mills'

8
Public Relations

30
offer was apparently the most he was willing to pay and Stuart demanded more, Phipps excused

herself and called the Respondent on his cell phone, at which time he informed her that he would

contribute the difference, a half a million dollars to get the matter settled. (Tr.ll, pp. 77-78)

The Respondent then wired $500,000.00 to Wallingford's client trust account to be

combined with Mills' money and then used to pay the Stuart settlement. (KBA Exh. 281) In

exchange he was released from any liability to Stuart for anything he may have done related to

the Guard settlement and likewise relieved from having to give a deposition or respond to any

subpoena in that civil case. He had apparently (unbeknownst to Stuart, Mills or Wallingford)

received half of that amount from his co-counsel, Gallion and Cunningham, and tunneled it

through his trust account comingled with his own money. (KBA Exh. 292, Tr.II, pp. 842-844)

On December 19, 2003, Gallion filed a Motion with the Boone Circuit Clerk that asked

the Court to relinquish its jurisdiction over the Fund. (KBA Exh. 93) This was made necessary

by Bamberger's imminent departure from the bench. Then, on December 30, 2003, The Court

entered an Order that was sent to the Respondent and, in pertinent part, stated,

That the Court hereby relinquishes and releases the Corporation from its
continuing jurisdiction and authority, and hereby orders that the Corporation shall
not be required (sic) obtain the consent or approval of the Court for any change in
the Corporation's mission, or any change in the individual's (sic) serving as the
Corporation's Directors.

(KBA Exh. 94) The Judge retired from the bench on the following day, and was appointed to the

charity's board a few months later.

c. Even after the KBA, JCC, two of his cohorts' partners and numerous clients began
asking questions about details of the handling of the settlement funds and even filed civil
claims against him, he continued his efforts to cover-up the theft

After being made aware of the bar investigation and receipt of order setting up the cypres

fund, he still did not ask to see what the clients had been paid or make any report of potential

31
criminal or unethical behavior on the part of his co-counsel. (Tr.II, p. 822) In fact, he continued

his assistance in covering up the fraud. He corresponded with PHpps in gathering documents

and was informed by her via fax that Ms. Ford was attempting to contact some of the clients.

(KBA Exh. 256) He sent that fax on to Bill Johnson suggesting that the information he had

received from Phipps regarding Ms. Ford's activity could be used as "reverse PR"8 against her.

(KBA Exh.294)

In 2004, while the Inquiry Commission investigation continued, attorney Angela Ford of

Lexington began to make inquiries on behalf of numerous individuals who had been paid as part

of the Guard settlement but who were concerned that their case had not been properly handled.

(Tr.II, p. 94) In January, 2005, Ms. Ford filed a lawsuit in Boone Circuit Court on behalf of

several of the clients against the Respondent, Cunningham, Gallion, Mills and the Kentucky

Fund for Healthy Living. (KBA Exh. 276) At first Bill Johnson represented all of the lawyers in

that matter and filed an Answer jointly on their behalf, on July 11, 2005. (KBA Exh. 277) In that

Answer the Respondent specifically admitted having acted as class counsel in Guard. He would
P y
later hire new attorneys who filed pleadings in which he then denied that he had been class
y P g

counsel in Gtictvcl fKRA Fxh 2991 The Respondent docs not mention these fjicts in his brief

He also filed a Motion to Dismiss on September 2, 2005 attaching severely redacted copies of his

i c e agrcciiiciiLa rciiiuviii^, uic laix^uo-^c i n LIIU^C UU^UIIICIILS ispeciiiuaii^ 1u.t111.11y m ^ 111111 a s \J\J

c o m i & C l . ^JVJ_>.r\ ±2, All. 3 0 1 ; r^JJJJe-llUlA \J)

Later m 2005, when he iscovered that the Judicial Conduct Commission (JCC) was

investigating Bamberger for potential misconduct in the Guard case, he met m his office with
F
-fe- p
rjdmuerger anci oiners ro worK on preparations ror a mcciiiig mai iiau ucen scneuuieu wuii uic
Commission. (Tr. n, p. H/6) riis Piief does not mention mat fact. He later anended mat meeting

32
before the JCC and presented his argument in support of Bamberger that the application of the cy

pres doctrine and the establishment of the Kentucky Fund for Healthy Living was appropriate.

(Tr.II, pp. 922-928) He states that the KBA has argued the Respondent represented Bamberger.

That is false. The fact is he assisted Bamberger in the meeting in the Respondent's office to

prepare for the JCC hearing. (Tr.II, p. 476) He also assisted by going to lend his name to

Bamberger's argument on why he entered all those false orders. At the hearing the Respondent

was asked if he made certain statements to JCC. He did not deny it. (Tr.II, p. 922)

The Judge later resigned before the hearing under Public Reprimand rather than face removal.

(Exh. 250)

During this time the Respondent assisted Gallion in obtaining a fraudulent affidavit from

his friend, Kenneth Feinberg. (Tr.II, pp. 1090-1091) He called Feinberg to testify in the hearing

of this case as an expert apparently for the purpose of stating that very little in his previous sworn

affidavit was true. Nonetheless, it had been filed in the court record. (KBA Exh. 319) Feinberg

testified that he thought the affidavit had never been used because he was never paid the

$50,000.00 Gallion had promised him to provide it. (Tr. II, pp.1095-1096) Apparently the

Respondent never told his friend that the affidavit in fact had been filed by a co-defendant in the

Abbott case. The Respondent testified that he was embarrassed to discover that Gallion had not

paid Feinberg so he gave him $10,000.00 and apologized. (Tr.II, p. 1096) The Respondent,

however was apparently not shocked to see it in the record of his civil suit.

At some point in 2006 he dropped off a document in the Washington DC office of Jack

Vardaman. This document contained statements about the Guard settlement that he knew to be

false. The Respondent left a message with Vardaman that he wanted him to draft a letter

33
confirming his agreement with the false statements. Vardaman refused because he recognized

the statements to be lies. (Vard., pp. 66-73, KB A Exh. 10; Appendix 9)

Additionally in 2006 the Respondent began responding to requests for information in the

investigation of his conduct by the Inquiry Commission of the Supreme Court. His responses to

these requests contained further statements of fact later proven to be falsehoods. This

misinformation served to obfuscate and delay the Commission's investigation. (KBA Exhs. 226

and 270)

B. PROCEDURAL HISTORY

The Inquiry Commission authorized the Office of Bar Counsel (OBC) to initiate an

investigation of the Respondent on January 9, 2006. An Inquiry Commission Complaint was

filed on December 4, 2006. (KBA Exh. 115) A Response to the Complaint was received by

OBC on March 1, 2007. (KBA Exh. 116)

The Inquiry Commission filed the Charge on October 22, 2007. (Appendix 3) The

Respondent filed his Answer on January 4, 2008. (Appendix 10) Later, the Inquiry Commission

entered an Order consolidating this case with KBA 9341 (KBA v. David Helmers) and for

limited purposes with KBA 13985 (KBA v. Joseph Bamberger) on November 3, 2008.

Frank Doheny was the initial Trial Commissioner appointed in this matter. At the

Respondent's request he stepped down and then the Chief Justice of the Kentucky Supreme

Court appointed Senior Judge Roderick Messer as the Trial Commissioner on March 4, 2009.

On April 6, 2009, OBC filed a Motion to Amend Charge (Appendix 11) with the Inquiry

Commission to add one additional count of misconduct. His brief implies that was some type of

admission or charge. In reality, the IC added a count to include another rule that the evidence

34
indicated he had violated. The Inquiry Commission granted the Motion to Amend Charge on

May 26, 2009. (Appendix 11)

The live hearing was begun at the Kentucky Bar Center on November 5-6, 1243, 2009,

through which time Judge Messer continued to serve as the Trial Commissioner. Judge Messer

and a court reporter were present on all of those dates. Present on behalf of the KBA were Linda

Gosnell, Esq., Cary Howard, Esq., and at various times, Angela Parker, Shawn Daniel, and Dale

Perry, Bar Counsel Paralegals. The Respondent, Stanley M. Chesley, was present on some of

those dates9 with his counsel (appearing at various times), Kent Westberry, Esq., James Gary,

Esq., Frank Benton, IV, Esq., Scott Cox, Esq., Mark Miller, Esq. and Hon. Susan Dlott, a federal

judge and his wife.

Prior to the commencement of the live hearing, testimony was taken by video deposition

of five (5) witnesses located out of state. The video recordings, as well as written transcripts of

that testimony, were entered into the record at the hearing. Forty-four (44) exhibits were

introduced by the Complainant through the out-of-state deposition testimony of John Vardaman,

Esq., Heidi Levine, Esq., Helene Madonick, Esq., three of the lawyers for American Home

Products who were involved in the settlement of the underlying lawsuit, Faye Stilz, Esq., the

Respondent's employee and Frank Dominguez, a representative of one of the banks which, for a

period of time, held the stolen funds.

Judge Messer recused at the Respondent's request made after the damaging testimony of

Whitney Wallingford. The subsequent appointment of a third Trial Commissioner, Judge

William Graham (ret.) was made by the Chief Justice of the Supreme Court on March 9, 2010.

The live hearing was resumed and continued on September 13-15, 20-24, 2010. Present on

9
The Respondent chose not to be present for the testimony of his defrauded clients.

35
behalf of the KBA were Linda Gosnell, Esq., Cary Howard, Esq., and at various times, Angela

Parker, Shawn Daniel, and Dale Perry, Bar Counsel Paralegals. The Respondent was present

with retained counsel (appearing at various times), James Gary, Esq., Frank Benton,IV, Esq.,

Scott Cox, Esq., Mark Miller, Esq., and Sheryl Snyder, Esq.

In total, the testimony of thirty-seven (37) live witnesses was heard. Three (3) expert

witnesses and three (3) character witnesses testified on behalf of the Respondent. Two (2) expert

witnesses testified on behalf of the Complainant, one of whom was an accountant. A total of

three-hundred-foi-ty-five (345) exhibits were admitted into the record by the Complainant and

four (4) exhibits were admitted by the Respondent. The Report, made after extensive briefing,

was filed by Judge Graham on February 22, 2011.

