SUPREME COURT OF KENTUCKY KBA FILE 13785% *fy"**% COMPLAINANT KENTUCKY BAR ASSOCIATION v. STANLEY M. CHESLEY RESPONDENT BRIEF FOR STANLEY M. CHESLEY ON APPEAL TO THE BOARD OF GOVERNORS Sheryl G. Snyder Frost Brown Todd LLC 400 W. Market St., 32nd Fl. Louisville, KY 40202 Phone: 502-589-5400 Fax: 502-581-1087 Scott C. Cox Cox & Mazzoli, PLLC 600 West Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 Fax: 502-584-1744 James M. Gary Weber & Rose, P.S.C. 417 W. Main Street, Suite 400 Louisville, KY 40202 Phone: 502-589-2200 Fax: 502-589-3400 Mark L. Miller 600 W. Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 Fax: 502-584-1744 Frank Benton, IV Benton, Benton & Luedeke 528 Overton Street P.O. Box 72218 Newport, KY 40172 Phone: 859-291-4054 Fax: 859-291-4050 Counsel for Respondent, Stanley M. Chesley TABLE OF CONTENTS Summary of Argument Statement of the Case ARGUMENT I. Bar Counsel failed to carry its burden of proving that Mr. Chesley possessed the full knowledge of all facts material to the criminal and imethical actions of the other attorneys, and knowingly assented to those acts, Mr. Chesley is therefore not guilty of ratification A. There is no credible evidence showing how Mr. Chesley's alleged appearance before Judge Bamberger at the February 2002 meeting constituted a knowing ratification of G-C-M's fraud or his participation in a "cover up." : Bar Counsel failed to carry the burden of proving that Mr. Chesley's alleged participation in other events constitutes "after the fact" ratification under the applicable standard 1. Bar Counsel failed to carry its burden of proving that Mr. Chesley contributed to the David Stuart settlement with actual knowledge of G-C-M's fraud Bar Counsel failed to carry its burden of proving that Mr. Chesley approved documents sent to him by Whitney Wallingford with actual knowledge that the documents were factually inaccurate, and as part of a cover-up of G-C-M's theft Bar Counsel failed to carry its burden of proving that Mr. Chesley's attendance at Judge Bamberger's JCC hearing was with actual knowledge of G-C-M's , 4 7 27 27 30 B. 37 38 2. 39 3. fraud 40 II. The Rules of Professional Conduct expressly allow a division of labor among counsel, Mr. Chesley appropriately relied upon other lawyers to communicate with the Gitard plaintiffs and therefore did not violate Rules 1.5(c), 1.5(e), and 1.8(g) 42 i SUPREME COURT OF KENTUCKY KBA FILE 13785 KENTUCKY BAR ASSOCIATION v. COMPLAINANT M 2, "^7 tot, STANLEY M. CHESLEY RESPONDENT BRIEF FOR STANLEY M. CHESLEY ON APPEAL TO THE BOARD OF GOVERNORS Sheryl G. Snyder Frost Brown Todd IXC 400 W. Market St, 32 nd FL Louisville, KY 40202 Phone: 502-589-5400 Fax: 502-581-1087 Scott C. Cox Cox & Mazzoli, PLLC 600 West Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 Fax: 502-584-1744 James M. Gary Weber & Rose, P.S.C. 417 W. Main Street, Suite 400 Louisville, KY 40202 Phone: 502-589-2200 Fax: 502-589-3400 Mark L. Miller 600 W. Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 Fax: 502-584-1744 Frank Benton, IV Benton, Benton & Luedeke 528 Overton Street P.O. Box 72218 Newport, KY 40172 Phone: 859-291-4054 Fax: 859-291-4050 Counsel for Respondent, Stanley M. Chesley TABLE OF CONTENTS Summary of Argument Statement of the Case ARGUMENT I. Bar Counsel failed to carry its burden of proving that Mr. Chesley possessed the full knowledge of all facts material to the criminal and unethical actions of the other attorneys, and knowingly assented to those acts. Mr. Chesley is therefore not guilty of ratification A. There is no credible evidence showing how Mr. Chesley's alleged appearance before Judge Bamberger at the February 2002 meeting constituted a knowing ratification of G-C-M's fraud or his participation in a "cover up." Bar Counsel failed to carry the burden of proving that Mr. Chesley's alleged participation in other events constitutes "after the fact" ratification under the applicable standard 1. Bar Counsel failed to carry its burden of proving that Mr. Chesley contributed to the David Stuart settlement with actual knowledge of G-C-M's fraud... Bar Counsel failed to carry its burden of proving that Mr. Chesley approved documents sent to him by Whitney Wallingford with actual knowledge that the documents were factually inaccurate, and as part of a cover-up of G-C-M's theft Bar Counsel failed to carry its burden of proving that Mr. Chesley's attendance at Judge Bamberger's JCC hearing was with actual knowledge of G-C-M's fraud , 4 7 27 27 30 B. 37 38 2. 39 3. 40 II. The Rules of Professional Conduct expressly allow a division of labor among counsel, Mr. Chesley appropriately relied upon other lawyers to communicate with the Guard plaintiffs and therefore did not violate Rules 1.5(c), 1.5(e), and 1.8(g) 42 i Ill Bar Counsel failed to carry its burden of proving that Mr. Chesley made the alleged misrepresentations to tribunals with the requisite knowing falsity so as to find him guilty of misconduct under Rules 3.3(a), 8.1(a), and 8.3(c) A. B. Rule 3.3(a) and the alleged misrepresentations made to Judge Bamberger during the course of the Guard action Rule 8.1(a) and the alleged misrepresentations made in response to questions posed by the KBA C. Mr. Chesley did not violate Rule 8.3(c) 46 46 52 56 IV. V. Mr. Chesley's fee - which was only 10% of the settlement amount —was not unreasonable, and therefore did not violate Rule 1.5(a) Mr. Chesley cannot be ordered to disgorge $7,555,000.00 in a lawyer discipline case 57 63 65 69 VI. The mitigating factors applicable in this case do not warrant permanent disbarment CONCLUSION LOULibrary0U8087.0571145 1055378vl 11 SUPREME COURT OF KENTUCKY KBA FILE 13785 KENTUCKY BAR ASSOCIATION v. STANLEY M. CHESLEY BRIEF FOR STANLEY M. CHESLEY ON APPEAL TO THE BOARD OF GOVERNORS May it please the Court: Every Kentucky lawyer is ashamed of the fen-phen scandal. We want to rid our ranks of the malefactors. And everyone assumes that Stan Chesley was the mastermind because - among Gallion, Cunningham and Mills - Mr. Chesley was the smartest guy in the room. The problem with that simplistic approach is: Mr. Chesley was not in the room. It is undisputed that Mr. Chesley had absolutely no role in the initial allocation of settlement funds to the fen-phen class members by which GaUion-Cunningham-Mills ("G-C-M") stole over $100 million dollars. G-C-M negotiated individual settlements with their own clients, and then kept the rest of the settlement fund for themselves. Bar Counsel's expert witness unequivocally admitted the fact that Chesley did not participate in conceiving or implementing the process for allocating the settlement funds that enabled G-C-M's theft.1 Likewise, Mr. Chesley played no role, at all, in creating or operating the infamous Kentucky Fund for Healthy Living (the "Fund"), which paid G-C-M, Judge Bamberger and Mark Modlin handsomely. Mr. Chesley never received a single penny from the Fund. Judge Bamberger received a formal legal opinion from Pierce Hamblin (not Mr. Chesley) that Bamberger had authority to create the Fund with settlement monies. Whitney Walhngford 1 Tr. II, Erichson, p. 1185. "Tr. I" refers to testimony from the hearing conducted on November 15-16, 2009; "Tr. II" refers to the testimony from the hearing conducted on September 13-24,2010. COMPLAINANT RESPONDENT served as tax and corporate counsel to the Fund. Mr. Chesley had zero involvement with organizing or operating the Fund. Bar Counsel finally admitted the indisputable fact that Mr. Chesley played no role in the theft of settlement funds,2 and amended the Charge to allege that Mr. Chesley "ratified" G-CM's misconduct, after the fact.3 In her Brief to the Trial Commissioner, Bar Counsel explicitly stated that "[tjhis case is primarily about [Mr. Chesley's] conduct in ratifying and assisting, after the fact, the initial theft of funds from the clients."4 But the Trial Commissioner's Report does not even discuss Mr. Chesley's legal argument concerning the legal elements of a ratification charge, much less make findings sufficient to satisfy those elements. Instead, he finds as a fact that Mr. Chesley knowingly participated in G-C-M's cover-up of their theft. But why would Mr. Chesley cover-up a crime he concededly did not commit? The Trial Commissioner's keyfindingsof fact are remarkable for the total absence of any citation to the record. The reason for that omission is easily understood. Bar Counsel's evidence of Mr. Chesley's alleged participation in key cover-up events consists exclusively of the testimony of a defrocked judge - Mr. Bamberger. For example, Bamberger's testimony is the only evidence that Mr. Chesley was even present at the February 6, 2002 meeting at which Bar Counsel posits that Gallion (and Modlin) induced Bamberger to sign an order approving G-CM's legal fees. More importantly, Bamberger's testimony is also the only evidence of what allegedly transpired at that meeting.5 Yet, according to Bar Counsel's brief seeking disbarment of Bamberger, he is a liar who signed orders tendered to him by Gallion and Modlin that he knew were false when he signed Tr. H, Opening Statement, pp. 713-14. Motion to Amend Charge. 4 Post-Hearing Brief of Complainant ( il Bar's Post-Hearing Brief), p. 1, attached hereto as Ex. B. 5 See Report of Trial Commissioner, attached hereto as Ex. A, p. 18 (Rule 1.5(a), p. 23 (Rule 3.3(a)), p. 24 (Rule 8.1(a), p. 25 (Rule 5.1(c)(1)). 3 2 2 them.6 Bamberger's entire defense was to blame Mr. Chesley. Barnberger claimed to be a novice who relied completely upon the experienced Mr. Chesley - when, in fact, Barnberger had long been in cahoots with Gallion's "trial consultant," Mark Modlin, and later became a salaried director of the Healthy Living Fund created by Gallion and Modlin with the stolen settlement money. When he testified before the Judicial Conduct Commission in 2005, Barnberger stated there had been no motions filed or hearings held regarding the fees and expenses.7 With 5 intervening years to concoct, refine and embellish his story, he now clearly recalls that Mr. Chesley is the villain. While deemed a liar in his own disbarment case, the Trial Commissioner deems Barnberger a truth-teller in Mr. Chesley's case. Counsel for Mr. Chesley vigorously argued Bamberger's lack of credibility at great length in Respondent's brief.8 But the Trial Commissioner's Report does not even mention the credibility issue, much less resolve it. The Report does not even deign to admit that the findings rest on Bamberger's testimony. In fact, the Report does not even cite any evidence for such key findings of fact as what was said by whom at the February 6, 2002 meeting of the conspirators with Barnberger. The Report just states the finding in conclusory fashion, as if it were received wisdom. Simply stated, that is a tenuous basis for a recommendation of the professional death penalty. This void in the Report must also be juxtaposed against its ad hominem attacks on Mr. Chesley - such as the Trial Commissioner's presumption that Mr. Chesley is "reasonably conversant with fifth grade arithmetic"9 - that are totally inconsistent with the professional solemnity that should attend a lawyer discipline case seeking permanent disbarment. We may all See Post-Hearing Brief of Complainant, KBA File 13985, Ky, BarAss'n v. Barnberger, p. 22. KBA2853. 8 See Respondent Stanley M. Chesley's Post-Hearing Brief ("Respondent's Post-Hearing Brief'), pp. 3, 9-10, 34, attached hereto as Ex. C. 9 Report of Trial Commissioner, p. 10. 3 6 7 be ashamed of the fen-phen scandal, but that does not justify a rush to judgment- to yank the license of a lawyer with an unblemished record after 50 years in the practice of law. In the words of Mr. Justice Oliver Wendell Holmes: "The theory of our system is that the conclusions to be reached in a case will be induced only by evidence and argument in open court, and not by any outside influence, whether of private talk or public print." Patterson v. State of Colorado ex rel Attorney General, 205 U.S. 454, 462 (1907). If the Board of Governors honors Justice Holmes' admonition and bases its decision upon the record in this case, it will not accept the Trial Commissioner's recommendation of the professional death penalty for "a giant of the mass tort bar"10: Hon. Stanley M. Chesley. SUMMARY OF ARGUMENT It is undisputed that Mr. Chesley had absolutely no involvement in the first phase of the allocation of the settlement funds to the Guard plaintiffs during which G-C-M stole Si00 million. Bar Counsel therefore amended the Charge to allege ratification under Rule 5.1(c)(1), which provides that a lawyer is responsible for the unethical actions of another lawyer if, but only if, "the lawyer orders, or with knowledge of specific conduct, ratifies the conduct involved." And, while the drafters of that Rule did not define "ratifies," the term they chose has a well settled meaning in the law of agency. A person ratifies an act of another person if- with full knowledge of all the material facts about the act being ratified — the person manifests assent to the act being deemed his own. RESTATEMENT (THIRD) OF AGENCY §4.01,4.06 (2006). The Trial Commissioner's Report never even discusses the well settled legal prerequisites for a ratification. The Report merely incants in conclusory fashion that Mr. Chesley ratified the theft by G-C-M. See Report of Trial Commissioner, p. 25. Clearly, that is an insufficient basis for a recommendation of permanent disbarment. 10 Tr.n 5 Erichson,p. 1188. 4 Instead of applying the actual legal standard set forth in Rule 5.1(c)(1), the Report engages in inappropriate hyperbole, concluding that "Chesley became 'counsel in chief" of GC-M's effort to "'cover-up' their thievery", "at many points primarily orchestrating" the coverup. Report of Trial Commissioner, p. 26. But the Report does not contain a single citation to the transcript or to any exhibit to support those hyperbolic conclusions - because there is no evidence of Mr. Chesley "orchestrating" G-C-M's cover-up. The Trial Commissioner uncritically accepted Bar Counsel's contention that the cover-up was launched on February 6, 2002, in a "clandestine" meeting allegedly attended by Judge Bamberger, Gallion, Modlin and Chesley. But there is absolutely no evidence in the record that Mr. Chesley knew by February 6, 2002 that G-C-M had stolen $100 million from their clients. Astoundingly, the Report tacitly concedes that truth, and speculates that "Chesley had to have learned that the settlement fund had not been properly administered and distributed to the clients when he learned that . . . that a second distribution would be required." Report of Trial Commissioner, p. 25 (emphasis added). But the Trial Commissioner's speculation is completely refuted by the uncontradicted testimony of preeminent experts in ethics in class action settlements - Arthur Miller, Geoffrey Hazard, Ken Feinberg - that second distributions are commonplace in class settlements, and therefore the second distribution in Guard would not be a red flag to Mr. Chesley. Moreover, a Zelig-like appearance at this alleged meeting would be inconsequential unless one believes the self-preserving, well-rehearsed testimony of former Judge Bamberger. No one else testified about what allegedly occurred at that meeting. Gallion asserted his privilege against self-mcrimination. Modlin denied even being present at the meeting. Chesley did not recall such a meeting. Consequently, the recommendation of permanent disbarment rests 5 upon the discredited cover story of a former judge who is himself being disbarred for signing orders tendered to him by Gallion that he knew - at the time he signed them - contained false factual recitations.11 The Report also recommends an unprecedented restitution award of $7,550,000.00. But SCR 3.380 does not authorize restitution in a lawyer discipline case, much less restitution to a class of almost 500 claimants. It authorizes only private and public reprimands, suspension and disbarment. Moreover, to permit restitution in a lawyer discipline case would deprive the lawyer of his constitutional right to a jury trial. In re Ackerman, 330 N.E.2d 322, 323 (Ind. 1975). The client's remedy should be civil litigation. Id. In fact, there is civil litigation pending against Mr. Chesiey by the plaintiffs in the Guard case. Significantly, the Court of Appeals recently affirmed the denial of summary judgment against Mr. Chesiey in that case, demonstrating that there is at least a genuine issue of material fact whether Mr. Chesiey owes any money to those claimants. Cunningham v. Abbott, 2011 WL 336459 (Ky. App. Feb. 4,2011). The Trial Commissioner nevertheless recommends that Mr. Chesiey pay $7,550,000.00 "either through the auspices of the Abbott case, should the clients prevail, or some other means designed by the [Supreme] Court." Report of Trial Commissioner, p. 29. The Board of Governors should not endorse that cavalier disposition of such a significant question of law. The recommendation of restitution is also wrong because the conclusion that Mr. Chesley's fee was unethically excessive is wrong. Mr. Chesley's fee amounted only to 10% of the total settlement amount. Lawyers in Kentucky routinely receive 30% to 40% of settlement There are other alleged infractions of the Rules which are discussed in Arguments H and in, but which are not included in this Summary of Argument because, absent ratification, they could not support a recommendation of permanent disbarment. 6 11 proceeds in legal fees. The fact that G-C-M stole an excessive amount from the class does not render Mr. Chesley's 10% fee unethically excessive under Rule 1.5(a). Again, the Trial Commissioner did not even mention, much less decide, Mr. Chesley's legal argument. Instead, again, he uncritically accepted Bar Counsel's argument that Mr. Chesley was limited to his contractual percentage of G-C-M's contractual percentage in thenindividual client agreements. While that might be an argument the plaintiffs could make in the Abbott case, this is a lawyer discipline case, not a breach of contract case. A 10% fee does not contravene Rule 1.5(a). In sum, the Trial Commissioner seems to have been unable to shed the prejudgment of Mr. Chesley that is commonplace among members of the Bar, Consequently, the Trial Commissioner rendered a Report that is devoid of any citation to the transcript or otherwise to the record, and which uncritically endorsed Bar Counsel's Brief, often parroting large passages almost word-for-word, despite the fact that Bar Counsel's Brief also failed to cite any evidence for many of its overwrought contentions. The Board of Governors should exercise the independence and discretion inherent in its de novo standard of review, decline to accept the flawed Report, and make its ownfindingsof fact and conclusions of law. STATEMENT OF THE CASE The issues in this disciplinary proceeding all concern the degree to which Mr. Chesley had knowledge of, or participated in, the scandal by which G-C-M stole $ 100 million of the $200 million fen-phen settlement. The fen-phen scandal had three major phases: (1) the initial distribution of the funds during the summer and fall of 2001 via individual settlements with clients conducted by G-C-M and their respective employees; (2) the establishment of the Fund in July 2002, with the subsequent transfer of the remaining settlement funds to the Fund; and (3) 7 the attempt to cover up G-C-M's theft by making a second distribution of funds in 2002. Mr. Chesley played no part in these major events which constitute the actual theft by G-C-M, yet the Trial Commissioner accepted the KBA's unsupported assertions that Mr. Chesley was a driving force behind the fen-phen scandal without considering the clear evidence to the contrary. Mr. Chesley's involvement in the Kentucky fen-phen litigation began on July 30, 1999, when he filed an action (limited to medical monitoring claims) known as Courtney in the Boone Circuit Court on behalf of three plaintiffs who had taken fen-phen.12 Because a similar action the Guard action — had already been filed by Gallion on behalf of claimants who had opted out of the national MDL action and had been certified as a class action in the same court, "the Courtney and Guard actions were consolidated in December 1999.33 Consolidation of the actions, however, did not create an attorney-client relationship between Mr. Chesley and the clients of G-C-M.14 It was ultimately decided that Mr. Chesley's Courtney plaintiffs did not have enough evidence of injury to justify their opting out of the national settlement, and they returned to the federal MDL action where they participated in the national settlement.15 This left Mr. Chesley with no clients in the consolidated action. Mr. Chesley, who has been practicing law in Ohio and Kentucky for fifty years and is nationally renowned in the resolution of class actions and mass torts,16 was then engaged by GC-M for the limited purpose of negotiating a settlement with American Home Products (AHP) on Tr. H, Chesley, pp. 740-41; KBA 100. KBA 105; Tr. H, Chesley, pp. 746^17. 14 Consolidation "does not merge the suits into a single cause . . . or males those who arc parties in one suit parties in another." Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496-97 (1933); see also Kraft, Inc. v. Local Union 337, Teamsters, Chauffeurs, Helpers and Taxicab Drivers, 683 F.2d 131, 133 (6th Cir. 1982) (quoting Johnson, 289 U.S. at 496-97). 15 KBA 105; Tr. II, Chesley, pp. 746-47. 16 Tr.II,Feinberg,p. 1092. 13 12 8 their behalf.17 He was specifically engaged to act only as "lead counsel in any negotiations." Gallion remained lead counsel in the case, with Mills and Cunningham expressly assuming the responsibility for communicating with the clients because they had the engagement agreements with the clients. Gallion would try the case if it did not settle.18 Mr. Chesley never filed an entry of appearance on behalf of the Guard plaintiffs. The settlement negotiations in Guard took place against the backdrop of a broader, nationwide effort by AHP to settle with the claimants who had opted out of the MDL class settlement. An unusually large number of claimants had opted out of the national fen-phen settlement, many of whom were individually represented by advertising lawyers like Mills and Cunningham. AHP engaged Jack Vardaman of Williams & Connolly to negotiate directly with each of those attorneys with viable state court claims to settle their respective groups of opt-out plaintiffs for a single lump sum, which plaintiffs' counsel would undertake to distribute among their clients.19 G-C-M's clients represented a certified class that included 431 of the approximately 500 Kentucky plaintiffs who had opted out of the national MDL settlement. Mr. Chesley engaged in a great deal of pre-mediation settlement discussions with Vardaman in which the two reached a mutual understanding on a ballpark figure for settlement, leading Vardaman to believe that the mediation would be over in 30 minutes. However, when the mediation began, Gallion took a much different tack than Vardaman expected, and the mediation ultimately stretched over two days.21 Near the end of the second day, Helene Madonick, also settlement counsel for AHP, and Gallion met separately at the request of Tr. n , Chesley, pp. 762-64. KBA 147,148. The original agreement among the lawyers provided that G-C-M would pay Mr. Chesley 27% of their fees if the case settled, and 15% if the matter proceeded to trial. KBA 147. Eventually, this agreement expired and was replaced by a different agreement by which G-C-M contracted to pay Mr. Chesley 2 1 % of their fees if he was successful in settling the case. KBA 148, attached hereto as Ex. D. 19 Vardaman Depo., pp. 13,17, 98. 20 Id. at 32, 36,103-04. 21 Id. at 36. 13 17 9 mediator Pierce Hamblin, and soon "announced" that they had arrived at a $200 million settlement, which was exactly the number that Mr. Chesley and Vardaman had reached prior to the two-day mediation.22 The responsibilities of counsel with respect to the settlement were formalized and set forth in the Settlement Agreement.23 The Settlement Agreement specifically identified G-C-M as the "Settling Attorneys" and required them to allocate tbe settlement amount among the Settling Claimants, provide appropriate medical records to AHP, obtain releases and dismissals from the Settling Claimants, and take all other necessary steps to effectuate the settlement.24 Mr. Chesley was not identified as either a "Settling Attorney" or a signatory to the Settlement Agreement - because he had not been engaged by any of the clients.25 A key component of Vardaman's national strategy for settling with groups of opt-out plaintiffs was to insist upon total confidentiahty of the total amount of each such settlement. AHP was concerned that disclosure of tbe size of the settlements could disrupt thefinalizingof the national settlement, and that publicity could cause attorneys with the remaining inventories to holdout for an even larger settlement.27 Accordingly, Vardaman insisted in Guard, as in all of the settlements he negotiated, on confidentiality as a strict condition of settlement.28 Thus, a condition precedent to the settlement was for the Guard class to be decertified, to eliminate the need for public notice of the settlement.29 Vardaman Depo., p. 104; Madonick Depo., pp. 40-45 KBA 6, attached hereto as Ex. E. 24 KBA 6; Tr. II, Chesley, p. 972. 25 KBA 6; Vardaman Depo., p. 48. 26 Vardaman Depo., pp. 45-46. 21 Id. 2S Id. 29 Bar Counsel expressly conceded that decertification without notice were "conditions precedent" that were insisted upon by counsel for AHP, Bar's Post-Hearing Brief^ p. 16. 23 10 The Guard case had been certified as a class action, but no notice of class certification had ever been sent to the Guard class members because of uncertainty about whether and how such notice should be coordinated with notice to the national MDL class. Shortly thereafter, on May 9, 2001, counsel for AHP, the Guard attorneys, and Mr. Chesley appeared before Judge Bamberger to announce the settlement.31 Counsel for AHP, Mr. Schaefer, explained to Judge Bamberger why it was appropriate to decertify the class, including the fact that notice of the certification of the Guard class had never been sent to the class members, and that each member of the Guard class had already received notice of the national MDL class certification and had opted out of the national settlement.32 Judge Bamberger entered the Order as drafted and tendered by AHP, vacating his previous order certifying the class and dismissed the action with prejudice as to the Settling Claimants and without prejudice to the claims of other unknown, unnamed class members.33 The negotiation and settlement task for which Mr. Chesley had been engaged was now complete. First phase of the fen-phen scandal: the "initial distribution". Following approval of the aggregate settlement amount, the next step was for G-C-M to work with their individual clients to determine the amount to be distributed to each plaintiff and execute individual settlement amounts. This is known as the "initial distribution." It is during this chapter of the saga that the initial theft was carried out by G-C-M and members of thenrespective staffs. It is undisputed that Mr. Chesley played no part in that chapter. He had no individual clients with any claim to any portion of the Guard settlement fund. Mr. Chesley was KBA 74; Vardaraan Depo., pp. 41-42. KBA 120. 32 Id. 33 KBA 10. 31 30 11 never asked by G-C-M for any advice, and was never given any information, about the initial distribution. His role was completed with consummation of the settlement negotiations. The Settlement Agreement provided that AHP would release settlement funds on a rolling basis as the Settling Attorneys provided AHP with executed releases from the claimants. Gallion concocted a scheme that required his associate, David Helmers, together with Mills' employee Rebecca Phipps and Cunningham's employee Sandy Rios, to meet with clients, withhold from them the total value of the settlement, falsely tell them that the amount of their settlement had been predetermined through negotiations with AHP, and to falsely tell those who raised an objection that an attorney would go back to AHP to renegotiate.35 In fact, the extent to which Gallion controlled this scheme is evidenced by the fact that Gallion and Cunningham even kept Mills (who did not attend the mediation) out of the loop, lying to him about the amount of the settlement and telling him it was only $150 million.36 Ms. Phipps testified that Gallion came to her after the settlement was reached and instructed her to begin meeting with the individual claimants and "try to settle the cases as low as we could."37 Helmers was to handle the more seriously injured plaintiffs.38 If a claimant objected to the settlement amount they were offered, Phipps would meet with Helmers and decide what to do. 39 Eventually, she and Rios were allowed to simply raise the offer to an objecting claimant. Once a threshold number of releases was obtained in this manner, Helmers handdelivered the releases to AHP, who then released funds to Cunningham's Bank One escrow 34 KBA 6. Tr. H, Phipps, pp. 53-54; Tr. H, Helmers, p. 298. 36 Tr. II, Mills, pp. 130, 133-34, 164-65. 37 Tr. H, Phipps, pp. 53-55. 38 Id. at 55. 39 Id. at 56, 59-60. 40 Id. 35 12 account. AHP ultimately made five separate deposits into this escrow account, from which the settlement funds were distributed to the claimants.42 The last payments to claimants in this "first distribution" were made in November 20G1.43 This concluded the first major phase of the fen-phen scandal. It is undisputed that Mr. Chesley had absolutely no involvement in the scheme developed by Gallion to meet with clients and obtain releases, a vital fact which received absolutely no discussion by the Trial Commissioner in his Report.44 Ms. Phipps specifically testified that she had not even met Mr. Chesley when Gallion instructed her on how to conduct the scheme.45 Similarly, Helmers testified that Mr. Chesley had no role in the allocation of money, meeting with clients, or raising offers to objecting clients.46 Every single claimant who testified in this proceeding stated that they were not even aware of Mr. Chesley's identity.47 Mr. Chesley had no association with or control over the escrow account from which the distributions were made. In contrast to the scheme concocted by Gallion, Mr. Chesley has administered class action settlements in high stakes cases, such as Doe v. Roman Catholic Diocese ofCovington*9 in which Mr. Chesley and his firm were lead class counsel. The settlement in Doe, a sexual abuse action against the Diocese, made approximately $90 million available to the class.50 Upon Tr. H, Helmers, pp. 384-86. KBA 123. 43 Id. 44 Tr. H, Hamm, pp. 203-206; Tr. II, Phipps, pp. 54, 59, 103-104, 112-114; Tr. II, Mills, pp. 161-62; Tr. II, Helmers, pp. 382-384. 45 Tr. 0, Phipps, pp. 54. 46 Tr. H, Helmers, pp. 382-84. 47 Tr. I, Curtis, pp. 83-87; Henderson, pp. 129-32; McGirr, pp. 167-70; Carman-Staton, pp. 201-02; Faimin, pp. 24244; Centers, p. 279; Ford, pp. 308-09; Turner, pp. 345-46; Peace, pp. 389-92; Miller, pp. 433-34; Stephenson, pp. 471-72; Bowman, p. 517; Hoover, p. 546; Coots, pp. 586-88; Baldwin, p. 630; McMurtry, pp. 662-63. 48 Tr. I, Hamm, pp. 1006-1008; Tr. H, Helmers, pp. 387-88. 49 Boone Circuit Court, Civil Action No. 03-CI-00181. so Doe v. Roman Catholic Diocese of Covington, 2006 WL 250694, *4 (Ky. Cir. C t Jan. 31, 2006) (Order Approving Settlement), attached hereto as Ex. F. Small percentages of the fund were initially set aside to pay both the counseling fees for victims of the sexual abuse, including non-class members, and the claims of putative class members who did not participate in the settlement Id. at *3. A percentage of the fund was also set aside for those 42 41 13 Mr. Chesley's motion, Senior Judge Potter appointed two Special Masters, a retired federal judge and a nationally-known businessman, the Chairman of Scripps, Inc. Using an established fourtier schedule that placed each class member into one of four categories based solely upon the nature and severity of the abuse endured,51 the Masters allocated the fund among the class members.52 If a class member wished to challenge their settlement amount under the schedule, he or she was permitted to appeal to an Appeals Special Master, who was also a retired federal judge. The Diocese had limited settlement funds available, contributing $40 million in cash or property to the fund while its insurance carrier contributed another $44 million.53 As such, if the total amount payable under the schedule exceeded the amount available, all claims were to be "ratcheted down" on a pro rata basis.54 If, however, there were funds remaining, the funds would be returned to the Diocese or its insurance carrier.55 The Doe settlement shows that Mr. Chesley and his firm, with their wealth of class action and mass tort experience, know how to properly conduct a class action settlement allocation when it is their responsibility to do so. Mr. Chesley had no responsibility to conduct the Guard settlement allocation because he was engaged only for the specific task of negotiating the settlement. Second phase of the fen-phen scandal: the creation of the Kentucky Fund. The second major phase of the fen-phen scandal was the creation of the Kentucky Healthy Living Fund, a non-profit corporation funded by $20,953,693.20 of the undistributed with extraordinary injuries entitling them to additional compensation. Id. The remaining seventy-two percent of the fund was distributed to class members. 51 Id. 52 Id. 53 Id. 5 *Id. at*4. 55 Id. 14 settlement funds under the auspices of a legal doctrine known as cy pres, which allows for unclaimed funds held in trust to be put toward charitable purposes under certain conditions. The Fund was created and operated by Gallion, Cunningham, Mills, Bamberger, and Bamberger's close friend and investment partner, Mark Modlin, the "trial consultant" hired by Gallion. Mr, Chesley had never met Modlin prior to the Guard case. Unlike Gallion, Cunningham, Modlin and Bamberger, Mr. Chesley did not receive one cent from the Fund. There is no evidence, at all, that Mr. Chesley had any involvement in the creation of the Fund or obtaining Judge Bamberger's approval to transfer the remainder of the settlement funds to that Fund. There is no evidence that Mr. Chesley had any knowledge of the amount of money that Gallion and Cunningham were transferring to that Fund, with Judge Bamberger's approval. However, without any citation to the record, Bar Counsel painted Mr. Chesley as the mastermind behind the Funds' creation simply because one unreliable witness (Bamberger) claimed that Mr. Chesley allegedly mentioned the concept of the cypres doctrine to Judge Bamberger - and the Trial Commissioner accepted that allegation without question, and also without any citation to the record. Moreover, even assuming arguendo that Mr. Chesley mentioned the well accepted cy pres doctrine, that cannot make him responsible for the actions of G-C-M - and their legal advisors, Pierce Hamblin and Whitney Wallingford - creating and operating the Fund without any involvement of Mr. Chesley, at all. The genesis of the Fund apparently dates to February 2002, when Melbourne Mills learned that Gallion and Cunningham had lied to him about the total amount of the settlement.56 Mills confi'onted Gallion, who did not deny the lie, but assured Mills that there were remaining funds to be used in a second distribution.57 56 51 Tr. II, Mills, pp. 133-34. Id. at 173-75. 15 The Trial Commissioner takes it as fact, without citing to the record for support, that after this confrontation. Mr. Chesley, Gallion, Cunningham, and Modlin "paid a visit to Judge Bamberger in the jury room of the Boone Circuit Courthouse" on February 6, 2002, where the CO disposition of the undistributed funds was allegedly discussed. Only one person provided any testimony regarding what was said at that meeting and the role Mr. Chesley allegedly played. Gallion and Cunningham asserted their privilege and Modlin denied even being at the meeting. So, the Trial Commissioner can only be relying on Judge Bamberger's testimony in boldly finding "by a preponderance of evidence [Mr. Chesley] did attend this meeting and played a leading role in the presentation made to Judge Bamberger on that evening" by "argu[ing] the appropriateness of an application of the cy pres doctrine to dispose of 'extra' funds remaining" and making "an argument for an order approving attorneys' fees" and "cit[ing] factors from a case called Grinnell v. Detroit as governing the issue."59 Exalting Chesley from being present to playing the "leading role," and finding that Mr. Chesley made "an argument" for approving G-C-M,'s legal fees - without admitting that he is relying solely upon Judge Bamberger's questionable testimony, and completing failing to address Mr. Chesley's extensive argument concerning Bamberger's lack of credibility - is a quantum leap in logic on which to base a recommendation of permanent disbarment. As Bamberger has developed his story over the years, he has alleged that on February 6, 2002, he attended a meeting with Gallion, Cunningham, and Modlin in the courthouse's jury room at which they briefly discussed the cy pres doctrine and the Grinnell factors for awarding Report of Trial Commissioner, p. 11. Id. at 12 (emphasis added). 16 attorneys' fees. Judge Bamberger testified that Mr. Chesley attended this meeting as well, but Mr. Chesley has no recollection of doing so and Modlin strongly denies being there at all. While Mr. Chesley's alleged discussion of the application of the cy pres doctrine and the Grinnell factors is the keystone of both the KBA's case against him and the Trial Commissioner's findings, none of the assertions about his involvement at the alleged February 6 meeting are backed by believable evidence. Judge Bamberger, himself a subject of disciplinary proceedings, has an obvious incentive to testify that his rulings as to the cy pres doctrine and attorneys' fees were the results of an argument presented by one of the nation's most preeminent mass tort lawyers. Mr. Gallion and Mr. Cunningham did not testify in this action due to their ongoing criminal appeals. Mark Modlin denied being present at the February 6 meeting, and admitted that his testimony was unreliable due to his pain medications. ] Contrary to the Trial Commissioner's finding of fact that Mr. Chesley "played a leading role" in advocating the application of the cy pres doctrine, Bamberger never testified that Mr. Chesley spoke to him about the actual creation of a charitable trust with the remaining funds, stating only that Mr. Chesley discussed the cy pres "principle in general."62 Indeed, the Bamberger Order that the KBA claims was signed at the February 6 meeting - but which is dated February 15, 2002 and filed on June 6, 2002 - says absolutely nothing about cy pres or the creation of the Fund with excess settlement funds.63 The Trial Commissioner just lifted his finding from Bar Counsel's brief without any citation to the record. In fact, the Kentucky Fund was not created until July 31,2002, by an Order issued after a June 27a 2002 hearing at which only Gallion, Cunningham, Modlin, and an investment adviser Tr. II, Bamberger, pp. 454-55, attached hereto as Ex. G; Tr. II, Modlin, pp. 605-08; Tr. II, Chesley, p. 691. Tr. II, Modlin, pp. 641-42. 62 Tr. II, Bamberger, p. 458. 63 See KBA 81, attached hereto as Ex. H. 61 60 17 named Tay Robinson appeared. It is undisputed that Mr. Chesley was not present at this hearing.65 At the June 27 hearing, Gallion asked Bamberger for permission to use the residual funds for cypres purposes. 6 According to Judge Bamberger, sometime after Mr. Chesley's alleged discussion of the cy pres doctrine, Gallion suggested to him that they arrange for Pierce Hamblin (the mediator at the Guard mediation) to provide a formal opinion letter setting forth the reasons why the cy pres doctrine authorized Judge Bamberger to approve the creation and funding of the Fund. Mr. Hamblin sent the memo to Judge Bamberger before the June 27 hearing, and at that hearing Judge Bamberger discussed only Mr. Hamblin's legal research and opinion in announcing his decision that the creation of a cy pres trust was the appropriate way to handle the remaining funds.68 However, the Trial Commissioner never once mentioned the Hamblin memo. Instead, he simply accepted Bar Counsel's argument that Mr. Chesley had to be the mastermind behind the cypres fund. The evidence demonstrates that the Kentucky Fund was created as a way for Gallion, Cunningham, and Mills to continue taking the settlement funds for themselves while also taking care of Bamberger and their cohort Modlin. Tellingly, the transcript of the June 27 hearing reveals that Bamberger simply announced that Gallion, Cunningham, and Modlin would be the trustees, without ever being asked during the hearing to appoint them as such.69 Mills was later See KBA 245, attached hereto as Ex. I. See Bar's Post-Hearing Brief, pp. 38-39. 66 KBA 245, p. 6. 67 Tr. n , Bamberger, p. 506. 6g KBA 245, pp. 4-5. Specifically, Judge Bamberger stated at this bearing: "Ah, I read the research that Pierce Hamelin [sic] ah, did and forwarded to the court relative to the cy pres trust, and I'm certainly comfortable that's an appropriate handling of the res.. .residual funds." 