Primary Arterial Hypertension News - Menu Fen-phen settlement is back in the courtroom 36 PLAINTIFFS SEEK ANSWERS ABOUT LAWYERS' HANDLING OF PAYOUT AND $18 MILLION LEFT OVER By Beth Musgrave and Jim Warren HERALD-LEADER STAFF WRITERS Jan. 29, 2005 - His heart weakened by the diet drug combination fen-phen and multiple heart attacks, Ray Parker was forced to quit his job in 1997. He was only 55. The Ashland man joined a class-action lawsuit against fen-phen manufacturer American Home Products in 1998. The case was eventually settled in 2001 and Parker received two separate settlement checks for undisclosed amounts. But the fen-phen case is far from over. Now Parker and others are raising questions about the settlement that was reached in Boone Circuit Court. Thirty-six plaintiffs in the original fen-phen class action filed a lawsuit against their lawyers in Fayette Circuit Court last month, demanding an accounting of how the $200 million in settlement funds were disbursed. The key questions in the complaint surround the Kentucky Fund for Healthy Living -- a non-profit, charitable corporation created and controlled by Parker's former lawyers -- which allegedly holds up to $18 million left over from the fen-phen settlement, according to court documents. The fund is managed by some prominent Lexington attorneys -- Melbourne Mills Jr., Shirley Allen Cunningham and William Gallion -- and a Northern Kentucky trial consultant, Mark Modlin. Modlin's relationship with Boone Circuit Court Judge Joseph "Jay" Bamberger, who presided over the fen-phen case and oversaw the creation of the non-profit corporation, has been questioned in the past. Cincinnati lawyer Stanley Chesley, another lawyer in the 1998 case, is also named in the lawsuit, but according to Secretary of State records, he is not on the board of the Kentucky Fund for Healthy Living. In their lawsuit, some of the plaintiffs said they were not told that leftover settlement funds were going to a charitable corporation. Others said the amount of money going to charity was misrepresented. The plaintiffs also maintain that they never approved their attorneys' creation of a charitable fund; some say they specifically opposed the idea. Former clients aren't the only ones asking questions about how the case was handled. The Kentucky Bar Association, which is charged with investigating improprieties involving lawyers, has also questioned some of the 431 plaintiffs in the original class action, according to the lawsuit. Investigators with the bar association, following their usual policy, said they could neither confirm nor deny whether the lawyers or the case were being investigated. Legal experts familiar with class-action case law say several aspects of the case seem unusual, particularly the creation of a non-profit, controlled by lawyers in the case, to manage leftover settlement funds. But William Johnson, a Frankfort lawyer who represents the four plaintiff attorneys, says there was nothing abnormal or suspect about how the settlement was handled or the creation of the non-profit corporation. The plaintiffs already have received settlement amounts based on their medical conditions. Just because there was additional money after their claims were settled doesn't mean they are entitled to additional money, Johnson said. Gallion, Cunningham, Mills and Chesley did not return calls asking for comment. Gallion and Mills were out of town, their offices said. Parker and the other plaintiffs said they did not receive a copy of their personal settlement agreements. The original settlement agreement, which typically would outline how the settlement was to be disbursed, was sealed in Boone County. Gallion, in a letter entered into the record in Fayette Circuit Court, said American Home Products had agreed to a $200 million settlement. The settlement agreement might also tell if American Home Products and the plaintiffs' lawyers had agreed on what would happen if there was any unclaimed money left over from the $200 million settlement. Johnson said in a Fayette Circuit Court hearing yesterday that American Home Products asked that the settlement be sealed. Johnson also said that there was a $100,000 fine for violating the agreement. In court papers, Mills, Chesley, Cunningham and Gallion have argued that their clients were aware of the creation of the non-profit corporation. "Plaintiffs had been advised that such a trust would probably be created and utilized," the lawyers argue in a motion to dismiss the case. The lawyers also say that everything was overseen by Bamberger, therefore "the plaintiffs have no claim of right to information distributed to other clients." But many of the former plaintiffs said they don't want to see what other people received -- they just want to see their own settlement agreements, which would say how much American Home Products agreed to pay them. Elizabeth Abney of Lexington said she was never consulted about the establishment of a non-profit, according to the lawsuit. Nor was Abney told of the amount of settlement funds paid by the pharmaceutical companies. Parker said that when he received his second check, a legal assistant asked him if he would be willing to donate any additional funds, if there were any additional funds, to charity. "What I was told was that it was a minuscule amount," Parker said. But Angela Ford, a Lexington lawyer representing the former fen-phen clients, said in a Jan. 14 Fayette Circuit Court hearing that the $18 million in the fund's coffers, if divided between the 431 original plaintiffs, could be more than some plaintiffs' original settlements. Johnson said it is not uncommon for there to be left-over or additional funds after a class-action case is settled. Nor is it uncommon, Johnson said, for that money to go to charity or to be placed in a non-profit trust. In a recent motion before the Fayette Circuit Court, Johnson cited a series of cases in which leftover settlement funds were earmarked for charitable purposes. However, none of the cases cited