II. COUNTER ARGUMENT

A. THE BOARD SHOULD ADOPT THE TRIAL COMMISSIONER'S FINDINGS OF

FACT AND CONCLUSIONS OF LAW.

Eight of nine counts of the Charge were properly found by the Trial Commissioner to

have been proven by a preponderance of the factual evidence of record. These findings are not

clearly erroneous and in fact are well supported by analysis and the voluminous evidence of

record and should be adopted by the Board. In the event that the Board instead chooses to

review this case de novo, the Board should still find the Respondent guilty on the same eight

counts.

Like most disciplinary cases, the Respondent's conduct at various times was in violation

of more than one Rule of Professional Conduct. The Respondent claims to have had no

knowledge whatsoever of what Gal lion and the others were doing with the settlement money in

2001, and says he made no inquiry. We do know that he instructed Helmers to hand-deliver the

first releases to get the initial $150,000,000.00. However, as to the rest of the initiation of the
g
36
plot, since Gallion and Cunningham invoked rights under the Fifth Amendment and refused to

testify in this matter, the KBA was precluded from taking testimonial proof regarding any

conversations that may have actually occurred between any of them and the Respondent during

that time. His repeated statements that the KBA has admitted he was not involved in the intitial

fraud are simply another example of misinterpretation of the facts.

Nonetheless, whatever his involvement or knowledge of the details of the fraud

perpetrated on his clients by his co-counsel at the time it occurred in the summer of 2001, the

Respondent saw an opportunity to use his prestige and influence, and earn even more, when he

was asked to assist them in returning to the Boone Circuit Court the following year. Further, he

accepted a fee in 2001 that was beyond any contracted amount, but rather than question it as any

honest lawyers would, if they really did not know about the plan to underpay the clients, he

hosted a party.

In addition, he called Helmers in 2002 and asked him to help out by meeting with the

clients Helmers met with before and delivering a second distribution of money. Helmers

received from the Respondent's office the text of a letter which he presented to each of the

clients he met with and was shown to all the clients. Professor Howard Erichson testified as an

expert for the KBA in this matter. An accomplished academic as well as practitioner, Professor

Erichson opined primarily respecting ethical issues in mass tort settlements, class action or

otherwise, issues which have comprised the bulk of his academic publications. Without

reservation Professor Erichson expressed his opinion that any cy pres remedy in this case was

inappropriate. But further, according to Erichson, the letter sent to Helmers from the

Respondent's office to give to the clients was in and of itself misleading.

But even if we imagine the situation where a cypres remedy is appropriate, where
putting money into some sort of an organization rather than directly to the

37
 claimants would be appropriate, if you're asking for your client to consent to
something then you don't present it in a way that makes them feel that they're
somehow doing something wrong if they say no.

(Tril, p. 1170) The Respondent kept Helmers on a string by involving him in future cases and

that strategy successfully resulted in Helmers' continued assistance. Of course, Helmers was

already in the throes of the original fraud and himself had already accepted a secret

$3,000,000.00 "bonus."

The Respondent participated in asking the Court for additional fees when he knew such a

request was improper. He returned to the Court, picking up the Judge's close friend Modlin to

bring with him, to influence the Judge and argue that the cy pres doctrine was appropriate to

establish the Kentucky Fund with leftover money. This was dishonest, and a violation of his

duty of candor. He ignored further sealed orders that telegraphed the ongoing nature of the fraud.

As the Trial Commissioner found it is impossible to imagine that the honest lawyer would have

made no inquiry. Respondent did not need to inquire, because he already knew the score. He

involved himself directly in the defense of Gallion, Cunningham and Mills before the Inquiry

Commission, and in the defense of then Judge Bamberger. He involved himself in the defense

and settlement of the Mills partnership dispute, and made sure to get it ended without public

disclosure.

There is simply no question that many of the Respondent's statements in pleadings and in

his sworn deposition in Abbott were misleading and deceptive. These statements were part of an

effort to prevent the true nature of the Respondent and his co-counsel's activities from being

discovered. He provided misleadingly redacted documents in his civil suit and to the Inquiry

Commission. He provided false answers to the Inquiry Commission to very clear questions. He

changed his story throughout this entire period. He insisted that all of his co-counsel be

38
represented by Bill Johnson in front of the Inquiry Commission to create a united front but then

when it suited him to abandon them and hire new counsel and present a new story, which is what

he did.

1. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-1.5(a).

SCR 3.1304.5(a) provides:

[A] lawyer's fee shall be reasonable. Some factors to be considered in determining

the reasonableness of a fee include the following: (1) The time and labor required,
the novelty and difficulty of the questions involved, and the skill requisite to
perform the legal service properly; (2) The likelihood that the acceptance of the
particular employment will preclude other employment by the lawyer; (3) The fee
customarily charged in the locality for similar legal services; (4) The amount
involved and the results obtained; (5) The time limitations imposed by the client
or by the circumstances; (6) The nature and length of the professional relationship
with the client; (7) The experience, reputation, and ability of the lawyer or
lawyers performing the services; and (8) Whether the fee is fixed or contingent.

The Respondent violated SCR 3.130-1.5(a) because his fee of more than $20,000,000.00

in the Guard litigation was unreasonable under the criteria listed in the Rule. His fee was a part

of a larger unreasonable fee, per his fee-splitting contract. Sometimes the analysis of what

constitutes an ethically unreasonable fee can be rather complicated and nuanced. Here the fee

collected by the Respondent and his co-counsel was unreasonable for the very simple reason that

it was grossly in excess of what the clients had contracted to pay.

It is certainly arguable and correct that a 49% fee in this case was entirely unreasonable.

In feet, his own expert testified to such! (Tr.II, p. 1317) The trial court was told to rely on

Grinnell, supra, in which a fee of 15% was reversed as exorbitant. The Respondent did not tell

the Judge that when he referred him to that case in the fake fee "hearing." But in this case the

analysis need not go that far. Any fee collected by an attorney in excess of what the client

contracted to pay, and certainly one in excess of that amount by millions of dollars, is and in all

cases must be per se unreasonable. The chart prepared by Vicki Hamm based on financial

39
records of these transactions provides uncontested proof of what his fee was to be under the

contingent fee contracts. (KBA Exh. 223; Appendix 12) He was to receive $12,941,638.46, not

over $20,000,000.00. He told the Inquiry Commission in October 2006 that he "took no step to

ascertain whether the amount of money that was paid to me was in conformity with the contract

dated December 29, 2000." (KBA Ex. 270) The Trial Commissioner noted that he would have

known immediately that the clients were being cheated, by relying on 5th grade math. The brief

of Respondent rewords this to say that the KBA's math was at 5th grade level. The only CPA

who testified was called by the KBA. Her numbers were not questioned.

The Respondent, however, counters that it was ethically reasonable for. him to be paid

approximately $20,000,000.00 in this case because that constitutes only 10% of the total

settlement amount. It makes no difference whether the Respondent ended up with 5%, 10% or

15% of the total settlement amount. In his Brief, though, in order to argue against this count, he

erects this straw man and then bravely tears him down. The testimony he elicited from his

expert, Professor Hazard, is illustrative of his deliberate misstatement of the issue here. While

Hazard did state that fees in the range of 18-25% are within what courts have typically approved

in class suits, on cross-examination Hazard was forced to admit that the final total "fee" of 49%

in this case was unreasonable. (Tr. II, p. 1317) What poor Professor Hazard was told was that

the 10% was the entire fee. He never even saw the fee splitting contract until it was read during

cross-examination. (Tr.II, p. 1371) Unfortunately, Professor Hazard was victimized by the

Respondent. He constructs an elaborate calculation of 27% of 40% contingent fee to try to

match his recovery. He constructs examples of voluntary bonuses of money given by grateful

clients. Neither scenario occurred. He makes reference to all the value added. His inflated

opinion of what he did is no defense to this fraud.

40
 The Respondent was paid over $16,000,000.00 in this case in 2001 which he knew, or as

the Trial Commissioner concluded, could have easily ascertained by simple mathematics, was

much greater than 21% of the allowed fee amount per the contingency contracts. He then

participated in asking the Court for more fees and was paid an additional $4,000,000.00 in 2002.

The KB A has never argued that a fee often percent would have been unreasonable for

the clients to pay in this matter. In fact, the KBA has consistently argued that the clients should

have been properly charged more than three times that amount in conformity with the fee

contracts that they signed. Melbourne Mills was found to have violated this same rule despite the

fact he actually received less than his legitimate contractual fee. Like this Respondent, Mills'

violation was rooted in his participation in the acceptance by the group of attorneys of additional

fees in an amount millions of dollars in excess of that to which they were properly entitled.

Kentucky Bar Association v. Mills, 318 S.W.3d89 (Ky. 2010). Unlike Mills, he received way

more. What is entirely unreasonable is that the clients were actually initially charged in excess

of 75%! (KBA Exh. 122) The lawyers were forced to settle for 49% by Mills' insistence the

clients get more. His overage is part of the money withheld from clients.

Nearly eight months after the case had been dismissed the Respondent received a check

drawn on an out-of-state bank purportedly from the "Kentucky Settlement" in the amount of

$4,000,000.00. (KBA Exh. 49) He claimed in his letter to the Inquiry Commission dated August

8, 2006 that it was upon the receipt of this check that he learned for the first time that there was a

second distribution. (KBA Exh. 270) He continues to make the hard to believe claim that this

$4,000,000.00 payment did not surprise him or cause him any concern because his co-counsel

would have been entitled to have paid him a "voluntary bonus" or "success fee" and he simply

trusted that they were paying the appropriate amount to him.

41
 Here is what really happened. Each of the wire transfer payments in 2001 was made to

Mm immediately upon receipt of installment funds from AHP. The Respondent received a wire

transfer of $12,372,834.37 within hours of the payment by AHP of the first installment of

settlement funds, before any client received a dime. He knew when David Helmers delivered the

releases because he told him to deliver them. (Tr. II, pp. 280-281) Does he expect anyone to

believe that no one told him the money came in? Or that the necessary releases had been

obtained and delivered? At that point he was just about fully paid.

However, he then received two wires of $2,062,143.75 each, one on July 5, 2001 and the

other on August 14, 2001, both correlating with subsequent installment payments from AHP.