69 Id 65 64 18 appointed a director at Gallion's request. Further, the Fund engaged attorney Whitney Wallingford, who had previously served as counsel to Gallion, Cunningham, and Mills, to serve as counsel to the Fund.71 A discussion of the creation of the Kentucky Fund also necessitates a look into the appointment of Modlin, a trial consultant hired solely to assist with bringing the Guard matter to trial, as President of the Fund. Modlin had longstanding close relationships with both Gallion and Bamberger, but had never met or worked with Mr. Chesley prior to the Guard case. Modlin had been working with Gallion on his cases with the University of Kentucky and Chandler Medical Center for over twenty years.73 It was Gallion who brought Modlin into the Guard case, promising him $2 million in fees if they achieved a good recovery.74 Modlin's close relationship with Bamberger stretched back to the 1980s. Bamberger was instrumental in arranging care for Modlin after he was involved in a serious accident, and the two remained friends through the fen-phen period.76 In fact, shortly after the Guard settlement, Modlin and Bamberger became investment partners, purchasing property in Gallatin County and a home in Florida.77 As a trial consultant for a case that was previously settled in May 2001, Modlin had little reason to appear at a June 27, 2002 hearing where the Fund was to be established other than perhaps as part of some type of agreement with Gallion and Bamberger. Tr. II, Bamberger, p. 507. Tr. I, Wallingford, p. 1064-65. Tr.II, Modlin, p. 581. Id. at 573. Id. at 582. After settlement, Modlin was paid over $2 million. Id. at 588. Id. at 569. Id. at 570-71. Id. at 623-24. 19 hi December 2003, Bamberger issued an order relinquishing continuing jurisdiction over the Fund. He then retired from the bench and was appointed a director of the Fund. Each of the directors received $5,000 per month as a salary with an additional $350 for expenses.79 Modlin, as the President, received an additional $1,500 per month in salary.80 Despite being formed in 2002, the Fund didn't receive any money until 2003 and did not actually make its first distribution until September 2004, when it began issuing grants (some of $100,000 or more) to organizations such as Baptist Life Communities, the Ludlow Independent Schools and Fire Department, the Crittenden County Board of Education, and various departments of the University of Kentucky and University of Louisville. There is no evidence that Mr. Chesley played even the smallest part in the Fund's creation, and it is undisputed that he never received a cent from the Fund. Third phase of the fen-phen scandal: the "second distribution". The third major phase of G-C-M's theft focused on the use of a "second distribution" of funds to individual plaintiffs as a way to cover-up the theft. According to Bar Counsel, this third phase also had its alleged genesis in the February 6, 2002 meeting. According to the KBA, that meeting with Judge Bamberger resulted in an Order, dated February 15, 2002 but not tiled until June 6, 2002, approving the manner in which the settlement proceeds had been handled to date, the attorneys' fees and expenses paid to date, and a second distribution to claimants.82 This KBA 139. Interestingly, these minutes of the June 25, 2004 meeting of the Fund's Directors state that Whitney Wallingford had researched the matter of Judge Bamberger's appointment and decided it would not be a conflict of interest for him to be appointed to the Board. 79 T r . n , Modlin, p. 628. 80 Id. 81 Tr. I, Wallingford, pp. 1114-1121; KBA 140. 82 See KBA SI. 20 Order did not, however, approve any identified amount of attorneys' fees or expenses, nor did it identify the amount of additional funds remaining for a second distribution. Mr. Chesley has never denied that he knew the Settlement Agreement would probably require the Settling Attorneys to hold back some hinds to ensure the settlement fund was not exhausted before all the individual claims were settled, which logically could result in a second distribution at some point in time. Prof. Hazard gave expert testimony that second distributions are common in litigations like Guard, and the fact that a second distribution was a possibility would not have been a "red flag" to Mr. Chesley or anyone in his firm. There is no credible evidence Mr. Chesley knew anything about the amount of the settlement that had been held back in the initial distribution, or about G-C-M's efforts to use the second distribution to cover up their initial theft. While Helmers testified that Mr. Chesley contacted him after this Order was issued, asking Helmers to assist in a second distribution, Mr. Chesley denies doing so. While Bar Counsel offers Helmers' testimony in this proceeding as truthful, in the proceeding in which Helmers is being disbarred Bar Counsel characterizes Helmers as a liar trying to blame others for his own misconduct.85 Bar Counsel called Mr. Helmers' testimony in his self-defense "well rehearsed and carefully crafted to repeatedly provide the caveat that virtually all of the actions he took in this case were at the specific direction of a senior attorney, usually Gallion or Chesley." He is the only witness who suggests even peripheral involvement by Mr. Chesley in the second distribution. Like Bamberger, Helmers has attempted to justify his action by claiming reliance on the Mr. Chesley, rather than 84 85 Tr. II, Hazard, pp. 1302-05; Stilz Depo., pp. 21-23. See Bar's Brief, KBA File 9342, Ky. Bar Ass'n v, Helmers, pp. 42-44, 69. Bar Counsel called Mr. Helmers' conduct "reflective of a defective conscience to an extreme rarely observed in attorney disciplinary cases." 21 taking responsibility for any of his own actions, and even Helmers did not testify that Mr. Chesley was involved in implementing the second distribution. The Trial Commissioner nevertheless states - again without any citation to the record that Helmers "received a letter from Respondent Chesley's office providing him with a document to show to each client and have them sign" for implementation of the second distribution. Report of Trial Commissioner, p. 13 (emphasis added). This is yet another sentence in the Report lifted directly from Bar Counsel's brief. Bar Counsel's careful choice of words - that the letter came from Mr. Chesley's office, not from Mr. Chesley personally - was obviously intended to imply that the letter was drafted in Mr. Chesley's office and that Mr. Chesley was aware of that fact. But both those inferences are false. In truth, an experienced attorney in his office had honored Helmers' request that she review and comment upon the letter drafted by Mr. Helmers, and she did not inform Mr. Chesley of those events. The Trial Commissioner completely ignores the uncontradicted testimony of Fay Stilz, the attorney in Mr. Chesley's office with 30 years experience, who testified that Helmers contacted her and asked her to assist him with a letter to the claimants regarding a second distribution because of her experience with class action litigation and settlement.87 Like the other attorneys in the firm, Ms. Stilz had not worked on the Guard action, and knew only that Mr. Chesley had been retained to negotiate a settlement with AHP on behalf of the other lawyers and that he had received a substantial attorney's fee for his contribution.88 According to Ms. Stilz, Helmers provided her a letter to edit which mentioned a second distribution and the creation of a charitable trust, neither of which raised any red flags to her Bar's Brief, KBAFile 9342, Ky. BarAss'n v. Helmers, p. 44. Stilz Depo., pp. 15-18,50. Id. ai 24, 45, 52. 22 because both are common in class action litigation. She did not spend much time editing the document nor did she make any final approval of the letter.90 Ms. Stilz did not inform Mr. Chesley when Helmers contacted her and she edited the letter as a favor to Helmers without Mr. Chesley's knowledge or direction.91 Further, Rebecca Phipps, Melbourne Mills' employee who worked on both distributions, specifically stated that she has no recollection of speaking to Mr. Chesley about the second distribution, and that her instructions on the second distribution came only from Helmers, Mills, and Gallion.92 Thus, there is no evidence that Mr. Chesley was involved in any way in the third andfinalphase of the theft. The United States Attorney has agreed that Mr. Chesley played no part in the first, second, or third phases of the fen-phen scandal. In June 2007, Gallion, Cunningham, and Mills were indicted by a federal grand jury for their roles in the fen-phen theft. Mr. Chesley, however, was never a target of the federal investigation because the United States knew that he had no involvement in the theft. During the course of Gallion and Cunningham's second criminal trial, United States District Court Judge Danny C. Reeves explicitly stated that he believed the evidence shows that Mr. Chesley was "duped" by Gallion and Cunningham. Specifically, Judge Reeves stated: . . . In relation to Mr. Chesley's testimony, there's no indication - first of all, he wasn't advised of how these clients or how much fees were actually being paid to the clients, his agreement with the attorneys was to split and to obtain a percentage of the total fees. There's no indication, at this point, that Mr. Chesley was aware of what the defendants were up to in terms of taking fees in the case.93 89 90 /i.at2I-24. Id. at 28, 89 91 Id. at 18. 92 Tr. n , Phipps, pp. 83-85. 93 Transcript in United States v. Gallion, No. 2:07-CR~Q039-DCR (Hon. Danny C. Reeves, DJ.) Relevant portions of this transcript are filed in the record as Ex. A to Respondent's Second Renewed Motion lo Stay Proceedings. 23 Further, the United States Attorney has long-stated that Mr. Chesley played no part in GC-M's scheme, stating at the second trial that it had never identified Mr. Chesley as a coconspirator in response to Gallion's attempt to characterize Mr. Chesley as an unindicted coconspirator so that he could testify as to matters that could only be admitted pursuant to exceptions to the hearsay rule.94 In its most recent Brief filed in Gallion's and Cunningham's appeals of their criminal convictions to the Sixth Circuit, the United States affirmatively asserted that Mr. Chesley did not participate in any of the activities for which Gallion and Cunningham were convicted, stating: . . . the evidence showed that he did not advise the defendants to engage in their misconduct. Chesley did not advise Gallion and Cunningham regarding what to tell their clients, nor did he tell them to withhold from their clients the amount of settlement, the number of others taking from the settlement, and the 95 per cent agreement provision. He did not advise them regarding how to determine the individual settlement amounts, or to conceal the terms of the side letter. He did not advise them regarding how to calculate the attorneys' fees or what type of accounts to use in handling the funds, nor did he tell them they should take their contingency fees off the total settlement amount and then go back to the court and ask for more. He did not tell them they could put the money in out-of-state accounts without their clients' consent. And he did not tell them they could use the money in the escrow account to buy vehicles and pay their employees . . . ,95 The United States Attorney's affirmative assertions make it clear that Mr. Chesley did not participate in any activities .for which he would have been criminally charged and did not do any of the things for which Gallion and Cunningham were convicted. Mr. Chesley's actual involvement post-settlement played no part in G-C-M's fraud. Nothing Mr. Chesley did do post-settlement contributed to G-C-M's theft in any way. In February 2003, Melbourne Mills was sued by his law partner David Stuart, who claimed he did 95 Id. Brief of the Plaintiff-Appellee United States, p. 31,fu7, United States of America v. Shirley Cimningham, Jr. and William Gallion, Nos. 09-5987, 09-5998, On Appeal from The United States District Court for the Eastern District of Kentucky, D.C. No. 2:07-CR-0039-DCR (Hon. Danny C. Reeves, D.J.). 94 24 not receive his fair share of the firm's legal fees, including fees from the Guard settlement. Mr. Chesley did contribute $250,000 to the settlement of that case in exchange for a release of any claims against Mr. Chesley for recoupment of any portion of the Guard fees paid to him, as did Gallion and Cunningham.97 Bar Counsel attempted in its Brief to make these transactions seem suspicious, stating that Mr. Chesley arranged for Rebecca Phipps to "secretly" contact him during the Stuart mediation if it looked like the parties were not going to settle.98 However, as set forth clearly in Mr. Chesley's Brief to the Trial Commissioner, no one testified that Ms. Phipps' call was secret nor did Bar Counsel provide any evidence that the communication was "secret." " But, Mr. Chesley's contribution was not a "secret" to anyone involved in the settlement negotiations. In fact, counsel for Mr. Mills knew prior to the mediation the amount which Mr. Chesley was willing to contribute to the settlement in order to procure his complete release from Stuart's claims to the legal fees in the Guard case.100 Yet, again, rather than considering all available evidence, the Trial Commissioner simply accepted Bar Counsel's attempt to paint this contribution as evidence of Mr. Chesley's involvement in a nefarious cover-up, without citing to any evidence for his findings.101 The far more plausible explanation for Mr. Chesley's involvement, and the one actually supported by the evidence, is that Mr. Chesley had a legitimate interest in buying peace against a possible action by Mills' law partner to recover fees he claimed to be owed from the Guard case, and to avoid Tx. II, Stuart, p. 431. The Trial Commissioner's report seems to insinuate that Stuart brought his suit against Mills prior to the alleged February 2002 meeting, and that in the course of this suit Stuart mentioned to Mills the true amount of the settlement (Report of Trial Commissioner, p. 11. Stuart testified that he did not bring suit until February 2, 2003. Tr. II, Stuart, p. 428. 97 Tr. II, Chesley, pp. 839-40. 98 Bar's Post-Hearing Brief, p. 41. 99 Ms. Phipps merely testified that she decided against calling Mr. Chesley on her cell phone in the middle of the mediation but instead "went out into the hallway and called him." Tr. n, Phipps, p. 77. 100 See Tr. II, Chesley, pp. 839-41. 101 Report of Trial Commissioner, p. 15. 25 96 getting dragged into "partner warfare." Indeed, there is no evidence that Mr. Chesley had any knowledge of the other attorneys' fraud and theft at that time. Over two years later, in May 2005, long after the second distribution had been made and the Kentucky Fund created, the Judicial Conduct Commission began an investigation of Judge Bamberger's relationship with Mark Modlin, including, but not limited to, the Guard case, hi August 2005, Mr. Chesley agreed to meet with Bamberger and appear at his informal hearing before the JCC. 103 However, Mr. Chesley did not attend the JCC meeting as counsel for Judge Bamberger, as Bar Counsel has suggested in the past. He appeared only to provide factual background, and was not sworn as a witness. There is no transcript of this hearing and Bar Counsel did not make any attempt to question Bamberger as to what happened at the hearing. The only evidence of what transpired at that hearing is Mr. Chesley's testimony in this proceeding. Accordingly, the Trial Commissioner's statement — which is plainly lifted from the Bar Counsel's Brief— that Mr. Chesley "apparently argued in support of Bainberger's application of the cy pres doctrine and establishment of the Kentucky Fund for Healthy Living", is entirely unsupported by the record.104 According to the only actual evidence of what transpired before the JCC, Mr. Chesley stated the following: (1) it was inappropriate for the lawyers who were appointed directors of the Fund to receive a fee; (2) it was inappropriate for Judge Bamberger to receive a fee for being a Tr. II, Chesley, pp. 839-41. M a t 922-27. 104 Report of Trial Commissioner, p. 16. Quite similarly, the Bar's Brief states: "He later attended that meeting before the JCC and presented his argument in support of Bamberger that the application of the cypres doctrine and the establishment of the Kentucky Fund for Healthy Living was appropriate." Bar's Post-Hearing Brief, p. 43. Bar Counsel cited Mr. Chesley's testimony in support of this statement, yet his testimony actually says no such thing. 103 102 26 director of the Fund; and (3) when he appeared before the JCC, he did not know that the directors of the Fund were receiving fees.105 Another year passed - making it five years after the settlement - before Mr. Chesley learned that he was being investigated by the Inquiry Commission. A year-and-a-half later, the KBA filed its original Charge against Mr. Chesley. ARGUMENT106 I. Bar Counsel failed to carry its burden of proving that Mr. Chesley possessed the full knowledge of all facts material to the criminal and unethical actions of the other attorneys, and knowingly assented to those acts. Mr. Chesley is therefore not guilty of ratification. In her opening Brief, Bar Counsel claimed that this entire disciplinary action was primarily about Mr. Chesley's ratification of G-C-M's initial theft after the fact. The Brief for Mr. Chesley extensively argued the well settled elements that the law of agency requires for a ratification. The Reply Brief for Bar Counsel did not reply, at all, to the ratification argument; presumably because they knew their evidence did not satisfy the elements of ratification. instead, their Reply stated only that they stood on their opening Brief as to ratification.108 In yet another example of the Trial Commissioner's unquestioning acceptance of Bar Counsel's argument, the Trial Commissioner's Report contains only a one-sentence, conclusory statement that Mr. Chesley is guilty of ratification.109 The Trial Commissioner did not even discuss the well settled legal principle that ratification requires proof of overt action to adopt the actions of another as one's own, done with full knowledge of the facts of those Tr. H, Chesley, pp. 924-26. The Trial Commissioner found no violation of Rule 1.7. Because this Charge was resolved in Mr. Chesley's favor, it is not being challenged on appeal. The KBA did not file a cross-appeal regarding the Trial Commissioner's findings with regard to Rule 1.7. 107 Bar's Post-Hearing Brief, p. 1. 108 Post-Hearing Reply Brief of Complainant, p. 2. 109 Report of Trial Commissioner, p. 25. 106 105 27 actions.110 The Report once again merely parroted the conclusory statements in Bar Counsel's brief.111 One can only wonder whether the Trial Commissioner even read Mr. Chesley's argument on ratification - even though, according to the KBA, that is what this case is primarily about. Rule 5.1(c)(1) states that a lawyer shall be responsible for another lawyer's violation of the Rules only if "the lawyer orders, or with knowledge of the specific conduct, ratifies the conduct involved." (emphasis added). A violation of Rule 5.1(c)(1) thus requires proof that Mr. Chesley took overt action to adopt the actions of Gallion, Cunningham, and Mills, as his own, and that he did so with full knowledge of the facts. The KBA failed to prove either requirement, and Bar Counsel carries the burden of proof. Proof of Mr. Chesley's fall and complete knowledge of the other lawyers' wrongdoing is an essential element under Rule 5.1(c)(1). The knowledge standard required for Rule 5.1(c)(1) is "actual knowledge," as defined by Rule 1.0(f). Thus, Mr. Chesley can be found in violation of this Rule only if there is proof that he had "actual knowledge of the specific conduct" of Gallion, Cunningham, Mills, and Helmers and that he was adopting it as his own conduct. This is consistent with the common law of agency, which holds that a principal is not bound by a ratification unless it is made with full knowledge of all of the material facts about the act of the agent.112 Rule 5.1(c)(1) also requires proof of an overt act demonstrating an intent to be bound by the consequences of the other lawyer's act The term used in Rule 5.1(c)(1) - "ratifies" - is a legal term of art with a well-settled meaning. Under long established principles of agency law, See Report of Trial Commissioner, pp. 25-26. Bar's Post-Hearing Brief; pp. 62-63. 112 See RESTATEMENT (THIRD) OF AGENCY § 4.06 (2006); see also generally Papa John's Int'l, Inc. v. McCoy, 244 S.W.3d44(Ky.2008). 111 110 28 "[ratification requires an objectively or externally observable indication that a person consents that another's prior act shall affect the person's legal relations."113 A person ratifies an act by manifesting assent that the act be considered his own. Mr. Chesley neither knew of G-C-M's theft of settlement funds nor took any overt action to ratify that theft as his own act. To the contrary, Mr. Chesley was one of many people misled by the fraudulent machinations of Gallion and Cunningham. Mr. Chesley had no reason to expect anything other than skilled work and fair dealing from an experienced and respected lawyer such as Bill Gallion. Rather than an actual finding of fact that Mr. Chesley ratified the acts of the other attorneys under the proper legal standard of ratification, the Trial Commissioner found that Mr. Chesley overtly assisted G-C-M in a "'cover-up' of their thievery."115 According to the Trial Commissioner, Mr. Chesley's participation in the cover-up is evidenced by his alleged attendance at and participation in the February 6, 2002 meeting, after which he became "counsel in chief'116 and "[fjrom 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." These findings, however, are not accompanied by any citation to the record in this case, and, in any event, do not support a finding of ratification with full and complete knowledge of the other lawyers' wrongdoing. Id. at 26. RESTATEMENT (THIRD) OF AGENCY § 4.01, cmt. d (2006). Id. at §4.01. Report of Trial Commissioner, p. 26. Id. at 25-26 (emphasis added). 