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You may remember that Kentucky lawyers Melbourne Mills, Jr., Shirley A. Cunningham, Jr., and William J. Gallion, who were accused of taking an extra $65 million from the settlements of 440 clients they represented in Fen-Phen litigation, were scheduled to go on trial last year.

Last summer, a federal jury acquitted Mills, but could not reach a verdict regarding Cunningham or Gallion, after deliberating for eight days, causing U. S. District Judge William O. Bertelsman to declare a mistrial.

But earlier this month, following two days of deliberations, a jury found Gallion and Cunningham guilty of one count of conspiracy and eight counts of wire fraud.  A few days later, the jury ordered the defendants to forfeit $30 million, as well as an unspecified amount in another account, which could be as much as $20 million. They will be sentenced on July 27 and their lawyers have said they will appeal the verdicts.

As described by Andrew Wolfson in the (Louisville) Courier-Journal, this trial was different from the first one, not including the outcome.  District Judge Danny Reeves presided over this trial, after Judge Bertelsman recused himself after last year’s mistrial.  And because Judge Reeves sits in Frankfort, the trial was moved there from Covington.  But perhaps the most significant difference was that the defendants faced nine counts instead of one, following the prosecution’s decision to issue a superseding indictment after last summer’s mistrial.

According to the Kentucky Law Review, last October, the Kentucky Supreme Court permanently disbarred Gallion and Cunningham after they admitted to committing eight of the 22 ethical violations alleged against them. 

The defendants’ disbarments may have been significant to the jury.  Angela Ford, who represents the Fen-Phen clients in a civil action against Gallion, Cunningham, and Mills, said that the key difference in the retrial was that the Kentucky Bar Association’s chief counsel was permitted to testify about the Supreme Court’s disbarment order and the Bar’s investigation. 

Ford’s clients have already obtained a $42.5 million verdict in a civil action against Gallion, Cunningham, and Mills.

But still unclear is the status of some horses owned in whole or in part by Midnight Cry Stable, which is owned by Tandy LLC, a corporation in which Gallion and Cunningham are principals.  Midnight Cry still owns 20% of Curlin, a two-time Horse of the Year and, with earnings of $10,501,800, the leading North American-based money-winner of all time.  As of last November, a Thoroughbred industry expert estimated that Midnight Cry's interest was worth $4 million.  Curlin has been retired and stands at stud at Lane’s End Farm for a fee of $75,000, and is expected to cover 125 to 130 mares this season, which would generate nearly $10 million.

Midnight Cry also owns Einstein, who won the Santa Anita Handicap on March 7, and whose share of the purse, $480,000, had been garnished by Ford’s clients. Last week, Franklin County (Kentucky) Circuit Court Judge Roger Crittenden ordered that the lien be released and the money, which had been escrowed, be released to a receiver for Midnight Cry, after its lawyer claimed that the money was necessary to care for other horses owned by the stable.

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    Last week, I wrote about the three Kentucky lawyers who are accused of taking an extra $65 million from their Fen-Phen clients.  On August 10, United States District Judge William O. Bertelsman granted the defendants’ request for a continuance of their October 15 trial, but ordered the defendants taken into custody until their new trial in January 2008.  He was concerned that if the defendants remained free on bond, they were flight risks and also could conceal the monies they allegedly took from their clients.  Then, on August 14, he set a hearing for August 21 regarding the defendants’ detention based on information that had just come to light. 

    Since then, on August 15, the defendants filed their notices of appeal with the Sixth Circuit Court of Appeals from the District Court’s order revoking their bond and remanding them into custody.

    Also on August 15, the defendants filed emergency motions objecting to the jurisdiction of the District Court to proceed with the hearing on August 21 in light of their notices of appeal.  On August 20, the Court granted the defendants’ emergency motions to the extent that it agreed that the notices of appeal may deprive the court of jurisdiction and therefore unable to hold the detention hearing on August 21.  The Court canceled the hearing, but did not take any action regarding the defendants’ detention, however, so they remain in custody.  