(KBA Exhs. 122 & 124) On the weekend following the third and final payment in July of 2001

he hosted a celebratory dinner for his co-counsel and their guests. (Tr.II, pp. 836-837; KBA Exh.

206)

If it were the case that the attorneys still had no idea what potential claims might be made

against the settlement funds, as he continues to argue, it would have been ridiculously imprudent

for them to have already paid out that sum, far exceeding any contractual claim he had, to the

Respondent. There is simply no way that the appropriate fee split could have been paid, or even

calculated, if the total amount of claims against the settlement dollars was unknown at that time,

even if some amount of money really had been "held back" for all these ephemeral claims. The

Respondent would know that calculation was impossible if, as he had stated, there were these

unknown vast contingencies. The idea that he was relying on some sort of massive holdback to

explain why there was extra money in 2002 was simply not credible, and it was given no

credence.

42
 Of course, as the evidence showed, there were no such vast contingencies, aside from a

limited $7,500,000.00 indemnity agreement for one year. The idea that AHP would even

consider the possibility of relying on a handful of attorneys to personally indemnify the

corporation for an unlimited amount of money was not credible. Additionally, if it were the case

that anyone at that time believed that the fees in the case needed to be authorized by the court, or

could be, as he had his witness Miller say, why had nothing whatsoever been filed with the court

following the Order Decertifying and Dismissing Action before all that money was paid? Why

does that order not mention jurisdiction for fees? If the Respondent was relying on a written

Court order, he had all of his money long before it was filed. He never had to provide any

information for an application like the one he had to file when he represented his witness Lisa

Crawford in In re Fernald Litigaiion, 1989 WL 267038, (S.D. Ohio 1989). That would be a

rather extraordinary fee application process. In reality, like Bamberger, the Respondent

anticipated when he had his celebration dinner that the case was over and there would be no

ability or need to return to the court the following year and ask for permission to pay fees that

had already been paid, or for more fees.

But he did just that in 2002. In reality the Respondent did not first discover the fact that

there was a second distribution when he received his $4,000,000.00 check eight months later as

he told the Inquiry Commission in his letter. He knew about it at least as early as when he

accompanied Gallion to meet off the record with Bamberger in February, 2002, a meeting in

which he himself handed the Judge a copy of the case City of Detroit v. Grinnell, 495 F.2d 448

(2nd Circ. 1974) and argued, as he still does, that the Judge could authorize additional fees. (Tr.

II, p. 459) This meeting occurred on or near the same day that Mills blew up at Gallion

regarding his discovery that Gallion had lied to him by telling him that the settlement had only

43
been for $150,000,000.00 and insisted that more money be given to the clients. (Tr. II, pp. 133-

This Respondent is just as guilty of violating this rule as Mills, Gallion and Cunningham

who all knew that it was inappropriate to ask the Court for additional fees, much less to take

them, beyond their contract amounts without even any notice to the clients. Nevertheless, like

the Respondent, they accepted these additional fees which totaled millions of dollars. In doing

so, this Respondent testified that he relied on the Judge's Order, an order which he had

apparently not even seen at the time but had personally participated in requesting by supportive

exparte argument! (Tr. II, p. 876)

The Trial Commissioner properly held that:

Without question the Respondent's acceptance of fees of more than $20

million in this litigation is unreasonable and a violation of the above quoted rule.
Not only is the Respondent's fee part and parcel of the grossly unreasonable fees
collected by the lawyers in this case in light of what the clients had contracted to
pay, it is ethically unreasonable under the above criteria per se. The evidence
presented by Vicki Hamm based upon the financial records of the transactions
documenting the fees paid by counsel to themselves is unrefuted. Even a
simplistic calculation of what Chesley was entitled to under the contractual
agreements with the clients is somewhat less than $13 million, not in excess of
$20 million. Respondent Chesley was present and participated in argument to
Judge Bamberger wherein the Judge approved fees in the case of 49 %. In fact, he
argued the holdings of the Grinnell case to Judge Bamberger. In that case a fee of
15 percent was reversed as excessive. The greed evidenced by the plaintiffs'
attorneys in this case is astounding, and Chesley, although his avarice may not be
as breathtaking as that of Cunningham, Gallion and Mills, is culpable of unethical
conduct under this rule.

2. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-1.5(c).

SCR 3.130-1.5(c) provides:

[A] fee may be contingent on the outcome of the matter for which the service is
rendered, except in a matter in which a contingent fee is prohibited by paragraph
(d) or other law. Such a fee must meet the requirements of Rule 1.5(a). A
contingent fee agreement shall be in writing and should state the method by which
the fee is to be determined, including the percentage or percentages that shall

44
 accrue to the lawyer in the event of settlement, trial or appeal, litigation and other
expenses to be deducted from the recovery, and whether such expenses are.to be
deducted before or after the contingent fee is calculated. Upon recovery of any
amount in a contingent fee matter, the lawyer shall provide the client with a
written statement stating the outcome of the matter and showing the remittance to
the client and the method of its determination.

The Respondent violated SCR 3.130-1.5(c) by participating with his co-counsel in

charging a 49% contingency fee to their clients which was unreasonable under SCR 3.130-1.5(a).

In addition, and at the heart of the cover-up, they did not provide upon recovery an accurate

written statement of fees, expenses and the method of determining the fee. Of course if they had

set forth the method they would not have been able to carry out the fraud. Actually the 49% was

apparently made up after the fact, since they had in reality kept $155,000,000.00 (approximately)

of the $200,000,000 in 2001 for the Respondent, Cunningham, Gallion, Mills, Lawrence,

Helmers, Modlin and Phipps.

The Trial Commissioner held that:

Without question the Respondent Chesley has violated this ethical

standard. All the clients in this class action had contractual contingency fee
agreements with class counsel. These fees were either for 30 % or 33 1/3 %.
Under the contractual agreements counsel were also permitted to charge expenses
up to 3 %. All attorney fees in the Guard case should have been calculated from
the total recovery of each individual client based upon the contractual percentage
agreed to by that client. The above quoted rule was completely ignored by all
class counsel. Chesley participated with his co-counsel in charging a 49 %
contingency fee to these clients with no accurate written statement of the fees,
expenses or method of determining the fee provided to anyone. Chesley's
contractual agreement with class counsel was for 21 percent of fees upon
successful settlement of the case. Ms. Hamm's chart based upon the financial
records of these transactions clearly demonstrates what Chesley's fees should
have been under these contingent fee contracts. Chesley's share should have been
$12,941,638.46. This amounts to a bit more, (a relative term in these
circumstances), than his initial payment on June 19, 2001. The circumstances of
the later payments is of record. Of course the final $4 million payment came only
after Chesley lent his critical assistance in persuading Judge Bamberger to sign
the order approving the unjustified fees after their unrecorded meeting in Boone
County. Chesley was paid some $7,555,000 in excess of his proper fee
calculations under the contracts.

45
3. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-1.5(e).

SCR 3.130-1.5(e) provides:

[A] division of a fee between lawyers who are not in the same firm may be made
only if: (1) (a) The division is in proportion to the services performed by each
lawyer or, (b) By written agreement with the client, each lawyer assumes joint
responsibility for the representation; and (2) The client is advised of and does not
object to the participation of all the lawyers involved; and (3) The total fee is
reasonable.

The Respondent violated SCR 3.130-1.5(e) by dividing fees with co-counsel in the Guard

case in a manner neither in proportion to the services performed by each of them nor by written

agreement with the clients assuming joint responsibility for the representation, and with consent

of the client. Further, the clients were not advised of the participation of all the lawyers and the

total fee was unreasonable as stated earlier based upon the fact that it was grossly in excess of the

contracted amount. His expert, Hazard, was embarrassed to learn that the precise language of the

rule concerning co-counsel status, division of fees and client notification had been used in the

fee-splitting arrangement, although the rule was not actually followed. (Tr.II, pp. 1315-1316)

Arguments that it was not a fee division and that Respondent was representing Gallion,

Cunningham and Mills, fall flat.

The KBA has never argued that attorneys cannot responsibly divide up duties among

themselves in a situation of common representation. This is simply another straw man. This

Respondent became involved in directing Helmers and arguing to the Court in 2002 regarding

issues beyond the scope of what his fee splitting agreement required of him. He also assisted in

responding to disciplinary investigations by the KBA in 2002, the Judicial Conduct Commission

in 2005, and the civil court, rather than seeing the fees were correct, the misrepresentations

46
corrected, and the clients repaid. He became responsible for the failures to comply with the

rules which would have been blatantly obvious to any competent attorney.

The Trial Commissioner held that:

The Respondent Chesley has violated the above quoted rule in numerous
respects. No client was ever advised of Chesley's participation nor ever given an
opportunity to object. Chesley himself took no measures to ensure compliance
with this rule and made no inquiries concerning advice to the clients. As noted
above the total fees are clearly unreasonable. Chesley argues that he was hired to
represent Gallion, Cunningham and Mills in this case - not the class. This
argument is belied by all the actions and documents in the case. The obligation to
inform the clients and obtain their consent to a division of fees among lawyers
from different firms lies with all the lawyers involved. The lack of notice to, and
advice and consent of, the clients in the Guard class was obvious to all class
counsel. Indeed, Chesley's own expert witness was at a loss to explain how this
rule had been followed.

4. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-1.8(g).

SCR 3.130-1.8(g) provides:

[A] lawyer who represents two or more clients shall not participate in making an
aggregate settlement of the claims of or against the clients, or in a criminal case
an aggregate agreement as to guilty or nolo contendere pleas, unless each client
consents after consultation, including disclosure of the existence and nature of all
the claims or pleas involved and of the participation of each person in the
settlement.

The Respondent violated SCR 3.130-1.8(g) by participating in the making of an

aggregate settlement of civil claims in the Guard case without disclosing to the clients the

existence or nature of all the claims involved or of the participation of each person in the

settlement. It has already been held that his co-counsel violated this rule in their dealings with

the clients. Shirley A. Cunningham, Jr. v. Kentucky Bar Association, 266 S.W.3d 808 (Ky.