29 A. There is no credible evidence showing how Mr. Chesley's alleged appearance before Judge Bamberger at the February 2002 meeting constituted a knowing ratification of G-C-M's fraud or his participation in a "cover up." The Trial Commissioner's finding of ratification plainly hinges on Mr. Chesley's alleged attendance at the February 6, 2002 meeting. However, there is simply no credible testimony regarding what was said at the alleged February 6, 2002 meeting with Judge Bamberger, and there is absolutely no evidence that Mr. Chesley had the requisite knowledge of all material facts of G-M-C's theft at the time of the purported meeting. Bar Counsel simply failed to carry their burden of proof. First, there is no videotape or transcript of the alleged meeting. Indeed, there is no docket entry or other record proving the event even occurred. Mr. Chesley does not recall attending the alleged meeting.118 Mark Modlin expressly denied attending any such "meeting" with Judge Bamberger outside the courtroom.119 Instead, Modlin insisted that he attended a hearing in open court, some time before June 27,2002, where his only memory is of Mr. Chesley mentioning the words "cy pres" and "Grinnell."120 Modlin's testimony conveniently corroborates his friend Judge Bamberger's theme of placing the blame on Mr. Chesley for the creation of the Fund and the approval of the attorneys' fees taken by G-C-M, while denying he was even present. The attempted corroboration fails, however, because Modlin emphatically characterized the meeting as a hearing in open court. However, courtroom hearings are recorded and there is no record of any such hearing. And Bar Counsel's allegation is that the February 6, 2002 meeting did not occur in the courtroom. Tr.H, Chesley, p. 691. Tr. H, Modlin, pp. 606-08. 120 Mr. Modlin also testified that Mr. Chesley asked him to come to that hearing with him, picked him up, and they rode together with Mr. Chesley's driver. Tr. II, Modlin, pp. 609-610. Mr. Chesley has no recollection of ever doing so. Tr. II, Chesley, p. 865. Later in his testimony, Mr. Modlin admitted that he could not say which hearing he rode to with Mr. Chesley and did not know either the date or the circumstances. Tr. n , Modlin, p. 641. 119 118 30 Modlin later admitted that he did not remember the date of any hearing he had testified to, nor did he remember what was said at any of the hearings, due to the pain medications he takes daily as a result of a significant spinal cord injury he sustained over twenty years ago. Accordingly, the KBA's only proof on this issue was the discredited testimony of Judge Bamberger, and it was the only testimony on which the Trial Commissioner could have based his findings. But as Judge Bamberger has run the gauntlet of the Judicial Conduct Commission and his own disbarment proceeding, he has had ample time to develop a version of events that tries to shift blame for his misconduct to others, especially Mr. Chesley. He told the Judicial Conduct Commission that there had been no motions filed or hearings held regarding the fees and expenses.122 His conflicting recollection years later of matters that were uneventful at the time, shaped into a narrative intended to exonerate him, is simply not trustworthy. Further, the emphasis the Trial Commissioner places on the February 6, 2002 meeting requires proof not just that Mr. Chesley attended the meeting but, more importantly, proof as to what Mr. Chesley allegedly said at the meeting. The Trial Commissioner's Report accepted several incorrect premises presented by Bar Counsel in finding that Mr. Chesley's actions at the February 2002 meeting constituted participation in the "cover up."123 First, the Trial Commissioner found that Mr. Chesley "argued" to Judge Bamberger "that the Grinnell case provided legal authority justifying attorney's fees totaling 49% of the total recovery of $200 million."124 Second, the Trial Commissioner found that Mr. Chesley provided Bamberger "a written memorandum arguing the application of the cy pres doctrine to create a charitable Tr. II, Modlin, p. 642. Due to his injures, Mr. Modlin has been taking medication for pain management for 23 years. Id. at 632. He explained that the medications have impacted his memory and that he has a difficult time conceptualizing or remembering dates. Id. at 634-35. 122 KBA 2853. 123 This is also discussed in Section IV below, which discusses the Trial Commissioner's incorrect findings that Mr. Chesley violated Rules 3.3(a) and 8.1(c) by making various alleged misrepresentations to Bamberger during the course of the Guard action and to Bar Counsel in the course of her investigation. i24 Report of Trial Commissioner, p. 23 (emphasis added). 31 121 fund." 125 Third, the Trial Commissioner found that Mr. Chesley "discussjed] the second distribution" at this meeting.126 None of these findings is supported by any citation to the record. The only evidence in the record of what was said at the meeting comes from Judge Bamberger. Even if he were a credible witness, the transcript of Bamberger's testimony in this hearing does not support the Trial Commissioner's finding that Mr. Chesley argued that the Grinnell factors justified "attorney's fees totaling 49% of the total recovery of $200 million."127 Again, the Report merely regurgitates Bar Counsel's Brief. The Trial Commissioner cites to nothing in the record in support of this statement - because there is none. Not a single witness testified that Mr. Chesley stood in firont of Judge Bamberger and said "Judge, you can authorize attorney's fees of 49% of the total award in this case using Grinnell.''' Judge Bamberger certainly did not testify that Mr. Chesley told him to authorize attorney's fees of 49%. Bamberger's testimony describes only a purported conversation with Gallion about the fees.128 The Trial Commissioner did not cite anything in the record that tends to show, in any way, that in February 2002 Mr. Chesley had any idea how much money G-C-M had withheld ostensibly as attorneys' fees. Instead, he speculates that "Chesley had to have learned that the settlement fund had not been properly administered and distributed to the clients . . . ." I29 Further, neither Bar Counsel nor the Trial Commissioner provided any authority to support the argument that Mr. Chesley's alleged legal interpretation of the Grinnell factors was so incorrect that it proves he played a part in the cover-up of G-C-M's fraud. In actuality, the Id. (emphasis added). Id. at 24. Id. at 23. Tr. II, Bamberger, p. 505. Report of Trial Commissioner, p. 25. 32 Grinnell factors are still regularly employed by courts today. Mr. Ken Feinberg - who administered the 9/11 fund and is administering the BP oil spill settlement - gave expert testimony that decertification of the class does not affect the Court's supervisory control over the aggregate settlement and the award of attorney's fees, and the Grinnell factors were appropriate for consideration in the Guard litigation.131 Mr. Feinberg also testified that in a class action, and in a decertified class action over which the court retains control, the court can trump private attorney fee contracts in determining the aggregate benefit to all class members performed by class counsel.132 The Grinnell factors are actually "a fairly decent blueprint to guide the court in reviewing fees" and have been employed by the courts in each circuit in setting the applicable attorney's fee, adjusted for emphasis on what factors each circuit deems important.133 This expert testimony was not disputed by Bar Counsel's expert. There is also no evidence that Mr. Chesley provided Judge Bamberger "a written memorandum arguing the application of the cy pres doctrine to create a charitable fund."134 Judge Bamberger testified only that cypres was mentioned in passing.135 Moreover, discussing a well recognized legal doctrine hardly constitutes a knowing ratification of G-C-M's theft. Bar Counsel emphasized this alleged memorandum because it is the sole basis for their contention that Mr. Chesley was responsible for the creation of the Fund. But, as set forth above, there is no evidence that Mr. Chesley had any involvement in the Fund's creation or operation. The Trial Cornrnissioner's uncritical acceptance of the argument in Bar Counsel's brief - without any citation to the record - is unsettling. See McReynolds v. Richards-Cantave, 5S8 F.3d 790, 804 (2d Cir. 2009); In re Lupron Mktg. & Sales Practices Litig., 228 F.R.D. 75, 93-94 (D. Mass. 2005); In re Greenfield Online Sec. Litig., 2008 WL 4640680, *5 (D. Conn. Oct 20, 2008). 131 Tr. n , Feinberg, p. 1082. U2 Id. at 1081. 533 Id. at 1082. 134 Report of Trial Commissioner, p. 23. 135 Tr. II, Bamberger, p. 458. 130 33 First, Mr. Chesley has no recollection of providing a cy pres memorandum to Judge Bamberger, or advocating that Judge Bamberger apply it in the Guard case. Instead, he recalls providing Gallion a copy of an interoffice memorandum discussing the doctrine generally, citing a separate, unrelated case in which remaining settlement funds were used to purchase a fire engine.137 It is undisputed that Gallion actually arranged for Pierce Hamblin to provide a formal opinion letter to Judge Bamberger on his authority to create The Kentucky Fund Healthy Living pursuant to the cy pres doctrine.138 Bamberger relied on Mr. Hamblin, not Mr. Chesley, when creating the Fund.139 It is undisputed that Mr. Chesley was not present on June 27,2002, when Judge Bamberger approved transferring the remaining settlement funds to the Fund. Second, even Judge Bamberger's testimony in this proceeding does not support the Trial Commissioner's conclusion. According to Bamberger, Mr. Chesley handed him a memo that "might have been on Mr. Chesley's letterhead."140 Bamberger recalls that Mr. Chesley spoke about the cy pres "principle in general" and told him "some of the other cases that he was involved in where there was excess money and it was used for charitable purposes."141 He testified that Mr. Chesley handed him a copy of the Grinnell factors but never testified that Mr. Chesley alone advocated their use, much less advocated approval of a 49% legal fee. 2 Bamberger later testified that he received the Grinnell factors from "Mr. Chesley or one of the attorneys."14 And, he stated "ftjhey certainly were arguing that the Grinnell factors were controlling or significant or ought to be tire criteria, and they made sense to me"144 Tr. II, Chesley, p. 691. Id. at 694-98. m Tr. II, Bamberger, p. 506, attached as Ex. G. 139 KBA245. 140 Tr. H, Bamberger, p. 457. 141 Id. at 458. 142 See id. at 458-59, attached as Ex. G. 143 Id. at 504, attached as Ex. G. 144 Id. at 459. 137 136 34 Third, the evidence does not even support Bamberger's testimony or the Trial Commissioner's "findings." The primary discussion of the cy pres doctrine and the establishment of the Fund actually took place months later at the June 27, 2002 hearing, a fact which the Trial Commissioner wholly ignored.145 At that hearing, Judge Bamberger expressly stated that he had read Pierce Hamblin's research regarding cypres, leading him to believe it was an appropriate way to handle residual funds.146 It is undisputed that Chesley was not at the June 27 hearing. Finally, the Trial Commissioner's unsupported finding that Mr. Chesley discussed the second distribution at the February 2002 meeting is simply lifted from the Bar's Brief. The KBA claimed, without a shred of evidentiary support, that Mr. Chesley asked Bamberger to approve a second distribution in the February 2002 meeting, which is particularly distressing because not even Bamberger nor Modlin testified that Mr. Chesley spoke to Bamberger about the second distribution. The Trial Commissioner simply chose to ignore this fact, which was set forth in Mr. Chesley's brief, and to just parrot Bar Counsel's Brief.147 Indeed, there is no evidence that Mr. Chesley participated in the second distribution in any way, let alone in any manner that could constitute a ratification of G-C-M's theft. Mr. Chesley did not "call[] David Helmers asking him to assist in the second distribution" as the Trial Commissioner asserted.148 The only suggestion in the record that Mr. Chesley may have had any commumcation with the Guard attorneys concerning the second distribution is Helmers' assertion that Mr. Chesley asked Helmers to handle that distribution. The Trial Commissioner See KBA 245. Id. Respondent's Post-Hearing Brief, p. 50. Report of Trial Commissioner, p. 24. 35 must be relying on the Bar Counsel's interpretation of Helmers' testimony for this finding, although he failed to cite to the record. Helmers" testimony is simply not credible. Indeed, Bar Counsel attacked his credibility in Helmers' own disbarment proceeding,149 calling his testimony in that case "well rehearsed and carefully crafted to repeatedly provide the caveat that virtually all of the actions he took in this case were at the specific direction of a senior attorney, usually Gallion or Chesley." Bar Counsel went so far as to call Mr. Helmers' conduct "reflective of a defective conscience to an extreme rarely observed in attorney disciplinary cases." Yet this is the man the Trial Commissioner placed absolute reliance upon with regard to his claim that Mr. Chesley asked him to oversee the second distribution. Mr. Chesley himself testified that he did not direct Mr. Helmers on how to conduct the second distribution.152 Other evidence (and the lack thereof) supports Mr. Chesley's version of events, as opposed to the previously discredited Helmers.153 Mr. Chesley's associate Fay Stilz testified that Hehners, not Mr, Chesley, asked her if she could help simplify a distribution letter on which he was working for a second distribution in the fen-phen litigation.154 Given her experience in numerous complex mass torts, she did not find it unusual that Mr. Helmers was seeking her assistance.155 Ms. Stilz did not create the letter—she edited what she was provided by Helmers into a general form that could be understood by a layperson.156 Mr, Chesley did not 149 150 151 152 M a t 44. See Bar's Brief; KBA File 9342, Ky, BarAss'n v. Helmers, pp. 42-43. Id. at 69. Tr. H, Chesley, pp. 814, 875. 1 See, e.g., Tr. II, Phipps, pp. 83-85 (Rebecca Phipps' testimony that Mr. Chesley was not involved). 154 Stilz Depo., pp. 15-16. 155 Id. at 7-9, 50. 156 Id. at 17. 36 ask Ms, Stilz to work on the letter, and she never told Mr. Chesley that she had assisted Mr. Helmers.157 Helmers never refuted Ms. Stilz' account of these events. Mr. Chesley played no part in planning or implementing the second distribution and did not communicate with any of the Guard attorneys on the subject. Moreover, there is absolutely no evidence that Mr. Chesley had actual knowledge of the specific conduct of Gallion, Cunningham, Mills and Helmers at the time of the purported February 2002 hearing, as required for a finding of ratification under Rule 5.1(c)(1).158 Contrary to the Trial Commissioner's assertion that Mr. Chesley "had to have learned that the settlement fund had not been properly administered . . . when he learned after Mills' confrontation with Cunmngham that a second distribution would be required,"159 there is no evidence Mr. Chesley knew the amounts distributed (or undistributed) to the Guard plaintiffs, or the amounts Gallion and Cunningham had stolen. Thus, even assuming the meeting occurred, there is no evidence that, by merely attending the meeting, he overtly indicated that he fully knew and intended to be bound by the consequences of the G-C-M's theft.160 B. Bar Counsel failed to carry the burden of proving that Mr. Chesley's alleged participation in other events constitutes "after the fact" ratification under the applicable standard. The Trial Commissioner's Report also uncritically adopted Bar Counsel's argument that Mr. Chesley participated in the cover-up (and thereby ratified all of the conduct of all of the Id. at 18. Ms. Stilz' testimony also demonstrates the flaw in the Trial Commissioner finding that Mr. Chesley's responses to Questions 17 and IS, wherein he stated neither he nor any employee of his firm had any comimmication with the other Guard attorneys about a second distribution and that neither he nor any employee of his firm drafted documents relative to a second distribution of funds. KBA 270. The evidence shows that Mr. Chesley had no knowledge of Stilz' communications with Helmers. He was unaware that she, at Helmers* request, edited the letter that was sent to claimants regarding the second distribution. Ms. Stiiz had not told Mr. Chesley about her assistance. Stilz Depo., pp. 17-18. The KBA offered no proof to the contrary and the Trial Commissioner certainly did not cite any such proof. 153 See Rule 1.0(f). 159 Report of Trial Commissioner, p. 25. iM RESTATEMENT (THIRD) OF AGENCY §§ 4.01,4.06 (2006). 37 other attorneys involved in Guard) because he: (1) attended meetings regarding the settlement of David Stuart's suit against Melbourne Mills and contributed money toward the settlement; (2) allegedly reviewed documents prepared by Whitney Wallingford to send to the KBA that were later determined to be inaccurate; and (3) spoke at one of the Judicial Conduct Commission's hearings on Judge Bamberger.161 However, none of these claimed events constitute "after the fact" ratification under the applicable legal standard, much less evidence that Mr. Chesley was directly involved in "orchestrating" the concealment of G-C-M's theft. 1. Bar Counsel failed to carry its burden of proving that Mr. Chesley contributed to the David Stuart settlement with actual knowledge of G-C-M's fraud. Mr. Chesley's contribution to the settlement in the fee dispute between Mills and his former partner David Stuart was in no way a ratification of G-C-M's fraud in the Guard settlement allocations. Indeed, there is no evidence that Mr. Chesley had actual knowledge of the scheme employed by Gallion, Cuiiningham, Mills and Helmers at the time he agreed to contribute to the David Stuart settlement Simply contributing to the fee dispute settlement in no way overtly affirmed or ratified GC-M's theft. Mr. Chesley contributed $250,000 to the settlement because Stuart sought to recover attorneys' fees from the fen-phen litigation and, without a release, Stuart potentially could sue Mr. Chesley to recover a portion of those fees he received, or Chesley could be thirdpartied into a lawsuit between Mills and Stuart if that case failed to settle.162 Compare Report of Trial Commissioner, pp. 25-26 to Bar's Post-Hearing Brief, pp. 62-63. Tr. H, Chesley, pp. 839-41; see also pp. 21-22, supra. The memorandum of the Stuart settlement reflects this idea, specifically stating "[bjecause Stuart has been informed that one or more of the other attorneys who participated in the pharmaceutical class action are contributing to the amount which will be paid to Stuart in settlement of this action Stuart is willing to give releases to all of the other attorneys participating in that action." Tr. n , Ballantine, p. 546-47. 162 38 Indeed, absolutely nothing in the record supports an inference that the settlement was part of an effort to cover up the other lawyers' theft from the Guard plaintiffs. Whitney Wallingford testified that counsel for Mr. Mills, Bill Johnson, originated the idea of a contribution to the settlement by Chesley.163 Similarly, Mr. Chesley testified that Bill Johnson suggested the idea of contribution and encouraged Mr, Chesley do so in order to obtain a release from Mr. Stuart. Mr. Stuart testified he required additional consideration before giving those releases.165 None of this testimony establishes that Mr. Chesley had actual knowledge of the other attorneys' specific illegal acts, or that contributing to this settlement manifested Mr. Chesley's assent to those acts as his own.156 Paying adequate consideration for a release from Stuart did not ratify everything Gallion and Cunningham had done. 2. Bar Counsel failed to carry its burden of proving that Mr. Chesley approved documents sent to him by Whitney Wallingford with actual knowledge that the documents were factually inaccurate, and as part of a cover-up of G-C-M's theft. Bar The evidence likewise fails to support the Trial Commissioner's acceptance of Counsel's claim that Mr. Chesley ratified the other lawyers' misconduct by allegedly approving a supplemental subpoena response submitted by attorney Whitney Wallingford on behalf of Gallion, Qinningham and Mills.167 Although no record citations were provided by Bar Counsel nor supplied by the Trial Commissioner, this claim presumably refers to KBA Exhibit 134, a spreadsheet purporting to show distributions to the Guard plaintiffs that was prepared by attorney Whitney Wallingford.168 Mr. Chesley denies that he ever received or reviewed the Tr. I, Wallingford, p. 109S. Tr. II, Chesley, pp. 839, 842. Tr.H, Stuart, p. 434. Rule 1.0(f); RESTATEMENT (TfflRD) OF AGENCY §§ 4.01,4.06 (2006). See Bar's Post-Hearing Brief, p. 62; Report of Trial Commissioner, p. 26. Tr. I, Wallingford, p. 1081. 