Fordham Law

Retrial starts tomorrow for ex-lawyers in diet-drug case

Howard Erichson in Louisville Courier-Journal, February 16, 2009

The government will try again this week to convict two disbarred lawyers accused of taking $94.6 million from clients in a fen-phen diet-drug case.

The retrial of William Gallion and Shirley Cunningham begins tomorrow in U.S. District Court in Frankfort and is scheduled to take up to eight weeks.

The two former Lexington lawyers have pleaded not guilty to conspiracy to commit wire fraud and eight counts of aiding and abetting wire fraud. They face maximum sentences of 20 years in prison if convicted.

The allegations in the case are largely the same as in the trial that ended with a deadlocked jury last July: Gallion and Cunningham paid only about one-third of a $200 million settlement in 2001 to their 440 clients and improperly kept the rest for themselves and others.

The money came from the settlement of a class-action lawsuit filed in Kentucky against the manufacturer of the diet drug, which was withdrawn from the market after it was shown to cause heart-valve damage.

But in the retrial, several things have changed.

There is a new judge (Danny Reeves instead of William Bertelsman), a new venue (Frankfort instead of Covington), more charges (nine instead of one), and one less defendant (Melbourne Mills Jr., who claimed he was too drunk to have participated in the alleged scam, was acquitted).

Also, this time Gallion and Cunningham will come and go freely from the courtroom. They made bail last summer and were released from jail after spending nearly a year behind bars.

Some defense lawyers who are not involved in the case say the government should have the edge in the retrial.

"The defense has already played out its hand, and the prosecution can go back and see if it did anything wrong, then correct it," said Alex Dathorne, a former assistant commonwealth's attorney in Jefferson County.

But Lexington lawyer Jim Shuffett, who defended Mills, noted that the jury in the first trial deadlocked 10-2 for acquittal, according to its foreman.

"The government may get a second shot, but it doesn't change the facts," Shuffett said.

The U.S. attorney's office didn't comment. Neither did Gallion's lead counsel, O. Hale Almand Jr., of Macon, Ga. Cunningham's lawyer, Steve Dobson, of Tallahassee, Fla., didn't respond to requests for comment.

Attorney Angela Ford, who now represents more than 400 of the plaintiffs and who won a $42 million civil judgment on their behalf against Gallion, Cunningham and Mills, said her clients expect the defendants to be convicted this time.

"They know what happened to them, and they can't believe there will be any other result," she said.

As many as 18 former plaintiffs will testify, Ford said.

She said that prosecutors Laura Voorhees and E.J. Walbourn are better prepared and that Reeves' pretrial rulings should simplify the case.

Reeves said he will not let the defendants argue that their fees were reasonable because their clients got more money than did claimants in a separate national fen-phen class action.

That was one of the defendants' key arguments in the first trial, which ended July 3 after the jury had deliberated for 52 hours over eight days.

Shuffett said the jury didn't convict because the defendants were innocent, but other lawyers attributed the mistrial to a listless performance by the prosecutors, the clumsy handling of key witness Stan Chesley, and a government expert who testified that he hadn't worked since last fall because of a mental illness.

The government has retained a new expert -- professor Howard Erichson, who teaches legal ethics and responsibility at Fordham University law school. And it is expected to call Chesley, the nationally known Cincinnati lawyer who negotiated the settlement, during its case.

By adding more charges, the government also is more likely to gain a conviction, lawyers say.

"With more charges, the temptation is for jurors to compromise -- to acquit them on some and to convict them on some," Shuffett said.

Neither side has subpoenaed Mills to testify, Shuffett said.

Since the mistrial, Gallion and Cunningham have surrendered their law licenses under their terms of disbarment.

During the disbarment proceedings, they denied charging an excessive fee but admitted they never told their clients that they were putting $20 million from the settlement into a charitable foundation, or that they paid themselves to manage the foundation.

The Kentucky Supreme Court, in the disbarment action, also rejected the main defense Gallion and Cunningham have offered in the criminal case -- that they had to hold on to $70 million from the settlement in the event of "contingent liabilities."

The defendants have said they had to retain the money in case additional claims arose, and that when none did, they were entitled to keep that money because their clients already had been sufficiently compensated.

But the court ruled that "there were no contingent liabilities."

Voorhees has said her office was studying whether the lawyers' admissions in the bar discipline case could be used in the retrial.