2008); William J. Gallion v. Kentucky Bar Association, 266 S.W.3d 802 (Ky. 2008); Kentucky

Bar Association -v. Melbourne Mills ',318 S.W.3d 89 (Ky. 2010)

47
 In this case the agreement itself specifically required compliance by the settling

claimants' attorneys with the aggregate settlement rule. The Respondent knew that and read the

agreement himself. Under Kentucky law and a very plain reading of the rule, SCR 3.130-1.8(g)

was applicable to this aggregate settlement, as the settlement itself stated. Just as clear is the fact

that the Respondent violated the rule. He undertook no inquiry in 2001 nor 2002 about

compliance with a term of the settlement he negotiated. Then, being aware of this term, and the

nature of his settlement, he told the court it was acceptable to have "extra" money to put in a cy

pres fund. Had the rule been complied with, the notion of extra money would have been absent.

This Respondent personally violated this rule as well by participating in preparation or

distribution to the clients of the misleading disclosure letter to the clients in 2002, facilitating and

arranging the illegitimate "second distribution," obtaining judicial cover including a sealed

record, and creation of a cy pres fund from "excess" money that he knew from the settlement

itself, for which he was lead negotiator, could not properly exist. Rather than using his influence

to cover-up, he could have communicated, or required communication, to the clients, and

required proper fees be paid with full refunds to the clients.

The Trial Commissioner held that:

A more egregious violation of this ethical rule by all plaintiff counsel in

the Guard case is difficult to imagine. This includes the Respondent Chesley. The
settlement agreement itself specifically provides contractually for compliance
with this rule by the "settling" attorneys. Chesley points out that he did not sign
the settlement agreement as one of the "settling" attorneys, even though he was
noticed with the final agreement. It is important to note that this ethical rule exists
separately from the settlement agreement and is an independent requirement in
and of itself in any aggregate settlement. There is no evidence in the record that
clients were consulted concerning the aggregate settlement before, during or after
the mediation before it was presented to the Boone Circuit Court. No notice was
given to either settling claimants or those 70 who were dismissed without
prejudice. Respondent Chesley does not escape liability for this rule simply
because he had the foresight not to sign the settlement document. He was class
counsel pursuant to his agreement with Cunningham, Gallion and Mills. Chesley

48
 was fully aware that Ms clients had not been informed concerning the settlement
at the time the agreement was reached and afterward. He was fully aware that no
notice had been sent to the settling clients prior to the hearing on May 9, 2001, in
Boone Circuit Court. Chesley himself bamboozled Judge Bamberger with his
often non-sensical answers to the Judge's queries about notice. The actions of the
Respondent Chesley and his co-counsel were deliberate and dishonest. Their
failure to comply with this rule demonstrates their true motivation - to get the
money and run - rather than to protect the interest of their clients.

5. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-3.3(a).

SCR 3.130-3.3(a) provides:

[A] lawyer shall not knowingly: (1) Make a false statement of material fact or law
to a tribunal; (2) Fail to disclose a material fact to the tribunal when disclosure is
necessary to avoid a fraud being perpetrated upon the tribunal...

The Respondent violated SCR 3.130-3.3(a) by knowingly making false statements of fact

and law to the Court in the Guard case. It certainly makes absolutely no difference in this case

whether he actually spoke during the meeting with the Judge or just sat there and observed. The

Judge had already told him (perhaps in a moment of judicial imprudence) that the Judge

considered him the "expert" and that the Judge had never handled a class action before. (KBA

Exh. 120, p. KBA 8110) He had an ethical obligation to both the Court and his clients to correct

anything that Gallion told the Judge that was wrong irrespective of anything that the Restatement

of Agency might state.

The Respondent Chesley violated this ethical rule by his participation in

the "meeting" with Judge Bamberger in the jury room of the Boone Circuit
Courthouse in 2002. He participated in the argument that the Grinnell case
provided legal authority justifying attorney's fees totaling 49 % of the total
recovery of $200 million. Chesley knew at this time that his clients all had
contractual agreements for attorney's fees much less than this amount. He was
aware that there was no notice given and that the presentation was being made to
the judge behind closed doors and off the record. He made no effort to disclose to
the Court that the attorneys had contingency fee contracts.
Chesley also provided a written memorandum arguing the application of
the cypres doctrine to create a charitable fund for what the attorneys described for
the Judge as "extra" settlement funds. This doctrine clearly had no proper legal
application to the aggregate settlement in the Guard action.

49
 Furthermore, in the May 9, 2001, hearing he argued to Judge Bamberger
that no notice was needed to the class members of the agreement to settle the case
and decertify the class. This decision had significant legal ramifications for both
the 431 who settled and for the 70 who did not. He also argued for dismissal of
the action without notice to any members of the class. Chesley was presented to
the Court as the "expert" in these class action matters. He mislead the Court
regarding notice while knowing full-well that his clients had neither been
informed of the settlement nor had given their consent.

6. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-8.1(a).

SCR 3.130-8.1(a) provides: "...a lawyer ...in connection with a disciplinary matter, shall

not: [kjnowingly make a false statement of material fact."

The Respondent violated SCR 3.130-8.1(a) by knowingly making false statements of

material fact in response to questions posed to him in the course of the investigation into his

activities in the Guard litigation and related matters.

Here is a list of events that had occurred prior to the Respondent filing his answers to

questions from the Bar in his letters dated, May 9, 2006 and August 8, 2006. (KBA Exh. 266 and

270)

1. In February 2002, he met with Judge Bamberger alongside Gallion and others in an
off the record ex-parte conference where the attorneys asked for additional fees and
permission to put client money into a "charity." (Tr.II, p. 459)

2. On April 12, 2002 he sent a fax of an opinion from a case he was involved with
involving second distributions and the use of the cypres doctrine to Gallion's office.
(KBA Exh. 233-A)

3. In the spring of 2002 he contacted David Helmers and asked him to assist in a second
distribution. Respondent's employee delivered a letter to Helmers to have clients
sign. (Tr. II, pp. 306-307; Tr. II, p. 312)

4. In the summer of 2002 the Respondent attended a meeting with Cunningham,

Gallion, Wallingford, Mills, and Johnson where he insisted that Gallion, Cunningham
and Mills all be represented by Johnson in the KBA investigation. (Tr.I, pp. 1082-
1085)

5. Before sending information to the KBA on behalf of Gallion and Cunningham in

response to the subpoenas that had been issued, Wallingford was directed to send the

50
 responsive documents to the Respondent. He did so. The Respondent then called
Wallingford back and authorized him to file them. (Tr.I, pp. 10854087)

6. During the course of 2002 and 2003 according to the Respondent's own testimony, he
received all of the Orders entered in the Guard case but only paid attention to the one
which he claimed authorized the fee. Some of these orders purported to dismiss cases
dismissed in 2001. Others set up a "Fund" with the lawyers as "Directors." (Tr. II, p.
865)

7. On June 11, 2003, the Respondent received a fax from Rebecca Phipps informing him
that she intended to be a director of the Kentucky Fund. (KB A Exh. 144)

8. In April of 2003, the Respondent attended a meeting with Mills, Phipps, Bill Johnson
and Gallion and demanded that the lawsuit filed by Mills' law partner, David Stuart,
be settled confidentially to avoid discovery from proceeding. A commission had been
authorized to obtain an Ohio subpoena for the Respondent's deposition and document
production. (Tr.I, pp. 1095-1097; KB A Exh. 110)

9. In August, 2003, Mills' lawsuit with his law partner was settled in mediation and the
Respondent contributed $250,000.00 to guarantee it was settled. (Tr.II, pp. 838-840;
KBAExhs. 136,137, 138)

10. In early 2005, a lawsuit, Abbott, et al. v. Chesley, et at, was filed against the
Respondent and his co-counsel by their diet drug clients demanding an accounting
and alleging fraud. It is this lawsuit which he called Feinberg to help defend. (KBA
Exh. 276)

11. Later in 2005, after initially filing a joint response to the Abbott lawsuit, through Bill
Johnson, the Respondent hired new attorneys in Abbott and changed his story,
commencing a denial that he represented the clients. (KBA Exhs. 298, 299, 301)

12. On August 5, 2005, the Respondent was sent a letter from Bamberger asking for help
in defense of charges brought by the Judicial Conduct Commission (JCC). (Tr.II, pp.
474-475; KBA Exh. 242)

13. At some point later that month, the Respondent met with Bamberger in his office to
prepare for what they would tell the JCC. (Tr.II, p. 476)

14. Shortly thereafter, the Respondent met with Bamberger before the Judicial Conduct
Commission. (Tr.II, p. 922)

15. On February 24, 2006, the Judicial Conduct Commission, apparently not impressed
with the presentation, issued an Order of Public Reprimand stating that the allegations
"shock[ed] the conscience of the Commission" and that had Bamberger not resigned
he would have been removed. (KBA Exh. 250)

51
 And here is a list, verbatim, of the Respondent's answers to the Bar from his letters,

written after all of the previous events had occurred. Contrary to Respondent's brief, these

specific questions and answers are in the exhibits, and in many instances were read aloud during

cross-examination.

6. Were you aware of the creation of the Fund? Did you agree to its creation with the
money belonging to the clients? Have you received any distributions of any kind from the
fund?

ANSWER:
T was aware that the possibility existed that a cy pres fund might be establlshed
with client consent if there were settlement funds remaining after the distribution
to Messrs Mills' Cunningham's and Gallion's clients. I later became aware of the
creation of the Kentucky Fund for Healthy Living, Inc., after the fact. I do not
recall the date that I learned about the Fund, but I believe it was sometime in
2004.1 had no knowledge of any details relating to the Fund until after the Abbott
suit was filed and then my knowledge was limited to what was learned from the
pleadings filed in that suit. I was not involved in the Fund's creation and had no
role in its management. I neither agreed to, nor disagreed with, its creation or the
method by which it was funded. To the best of my knowledge, I have never
received any distributions from the Fund. I do not know, however, the source of
the attorney's fees received by me, but I have always assumed that the distribution
of the attorney's fees received by me was in accordance with Exhibit 1. (KBA
Exh. 266)

14. What communications, written or oral, did Mr. Chesley (or any employees of.
his firm) have with any of the other Guard plaintiffs' attorneys or Judge
Bamberger regarding the appropriateness application of the cy pres doctrine, or
"fluid class recovery" concept in "mass tort" cases to any of the Guard settlement
funds? If any occurred, when did these communications occur?