39 supplemental response.169 Mr. Wallingford's testimony is the only suggestion that Mr. Chesley even saw the response before it was submitted to the KBA, 17° and Wallingford did not allege that Mr. Chesley knew the spreadsheet was inaccurate. Indeed, there is no evidence, at all, that Mr. Chesley knew the spreadsheet was inaccurate. Either Gallion or his accountant David Price supplied Mr. Wallingford's office with apparently inaccurate information.171 Even assuming, for the sake of argument, that Mr. Chesley did review Mr. Wallingford's transmittal letter to the KBA, Mr. Chesley most certainly had no reason to know that the information provided by Mr. Wallingford in the enclosed spreadsheet was inaccurate, any more than Wallingford knew the information supplied to him by Gallion was inaccurate. And without knowledge of the inaccuracies in the supplemental response, Mr. Chesley could not have overtly indicated that he fully knew and intended to be bound by the consequences of G-M~C's theft. 3. Bar Counsel failed to carry its burden of proving that Mr. Chesley's attendance at Jndge Bamberger's JCC hearing was with actual knowledge of G-C-M's fraud. Mr. Chesley's appearance at one of Bamberger's several Judicial Conduct Commission hearings cannot demonstrate a ratification of Cunningham's and Gallion's theft. The Trial Commissioner again accepted Bar Counsel's substitution of conjecture for proof, and failed to cite any credible evidence that would support a finding of ratification. First, there is a total failure of proof that Mr. Chesley had actual knowledge of the misconduct of Gallion and Cunningham at the time of Judge Bamberger's JCC proceeding. This by itself defeats a ratification charge. 111 Tr. H, Chesley, pp. 817, 898. Tr. I, Wallingford, p. 1087. 171 Id, at 1073,1075-76. 170 m RESTATEMENT (THIRD) OF AGENCY §§ 4.01,4.06 (2006). 40 Second, there is simply no specification in the Report of what overt act Mr. Chesley might have taken at the JCC proceeding to adopt or endorse Gallion and Cunningham's misconduct. There is no transcript of that hearing. Mr. Chesley merely met with Judge Bamberger in advance of his second informal appearance before the Judicial Conduct Commission and spoke as an unsworn witness at that informal hearing. Bar Counsel implied that Mr. Chesley .was counsel for Bamberger at the hearing, asserting that Mr. Chesley "presented his argument" to the JCC in support of the application of the cy pres doctrine to the Guard settlement.174 But Bar Counsel cited only Mr. Chesiey's own testimony in this proceeding (pages 924-928) to support that proposition, and that testimony simply does not support the Trial Commissioner's finding.175 Significantly, Bamberger did not provide any testimony at Mr. Chesiey's hearing as to what was said at the JCC hearing - Bar Counsel did not even make that inquiry of him, presumably because Bar Counsel knew Bamberger would not support their allegation. In sum, the KB A failed to meet its burden of proof with regard to ratification under Rule 5.1(c)(1), yet the Trial Commissioner not only found that Mr. Chesley ratified the conduct of GC-M but also that he played a leading role in the cover-up of their theft. These findings are totally unsupported by the record, and Trial Commissioner's conclusions must therefore be vacated. T r . n , Chesley, p. 922. Bar's Post-Hearing Brief, p. 43. 175 See Tr. IE, Chesley, pp. 924-28. Mr. Chesley offered only the following opinions in response to the KBA's very few questions on this topic: (1) it was inappropriate for the lawyers who were appointed directors to the Fund to receive a fee; (2) it was inappropriate for Judge Bamberger to receive a fee for being a director of the Fund; and (3) when he appeared before the JCC, he did not know that the directors of the Fund were receiving fees. See Tr. JJ, Chesley, pp. 924-26. 174 173 41 II. The Rules of Professional Conduct expressly allow a division of labor among counsel, Mr. Chesley appropriately relied upon other lawyers to communicate with the Guard plaintiffs and therefore did not violate Rules 1.5(c), 1.5(e), and 1.8(g). Despite the Trial Commissioner's unsupported findings to the contrary, it is axiomatic that a team of attorneys may ethically divide their responsibilities to the clients on a particular matter, which may include allocating the responsibility for communicating with the lawyers' clients (including communications required by Rules 1.5(c) and 1.8(g)) to only some of the lawyers. In fact, Bar Counsel's expert witness conceded as much.17 Professor Erichson specifically testified that it was not unethical for Mr. Chesley to allocate the duty to communicate with the clients to Cunningham and Mills, the lawyers who had the agreements with the clients.177 Bar Counsel nevertheless argued that Mr. Chesley "had an obligation to determine that [communication] was being done by somebody on the team," yet Professor Erichson expressly refuted that, saying: '1 think that goes too far."179 He testified that those lawyers' failure to adequately inform the clients pursuant to Rule 1.8(g) does not become an ethical issue for Mr. Chesley unless he ""knows of the conduct and ratifies i t . . . ."18° Thus, in finding that Mr. Chesley violated Rules 1.5(c), 1.5(e), and 1.8(g) by his alleged failure to communicate with the Guard plaintiffs, the Trial Commissioner simply ignored the undisputed expert testimony demonstrating that the communication responsibilities were Instead, the Trial expressly, and properly, allocated to lawyers other than Mr. Chesley. Commissioner determined, without citation to the record or any supporting law, that the Tr. II, Erichson, pp. 1176,1195-96, 1220-21, attached hereto as Ex. J. Id. at 1195,1220. Tr. H, opening statement, p, 728. Tr. n, Erichson, p. 1220. Id. at 1195. 42 claimants were Mr. Chesley's clients to whom he personally owed nondelegable duties of providing information and communication. The Trial Commissioner's finding basically advocates a sea change in the field of mass torts. It is a long-standing and well-established practice for plaintiffs* lawyers to seek help in settling complex cases by retaining other lawyers who have expertise in mass tort settlement negotiations. The expert negotiators have no contact with the plaintiffs, and the plaintiffs typically do not know that the expert negotiators are involved in the case. The Trial Commissioner simply accepted the KBA's characterization of Mr. Chesley's violation of these Rules, finding that Mr. Chesley violated Rules 1.5(c), 1.5(e), and 1.8(g) because (1) his fee should have been calculated from the total recovery of each individual client based upon the contractual percentage agreed to by that client; (2) he had an obligation to communicate to the clients about, and obtain their informed consent to, the agreement among the lawyers dividing the labor and the fees; and (3) he failed to inform the clients of the foil terms of the aggregate settlement. Indeed, portions of the Trial Commissioner's Report on this point are essentially lifted directly from the Bar's Brief.183 First, the evidence and expert testimony demonstrate that Chesley was actually working for the other lawyers, not the Guard plaintiffs, and that those lawyers, not the plaintiffs, were actually his clients, which would negate any independent duty of communication. The evidence See Report of Trial Commissioner, p. 20 ("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."); p. 22 {"He was class counsel pursuant to bis agreement with Cunningham, Gallion and Mills. Chesley was fully aware that his clients had not been informed concerning the setdement at the time the agreement was reached and afterward."). 182 This was the case, for example, when Mr. Chesley negotiated a proposed settlement in the Bendectin litigation. See Richard L. Marcus, Reexamining the Bendectin Litigation Story, 83 Iowa L. Rev. 231, 251 (1997). As Professor Miller testified, to require negotiators like Chesley to contact each individual plaintiff would essentially preclude them from doing their jobs. Tr. H, Miller, pp. 1360-61. 183 Compare Bar's Post-Hearing Brief, p. 51 with Report of Trial Commissioner, p. 19. 43 clearly shows that Mr. Chesley was hired - by the other lawyers - for the sole purpose of negotiating the Guard settlement. Mr. Chesley's role in the Guard case was created and expressly defined by his agreement with the other lawyers. He did not have a contract with any of the plaintiffs.184 He never filed an entry of appearance in the Guardcase. An attorney-client relationship is created either by contract or by a client's reasonable belief that the lawyer is undertaking to represent the client.185 Here, the Guard plaintiffs had no knowledge of Chesley's work on their behalf, and thus no reasonable belief that he was representing them.186 relationship. 1S7 Second, Mr. Chesley's agreement with the other lawyers created a clearly delineated division of labor among the lawyers that is entirely permissible under the Rules. Gallion was lead counsel throughout the Guard case, including responsibility for trying the case if it did not settle. Mills and Cunningham were responsible for communicating with clients.18a Mr. Chesley was hired—by the other lawyers - for the sole purpose of settlement negotiation. had no other responsibilities undex his contract with the lawyers.190 Mr. Chesley Without that reasonable belief, there could be no attorney-client And Mills and Cunningham's contracts with their clients contained a provision expressly permitting Cunningham and Mills to engage the help of additional counsel if they found such assistance to be necessary.191 KBA 148; Vardaman Depo., pp. 48-49; Tr. II, Mills, pp. 157-58; Tr. H, Chesley, p. 680. See Lovell v. Winchester, 941 S.W.2d 466, 468 (Ky. 1997). 186 See, e.g., Tr. I, Curtis, pp. 83-87; Henderson, pp. 129-32; McGirr, pp. 167-70; Carman-Staton, pp. 201-02; Fannin, pp. 242-44; Centers, p. 279; Ford, pp. 308-09; Turner, pp. 345-46; Peace, pp. 389-92; Miller, pp. 433-34; Stephenson, pp. 471-72; Bowman, p. 517; Hoover, p. 546; Coots, pp. 586-88; Baldwin, p. 630; McMurtry, pp. 66263. 187 Lovell, 941 S.W. 2d at 463 388 KBA 148. 189 Tr. II, Chesley, p. 764. 190 Tr. U, Chesley, pp. 680, 766-68; KBA 148. 191 Tr. II, Hehners, p. 362. 185 134 44 The Settlement Agreement likewise assigned the responsibility of client communication to attorneys other than Mr. Chesley. Under the Settlement Agreement, only the "Settling Attorneys" undertook the responsibility to communicate with the clients in accordance with Rule 1.8(g).392 The agreement expressly identified the "Settling Attorneys" as Mr. Gallion, Mr. Mills, Mr. Cunningham, and Mr. Lawrence.193 Mr. Chesley was neither a "settling attorney" nor a signatory to the settlement agreement.194 In fact, AHP's counsel John Vardaman specifically testified that he - like Chesley - assumed the attorneys who signed the agreement would comply with Rule 1.8(g).195 Vardaman did not view the plaintiffs as Mr. Chesley's clients. In his view, Mr. Chesley was "simply working with the Kentucky lawyers."196 Bar Counsel's own expert conceded that this was a perfectly reasonable division of labor, yet another fact which the Trial Commissioner failed to address.197 The division of labor among the lawyers settling the Guard litigation was entirely ethical, as Bar Counsel's expert witness conceded. Mr. Chesley's sole role in the Guard case was to negotiate the monetary terms of the settlement with AHP. Accordingly, the Trial Commissioner's finding that Mr. Chesley violated Rules 1.5(c), 1.5(e) and 1.8(g) must be reversed. Tr. I, Schaefer, p. 955; KBA 6. KBA 6; Tr. I, Schaefer, p. 954-55. 194 KBA 6; Tr. H, Erichson, p. 1197; Tr. II, Chesley, p. 972. 193 Vardaman Depo., p. 93 196 Id. at 49. Also, the KBA initially falsely stated that Mr. Chesley signed the Settlement Agreement, presumably because the KBA knows that only those signatory, settling attorneys with claimant clients had any obligation to comply with Rule 1.8(g). See Bar's Post-Hearing Brief, p. 54. la amended page 54, the KB A claimed only that Mr. Chesley read the Settlement Agreement, implicitly conceding he was not a party to that agreement 197 Tr. II, Erichson, p . 1176, attached as Ex. I 193 192 45 III. Bar Counsel failed to carry its burden of proving that Mr. Chesley made the alleged misrepresentations to tribunals with the requisite knowing falsity so as to find him guilty of misconduct under Rules 3.3(a), 8.1(a), and 8.3(c). The Trial Commissioner plainly ignored Mr. Chesley's arguments in response to the charges under Rules 3.3(a), 8.1(a), and 8.3(c). In addition to failing to cite to the record, he did not address any of Mr. Chesley's principal responses to the KBA's charges. Rules 3.3(a) and 8.1(a) provide that any actionable misrepresentation must be "knowingly''' made by an attorney, which "denotes actual knowledge of the fact in question."198 An examination of the KBA's charges, and the evidence actually in the record concerning these charges, reveals that Bar Counsel failed to meet its burden of proving (i) that each statement was false and (ii) that Mr. Chesley had actual knowledge of its falsity at the time it was made. Indeed, Bar Counsel repeatedly attempted to prove the claims by resorting to paraphrasing Mr. Chesley's alleged rnisstatements., rather than identifying a specific statement that could be directly proven to have been made with knowing falsity. And, Bar Counsel characterized statements of legal opinion (on questions as to which experts in the field reasonably disagree) as misstatements of fact. A. Rule 3.3(a) and the alleged misrepresentations made to Judge Bamberger during the course of the Guard action. The Trial Commissioner's "findings" with regard to Rule 3.3(a) are unsupported by any record citations and are only a parroting of Bar Counsel's Briefj which paraphrased purported statements of Mr. Chesley to Judge Bamberger in 2002.199 Bar Counsel's Brief alleged: Rule 1.0(f) (emphasis added). The KBA's charge with regard to Rule 3.3(a) specifically identified three statements allegedly made my Mr. Chesley in the course of the Abbott action. Mr. Chesley provided a lengthy and vigorous defense to these alleged statements. However, the Trial Commissioner issued no findings regarding the alleged Abbott statements. As such, Mr. Chesley assumes that the issues regarding these three statements were resolved in his favor and they are not being challenged on appeal. The KBA did not file a cross-appeal as to the Trial Commissioner's findings with regard to these three alleged misstatements. 199 !yH 46 • "He appeared before Judge Bamberger in 2002 and argued that the Court was entitled under the Grinnell case to authorize fees of 49%, when he knew that the Court had no such jurisdiction and that the settlement was an aggregate settlement of a group of 440 claims."200 "[H]e provided a written memorandum of law and argued to the Judge that the cy pres doctrine could and should be used by the Court to create a charitable fund with what he described as 'extra' settlement funds, knowing that the doctrine had no proper legal application to the aggregate settlement in the Guard case." "Knowing that the Guard class had received no notice of the settlement, he informed the Court that because they had never been notified of anything previously there was no need to notify absent class members that their counsel had agreed to decertify the class. He said there was no need to tell them he was asking the Court to dismiss their claims so that their attorneys could enter into a massive settlement on behalf of their identified contracting clients."202 As detailed above, Bar Counsel failed to provide — and the Trial Commissioner failed to • • cite - any credible evidence that most of these purported "statements" were actually made, much less that Mr. Chesley made them with the requisite knowing falsity. Further, in finding that Mr. Chesley violated the Rule by (1) attending the February 2002 meeting with Judge Bamberger and arguing for the application of the Grinnell factors; (2) providing "a written memorandum arguing the application of the cy pres doctrine to create a charitable fund" although the doctrine "clearly had no proper legal application to the aggregate settlement"; and (3) "argu[ing] to Judge Bamberger that no notice was needed to the class members of the agreement to settle the case and decertify the class" while "knowing full-well that his clients had neither been informed of the settlement nor had given their consent",203 the Trial Commissioner ignored the fact that all three paraphrases are legal argument, not statements of fact. The lack of credible testimony regarding what was allegedly said at the February 2002 meeting — Mr. Chesley's alleged "arguments" in favor of the application of the Grinnell factors, Bar's Brief, p. 59 (emphasis added). Id. at 60 (emphasis added). Id. (emphasis added). Report of Trial Commissioner, p. 23. 47 the approval of attorney's fees totaling 49% of the total settlement amount and creation of a cy pres entity - is discussed extensively supra, pp. 30-34. There simply is no testimony supporting those specific allegations. Moreover, even assuming arguendo that there was testimony supporting those claims, Mr. Chesley's alleged misstatements concerning cy pres and the Grinnett factors are more appropriately characterized as statements of legal opinion, not knowing misrepresentations of fact. Moreover, Judge Bamberger commissioned an expert opinion on cy pres from the wellknown Lexington mediator, Pierce Hamblin, which provided the legal support for use of the cy pres doctrine in the Guard case - and there is no indication that the KBA has charged Mr. Hamblin with making a misrepresentation. In addition, Whitney Wallingford actually served as tax and corporate counsel to the Fund and raised no issues with its propriety.204 Mr. Wallingford has presumably not been charged with any violations for serving in that capacity. The KBA provided absolutely no published precedent in support of its argument that the cy pres doctrine per se does not apply to aggregate settlements. The KBA relied solely on the testimony of Professor Erichson for this point. demonstrably inaccurate. Professor Erichson testified cy pres applies only to the undistributed remainder in a classwide settlement and has no application to aggregate settlements because, he says, in an aggregate settlement the parties agreed to a specific amount for each plaintiff and there is no remainder.205 But Professor Erichson also acknowledged that the side letter exposed the Settling Attorneys to indemnify AHP for up to $7.5 million for potential claims against Dr. Duff, the But Professor Erichson's testimony is Tr. I, Wallingford, pp. 1064-65. Tr. II, Erichson, p. 1167. 48 doctor who prescribed fen-phen to the claimants.2 Even assuming no other basis for a holdback, the side letter created a factual basis for Mr. Chesley to believe a holdback had been proper and that there could be a remainder to which cypres might reasonably be applied. Moreover, Kenneth Feinberg, a nationally renowned expert on mass torts, testified that he had never heard of an aggregate settlement where funds were not left over after the initial distribution and, even after a class is decertified, the court can still retain the type of fiduciary control that it would have over the class action itself.207 This includes control over benefits to the aggregate group, the procedural due process necessary to distribute the funds, and fees and 208 expenses. Professor Hazard, one of the country's preeminent legal ethics scholars, also opined that the cy pres doctrine could have been applicable here if the settling attorneys had the informed consent oftiheirclients.209 If the experts can't agree whether cy pres could apply to an aggregate settlement, how could it be a knowingly false statement for Mr. Chesley to suggest that cy pres could apply to the Guard case? Yet the Trial Commissioner concluded - without any citation to the record or to any precedent - that cypres cannot apply to aggregate settlements.2 ° Finally, the Trial Commissioner found that Mr. Chesley violated Rule 3.3(a) by attending the May 9, 2001 hearing and arguing that no notice was needed to the class members of the agreement to decertify the case. However, the Trial Commissioner failed even to mention Mr. Chesley7 s argument that the KBA failed to identify what statement made by Mr. Chesley at the May 9, 2001 hearing was actually false and, like the KBA, failed to cite any legal autliority in Jrf. at 1172. Tr. n , Feinberg, pp. 1087-89. Id. at 1089. Tr.H, Hazard, p. 1298. Report of Trial Commissioner, p. 23. 