    Finally, on August 20, the defendants moved to recuse Judge Bertelsman under 28 U.S.C. § 144 on the grounds that he has a “personal bias or prejudice either against him [the defendant] or in favor of any adverse party.”  Here is defendant William J Gallion’s affidavit, which was submitted in support of the motion to recuse.  As of today, there haven't been any new filings.

    A couple of observations.  First, as I read 28 U.S.C. § 144, if the affidavit is “timely and sufficient,” then Judge Bertelsman’s recusal is mandatory: “such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding.”   So it seems that the judge whose recusal is being sought determines whether the affidavit is adequate, which may not be a good position for the defendants. 

    Second, Judge Bertelsman’s concern for the individuals who were clients of the defendants is obvious in his order, as reflected by his discussion of the Crime Victims' Rights Act.  He was troubled that the defendants' clients have to wait on the outcome of the criminal trial in order to have their civil claims resolved. 

    While his concern for the interests of the individuals is laudable, it has come at the expense of the defendants’ rights.  Pretrial detention serves no purpose in this case, which is what I predict the Sixth Circuit will hold.  Interestingly, Gallion's affidavit says that after Judge Bertelsman revoked the defendants' bond and ordered them into custody, Gallion's lawyer told the Court that in that case, they'd go to trial on October 15.  But according to Gallion, Judge Bertelsman continued walking off the bench and didn't respond.  

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    More twists in the case involving the three Kentucky lawyers who are awaiting trial on charges they took an extra $65 million in fees from their Fen-Phen clients. 

    In June, I wrote about the wire fraud indictments issued against William J. Gallion, Shirley A. Cunningham, Jr., and Melbourne Mills, Jr. by a federal grand jury in Covington.  The three are awaiting trial, which had been set to begin on October 15, and had been free on their own recognizance. Their lawyers requested a continuance to have additional time to review documents, and the prosecution joined in the request.

    According to The (Louisville) Courier-Journal, United States District Judge William O. Bertelsman expressed concern about the incentive for the defendants to transfer the funds to an off-shore account or themselves to flee if they remained free on bail, and advised the defendants and their counsel that if he granted their motion, he would revoke their bail. (The defendants had already surrendered their passports.)  Following a hearing on the motion, Judge Bertelsman granted the continuance and ordered the defendants taken into custody and incarcerated in the Boone County Jail.  Trial is now set for January 7, 2008.

    But as of Tuesday afternoon, there’s another development.  The Courier Journal reports that based on new information that was not available last week, and which he did not describe, Judge Bertelsman has set a hearing for next Tuesday. He has also ordered Gallion, Cunningham, and Mills to submit complete financial statements prior to the hearing.  The defendants' lawyers had already filed notices of appeal for the order revoking their clients' bail, and did not request next Tuesday's hearing. 

    The Courier-Journal  has another article that features commentary from well-known legal ethics experts about the ruling.  Judge Bertelsman's comments at last Friday's hearing, as also described in the article, demonstrate a concern for the public's perception of the legal profession as a whole.  But, as the ethics experts pointed out, his concern should be for the individual defendants.

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    The New York Times reports today that three Lexington, Kentucky  lawyers have been indicted for keeping $65 million that should have been distributed to their clients for the settlement of their Fen-Phen claims.  William J. Gallion, Shirley A. Cunningham Jr. and Melbourne Mills Jr. were entitled to one-third of the $200 million settlement on behalf of approximately 440 clients, but kept two-thirds.  The indictment alleging wire fraud was issued by a federal grand jury meeting in Covington, Kentucky.  All three had their law licenses temporarily suspended last August by the Supreme Court of Kentucky.

    An interesting aside to this development is that Messrs. Gallion and Cunningham own a 20% stake in Curlin, who won the Preakness and finished third in the Kentucky Derby and second in the Belmont.  They bought Curlin in 2005 for $57,000, then sold 80% of their interest in February for $3.5 million.  There will likely be litigation regarding Curlin's ownership, as the lawyer representing most of the plaintiffs whom Gallion and Cunningham are accused of defrauding alleges that they bought the horse with the money they withheld from her clients.  If true, she says the plaintiffs, and not Gallion and Cunningham, own the horse, and the sale of  the 80% interest is void.  The (Louisville) Courier-Journal also wrote about the dispute last month.

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