ANSWER:
I recall that I had a general discussion with the plaintiffs' attorneys in the Guard
case concerning the doctrine of cy pres and verified to them that it was a device
used in class actions or "mass tort" litigation. I furnished them, as information, a
copy of a document utilized in the case that I handled involving a train derailment
at Miamisburg, Ohio.

15. What communications, written or oral, did Mr. Chesley (or any employee of
his firm) have with any of the other Guard plaintiffs' attorneys or judge
Bamberger regarding establishment of a charity or non-profit entity for the
purpose of disbursing remaining funds from the Guard settlement? If any, when
did these communications occur?

52
ANSWER:
I had no communications of any nature with Plaintiffs' in the Guard litigation or
with Judge Bamberger regarding the establishment of a charity or non-profit
entity to disburse any funds from the Guard settlement.

16. When did Mr. Chesley become aware of that there would be a "second
distribution" of funds from the Guard settlement to the plaintiffs or to any of the
attorneys? (Second Distribution refers to any payments in 2002 to clients or
attorneys)

ANSWER:
To the best of my recollection, I became aware of the second distribution of funds
from the Guard settlement when I received a check.

17. What communications, written or oral, did Mr. Chesley (or any employee of
his firm) have with any of the other Guard plaintiffs' attorneys, or their employees
or former employees or Judge Bamberger regarding a second distribution of funds
from the Guard settlement to the plaintiffs? If any occurred, when did these
communications occur?

ANSWER:
Neither I nor any person associated with Waite, Schneider, Bayless & Chesley
Co., L.P.A. had any communication of any nature with the attorneys for the
Plaintiffs in the Guard litigation, the present or former employees of those
attorneys, or Judge Bamberger regarding a second distribution of funds from the
settlement with American Home Products.

18. Did Mr. Chesley (or any member of his firm acting at his direction) draft any
documents relating to a second distribution of funds to plaintiffs from the Guard
settlement? This includes documents that were to go to the Boone Circuit Court or
to be provided to clients or the attorneys or their staff who would be contacting
the clients in 2002. If so please provide a copy of same.

ANSWER:
Neither I nor anyone associated with Waite, Schneider, Bayless & Chesley Co.,
L.P.A. drafted any documents relative to a second distribution of funds.

20. Which Order(s) of the Boone Circuit Court does Mr. Chesley maintain
authorized the fees paid to his firm in the Guard case? Inasmuch as Mr. Chesley's
firm was paid in multiple installments, which Order related to each of the fee
distributions made to Mr. Chesley.

ANSWER:
The Boone Circuit Court did not address the issue of fees paid to me. Payments to
me were not made pursuant to any court order, but under the provisions of the

53
 contract of December 29, 2000 that I had with the attorneys for the Plaintiffs in
that litigation. (KBA Exh. 270)

The Trial Commissioner correctly determined that the Respondent was not being truthful

in his above listed communications to the Office of Bar Counsel acting on behalf of the Inquiry

Commission of the Kentucky Supreme Court.

The Trial Commissioner held that:

Respondent Chesley has violated this ethical provision in several

instances. In making his responses to questions asked him during the investigation
into his conduct in the Guard litigation by the Inquiry Commission of the
Kentucky Bar, Respondent's answers were incomplete, misleading and/or false.
He answered Bar questions in letters dated May 9,2006, and August 8, 2006
(KBA Exhibits 266 and 270). In answering a question regarding his
communications with other Guard attorneys or Judge Bamberger regarding the
appropriateness of the use of the cy pres doctrine, Chesley gave a seriously
distorted reply. He made no mention of his off-the-record meeting with Judge
Bamberger in February 2002 wherein he presented legal authority supporting the
appropriateness of a cy pres fund. His answer to the next question, Number 15, is
false and misleading wherein he denies any communications of any nature with
Judge Bamberger regarding the establishment of a charity or nonprofit entity to
disburse any funds from the Guard settlement. Again no mention is made of his
participation in the 2002 courthouse "meeting.11 His answer to Question 16 is
untruthful. Chesley was well aware that there would be a second distribution prior
to his receipt of the $4 million check. He himself had called David Helmers
asking him to assist in the second distribution. An employee of his law office
delivered a letter to Helmers to have the clients sign in the course of this
distribution. His answers to Question 17 and 18 are not truthful. He in fact did '
communicate with counsel regarding the second distribution of funds and met
with Judge Bamberger in this secret 2002 meeting to discuss the second
distribution. Experienced counsel in his office participated in drafting the
deceptive letter to be given to the Guard clients upon receipt of a second
distribution. These answers were egregious misrepresentations, if not outright lies,
to the Inquiry Commission.

7. The Trial Commissioner correctly found that the Respondent violated SCR 3.150-8.3(c).

SCR 3.130-8.3(c) (now 8.4) states that it is misconduct for a lawyer to "[e]ngage in

conduct involving dishonesty, fraud, deceit or misrepresentation."

54
 In general, the Respondent violated SCR 3.130-8.3(c) by engaging in conduct involving

dishonesty, fraud, deceit or misrepresentation following the initial distribution of client funds in

from the Guard settlement. This conduct was part of an attempt to conceal the initial unethical

handling of client funds from the settlement and thereafter to conceal from the clients, the public,

the Inquiry Commission and the Kentucky judicial system the true nature of both his role in the

litigation and the misconduct of he and his co-counsel. Specific examples of dishonesty or

misrepresentation have been detailed above. The entire course of conduct was corrupt.

The Trial Commissioner held that:

Clearly from the evidence, Respondent Chesley believed that he would be

able to "take his money and run" after the settlement and avoid any responsibility
in the distribution of the settlement to the clients. When he became aware of the
misdeeds of Cunningham, Gallion and Mills, his responsive actions all became
part of an attempt to conceal and cover up their misdeeds. Chesley must have
been fully aware of the fraud perpetrated by his accepting fees far in excess of
what he was entitled to under his contractual arrangement. He was fully aware
that no accounting had been made to the clients or to the Court. Rather than taking
actions to correct these misdeeds, to inform his clients and the Court, and to
disgorge ill gotten gain, Chesley acted with dishonesty, deceit and
misrepresentation in assisting his co-counsel in their efforts to conceal what had
transpired. His entire course of conduct was one of self-interest and self-
preservation of both himself and his co-counsel. His actions set out above
evidence a complete lack of concern for his clients and the proper and just
application of the law.

8. The Trial Commissioner correctly found that the respondent violated SCR 3.150-
5.1(c)(1).

SCR 3.130-5.1(c)(1) provides:

[A] lawyer shall be responsible for another lawyer's violation of the Rules of
Professional Conduct only if: [t]he lawyer orders or, with knowledge of the
specific conduct, ratifies the conduct involved ...

The Respondent is fully responsible for any conduct of the other lawyers involved in the

Guard litigation that he ratified with knowledge of their conduct by virtue of SCR 3.130-

5.1(c)(1). Specifically he attended meetings on settlement of Stuart's case and contributed a large

55
amount of money to settle that case and avoid publicity. He tried to continue Mills to disqualify

Stuart's counsel, a favorite ploy of this Respondent. He approved documents for Wallingford to

send to the KBA in its investigation which later were determined to contain false and misleading

information. He had Wallingford replaced with counsel of his choice. He went back to

Bamberger and even picked up his friend Modlin to help influence the Judge to adopt his plan.

He tried to help Bamberger avoid being removed from the bench and to control disclosures being

made in that proceeding. Despite claiming to have not been in communication with these people

at all following the May 9, 2001, hearing, the evidence clearly shows that he was intimately

involved and orchestrating attempts to cover up the fraud.

The Respondent claims that the KBA's entire case is based upon this Count. He simply

wishes to ignore the fact that he is guilty of the conduct of others which he ratified, but also of

the serious and grossly dishonest actions that he took himself. Having been involved in this

second distribution and in the creation of this misleading letter, the Respondent not only ratified

but participated in at least this second round of misinformation about the nature of the settlement

and the actual determination of fees. He is therefore himself guilty of failing to give the clients

the appropriate disclosures required under SCR 3.130-1.8(g) and the disclosures relating to fee

determination and fee splitting under 3.150-1.5(c) and (e), not to mention participation in

dishonest conduct and ongoing fraud.

The Trial Commissioner correctly found that the Respondent ratified improper conduct of

others and specifically held that:

Respondent Chesley has violated this ethical provision in numerous

respects. Chesley had to have learned that the settlement fund had not been
properly administered and distributed to the clients when he learned after Mills'
confrontation with Cunningham that a second distribution would be required.
That evening he along with Gallion and Cunningham met with Judge Bamberger
in their off-the-record "meeting". Chesley's actions in attending that meeting and

56
 all actions he took subsequently were designed to assist his co-counsel in a
"cover-up" of their thievery. It is clear from the evidence that from this point on
Chesley became "counsel in chief." He attended meetings to settle David Stuart's
suit against his former partner Mills and made a significant contribution to that
settlement in order to avoid depositions and publicity. Counsel were instructed to
obtain his approval before sending documents to the Inquiry Commission and he
specifically approved a document sent by Whitney Wallingford to the KBA which
was later determined to contain false and misleading information. He assisted
Judge Bamberger in his presentation to the Judicial Conduct Commission. He
accepted an additional $4 million fee after his "meeting" with Judge Bamberger to
argue for an order allowing the second distribution and approval of attorneys' fees
up to 49 %. From February of 2002 on the evidence clearly demonstrates that the
Respondent Chesley was involved in, and at many points primarily orchestrating,
the attempts of his co-counsel to conceal their fraud.

B. THE TRIAL COMMISSIONER'S RECOMMENDATION OF PERMANENT

DISBARMENT AND RESTITUTION IS APPROPRIATE.

1. The appropriate sanction for the Respondent's misconduct in this case is nothing short
of permanent disbarment.

The evidence of record establishes by a preponderance of the evidence that the

Respondent violated SCR 3.1304.5(a), SCR 3.1304.5(c), SCR 3.1304.5(e), SCR 3.1304.8(g),

SCR 3.130-3.3(a), SCR 3.130-8.1(a), SCR 3.130-8.3(c) and SCR 3.130-5.1(c)(1). The legal

authorities discussed herein demonstrate that the facts of this case warrant a sanction of

permanent disbarment.