49 support of Ms finding that Mr. Chesley "misled the Court"211 at that hearing. In fact, contrary to the Trial Commissioner's finding that Mr. Chesley misled the Court at the hearing hy arguing that no notice was needed, the Trial Commissioner himself concluded in his Report that there were conflicting authorities about whether notice was required under these circumstances, and specifically declined to find a Rule 1.7 ethical violation for the failure to give notice.212 Thus, in the same Report, the Trial Commissioner found that "the obligations of class counsel with respect to" notice of decertification and dismissal "under Civil Rule 23 or any other legal principle" is so unsettled that he could not find a clear violation of Rule 1.7 while also finding that it was a violation of Rule 3.3(a) for Mr. Chesley to argue that no notice was needed to the class members.214 This significant internal contradiction is a clear example of the Trial Commissioner's uncritical acceptance of Bar Counsel's arguments without independent review of the evidence and applicable ethical standards. It is undisputed that, given AHP's absolute requirement of confidentiality, insistence on notice to the class would have scuttled the settlement. And ample precedent supports the conclusion that Rule 23 does not require notice to unnamed class members when a class is decertified or settled on a non-class wide basis "if it is plain that there is no prejudice" to the absent class members' interests. When a class is decertified, the only risk of prejudice to absent class members is they may allow the statute of limitations to expire without filing their own claims, out of the mistaken belief that their claims are still being represented by class counsel. m 5 2i2 Id. Report of Trial Commissioner, p. 21 Id. 214 Id. at 23. 215 Culver v. City of Milwaukee, 211 K3d 908, 915 (7th Cir. 2002). See also Doe v. Lexington-Fayette Urban County Goy'i, 407 F.3d 755, 763 (6th Cir. 2005); Simer v. Rios, 661 F.2d 655, 666 (7th Cir. 1981) ("Mather than setting down an absolute rule we choose to place discretion in the district court to assess the prejudice to absent class 213 50 But that risk is only present when there is reason to believe the unnamed class members have relied on the class action in deciding not to bring suits on their own behalf/10 Where there is no evidence that absent class members are abstaining from bringing their own actions in reliance on the pendency of the class action to toll their statute of limitations, class notice is not required. In this case, the 70 unknown class members had not received notice of certification of the Kentucky class, so they could not have been relying on the pendency of that action to toll limitations on their respective, individual claims. Indeed, they had made the overt decision to opt out of the national MDL class, indicating an awareness that they needed to protect their own rights on an individual basis. Professor Miller, one of the country's leading scholars on civil procedure, testified that on these facts there was nothing improper about not giving the class notice of decertification.218 The Trial Commissioner acknowledged this precedent and found it was not an ethical violation to decertify the class and settle without classwide notice.219 However, he contradicted his own legal conclusions and found that Mr. Chesley made a misrepresentation to the Court by saying notice was not necessary. Such internal contradictions are plainly not acceptable in a Report sentencing an attorney to the professional death penalty. At most, Mr. Chesley's statements regarding notice of decertification evidence a statement of legal opinion on a question for which there are grounds for good faith disagreement, rather than a knowingly false statement of fact.220 members caused by the [pre-certification] settlement, the institutional costs of notice and a certification hearing, as well as other factors relevant" to whether notice should be given). 216 Culver, 277 F.3d at 914. 217 Id, at 915. See also Doe, 407 F.3d at 763. 218 Tr. H, Miller, pp. 1374-75. 219 Report of Trial Commissioner, p. 21. 230 Tr. H, Chesley, pp. 636-87; KBA 120. 51 In sum, the Trial Commissioner's finding that Mr. Chesley violated Rule 3.3(a) must be reversed. B. Rule 8.1(a) and the alleged misrepresentations made in response to questions posed by the KBA. Like the Trial Commissioner's findings with regard to Rule 3.3(a), his findings with regard to Rule 8.1(a) are unsupported by any record citations and are only reiterations of the same unsupported allegations in Bar Counsel's Brief. And the Trial Commissioner again fails to address the fact that Bar Counsel did not identify any of the precise statements made (to the best of Mr. Chesley's recollection five years after his limited involvement in the matter), instead relying upon paraphrasing the alleged statements. Moreover, Bar Counsel failed to cite any evidence establishing the falsity of any statement, much less any proof whatsoever that Mr. Chesley made his statements with knowledge of their falsity. The Trial Commissioner addressed only the alleged misstatements made by Mr. Chesley in his October 4, 2006 letter to Bar Counsel. He did not issue any findings as to whether Mr. Chesley violated Rule 8.1(a) by making the alleged misstatements in letters dated May 9, 2006 and August 8, 2006,221 by Bar Counsel. Accordingly, it is assumed that the Trial Commissioner found in Mr. Chesley's favor with regard to the alleged misstatements in the May 9 and August 8 letters. Since Bar Counsel has not cross-appealed, these alleged misstatements are not addressed in this brief.222 See Report of Trial Commissioner, p. 24. The Trial Commissioner only addresses Mr. Chesley's answers to Questions 14,15, 16, 17, and 18, all of which are found in the October 4,2006 letter. 222 Mr. Chesley requests that the Board of Governors grant him leave to supplement this brief so as to address the alleged misstatements in the' May 9 and August S letters if it is alleged by Bar Counsel or decided by the Board that the Trial Commissioner did issue findings with regard to the alleged misstatements contained therein. 52 The Trial Commissioner found, without citation to any supporting evidence, that Mr. Chesley's responses to Questions 14, 15, 16, 17, and 18, in the October 4, 2006 letter were knowing misstateraents.223 Question 14 asked Mr. Chesley what communications he had with any of the other attorneys or Judge Bamberger regarding the application of the cy pres doctrine.224 In a factually accurate reply that the Trial Commissioner found "seriously distorted," Mr. Chesley stated: 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 in Miamisburg, Ohio.225 The Trial Commissioner found this response to be a misstatement because Mr. Chesley "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 fend. However, as discussed extensively supra, there is no credible testimony regarding what was said at the February 2002 meeting about the cy pres doctrine.227 Further, Mr. Chesley testified that around February 2002, Gallion did ask him about the cypres doctrine, and he provided Gallion a short research memo based upon his firm's work in a different case.228 Mr. Chesley and Gallion also discussed the use of the Grinnell factors to calculate attorneys' fees in class actions.229 Accordingly, Mr. Chesley's response is simply not an actionable knowing misrepresentation. Bar Counsel did not allege in her Post-Hearing Brief that Mr. Chesley's response to Question 14 was a misstatement. As such, the issue was not actually before the Trial Commissioner. However, the Trial Commissioner independently issued afindingwith respect to Question 14, and the alleged misstatement is addressed herein. 224 KB A 270. 225 Id. 226 Report of Trial Commissioner, p. 24. 227 See supra, pp. 26-33. 228 Tr. II, Chesley, pp. 694-98; KBA 243. 229 Tr. II, Chesley, pp. 691-93. 22 53 Mr. Chesley's remaining alleged misrepresentations in the October 4 letter were paraphrased by the KBA as: "he had no communication of any nature with Bamberger regarding the establishment of the charitable entity" (Question 15); "he became aware of the second distribution to clients when he received a check" (Question 16); "neither he nor any employee of his firm had any communication with the other Guard attorneys about a second distribution" (Question 17); and "neither he nor any employee of his firm drafted documents that were to be given to clients regarding the second distribution" (Question 18), The Trial Commissioner found that each of these statements were misrepresentations, but failed to make anyfindingthat the statements were made with the requisite knowing falsity. First, as discussed supra, the only suggestion that Mr. Chesiey even spoke - at all — to Judge Bamberger about the cy pres doctrine is the dubious and conflicting testimony from Bamberger and Modlin.231 Bamberger never testified that Mr. Chesiey spoke to him about the creation of "the charitable entity," at all, stating only that Mr. Chesiey discussed the cy pres "principle in general," and told him about other cases where excess money had been used for charitable purposes. Judge Bamberger has testified that he did not even rely solely upon the alleged discussion of cy pres at the February 2002 meeting, since he commissioned and received an opinion from Pierce Hamblin on the doctrine before approving the entity.233 There is no testimony that Mr. Chesiey discussed the creation or funding of this particular entity with Judge Bamberger, or anyone else. Accordingly, contrary to the Trial Commissioner's finding, even assuming that Mr. Chesiey attended the February 2002 meeting, Mr. Chesley's Bar's Post-Hearing Brief, p. 61. See supra, pp. 30-35; see also Tr. II, Bamberger, p. 458; Tr. H, Chesiey, pp. 691, 694-698; Tr. H~, Modlin. pp. 605-608,642. 332 Tr. II, Bamberger, p. 458. 233 Id. at 506. 231 230 54 statement that he had no communication of any nature with Judge Bamberger regarding "the establishment of the charitable entity" is in fact true. Second, also contrary to the Trial Commissioner's finding, Mr. Chesley's statement that he "became aware of the second distribution to clients when he received a check" is also true. The Trial Commissioner states that Mr. Chesley's response was a misstatement because he "was well aware that there would be a second distribution prior to his receipt of the $4 million check."235 However, Mr. Chesley was not asked when he was aware that the concept of a second distribution had been discussed. Mr. Chesley has never denied that he knew that the May 1 agreement, including the side letter, would probably require the Settling Attorneys to hold back some funds, which logically could result in a second distribution at some point in time. But that is not the question asked in the KBA's letter. The KBA asked the following question of Mr. Chesley: 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).23 This compound question specifically defined "Second Distribution" to mean "any payments in 2002 to clients or attorneys." Thus, the compound question actually asks when Mr. Chesley became aware that there would actually be a second distribution of payments in 2002 to clients or attorneys. Mr. Chesley's answer to that question is true; he became aware that payments were actually made to clients or attorneys in 2002 when he received a check. There is no evidence that he knew when the second distribution would actually take place prior to that event. Accordingly, there is no evidence that he knew, when he answered the precise question 234 KBA 270. Report of Trial Commissioner, p. 24. 236 KBA 270 (emphasis added). 235 55 he was asked, that his answer was false, and the Trial Commissioner's finding to the contrary is not supported by evidence. Further, the Trial Commissioner's statement that Mr. Chesley "met with Judge Bamberger in this secret 2002 meeting to discuss the second distribution"237 is simply untrue, as discussed supra, pp. 31-33. As noted above, Bamberger was the only witness to actually testify as to what purportedly occurred at the February 2002 meeting. However, he never testified that Mr. Chesley spoke to Bamberger about the second distribution. As such, there is literally no evidence upon which this finding could be based, and the Trial Commissioner cited none. There is simply no credible proof that Mr. Chesley's statements in the October 4, 2006 Letter were false - much less that they were made with knowing falsity. Mr. Chesley played no part in planning or implementing the second distribution and did not communicate with any of the Guard attorneys on the subject As such, the Trial Commissioner's finding that Mr. Chesley violated Rule 8.1(a) must be reversed. C. Mr. Chesley did not violate Rule 8.3(c). Because the KBA failed to set forth any specific conduct mat was in violation of Rule 8.3(c) and did not allege any independent violations of this Rule, Mr. Chesley was unable to respond to the alleged violation and stated as much in his Brief to the Trial Commissioner.238 Mr. Chesley did reserve the right to supplement his Brief with additional filings if the Rule 8.3(c) charge was finally specified in Bar Counsel's Reply, but Bar Counsel made no attempt to further specify its claim that Mr. Chesley engaged "in conduct involving dishonesty, fraud, deceit, or misrepresentation following the initial distribution of client funds from the Guard settlement" in its Reply Brief. As such, the KBA's proof for the alleged violation of rule 8.3(c) was never 237 Report of Trial Commissioner, p. 24. Respondent's Post-Hearing Brief, p. 32 n. 18. 56 produced, and the Trial Commissioner cites none in finding that Mr. Chesley violated this Rule.239 The Trial Commissioner's Report is replete with completely unsupported findings regarding Mr. Chesley's alleged unethical behavior under this Rule, including statements that Mr. Chesley "believed 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;" that he "attempted] to conceal and cover up" the misdeeds of G-C-M; and that "[hjis entire course of conduct was one of self-interest and self-preservation of both himself and his co-counsel." The Trial Commissioner's "findings" are simply not supported by the evidence in the record. And his rhetorical flourishes are a clear indication that Trial Commissioner was unable to set aside the preconceived notions he brought to this case, and joined in Bar Counsel's rush to judgment to sentence Mr. Chesley to the professional death penalty. The Trial Cornmissioner's finding that Mr, Chesley violated Rule 8.3(c) is entirely unsupported by the record and must be reversed. XV. Mr. Chesley's fee - which was only 10% of the settlement amount - was not unreasonable, and therefore did not violate Rule 1.5(a). In their Brief to the Trial Corrirnissioner, counsel argued that Mr. Chesley's fee was not excessive because it amounted only to 10% of the settlement amount, and lawyers routinely receive 30% to 40% of the settlement proceeds in legal fees. The fact that G-C-M stole an excessive amount of money from the class does not make Mr. Chesley's 10% fee excessive under Rule 1.5(a). It is astonishing that the Trial Commissioner's Report does not even mention Mr. Chesley's argument, much less offer a reasonable legal analysis why the argument is unsound. 339 Report of Trial Commissioner, p. 25. 57 Instead, the Trial Commissioner uncritically accepted the KBA's simplistic and incorrect arguments regarding Mr. Chesley's fee. Bar Counsel argued that the maximum fee Mr. Chesley could receive must be calculated by multiplying the percentage in his contract with G-C-M by the amounts G-C-M were entitled to receive under their individual contracts with their clients. But this is a lawyer discipline case, not a breach of contract case. The dispositive question is whether Mr. Chesley received an unethically excessive portion of the settlement fund in contravention of Rule 1.5(a), an argument not even mentioned by the Trial Commissioner in his Report. As Mr. Chesley set forth in his Brief to the Trial Commissioner, before he became the lead negotiator in the Guard settlement negotiations, AHP had offered $25 million. Because of his long standing relationship with AHP's counsel, Jack Vardaman, and their resulting ability to negotiate with candor, Vardaman and Mr. Chesley knew before the mediation that they could settle for $200 million.240 For this service, Mr. Chesley ultimately received a tee that totaled approximately 10% of the settlement fund. Such a fee is reasonable on its face. Lawyers are routinely paid three or four times that percentage, and Mr. Chesley's contribution to the extraordinarily successful settlement is undisputable. Ten percent is certainly reasonable for increasing the settlement fund ten-fold, adding approximately $175 million to the settlement value of the case. Mr. Chesley possessed unique expertise in this extraordinarily difficult and complex settlement situation, and he applied this expertise with remarkable results. Professor Hazard described Mr. Chesley's performance as "a real home run."241 As Professor Arthur R. Miller put it, 'That's alchemy. That's incredible. His VardamanDepo., pp. 32,36,103-04; Madonick Depo., pp. 40-45. Tr. II, Hazard, p. 1306. 58 value added was Si75 million."242 On those facts, a fee of 10% of the total settlement is not unreasonable and does not violate Rule 1.5(a). That is the expert opinion of two of the country's most preeminent legal ethics scholars, Professors Geoffrey C. Hazard, Jr. and Arthur R. Miller. Prof. Hazard was the Reporter for the RESTATEMENT OF LAW (THIRD) THE LAW GOVERNING LAWYERS LAWYERING. PROCEDURE, and co-author of THE LAW OF Prof. Miller is co-author of WRIGHT AND MILLER, FEDERAL PRACTICE AND and is a recognized expert on legal ethics in the class action arena. In the words of Professor Hazard: When you are talking about this kind of money involved in the settlement, lawyer fees in the order of 18, up to 24, 25 percent are within what courts have approved in class suits. Now — so I think it is well within the range of reason, particularly given that it was such a really terrific result.243 Likewise, Professor Miller testified that Mr. Chesley's fee was "definitely within reason."244 The question as to whether Mr. Chesley's 10% fee is unethical is answered by the plain language of the Rule, which provides as follows: (a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in deterrnining the reasonableness of a fee include the following: the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; the amount involved and the results obtained;.., the experience, reputation, and ability of the lawyer or lawyers performing the services; and (1) (4) (7) Tr. n , Miller, p. 1363. Tr.H, Hazard, pp. 1306-07. Tr. II, Miller, p. 1364. 59 (8) whether the fee is fixed or contingent. Rule 1.5(a) (emphasis added). As Professors Hazard and Miller opined, under the plain language of Rule 1.5(a), Mr. Chesley's fee was not "unreasonable." Indeed, even Bar Counsel's own expert did not opine that the amount of Mr. Chesley's fee was unreasonable. Tellingly, he was not even asked about Mr. Chesley's fee. Further, the Trial Commissioner's finding that Mr. Chesley's fee violates Rule 1.5(a) because it is in excess of what he was entitled to under the contractual agreement with the clients245 is simply incorrect, as a matter of law. It is undisputed that Mr. Chesley did not have a fee arrangement with a single one of the Settling Claimants. 46 And Bar Counsel conceded that all of the Guard plaintiffs "were represented by Gallion, Qinriingham, Lawrence and Mills . . . . None of these clients had signed an individual contract with the Respondent."2 7 The Trial Commissioner did not mention any of these arguments in his Report, however. He instead accepted, without question, Bar Counsel's simplistic contention that the only way to calculate the fee Mr. Chesley should have received was calculating 21% of what G-C-M were entitled to receive under their contracts with the Guard plaintiffs. According to Bar Counsel and the Trial Commissioner, Mr. Chesley's fee violates Rule 1.5(a) because the total fees he received exceeded that 21%, As extensively discussed by Mr. Chesley in his Brief to the Trial Commissioner and herein, there are multiple other ways to evaluate the reasonableness of Mr. Chesley's fee. Rather than taking the time to consider the alternatives presented by Mr. Chesley, the Trial Commissioner accepted the "fifth grade arithmetic" presented by Bar Counsel. Even assuming for the sake of argument that the G-C-M contract provided the upper ethical limit of Mr. Chesley's fees, the agreement was for a percentage of the fees received by 245 246 247 Report of Trial Commissioner, p, 18. Tr. H, Ericlison, p. 1175. Bar's Post-Hearing Brief, p. 15. 