On the Beat in the Bluegrass

FRANKFORT — Opening statements were under way in the retrial of two Lexington area lawyers accused of taking $94 million that should have gone to 440 clients, who had sued the maker of the diet drug fen-phen.

Shirley Cunningham Jr. (left), William Gallion (right)

Lawyers for the federal government and the defendants, Shirley Cunningham Jr. and William Gallion, made small tweaks to their case from a trial last summer, which resulted in a hung jury and a mistrial. Another defendant, Melbourne Mills, was acquitted.

Cunningham and Gallion are accused of conspiracy and wire fraud over the 2001 settlement of a lawsuit against the maker of the fen-phen diet drug. fen-phen, which was recalled after some studies indicated it could cause heart damage. The lawsuit was settled for $200 million.

As they laid out their case Wednesday in U.S. District Court, prosecutors spent more time explaining class-action law — a subject that many lawyers find difficult to understand.

Prosecutors say Cunningham and Gallion — and their staff — disregarded ethics rules by refusing to disclose the gross amount of the settlement to their clients, paying them less than they were entitled to under the settlement, and falsely telling clients that they would go to jail if they told anyone what they received, Assistant U.S. Attorney Laura Voorhees.

The lawyers used the settlement-confidentiality clause to keep their clients in the dark, Voorhees said.

“They used this provision like it was a club,” she said.

Under their contracts with clients, Cunningham and Gallion were entitled to one-third of the settlement. They took nearly half of it, Voorhees said.

The lawyers also are accused of wrongfully diverting $20 million of the settlement into a charitable trust. During the first trial, the defense argued that that money was needed to pay future fen-phen victims who were not in the lawsuit. Defense attorneys said that, according to the settlement agreement, Cunningham and Gallion were personally liable for paying those clients.

But Voorhees, anticipating such arguments Wednesday, said the settlement agreement limited the lawyers’ liability to $7.5 million.

O. Hale Almand, an attorney for Gallion, said his client followed the advice and recommendations of well-known Cincinnati trial lawyer Stan Chesley, who negotiated the settlement. Almand also noted that the trial judge approved the attorneys fees.

Almand said the lawyers never intended to defraud their clients. The charitable trust was approved by an independent attorney who was hired by the court to write a legal opinion of it.

Cunningham’s lawyer was expected to make his opening statements at 1 p.m.

The trial could last six weeks.