SCR 3.380 describes the degrees of discipline available:

Upon findings of a violation of these rules, discipline may be administered by

way of private reprimand, public reprimand, suspension from practice for a
definite time with or without conditions as the Court may impose, or permanent
disbarment.

The Kentucky Supreme Court has stated the "[pjublic is entitled to rely on an attorney's

admission to the practice of law as a certification of the attorney's honesty, high ethical standards

and good moral character." Kentucky Bar Association v. Collis, 535 S.W.2d 95, 96 (Ky. 1976).

The Court long before recognized "[o]ne purpose for disbarment of an attorney is to uphold the

57
ideals and traditions of an honorable profession." In re Lynch, 238 S.W.2d 118 (Ky. 1951). It

has been established by a long history of disciplinary case law and the careful enactment and

revision by the Court of Rules of Professional Conduct that an attorney in this Commonwealth

must maintain a certain level of conduct; otherwise the public is placed in danger and the

profession and the legal system as a whole suffers. The KBA submits that consideration of the

case law mandates that the only appropriate sanction in this matter is permanent disbarment.

This Respondent takes no personal responsibility for any of his actions in the underlying

case. Two of his co-counsel, Gallion and Cunningham, ultimately admitted their misconduct in

this case to the Kentucky Supreme Court, which agreed with those lawyers that the appropriate

level of discipline for what they did was permanent disbarment. Gallion, supra; Cunningham,

supra. Each of those men acknowledged that:

1) he did not tell his clients in writing that he had made fee arrangements with
other attorneys;

2) he did not advise his clients concerning the mediation of their case, or provide
them an opportunity to be present at the mediation or present input as to the value
of their specific case;

3) he did not advise his client of the total settlement amount and did not comply
with the requirements of SCR 3.130-1.8(g);

4) he did not advise his clients that he was seeking fees that were more than the
contingent fees provided in his contingent fee contracts;

5) he did not comply with the requirements of SCR 3.130-1.15 to "hold property
of clients or third persons that is in a lawyer's possession in connection with a
representation separate from the lawyer's own property...in a separate account
maintained in the state where the lawyer's office is situated...";

6) he did not disclose to the clients that he intended to request that the Judge
consider placing approximately $20,000,000 of the settlement funds into the
Kentucky Fund for Healthy Living, Inc., or obtain their consent to that
distribution;

7) he participated as a paid director of that Fund without client consent; and,

58
 8) he did not disclose to his clients that their individual settlement amounts were
being determined-by a settlement protocol developed and administered by their
own lawyers, not by the Defendant.

Another of his co-counsel, Melbourne Mills, Jr., disagreed with the position of the KBA

that his conduct did not rise to a level mandating disbarment. However, following a disciplinary

hearing, the Trial Commissioner, Board of Governors and Kentucky Supreme Court all found

that, despite the fact that he was not involved in the litigation or settlement of the case, and had

no personal involvement in the distribution of the money, permanent disbarment was appropriate

for him as well. Mills, supra. He had also been given false information on the total, but

participated in additional dishonest acts of theft and deception.. There is no reason why this

Respondent should be treated any differently than his cohorts, indeed, as argued above, some of

the conduct for which the others were disbarred is the very same conduct for which this

Respondent is also responsible under Kentucky's Rules of Professional Conduct. But there are

many aspects of this Respondent's own individual conduct, especially in light of his experience

and expertise, that are just as abhorrently unethical if not more so.

Prior case law in Kentucky supports permanent disbarment' for this Respondent. The

Kentucky Supreme Court ordered permanent disbarment in Kentucky Bar Association v.

Matthews, 131 S.W. 3d 744 (Ky. 2004), after Matthews was charged with one count of engaging

in criminal misconduct reflecting on his honesty, trustworthiness, and fitness to be an attorney in

violation of SCR 3.130-8.3(c). The Court held that Matthews's conduct in committing bank

fraud in violation of SCR 3.130-8.3(c) alone warranted permanent disbarment.

In Poole v. Kentucky Bar Association, 128 S.W.3d 833 (Ky. 2004), Poole faced twenty-

eight (28) charges involving the misappropriation of client funds. He acknowledged that his

59
conduct involved a criminal act that reflected adversely on his honesty, trustworthiness or fitness

as a lawyer in other respects. Poole is now permanently disbarred.

In Kentucky Bar Association v. Johnson, 660 S.W.2d 671 (Ky. 1983), Johnson faced

three charges of misappropriating funds of clients, totaling $19,500.00; two charges involving

lending money to a client and false representations in the same case; and one charge that

Respondent was convicted of possession of a forged instrument, a Class D felony. The Court

imposed the most serious sanction at the time, disbarment, and noted, "We observe that in

dealing with money belonging to his clients, the lawyer is trustee of an express trust, and failure

to observe the highest standards of honesty in this respect inevitably results in disbarment."

Johnson at 672, citing Kentucky Bar Assoc. v. Tucker, Ky., 535 S.W.2d 97, cert, den., 423 U.S.

1054, 96 S.Ct. 785 (1975); and Kentucky Bar Assoc. v. Collis, Ky., 535 S.W.2d 95, cert, den.,

423 U.S. 1049(1975).

While it is true that every attorney disciplinary case involving a criminal conviction for

misappropriation or theft of funds has resulted in the imposition of permanent disbarment since

the Court's enactment of the rule in 1998, the Court has also ordered permanent disbarment in

numerous cases where there was no criminal conviction. See Kentucky Bar Association v.

Zimmerman, 69 S.W.3d 465 (Ky. 2001); Kentucky Bar Association v. Steiner, 157 S.W.3d 209

(Ky. 2005); and Kentucky Bar Association v. Catron, 229 S.W.3d 910 (Ky. 2007). Additionally,

the permanent disbarments of the Respondent's co-counsel Gallion and Cunningham were

rendered prior to their subsequent criminal convictions for related activity and Mills was

disbarred despite having been acquitted at trial. The Respondent's avoidance to date of any

criminal sanction, through his immunity arrangement, for his conduct has no impact on the

ability or the responsibility of the Court to protect the public and the profession by imposing the

60
required sanction of removal of his license to practice law. The presence or absence of civil

judgment likewise does not preclude the determination by the Kentucky Supreme Court that the

Respondent has gone far beyond the level of ethical conduct.

2. The Trial Commissioner correctly held that there are numerous aggravating factors
further supporting permanent disbarment.

Prior Kentucky disciplinary case law calls for the consideration of aggravating factors in

determining appropriate discipline. In addition, the ABA Standards for Imposing Lawyer

Sanctions is a guide published by the American Bar Association to provide a model system of

sanctions to "promote thorough, rational consideration of all factors relevant to imposing

sanctions." ABA Standards, Preface. Kentucky case law and the ABA Standards, favorably cited

by the Supreme Court in Steiner, supra and Anderson v. Kentucky Bar Association, 262 S.W. 3d

636 (Ky. 2008), permit consideration of relevant aggravating and mitigating circumstances in

determining appropriate sanctions.

9.2 Aggravation
9.21 Definition. Aggravation or aggravating circumstances are
any considerations, or factors that may justify an increase in
the degree of discipline to be imposed.
9.22 Factors which may be considered in aggravation.
Aggravating factors include:
(a) prior disciplinary offenses;
(b) dishonest or selfish motive
(c) a pattern of misconduct;
(d) multiple offenses;
(e) bad faith obstruction of the disciplinary proceeding
by intentionally failing to comply with rules or orders of
the disciplinary agency;
(f) submission of false evidence, false statements, or
other deceptive practices during the disciplinary
process;
(g) refusal to acknowledge wrongful nature of conduct;
(h) vulnerability of victim;
(i) substantial experience in the practice of law;
(g) indifference to making restitution.

61
 Except for item (a) each of these factors is an aggravator in the instant case. While the

baseline level of appropriate discipline for the Respondent's misconduct is permanent

disbarment in this case, these aggravating factors apply here to simply further support the most

severe discipline allowable.

He engaged in this conduct for selfish and dishonest motives. He has vast experience in

the area of settlement of large sums of money. He was not candid with disciplinary authorities.

The clients were extremely vulnerable, most of them obtaining counsel from television ads.

Most of these individuals were legally unsophisticated and totally at the mercy of their

attorney(s). Members of the certified class whose claims were used as leverage to increase the

amount of the settlement and then abandoned by the Respondent as class counsel likely to this

day remain unaware how they were used as pawns in his chess match with AHP. This was just

another big money game to this Respondent, and the clients were just tools to get money for

himself and his co-counsel and enhance his "reputation" as a major player in the class action

world.

3. The Trial Commissioner correctly discounted the impact of any mitigating evidence
presented by the Respondent.

In this case, character evidence was admitted over the KBA's objections for mitigation

only. Character evidence was offered by the Respondent in the form of three witnesses. The first

was a former client, Lisa Crawford, from 1985 (Tr. II, p.1058) who testified that in her class

action case he had achieved a good result for her and she was very happy with his attitude toward

her and his communication with her. It is hard to imagine how that testimony has any relevance

even to mitigation, given the limited nature of the testimony, the status of the former client, and

the fact that the very communication which she so lauded is totally missing in the instant case. In

62
this case, not only did the Respondent not undertake any communication, but even upon learning

that the other lawyers had kept back money from the clients, he made no inquiry whatsoever

with regard to the nature or substance of any communications with his clients. Interestingly,

Professor Arthur Miller testified in 1989 for the attorneys' fee award to Respondent's firm in that

case, which ended up at 20% of that settlement, not 49%.

The second character witness was the president of Xavier University, Father Michael

Graham. Father Graham's job entails "a lot of fund raising." (Tr. II, p. 1012) Father Graham

testified extensively about Mr. Chesley's personal wealth and his use of that wealth in certain

charitable functions (Tr. II, pp. 1019 and 1021) Father Graham mentions that the Respondent

serves on various boards. He indicates the Respondent's involvement in political fundraisers

(Tr. II, p. 1021). Father Graham was asked if Respondent "was supportive of the university?"

His answer was enlightening: "Yes, not nearly so much as I would like..." (Tr. II, p. 1022)

Father Graham had no knowledge of the substance of the case, and was given only information

"at the 10,000 foot level." In all fairness to him he had no idea of what he was really involving

himself in when he came to this hearing. This testimony is useful only in terms of understanding

how the Respondent operates, using his wealth to insinuate himself into the corridors of power.