60 the lawyers. Under the terms of the agreement, any payment to Mr. Chesley above the contractual rate would not reduce the funds received by the individual plaintiffs, only the fees received by G-C-M. And there is no legal reason why those lawyers could not voluntarily pay Mr. Chesley more than the agreed 21%. There is simply no authority or law that would suggest, for example, that anytime a client pays a premium after the fact based on extraordinary results, the attorney commits an ethical violation if he accepts the voluntary bonus. Further, the Trial Commissioner's unsupported statement that Mr. Chesley's fee is somehow unreasonable because "he was present and participated in argument to Judge Bamberger wherein the Judge approved fees in the case of 49%" is yet another example of the Trial Commissioner's failure to actually examine the evidence in the record, rather than accepting Bar Counsel's Brief at face value. As set forth above, there is no believable evidence that at the alleged February 6, 2002 meeting, the issue of attorneys' fees was actually argued by Mr. Chesley. And there is not one scintilla of evidence that Mr. Chesley knew on February 6, 2002, that G-C-M had withheld 49% of the settlement funds as legal fees. Furthermore, while the Order that allegedly resulted from that hearing approved attorneys' fees, that Order did not mention the amount of the attorneys 'fees, either as an amount or as a percentage.248 Thus, even if he had seen it, the Order would not have put Mr. Chesley on notice that the amount of the fees G-C-M were claiming were 49% of the funds. Viewing Mr. Chesley's 10% fee as unreasonable simply because it was paid to him by GC-M out of the larger unreasonable fee stolen by G-C-M, is untenable because the Trial Commissioner cites no evidence whatsoever - because there is none - that Mr. Chesley was KBA Ex. 81; Bar's Post-Hearing Brief, p. 33. 61 aware at the time of the size of the unreasonable fee collected by Gallion, Mills, and Cunningham, nor is there any reason that he should have been aware.249 Further, there is no reason that the amount of Mr. Chesley's fee should have made him suspicious that Gallion's and Cuimingham's fees were unreasonable. The $16.5 million Mr. Chesley originally received would roughly equate to 2 1 % of a 40% legal fee, which would not be a. per se unreasonable amount.250 Even adding the additional $4 million Mr. Chesley received following the second distribution, the resulting $20 million fee would still be less than 27% (the amount specified in Mr. Chesley's original fee contract) of a 40% contingency fee. The mere fact of the second payment would not send red flags, either, as second distributions are a common occurrence m class action settlements. Likewise, being paid a "success premium" contemporaneously with a second distribution - particularly one that arguably equated to the amount that would bring Mr. Chesley's total compensation up to the amount Guard counsel initially contracted to pay him — would not, standing alone, inform Mr. Chesley how much the other lawyers had retained for themselves. Thus, the bare amount of Mr. Chesley's fees is insufficient to show that he was aware of the fee amounts retained by Gallion and Cunningham, much less that he was a direct participant in receiving the overall fee taken by G-C-M. It is undisputed that Mr. Chesley never saw or knew about any of the contingency fee contracts that Gallion, Mills, and Cunningham had with their clients. Tr. TJ, Chesley, p. 678. 250 See In re Remeron Direct Purchaser Antitrust Litig., 2005 WL 30O88OS at *16 (D.N.J. Nov. 9, 2005) ("Attorneys regularly contract for contingent fees between 30% and 40% with their clients in non-class, commercial litigation."); In re Ikon Office Solutions, Inc., Sec. Litig., 194 F.RD. 166, 194 (ED. Pa. 2000) ("[I]n private contingency fee cases, particularly in tort matters, plaintiffs' counsel routinely negotiate agreements providing for between thirty and forty percent of any recovery."); Ericksen Constr. Co., Inc. v. Morey, 923 F. Supp. 878, 881 (S.D. W.Va. 1996); Durant v. TraditionalInvs., Ltd., 1992 "WL 203870 at *4 n.7 (SD. N.Y. Aug. 12,1992). 251 Tr. II, Hazard, pp. 1304-05; Stilz Depo., pp. 21-23. 62 In sum, Mr. Chesley's total fee of $20 million - close to 10% of the $200 million total settlement fund is not "unreasonable" under Rule 1.5(a). Accordingly, the Trial Commissioner's finding that Mr. Chesley violated this Rule must be reversed. V. Mr. Chesley cannot be ordered to disgorge $7,555,000.00 in a lawyer discipline case. The Trial Commissioner ordered Mr. Chesley to disgorge $7,555,000.00 of his "excess fees" in the most vague and nonspecific manner: "either through the auspices of the Abbott case, should those clients prevail, or some other means designed by the Court."252 The cavalier nature with which this amount was ordered as restitution is particularly astounding considering the Trial Commissioner failed to even mention Mr. Chesley's argument that his total fee is not unreasonable under Rule 1.5(a) because it was close to 10% of the $200 million settlement fund.253 While the Supreme Court has occasionally approved lawyer discipline that includes restitution of a sum certain owed to a single client, the Supreme Court has never required disgorgement of millions of dollars for subsequent distribution to hundreds of members of a class ofplaintiffs.254 SCR 3.380 sets forth the forms of discipline available in a lawyer disciplinary matter. The Rule explicitly states that discipline may be administered in four ways: private reprimand, public reprimand, suspension from practice for a definite time, or permanent disbarment.255 Notably, this Rule does not mention restitution. Report of Trial Commissioner, p. 29. See supra, pp. 57-62. 254 Nor has the Supreme Court ever cited any authority in the Rules for imposing restitution as a sanction in a lawyer discipline case. 355 SCR 3.380. 253 63 At least one court has held that restitution cannot be ordered in attorney disciplinary matters.256 The Ac/zerman court found that restitution cannot be properly ordered in a disciplinary matter because: (1) a damaged client's remedy should be by way of a civil suit for damages, where the attorney would have the foil range of defenses, many of which may not be available in a disciplinary proceeding; (2) issues of damages and restitution should not be litigated in disciplinary proceedings because those matters are not essential to the main purpose of the proceeding, which is to regulate the professional conduct of lawyers in the public interest; (3) the Indiana attorney discipline rules do not authorize findings in support of a damage award to aggrieved clients; (4) the amount of money damages due the aggrieved client cannot be constitutionally determined in a disciplinary proceeding because it would deny the lawyer his constitutional right to trial by jury.25' Each of the concerns voiced by the Ackerman court is pertinent here. Like the Indiana disciplinary rules, the Kentucky rules do not provide for restitution or the award of damages to aggrieved clients. Further, the claimants in the Guard action have brought the Abbott civil action seeking restitution from Mr. Chesley (and the other attorneys) and they plainly have an adequate remedy in that action. Moreover, Senior Judge Wehr denied summary judgment against Mr. Chesley in the Abbott .action, and the Court of Appeals recently affirmed that denial of summary judgment, holding that there is at least a genuine issue of material fact whether Mr. Chesley owes those claimants any money." When Abbott is remanded to the Boone Circuit Court, Mr. Chesley will be entitled under the Civil Rules to full discovery — a right he was denied by the Trial Commissioner in this lawyer discipline case. He will also have his constitutional right to trial by 256 In re Ackerman, 330 N.E.2d 322, 323 (Ind. 1975). Id. at 323-24. 258 See Cunningham v. Abbott, 2011 WL 336459 (Ky. App. Feb. 4, 2011). 257 64 jury, which is not available to him in this lawyer discipline case. Th& Abbott civil litigation is the proper forum in which to determine whether Mr. Chesley must pay millions of dollars of restitution to the Guard plaintiffs.259 Finally, the Trial Commissioner's restitution recommendation offers absolutely no plan for distributing this massive restitution award. The Trial Commissioner did not even recommend a particular body to distribute the award - casually stating that the restitution should be distributed either "through the auspices of the Abbott case" or by "some other means designed by the [Supreme] Court."260 By ordering restitution without even a semblance of a distribution plan, the Trial Commissioner has saddled some other tribunal with the enormous burden of crafting a workable plan. The Board of Governors should not join in the Trial Commissioner's vague and unprecedented restitution decision. For all the foregoing reasons, the Trial Commissioner's restitution recommendation should be vacated. VI. The mitigating factors applicable in this case do not warrant permanent disbarment. The section of Trial Commissioner's Report recommending permanent disbarment is notable for both its brevity and its sweeping conclusions unsupported by the evidence. As set forth above, the record shows that Mr. Chesley was not "in the room" for the three major phases of the fen-phen scandal: (1) the initial distribution of the funds conducted through the summer and fall of 2001 through individual settlements with clients conducted by G-C-M and their respective employees; (2) the establishment of the Kentucky Fund in July 2002, with the subsequent transfer of the remaining settlements funds to the Fund; and (3) the attempt to cover Indeed, this lawyer discipline case should have been abated until the completion of the Abbott litigation. It has been uniform practice in KBA lawyer discipline proceedings to abate the KBA charge when there is pending, related civil litigation. Mr. Chesley's several motions to abate this proceeding were routinely denied, and the disparate treatment of Mr. Chesley is troubling. 260 Report of Trial Commissioner, p. 29. 259 65 up G-C-M's theft by making a second distribution of funds in 2002. Despite this, the Trial Commissioner recommends that Mr. Chesley receive the professional death penalty for his association with G-C-M. The Trial Commissioner's recommendation is perhaps attributable to the way in which his preconceptions about the fen-phen scandal were exacerbated by the KBA's theme of guilt by association, a theme which permeated these proceedings and the KBA's Brief. The Bar labored mightily to convict Mr. Chesley of guilt by association with G-C-M, a tactic which appears to have worked, despite the fact that guilt by association is clearly not a valid basis for the imposition of permanent disbarment.261 The Trial Commissioner was swayed enough by this theme to find that nearly all of the ABA aggravating factors "apply emphatically" to the Respondent. emphatically.262 In actuality, multiple mitigating factors justify a reduction in the degree of discipline appropriate in this case, including (1) absence of any prior disciplinary record; (2) character or reputation; (3) absence of a dishonest or selfish motive; and (4) free and full disclosure to disciplinary board or cooperative attitude toward proceedings.263 He does not, however, explain how the aggravating factors apply so The best example of the Bar's guilt-by-association innuendo is the gratuitous inclusion of 11 pages in its PostHearing Brief (pp. 23-30 and 34-36) summarizing the testimony of individual plaintiffs who had never even met Mr. Chesley. The details of the methodology by which Mr. Helmers, Ms. Phipps, and the other staff members negotiated with each of Mills and Cunningham's clients is totally unnecessary to the ratification count and completely irrelevant to all the other counts in the Charge. Similarly, the Bar's Post-Hearing Brief devoted a full page to itemizing the admissions of guilt made by Gallion and Cunningham when they accepted permanent disbarment. Bar's Post-Hearing Brief, p. 64. The recitation of their confession serves no purpose other than guiltby-association; a fact proven by Bar Counsel's statement following that recitation: "There is no reason why this Respondent should be treated any differently than his cohorts, indeed, . . . 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." Id. at 65. 2 Report of Trial Commissioner, p. 28. 263 ABA STANDARDS FOR IMPOSING LAWYER SANCTIONS, § 9.32. 66 Mr. Chesley is 75 years old, and has been practicing law in Ohio and Kentucky for fifty years. He is nationally renowned in the resolution of class actions and mass torts. He has never been cited for a disciplinary violation, and has served as the Chairman of the Supreme Court of Ohio Board of Commissioners on Grievances and Discipline. There is no rational reason why a lawyer with Mr. Chesley's level of professional success, community involvement and financial security would risk it all to cover up other lawyers' criminal misconduct. Over the course of a career which even the Trial Commissioner deemed "distinguished,"265 he has lent his expertise to the some of the most well-known and complex litigations in recent history, including Agent Orange litigation, the Beverly Hills Supper Club fire, tobacco litigation, breast implant litigation, and the Lockerbie bombing litigation, Despite being embroiled in some of the most well-known and complex litigations in recent history, which contained multiple avenues to trip up even the best of lawyers, he has never been cited for a disciplinary violation, Mr. Chesley is a man of exemplary character and the KBA presented no witnesses who testified to the contrary.266 Instead, Father Michael Graham, the President of Xavier University, characterized Mr. Chesley as "a man of tremendous personal principles and integrity" who "believes what he believes in passionately and represents it aggressively" but does not do "anything but play entirely within the rules."267 Judge Michael Barrett of the United States District Court for the Southern District of Ohio testified that Mr. Chesley is a leader in Cincinnati's charitable community with an "impeccable" reputation for truthfulness and Tr. II, Feinberg, p. 1092. Report of Trial Commissioner, p. 28. Instead, Bar Counsel sought to mock Mr. Chesley's character witnesses. While acknowledging — as she must — that those witnesses are relevant to mitigation, she belittled them for knowing little about the case and focusing on Mr. Chesley's lifetime of good work. Cf. Bar's Post-Hearing Brief at 68-70. Of course, that is the role of character witnesses. 267 Tr. n , Graham, p. 1025. 264 265 61 honesty.268 Elisa Crawford, a former class action client, further characterized Mr. Chesley as "the most trustworthy man I have ever met in my life," classifying him as a man of high ethics, integrity, and brutal honesty.269 There is absolutely no evidence that Mr. Chesley agreed to negotiate the Guard settlement for a dishonest or selfish motive. Every lawyer in private practice intends to earn money; that cannot be the type of selfishness to which the ABA Standards refer. Mr. Chesley has built a practice out of lending his expertise to highly complex litigation like the Guard litigation and there was nothing unusual, dishonest, or selfish to his provision of expertise here. His expertise is precisely why the other lawyers engaged him to settle the Guard litigation. Despite the Trial Commissioner's impression to the contrary, Mr. Chesley had made full and free disclosure to the Bar and has been nothing but cooperative. Mr. Chesley promptly responded to all of the Bar's investigation questions,270 the Charge, and the Amended Charge. He and his counsel fully participated at the hearing and he was nothing but cooperative during his testimony. Further, because none was presented by the KBA, the Trial Commissioner failed to cite either any evidence establishing the falsity of Mr. Chesley's alleged misstatements or any ** Tr. II, Barrett, pp. 1036,1039. 269 Tr. II, Crawford, p. 1062. Mr. Chesley has dedicated himself to serving both his local community and national and international causes about which he is passionate. On an international scale, he serves as President of the Jewish National Fund, a United Nations NGO dedicated to developing the land of Israel through various initiatives. Tr. II, Graham, pp. 1019-20. Locally, he is a charitable leader who is always willing to give his time to worthy causes. Tr. II, Barrett, p. 1036. He is heavily involved with the University of Cincinnati College of Law where he funds a yearly lecture series and a litigation prize awarded at commencement Id. a t l 0 3 5 . He is one ofnine members of the Board of Trustees for the University of Cincinnati. He has been honored for his contributions to Ohio Cancer Research Associates, and independent organization that is dedicated to the cure and prevention of cancer through the funding of seed money for cancer research ha the State of Ohio. Id. at 1036. Each summer he provides the funds for students enrolled in Xavier University's selective Philosophy, Politics & the Public Program, which provides students with a blended educational experience in and out of the classroom, focusing on politics and civic life, to participate in internships. Tr. II, Graham, pp. 1023-24. Those who know and have worked with Mr. Chesley characterize him as "a man of tremendous personal principles and integrity" who "believes what he believes in passionately and represents it aggressively" but does not do "anything but play entirely within the rules." Tr. II, Graham, p. 1025. He has an "impeccable" reputation for truthfumess and honesty and is known with the legal coramunity as a man of his word. Tr. H, Barrett, pp. 1033, 1036, 1039. 27<J KBA266,268,270. 68 proof whatsoever that Mr. Chesiey made the statements with knowledge of their falsity, nearly five years after the events in question occurred.271 As a highly successful lawyer in the areas of class action and complex litigation, with an unblemished record, a reputation for integrity, honesty, and community service, Mr. Chesiey simply had no logical motive to assist the other lawyers, at enormous risk to himself, in covering up their massive theft from their clients that he had no role in conceiving. CONCLUSION For the foregoing reasons, Bar Counsel failed to carry their burden of proof, and the Trial Commissioner's findings with regard to Mr. Chesley's alleged violations of Rules 1.5(a), 1.5(c), 1.5(e), 1.8(g), 3.3(a), 8.1(a), 8.3(c), and 5.1(c)(1) must be set aside. The Trial Commissioner's recommendations of permanent disbarment and the restitution of $7,555,000.00 must also be vacated. The Board of Governors should exercise de novo review and find that this Respondent is not guilty as to every Count in the Charge. Respectfully submitted, Sheryl Frost 400 W. Market St., 32nd Fl. Louisville, KY 40202 Phone: 502-589-5400 Scott C. Cox Cox & Mazzoli, PLLC 600 West Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 271 See supra, pp. 46-57. 69 Mark L. Miller 600 W. Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190. James M. Gary Weber & Rose, P.S.C. 417 W. Main Street, Suite 400 Louisville, KY 40202 Phone: 502-589-2200 Frank Benton, IV Benton, Benton & Luedeke 528 Overton Street P.O. Box 72218 Newport, KY 40172 Counsel for Respondent, Stanley M. Ckesley CERTIFICATE OF SERVICE It is hereby certified that on April 25, 2011, a copy of this Brief was hand-dehvered to Ms. Susan Greenwell, Disciplinary Clerk of the Kentucky Bar Association, 514 West Main Street, Frankfort, Kentucky 40601, with sufficient copies for distribution to: Hon. William L. Graham Trial Commissioner 79 River Bluff Frankfort, KY 40601 Linda Gosnell Chief Bar Counsel Office of Bar Counsel Kentucky Bar Association 514 West Main Street Frankfort, KY 40601 Also pursuant to prior order electronic copies were sent to the following: Linda Gosnell Kentucky Bar Association 514 West Main Street Frankfort, KY 40601 lgosneIl(S).kvbar.org Cary Howard Kentucky Bar Association 514 West Main Street Frankfort, KY 40601