The third witness, a federal judge who is a social friend (Tr. II, p. 1038), works with his

wife and who had mutual cases in private practice with the Respondent, was also offered as a

character witness. Like Father Graham, he, too, discussed the Respondent's ability to donate and

raise money (Tr. II, pp. 1035-1036) It was interesting that the judge appeared without a

legitimate subpoena, despite the Federal Judicial Code which required Mm to have a subpoena in

order to give character evidence.

63
 He also was unaware of the substance of the matters in this discipline case and was not

provided with materials. Frankly, his testimony was useless other than to demonstrate, yet again,

the ability of the Respondent to use his power and connections to obtain what he wants.

The Trial Commissioner appropriately gave this mitigating evidence the very little

relative weight it deserved.

4. The recommendation by the Trial Commissioner of an order by the Court of restitution

is appropriate in this case.

The Respondent does not dispute the expert accountant's calculations in her creation of a

chart based upon a simple mathematical application of the proper contingency rates to the

clients' settlement amounts. He does not dispute that the chart she created demonstrates that his

fee-splitting contract rate of twenty-one percent (21%) to arrive at what would have been the

correct fee for him to collect. (KBAExh. 223) He received $16,497,121.87 in 2001, which he

knew was more than he was entitled to get. He was entitled to $12,941,638.46. His extra fees in

2001 alone come to a staggering $3,555,483.41! Then he was paid an additional $4,000,000.00

in 2002 for assisting in the cover-up! There are many disciplinary cases in which the Court has

ordered attorneys to pay in restitution amounts that they kept in excess of their legitimate fees.

This case is distinguishable only by the staggering amount at issue.

In Kentucky Bar Association v. Kersey, 320 S.W.3d 682 (Ky. 2010), the Respondent

faced five (5) separate disciplinary matters in which he was charged with violating several Rules

of Professional Conduct, including SCR 3.130-1.15(a), 1.15(b), 8.3(c), and 8.1(b). Kersey had

failed to pay clients or medical providers from insurance settlement funds, accepted a client's

vehicle as collateral for legal fees and then sold the vehicle and withdrew from the

representation, overdrew his client escrow account, failed to keep property in which both the

client and attorney have a claim of interest separate, failed to protect the client's interests upon

64
termination of the representation and failed to return an unearned fee, and committed conduct

involving dishonesty, fraud, deceit or misrepresentation. Kersey was permanently disbarred, and

required to "make restitution to all clients who have filed bar complaints against him for

misappropriation of funds."

In Kentucky Bar Association v. Marcum, 308 S.W.3d 200 (Ky. 2010), the Respondent

was hired to collect $1,930.00 his clients had paid to a builder. Marcum did so, but then the

clients wanted to sue the builder to recoup attorney's fees and other costs. They returned the

check to Marcum. He accepted the new matter but did not provide any legal services. The Court

ordered Marcum to pay restitution to his clients in the amount of $1,630.00, representing the

balance of funds recovered from the builder after the deduction of Respondent's $300 fee.

In Kentucky Bar Association v. Mathews, 308 S.W.3d 194 (Ky. 2010), the Respondent

was permanently disbarred and ordered to "immediately make full restitution to his client...in

the amount of $15,000" after he told his client he would establish an annuity with the client's

funds, but failed to do so, and failed to respond to the client's requests for information. The

Respondent was found guilty of violating SCR 3.1304.4(a), 1.15(a), 3.4(c), 8.1(b), and 8.4(c),

and 3.175, and was permanently disbarred from the practice of law.

In Kentucky Bar Association v. Justice, 302 S.W.3d 70 (Ky. 2010), the Respondent was

found guilty of violating SCR 3.130-1.16(d) when he failed to return the unearned portion of the

fee at the end of the representation. In this particular case, the representation was terminated

because the Respondent became suspended from the practice of law in another disciplinary

matter. The Court noted that even though the client never requested a refund, "Justice was

required to refund any unearned fee by SCR 3.130-1.16(d), and his failure to do so constitutes a

violation of that ethical provision."

65
 In Kentucky Bar Association v. Menefee, 296 SW3d 423 (Ky. 2009), the Respondent

faced ten (10) separate disciplinary charges in which he failed to return client funds, abandoned

his clients, failed to notify his clients of his temporary suspension, and other misconduct. He

was found guilty of all counts, including multiple counts for violations of 1.15, 1.16(d), 8.3(c),

8.1(b), as well as 3.4(c). The Respondent represented many of the his clients in bankruptcy

cases, received substantial amounts from them and then failed to account for large sums of their

money; $83,000.00, $3,700.00, $3,192.00, $21,468.00, $6,370.00, $22,500.00, $1,900.00,

$2,278.00, and $26,243.00, respectively. Menefee was permanently disbarred and ordered to

make restitution to all those clients that filed complaints against him for misappropriation of

funds.

The KBA contends, as the Trial Commissioner recommended, that the mechanics of the

administration of the restitution are not the issue. The KBA's interest in that matter is the

repayment to the clients of the money that was improperly received by the Respondent and has

been kept by him for over eight years. A lawyer has never and should never be permitted to hold

an undisputed overpayment of a fee as leverage in a dispute over other money. SCR 3.130-

1.15(c). The Respondent has the chart of what his clients received and what their allotment was.

Simple mathematical calculation can determine the percentage owed to each from his pro rata

share of the fees. His is the burden of restitution.

Part of the Respondent's argument against restitution relies on his claim that Indiana does

not allow it to be ordered in disciplinary matters.. For that proposition he cites In matter of

Ackerman, 330 N.E.2d 322 (Ind. 1975). However, while the Indiana Court in Ackerman did

refuse to order restitution, that decision is apparently no longer good law. The Indiana Supreme

Court has since ordered restitution in disciplinary matters on at least two occasions. See

66
In matter ofHalley, 792 N.E.2d 851 (Ind. 2003); and In matter of Cotton, 939 N.E.2d 619 (Ind.

2010). In any event the law is clear in Kentucky that restitution is appropriate here. This case

differs from the other Kentucky cases only in scale.

C. THE BOARD SHOULD REJECT THE RESPONDENT'S CONTINUED

MISSTATEMENTS OF FACT AND OMISSIONS OF FACT, AS DID THE TRIAL
COMMISSIONER IN REVIEWING THIS VOLUMINOUS RECORD.

1. Several examples of these misstatements are sufficient to demonstrate the disingenuity

of the Respondent regarding even obvious facts.

Despite all of the voluminous evidence and the findings of the Trial Commissioner to the

contrary, the Respondent continues to assert various claims that are demonstrably false. He

apparently believes that if he simply continues to restate these claims, they may eventually be

regarded by someone, somewhere, as truth. Nevertheless, the Board's time would be wasted in a

continued engagement in debate respecting these multiple statements. A sampling of these

claims is sufficient to demonstrate.

For instance, the Respondent continues to claim, even now, that Gallion asked him to join

him in the Guard case. The record reveals the fact that nothing could possibly be further from

the truth. Helmers' testimony as well as his contemporaneous writings and the records of the

Courtney, Guard and Feltner cases reveal Gallion's resistance to the Respondent's involvement

and the Respondent's multiple convoluted and dishonest machinations which ultimately resulted

in his participation as co-counsel. He even continues to deny that he was co-counsel despite

having agreed to be such in two signed agreements!

Also, he continues to claim that he had no reason to believe that his co-counsel had

engaged in any improper activity with respect to his clients' settlement funds until years later.

The record again reveals this to be untrue. He was intimately involved in every single aspect of

the attempts to conceal what had been done with the money. While it is true that he wisely did

67
not serve as a director of the Kentucky Fund, and he may not have chosen the name, the record

demonstrates clearly that he participated in recommending its establishment by the Court and

was aware at the time that it was operating with what he knew was actually the clients' money.

He advised the others on how to handle the KBA investigation, the JCC investigation, the

lawsuit filed against Mills and even initially the lawsuit brought against them by their clients.

He argues that even if he did argue to Bamberger that cy pres was appropriate (he does

not remember), Bamberger received a memo from Pierce Hamblin which talked about cy pres

and that Bamberger relied on that. Hamblin said an associate wrote it and he did not ever see the

settlement agreement nor know any details. (Tr.II, pp. 13-14; KBA Exh. 318)

The Respondent offers a typical bit of illogically circuitous support for his continuing

position that he had no attorney/client relationship with the clients on page 44 of his brief. Citing

Lovell v. Winchester, 941S.W.2d 466 (Ky. 1997), he correctly states that such a relationship can

be formed by contract or by reasonable belief by the client that the lawyer is undertaking to

represent the client. He then states that since the clients were not informed that he was

negotiating a settlement on their behalf they could not reasonably believe he was their lawyer

and therefore he was not. This disregards the fact that he was their attorney by virtue of two

written contracts which he signed. The fact that those contracts were unethically concealed from

the clients does not therefore relieve him from his fiduciary duties.

When trying to defend his now thoroughly debunked theory that the lawyers faced

unlimited liability by virtue of the settlement agreement, he was unable to accurately read the

terms of the document placed before him.

Q. Now, Mr. Chesley, you've told me that twice in answer to my question, and I'm
not trying to argue with you, the judge can read paragraph 3 himself in the
agreement. What I'm asking you about is this final paragraph in this letter, which
is Exhibit 9, which states, "The settling attorneys and settling claimants shall not

68
 be obligated to indemnify AHP for attorneys' fees and expenses nor for any
amount in excess of 7.5 million." The very simple question is are you reading
that to say what it doesn't say, that's a hard question to ask, are you reading that to
imply that there is any obligation to pay attorneys' fees in this document?

A. I find the fact that they mention AHP's attorneys' fees suggests that there may
be liability for the attorneys' fees of AHP, which is the first time that's ever been
discussed. And paragraph 3 has nothing to do with AHP's attorneys' fees, but I
read that to say they're distinctly talking about obligated to indemnify AHP for
attorneys' fees and expenses for any amount in excess of 7.5 million. I do not
believe - I guess somebody could write a law review article or could argue in
court, but that having to do with the issue of attorneys' fees in my opinion does
not prevent somebody from making a claim on the $200 million that has nothing
to do with attorneys' fees.

Q. When you just read that you omitted the word "not" from your sentence, "shall
not be obligated."

(Tr. II, pp. 976-977)

He knows that it is fruitless to engage in argument against his chimeric doublespeak and

he uses it simply as a device to divert the Board's focus away from what is actually in the record.

He complains that the Trial Commissioner did not consider several of his arguments. There

would be no need for the Trial Commissioner to write down every point they tried to make and

then say he did not buy it. Rather, he found what did occur. Likewise, the KBA cannot debate

every wrong word in his brief instead it chooses to focus on the totality of the evidence.

2. The Trial Commissioner properly analyzed and weighed the credibility of the witnesses,
including the Respondent, and found many aspects of the Respondent's testimony and his
responses to the Inquiry Commission to be "misleading, if not out right lies."

The Respondent has claimed that he has no recollection of having been at that meeting.

But, bizarrely, in his Response to the Inquiry Commission's Complaint in this matter, he claimed

that he "was present but has no recollection of appearing" at that meeting. (Respondent's

Response to Inquiry Commission Complaint, p. 8) The Respondent, in fact, quite similarly to his

friend Mr. Feinberg, is unable to recall any document or detail in the record of this case which

69
implicates him in misconduct or his involvement in the attempt to cover up the misconduct of the

other attorneys. He does not deny these things occurred, just has an inability to recollect. While

such a failure to recollect may shield him from criminal prosecution for perjury, it does nothing

to defend the allegations of this Charge as the proof to the contrary stands unrefuted in the record

from Helmers, Modlin and Bamberger, as well as the documentary evidence.

He now states that since Bamberger has been accused by the KBA of lying about other

matters that his testimony regarding this fact cannot be believed.10 It is true that Bamberger has

admitted that many of the statements in the Orders he entered in 2002 and 2003 contained facts

that he knew were not true when the Orders were entered. Those were statements provided to

him by these co-conspirators which he knew were wrong. However, some of what he said in the

orders was false, but not known by him to be false, such as the fact that the clients agreed to the

"charity." Nevertheless, it does not work in any way in Bamberger's defense to lie about the

Respondent having been at this meeting. Bamberger's testimony in this case was taken after his

own disciplinary case was tried. Helmers case was tried and the Trial Commissioner's Report

already filed. Mills case was totally concluded, yet he implicated the Respondent in 2002 and

2003 attempts to cover-up during disciplinary and civil proceedings. In any event the

Respondent's professed inability to recall whether he was there or not leaves the testimony of

Bamberger and Modlin unrefuted in this record.

Like Bamberger, the Respondent claims that since Helmers had been charged by the

KBA with dishonest conduct, his testimony should likewise be wholly disregarded. The KBA

would submit that the Trial Commissioner was able to properly make these determinations as to

credibility. The entirety of the evidence in Helmers' own disciplinary case had been taken prior

70
to his testimony in this matter. None of his claims regarding the participation of this Respondent

worked in any way to excuse his own conduct in any event.

Further, the claims of Ms. Stilz are incredible. It is simply not believable that Helmers

contacted her, having been introduced to her once before, and asked that she (who was not

involved in any way in the Kentucky litigation) edit or assist in creating the misleading letter that

was given to each of the clients to sign in order to receive their "second distribution" check.

(Stilz, pp. 14-17) Just as hard to believe is her claim that she never even told the Respondent

about her participation in this event. (Stilz, p. 18) The Respondent told the Inquiry Commission

no employee of his was involved. She was, and that is undisputed. Is the Board to assume he

conducted no inquiry in response to a letter from the disciplinary agency? No, it is entitled to

recognize a misrepresentation. The Trial Commissioner observed the respondent for many hours

of cross-examination and some questions by his counsel. He saw the true nature of Mr. Miller

and Mr. Hazard. He saw the embarrassment of Mr. Hazard.

Helmers testified (and his version of events is rational whereas the Respondent's and

Stilz's are not) that both Gallion and the Respondent contacted him in 2002 after he had left

Gallion, Baker and Bray and asked him to participate in a second distribution of money to the

clients. (Tr. II, p. 306) Helmers testified that the letter he was directed to have the clients sign

came from the Respondent's office is no longer disputed, although initially the Respondent

drafted that, too. (Tr. II, p. 312) Ms. Stilz' finally admitted that she drafted the letter from a set

of notes she got from Helmers and sent it to him. Her continued claim there was no involvement

or even knowledge of the Respondent, her boss who handled the case, simply cannot be given

10
This claim of'once a liar always a liar" by the Respondent wouid seem to cut both ways. For example, within the first ten
minutes of his testimony in this matter he claimed to have been licensed to practice law in Louisiana, New York and West
Virginia when, according to information obtained from those jurisdictions, it appears he never has been.

71
any credence. (Stilz, pp. 17-18) She has been an employee of the Respondent for her whole

career, earning over $500,000.00 a year. (Stilz, p. 64)

The Respondent also cannot remember what he said to the JCC.

Q. So you appeared and gave information to the commission without even

inquiring who the paid directors were?

A. I frankly did not ~ I knew there were directors, and the pay and how they were
going to get paid I had no idea at that time, but I did not know ~ to my
recollection I did not know that he was being paid. I know eventually I did find
that out, but I don't know when I found out or how.

Q. Did you tell the commission that you agreed with the decision to appoint
Modlin and the lawyers as directors of the fund since they knew more about the
case than anyone and, in addition, the appointment of Judge Bamberger as a
director was very appropriate since he brought discipline to the fen-phen case and
knew how to handle the attorneys? Or not in those words, this is not a transcript,
but these are the notes. Does that help you remember that you did tell the
commission that information?

A. I'm sorry, I don't really recall. I'm not going to quarrel with it, but, as I said, I
cannot recall what I said to that commission.

(Tr. II, pp. 926-927)

A recognition of witness credibility was indeed integral to the Trial Commissioner's

findings, and he properly found that the Respondent had very little credibility, if any.

3. Many of the Respondent's criticisms of the Trial Commissioner's Report are invalid.

The Trial Commissioner's Report need not contain citations to the record, and normally

they do not. The requirements for the Report are listed in Rule 3.360(1).

SCR 3.360(1) states in part:

[T]he Trial Commissioner's Report shall contain a concise statement of:

(a) the charge(s) made and the defense(s) offered by the Respondent;
(b) the proceedings had;
(c) the facts which the Commissioner deems proved by a preponderance of the
evidence, and;
(d) the sanction, if any, recommended.

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 The Report thoroughly discusses the facts found as well as the Trial Commissioner's

conclusions of law and recommendation as to sanction.

The Respondent argues that the finding of not guilty on Count 4 (SCR 3.130-1.7)

concerning the conflict of interest is inconsistent with the Trial Commissioner's finding that he

misrepresented facts and law to the Boone Circuit Court.

His finding as to candor to the tribunal is broad. It includes as part of its focus the issue

of lack of notice to the clients, thus relates to the failure of the Respondent to notify the clients

(or arrange for notification) whose cases he was seeking to dismiss with prejudice, as well as the

others who were the 70 clients whose claims were used to bolster the claims of the 430 or so

clients on the settlement inventory. He personally asked for those to be dismissed, but never

advised the count of the lack of notice. Throughout this hearing Judge Graham repeatedly

expressed shock and surprise at the lack of notice given to the Respondent's clients about the

court proceedings in 2001, 2002 and thereafter.

The Trial Commissioner found the Respondent not guilty of the conflict. Because of the

seriousness of the other counts, and the ample evidence of misconduct, the KBA will not offer

further briefing on that point. However, it notes its argument is identical to that proposed by the

Respondent in the case of Carl Coe, et al. v. Roman Catholic Diocese of Covington, Case No.

03-CI-00181, Boone County Circuit Court. (KBA Exh. 312)

The Respondent complains that the Trial Commissioner improperly disregarded

statements by the U.S. Attorney and Judge Reeves in the criminal case against Gallion and

Cunningham. This Respondent's conduct was not the subject of that trial, nor was much of the

evidence in this record ever presented in that case. Even though he was allowed, over the KBA's

objection, to call the U.S. Attorney and the Special Agent from the FBI to testify, he chose not to

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do so. This decision came after the KBA notified the U.S. Attorney's Office (by Touhy request

28 C.F.R. Section 16.21 et. seq.) that if those individuals testified in this matter they would be

subject to cross-examination as to the details surrounding the decision not to indict the

Respondent and to offer him immunity for his testimony and the decision not to use certain

pieces of evidence. What was stated in the pleadings and in the record by the government or as

an aside in an evidentiary ruling by the Judge in that case is simply not probative.

He further complains that the Trial Commissioner disregarded his experts' testimony that

second distributions are common in mass tort cases. As already discussed, this case is not that

circumstance. Jack Vardaman, Helene Madonick, and Heidi Levine, and AHP's lawyers who

were not indicated and were not the subject of discipline, both testified that this was a settlement

for the persons listed and that there was no "mass" tort settlement with cy pres implications. No

one ever testified that secret meetings and secret orders would be the way that would be done in

any case. Professor Erichson (who testified for no fee as opposed to Feinberg's $50,000

affidavit) explained all this to the Trial Commissioner and noted that by reading the settlement

agreement the question is answered. His own expert, Feinberg, said if he knew the true facts of

this case he would have never rendered his opinion. His expert, Hazard, was forced to admit his

his conclusion was wrong on fees. His other experts were shown to have not been given nearly

all the material. The KBA's expert testified that a second distribution was improper in this case.

The Trial Commissioner just did not buy the Respondent's story.

III. CONCLUSION

The KBA requests that the Board of Governors adopt the Report of the Trial

Commissioner in this matter in its entirety. Should the Board review this matter de novo, the

KBA requests that the Board find the Respondent guilty of these serious counts of misconduct

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charged by the Inquiry Commission, and likewise recommend to the Supreme Court that he be

permanently disbarred.

Respectfully submitted,

LmdaA. Gosnell
Chief Bar Counsel
Cary B. Howard
Deputy Bar Counsel
Office of Bar Counsel
Kentucky Bar Association
514 West Main Street
Frankfort, Kentucky 40601
502-564-3795

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