[email protected] Counsel for Respondent, Stanley M. Ckesley LOUUbrary01I8087.0571I45 1044099v6 70 SOl ****cOOKr to&k ' * « & y v. Sr »**AssoClA~ ^ ^ S P * * * * TION C ^VL£yM #ESLE^ fG Proceed^ Tn P m °PPosins »„ ^ Ration a , deci «io n in , 0r °^er two v* 77,6 P^uaat to So? * , "flegua/ . ^ Mc Guini s ^ s fees received by Mr. Chesley in the fen-phen (Guard) case. And the Trial Corrrmissioner recommended Mr. Chesley disgorge $7,550,000 of the fees he received in Guard. Yet, Senior Judge Wehr denied summary judgment against Mr. Chesley in Abbott, a decision recently affirmed by the Court of Appeals.4 Accordingly, this disciplinary proceeding should be held in abeyance pending the conclusion of the litigation in Abbott. BACKGROUND FACTS The Abbott action was filed on January 4, 2004 by former plaintiffs in the Guard class action litigation concerning the diet drug fen-phen. Gallion, Cunningham, and Melbourne Mills ("G-C-M") were all named defendants, as was Mr. Chesley. Pleading breach of fiduciary duty and negligent and/or fraudulent misrepresentations, plaintiffs sought to recover all money received by the defendants, as fees or otherwise, in Guard. Defendants had hardly begun to take discovery when the plaintiffs moved for partial summary judgment against G-C-M. The trial court awarded plaintiffs partial summary judgment against G-C-M in March 2006. In August 2007, the trial court awarded the plaintiffs $42 million dollars as a "baseline compensatory award" against G-C-M, reserving for trial the plaintiffs' causes of action for negligent and/or fraudulent misrepresentation and punitive damages. The plaintiffs moved for partial summary judgment against Mr. Chesley in December 2006. The trial court denied this motion, stating that "[t]he rationale of the previously entered partial summary judgment [against G-C-M] does not apply to him [Mr. Chesley] since the facts are in dispute." Senior Judge Wehr concluded that there remains a genuine issue of 4 See Exhibit D. The Court of Appeals reversed that summary judgment and denied the petition for rehearing. See Exhibit D. 2 material fact whether Mr. Chesley has any liability to the plaintiffs in Abbott (who were the plaintiffs in Guard). The Abbott plaintiffs appealed the denial of their motion for partial summary judgment against Mr. Chesley. Mr. Chesley moved to dismiss the cross-appeal on the grounds that an order denying summary judgment is interlocutory in nature and not appealable, but the Court of Appeals denied his motion. Discovery was then suspended in the Abbott action during the pendency of the appeals.6 Consequently, Mr. Chesley was not able to take the deposition of even one Abbott plaintiff, many of whom testified in this disciplinary proceeding. Mr. Chesley's subsequent request to take discovery in this disciplinary case was denied by Trial Commissioner Messer, despite SCR 3.300, which expressly provides that "Respondent shall have all the rights secured to a party by the Rules of Civil Procedure . . . ." On April 3, 2009, while the Abbott orders were on appeal, Gallion and Cunningham were convicted for their roles in orchestrating the fen-phen fraud. Both appealed their convictions. At Gallion's deposition noticed by Bar Counsel for August 18, 2009, one day after he was sentenced, he declined to answer any questions and asserted his Fifth Amendment privilege due to his pending appeal. Bar Counsel then stipulated that Mr. Cunningham would similarly assert his Fifth Amendment privilege, rendering them both unavailable as witnesses. It is believed their testimony would be helpful to Respondent, as was the testimony of Melbourne Mills after his acquittal. Shortly after the appeals were taken - and discovery abated - in Abbott, the Inquiry Commission filed its charge against Mr. Chesley. Before the charge was issued against him by the Inquiry Commission, Mr. Chesley filed a motion to stay the Inquiry Commission 6 See Exhibit C. 3 investigation during the tenure of Barbara Bonar as President of the KBA due to the significant conflict of interest presented by ongoing litigation between Mr. Chesley and Ms. Bonar arising out of a separate matter. In 2006, Ms. Bonar filed the action Barbara D. Bonar, et al. v. Waite, Schneider, Bayless & Chesley Co., L.P.A., et al, in Boone Circuit Court claiming she was entitled to 50% of the attorneys' fees awarded by Senior Judge John Potter to class counsel, including Mr. Chesley and his firm, in a class action lawsuit against the Roman Catholic Diocese of Covington. Following a separate bench trial of the fee dispute, Senior Judge Robert McGinnis (appointed by the Chief Justice to preside over the class action lawsuit after Judge Potter) determined that Ms. Bonar and her firm were not entitled to any portion of the fee and dismissed their claims with prejudice. The Court of Appeals affirmed the lower court's order, and denied the petition for rehearing. The Supreme Court has recently granted discretionary review.7 This litigation was fraught with attacks by Ms. Bonar on Mr. Chesley's integrity and conduct as attorney, but in his opinion dismissing Ms. Bonar's claims, Judge McGinnis determined that it was Bonar's conduct while acting as class counsel that violated the Kentucky Rules of Professional Conduct. Those findings were affirmed on appeal by the Court of Appeals.8 Meanwhile, Ms. Bonar's first act as KBA President was to fire from the KBA Ethics Committee every attorney whom she believed to have had a professional relationship with Mr. Chesley and his law firm.9 Ms. Bonar's actions led the KBA to authorize a special investigation ; into her conduct, which resulted in a report known as the "Houlihan Report" disseminated to * See footnote 3. See Exhibit D. 9 Andrew Wolfson, Fired Ethics Panelists Had Link to Foe, THE LOUISVILLE COURIER-JOURNAL, Oct. 12, 2008, at A-10, attached as Exhibit E. 8 4 members of the Board of Governors. As a result of Ms. Bonar's misconduct, the Board of Governors removed her from participating in discipline cases during her time as KBA President10 The Trial Commissioner denied Mr. Chesley's request to see the Houlihan Report, thereby denying his opportunity to discover any evidence that Mr. Houlihan discovered on the * improper influence that Ms. Bonar may have exerted - or attempted to exert - over his otherwise * confidential disciplinary case. Specifically, counsel for Respondent state, on information and belief, that witnesses interviewed by Mr. Houlihan told him that Bonar tried unsuccessfully to get Bar Counsel to suspend Mr. Chesley's license when he testified under a grant of immunity at Gallion and Cunningham's trial - despite the U.S. Attorney's statements that Mr. Chesley had never been a target of their investigation,11 and: despite,Judge Reeve's n t o g that Mr. Chesley was not a co-conspirator but had been "duped" by Gallion;12 At the outset of the evidentiary hearing before Trial Commissioner Graham, Respondent renewed his motion to abate this discipline case pending conclusion of the Abbott litigation, and the motion was summarily denied. On February 4, 2011, three and a half years after the appeals in Abbott were taken, and well after the hearing in this matter had concluded and post-hearing briefs had been submitted, the Court of Appeals entered an Order affirming the denial of the plaintiffs' motion for partial summary judgment against Mr. Chesley. Accordingly, Mr. Chesley may finally gain the ability to begin discovery in the Abbott action. See Kentucky Bench & Bar, vol. 73, no. 1, p.3 (January 2009), attached as Exhibit F. See excerpt from Brief of the Plaintiff-Appellee United States, United States of America v. Shirley Cunningham, Jr. and William GaZ/ion, Nos.09-5987,09-5998, attached as Exhibit G.v 12 See Judge Reeve's decision in No. 2:07-CR-0039-DCR, Minute Entry Sheet and transcript excerpt, attached as Exhibit H. 11 10 5 ARGUMENT I. The Rules of Professional Conduct and established practice in discipline proceedings dictate that this action be abated pending resolution of Abbott It appears that this is the first time in the history of the Commonwealth that the Inquiry Commission and Bar Counsel have proceeded in a disciplinary matter prior to the resolution of closely related civil litigation.13 Abatement is contemplated by SCR 3.180(2), which expressly provides: Proceedings may be deferred by the Inquiry Commission if there is pending civil or criminal litigation directly involving the Respondent or proposed Respondent involving substantially similar material allegations to that or those in the disciplinary proceedings, provided, however, that the Respondent-attorney proceeds with reasonable dispatch to insure the prompt disposition of the pending litigation. There are several examples of bar proceedings being held in abeyance pending the resolution of a related civil litigation,14 including cases involving lbrmcr Presidents of the KBA. See Kentucky Bar Ass'n v. Catron, 229 S.W.3d 910, 912 (Ky. 2007) (disciplinary proceedings against former KBA President held in abeyance during pendency of civil suit filed against him by City of Bowling Green pertaining to same subject matter as Inquiry Commission Complaint). In addition, counsel for Mr. Chesley recently learned from counsel for Barbara Bonar that, after former Magistrate Judge Cleve Gambill resigned as Special Bar Counsel, the KBA has held its disciplinary action against Ms. Bonar (stemming from the alleged ethical violations committed in the Diocese matter) in abeyance pending the outcome of that civil litigation. Counsel for Mr. Chesley. completed a review of disciplinary proceedings that involved a related civil proceeding and cannot find any instance in which the disciplinary proceeding was allowed to precede the completion of the civil litigation, particularly when discovery had not been completed. 1 There are also multiple instances of bar proceedings" held in abeyance pending resolution of related criminal actions. See, e.g., Kentucky Bar Ass'n v. Combs, 306 S.W.3d 520 (Ky. 2010); Buehner v. Kentucky Bar Ass'n, 27'1 S.W.3d 531, 532 (Ky. 2008); Haggard v. Kentucky Bar Ass'n, 118 S.W.3d 589, 589 (Ky. 2003); Kentucky Bar Ass 'n v. Barger, 98 S.W.3d 59. 59 (Ky. 2002); Gettys v. Kentucky Bar Ass 'n, 11 S.W.3d 45,46 (Ky. 2000). 13 6 Despite the fact that the Abbott plaintiffs seek to recover from Mr. Chesley the attorneys' fees he received in the fen-phen case and the Bar proceeding seeks to have him disgorge the very same legal fees, the Inquiry Commission and the Trial Commissioner refused to abate the proceedings against Mr. Chesley. This disparate treatment of Mr. Chesley, when contrasted with the preferential treatment provided to the KBA's own, is extremely troubling. Mr. Chesley has plainly received disparate and unprecedented treatment by being forced to defend the KBA's charges against him during the pendency of a substantially related civil litigation, in violation of his rights under Sections 1, 2 and 3 of the KENTUCKY CONSTITUTION. Accordingly, these proceedings should be abated until the conclusion of the Abbott action. II. Mr. Chesley has and will continue to be prejudiced by the continuation of these disciplinary proceedings during the pendency of Abbott Inconsistent rulings in Abbott and in this disciplinary proceeding is not just a possibility it has already occurred. By affirming the trial court's denial of the plaintiffs' motion for partial summary judgment against Mr. Chesley, the Court of Appeals has indicated that there is at least a genuine issue of material fact as to whether Mr. Chesley owed them any money. That holding is obviously in direct conflict with the Trial Commissioner's recommendation that Mr. Chesley be ordered to disgorge $7,555,000 as restitution to the Abbott plaintiffs "either through the auspices of the Abbott case, should those clients prevail, or some other means designed by the Court."15 If this discipline proceeding were to proceed to the Kentucky Supreme Court, a decision adverse to Mr. Chesley could unnecessarily create collateral estoppel issues in the Abbott case despite the fact that Mr. Chesley is entitled by § 7 KY. CONST, to a jury trial on the Abbott plaintiffs' claim for money damages. See In re Ackerman, 330 N.E.2d 322, 323 (Ind. 1975) 15 Report of Trial Commissioner, p. 29. 7 (disgorgement of attorneys' fees is not available in a lawyer discipline case because, inter alia, that would deprive the lawyer of his constitutional right to a jury trial). Further, because discovery was abated in Abbott from essentially the moment the Inquiry Commission filed its charge against Respondent to date, Mr. Chesley has been repeatedly prejudiced by his inability to use civil discovery in Abbott to discover exculpatory evidence. Yet Bar Counsel introduced into evidence Mr. Chesley's entire deposition in that case. Bar Counsel also called as witnesses 17 of the Abbott plaintiffs and Mr. Chesley was required to go forward with his cross-examination of those witnesses, despite never having the chance to depose them in Abbott due to the abated discovery. In issuing his recommendation, the Trial Commissioner reviewed incomplete Abbott discovery materials and listened to witnesses who had never been deposed by Mr. Chesley. In addition, while discovery was foreclosed in Abbott, Mr. Chesley's request for the provision of exculpatory evidence was denied, and his request to engage in discovery was denied, leaving him without any meaningful ability to prepare to defend against adverse evidence, or obtain any exculpatory information. Now that the Court of Appeals has upheld the trial court's denial of the plaintiffs' motion for partial summary judgment against Mr. Chesley, he can finally begin taking discovery in Abbott. He should not be further prejudiced in this matter by being required to pursue his appeal of the Trial Commissioner's recommendation - especially the recommended disgorgement while simultaneously defending the Abbott plaintiffs' claims. Accordingly, these proceedings should be abated pending final resolution of the Abbott civil action. III. Reservation of federal claims. Mr. Chesley expressly reserves, in accordance with the holding of England v. Louisiana State Board of Medical Examiners, 375 U.S. 411 (1964), his right to present all of his claims that these proceedings violate his Due Process and Equal Protection rights under the Fourteenth Amendment to the United States Constitution and his rights to Free Speech and Association under the First Amendment to the United States Constitution to a U.S. District Court. This reservation is presented to avoid any assertion by the Kentucky Bar Association that Mr. Chesley's federal Due Process claims have merged into any judgment which may result from this proceeding, and to allow the Board of Governors to interpret applicable state law to avoid violation of Mr. Chesley's federal constitutional rights. These federal constitutional claims are not to be decided in this appeal and are expressly reserved for presentation to a federal court, if necessary. In brief, Mr. Chesley contends that these proceedings violate his federal First Amendment, Due Process, and Equal Protection rights in the following ways: 1. Mr. Chesley's prosecution by the KBA is based on his having associated with and provided lawful, ethical advice to attorneys who themselves have been convicted of committing crimes and ethical violations that are embarrassing to the KBA and notwithstanding that Mr. Chesley has not himself committed any crimes or ethical violations. The First and Fourteenth Amendments protect Mr. Chesley against such retaliatory state action based solely on his association with others and his providing lawful, ethical advice to them. 2. The Office of the Bar Counsel, the prosecuting entity, impermissibly influenced the appointment of the Trial Commissioner. This system whereby an officer of the Executive 9 Branch is involved in appointing the presiding judicial officer denied Mr. Chesley a fair and impartial judge in violation of his federal Due Process rights;, 3. Bar Counsel should have been disqualified from further prosecuting this case and a Special Bar Counsel appointed. Bar Counsel gave a newspaper reporter access to the file in this lawyer discipline case - at a time when it remained confidential under SCR 3.150 - resulting in a front page story in a Cincinnati newspaper.16 After certain depositions were taken for use in both the Helmers and Chesley cases, Bar Counsel announced unilaterally that the cases wereconsolidated for all purposes. When Trial Commissioner Messer recused himself in the Chesley case, they were deconsolidated. When the Helmers case became public, the Chesley case remained confidential, but Bar Counsel invited the Cincinnati reporter to view the consolidated Helmers-Chesley file. Clearly, the reporter did not drive from Cincinnati to the Bar Center to review the Helmers file. When Trial Commissioner Graham ordered that steps be taken to maintain the confidentiality of the Chesley file, Bar Counsel defiantly resisted his directive.17 Respondent filed a motion to disqualify Chief Bar Counsel for misconduct. See State v. Culbreath, 30 S.W.3d 309 (Tenn. 2000); People v. Doyle, 406 N.W.2d 893 (Mich. App. 1987). The motion was denied. 4. The Trial Commissioner declined to stay the proceeding even though two related proceedings precluded Mr. Chesley from obtaining and presenting evidence necessary to his defense of the bar charges against him. The first matter, Abbott v, Chesley, is the civil case discussed above. From the discussion, it is obvious that Mr. Chesley was impermissibly restricted from presenting witnesses in violation of his Due Process rights. See Exhibit I. See Tr. n, pp. 5-17, attached as Exhibit J. 10 In the meantime, federal criminal indictments were issued against Mr. Gallion, Mr. Cunningham and Mr. Mills also arising from the handling of the settlement funds in the matter that prompted this bar proceeding. Mr. Chesley was never targeted for prosecution by the United States Attorney or the federal grand jury. Those related criminal proceedings resulted in the convictions of Gallion and Cunningham in United States v. Gallion,, No. 2:07-CR-39, in the United States District Court for the Eastern District of Kentucky. Both were sentenced on August 17, 2009, and appealed their convictions. At the time of Lhe proceedings below, Messrs. Gallion and Cunningham both exercised their Fifth Amendment privilege to decline to give testimony in the case. The testimony of Messrs. Gallion and Cunningham was vitally necessary to Mr. Chesley's defense in this case, hi fact, Bar Counsel procured a ruling at the final pretrial conference that she could use an incomplete deposition of Mr. Gallion taken for the plaintiffs in the civil case. An attorney who is subject to discipline proceedings is entitled to due process. In re Ruffalo, 390 U.S. 544, 550 (1968). At a minimum, this means that he must be provided with an opportunity to present a defense. Id. at 550-52. The right to present a defense includes the right to present the testimony of witnesses in support of that defense. 5. Mr. Chesley was precluded from calling a number of witnesses who would have testified as to his character and reputation through the years. Many of the witnesses were attorneys or judges who have had extensive experience with Mr. Chesley. This also violated Mr. Chesley's due process rights. 6. Mr. Chesley has been denied Equal Protection through his disparate unprecedented treatment of being forced to defend the KBA's charges against him during the pendency of a substantially related civil litigation. There is no basis for treatment of Mr. 11 Chesley in this fashion and the KBA has not treated similarly situated attorneys in the same fashion. 7. In the January 2009 Edition of the Kentucky Bench & Bar, page 3, Volume 73 No. 1, it was announced that the Kentucky Bar Association Board of Governors had removed current President Barbara D. Bonar from participation in discipline cases. Robert F. Houlihan Jr. was retained to conduct an investigation and actually interviewed many individuals who may. have had knowledge of the underlying events giving rise to this Bar discipline proceeding. The Houlihan Report may have conclusions that describe retaliatory action against Mr. Chesley by then current KBA officers. Mr. Chesley subpoenaed Mr. Houlihan and his report for the hearing below, but the Trial Commissioner, who did review the report in camera, refused to compel production of the report to Mr. Chesley. Mr. Chesley, as a matter of due process, was entitled to review the contents of this report to be adequately apprised of any attempts by Bar Association officers to use their office in an improper way. Compelled production of the report could have lead to the discoverability of admiss'ible evidence in this Bar proceeding. CONCLUSION For the foregoing reasons, Mr. Chesley respectfully requests that the Board of Governors to hold his appeal of the Trial Commissioner's Report in abeyance pending resolution of the ongoing civil action Abbott, et al. v. Stanley M. Chesley, et ah, Boone Circuit Court, Civil Action No. 05-CI-00436. Respectfully\sumnitted, Sher^S/Snyder FrostjBriwn Tbdd IXC 400 W~Marke1 St., 32nd EL Louisville, KY 40202 Phone: 502-589-5400 12 Scott C. Cox Cox & Mazzoli, PLLC 600 West Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 Mark L. Miller 600 W. Main Street, Suite 300 Louisville, KY 40202 Phone: 502-589-6190 James M. Gary Weber & Rose, P.S.C. 417 W. Main Street, Suite 400 Louisville, KY 40202 Phone: 502-589-2200 Frank Benton, IV Benton, Benton & Luedeke 528 Overton Street P.O. Box 72218 Newport, KY 40172 Counselfor Respondent, Stanley M. Chesley 13 CERTIFICATE OF SERVICE It is hereby certified that on April 28, 2011, a copy of this Motion to Abate Proceedings Pending Resolution of Related Civil Litigation, and Reservation of Federal Claims was sent via electronic mail and UPS overnight delivery to Ms. Susan Greenwell, Disciplinary Clerk of the Kentucky Bar Association, 514 West Main Street, Frankfort, Kentucky 40601, with sufficient copies for distribution to the Board of Governors and: Linda Gosnell Chief Bar Counsel Office of Bar Counsel Kentucky Bar Association 514 West Main Street Frankfort, KY 40601 Also pursuant to prior order electronic copies were sent to the following: Linda Gosnell Kentucky Bar Association 514 West Main Street Frankfort, KY 40601
[email protected] Cary Howard Kentucky Bar Association 514 West Main Street Frankfort, KY 40601 choward@kybar. org ondent, Stanley M. Chesley LOUUbrary0118087.0571145 1054905v5 14