involved the establishment of a non-profit corporation controlled solely by the plaintiff's lawyers. Class-action lawsuits can involve hundreds and sometimes thousands of people. In many cases, money is set aside for a period of time in case people come forward with claims. In the fen-phen case, lawyers estimated that more than 90,000 people took the drugs in Kentucky. While the Boone Circuit Court action was pending, there was another national settlement class, which was being settled in federal court in Pennsylvania. Plaintiffs in the Kentucky lawsuit were given the option of participating in the national settlement or the state action. Those who decided to participate in Kentucky -- 431 people -- received a settlement based on their injuries. But there was money set aside in case other people who took fen-phen came forward with claims. When no one came forward, the lawyers went back to Bamberger and asked the judge what should be done with the remaining money, Johnson said. Bamberger decided that the remaining money should be divided again among the plaintiffs in the Kentucky lawsuit, Johnson said. According to a June 6, 2002, order, Bamberger ordered that 50 percent of the remaining funds be distributed to the individual clients and the remaining 50 percent be held back in case there were future claims or costs associated with the case. Consequently, Parker and others got a second check. But even after the second pay-out, there was still money left, Johnson said. Bamberger ordered that the remaining amount, subtracting assorted fees, should be placed in a trust. Court records do not indicate how much money was originally moved into the trust. "I think what happened here is that people discovered there was money put in a trust," Johnson said. "And people are wondering why that money went into a trust and not into my pocket. But what people don't understand is that their settlement agreement was arrived at through a host of factors and there was even a mediation process." Legal experts experienced in class-action law agree that it is not uncommon for money to be left over after a class-action is settled. In legalese those funds are sometimes called "cy pres" funds. It is not uncommon for these leftover funds to go to charity, experts say. "It isn't unusual, in fact it is normal course, for funds to be left over," said Richard Zitrin, a San Francisco attorney who teaches at two California law schools and has written or co-written books on legal ethics. "But in my mind it is unusual to have the lawyers establish a non-profit corporation, and have the money go to the corporation they have set up." Zitrin also said that it would be unethical if attorneys benefitted financially from a non-profit they created. "It strikes me as being unethical for them to derive any income out of it," he said. The lawyers would have already received their fees from the case, typically between 20 and 30 percent of the original settlement. In the Jan. 14 court hearing, Ford said there remain questions about whether the lawyers were paying themselves a director's fee to oversee the funds. Johnson said in an interview that he did not know whether the lawyers and Modlin were receiving pay to serve on the organization's board of directors. "If they are (receiving payment) they will certainly have to account for it," Johnson said. "You have to file appropriate returns under the federal and state laws." Michael Jacobs, a Minneapolis attorney whose firm handles class-action cases, said that when money is left over in such cases, the lawyers and the judge usually pick a charity to receive the money. Usually, they pick a charity related to the original subject matter of the suit, he said. "What I'm familiar with is that the money would be granted to some existing charity whose purposes have some relation to the subject of the lawsuit," Jacobs said. "I've never heard of actually setting up a separate charitable organization (as in the fen-phen case)." Steven Bekett, who teaches at the University of Illinois law school, said he was surprised by the fen-phen plaintiffs' allegations that they were never informed about the creation of the non-profit corporation, and by the amount of money the fund allegedly received. "I guess I'm surprised because I would think the lawyers would have been careful to notify members of the class about the non-profit and what it does," he said. "I'm not as surprised by the structure or what happened as I am about the lack of notice and the amount of money" alleged to have gone to the fund. The Herald-Leader this week requested copies of the Kentucky Fund For Healthy Living's federal tax forms, typically referred to as 990s, which provide information on a non-profit's finances. But attorney J. Whitney Wallingford, the registered agent for the Kentucky Fund, said the corporation has not filed a Form 990 yet, and that its first form is not yet due. The Kentucky Fund was registered with the Kentucky Secretary of State's office in January 2003. The fund has provided grants to various civic organizations since its inception in 2003, according to a list provided to the Fayette Circuit Court. Those groups include: University of Kentucky Medical Center, United Way of the Bluegrass, the Ludlow Independent School District and the Redwood Rehabilitation Center. The amount of money the groups received was not included in the list. According to court documents, Bamberger approved the creation of the trust and eventually the establishment of the non-profit corporation. Bamberger relinquished oversight of the non-profit corporation on Dec. 30, 2003, at the request of plaintiff lawyers. In a July 2002 order, Bamberger said he reviewed the accounting of funds and was advised "of the consent of the individual plaintiffs who received settlements for use of the remaining funds for charitable purposes." In that order, Bamberger said that no more than 30 percent of the assets in any given year shall be used to pay "fees and expenses" incurred by the trustees. Bamberger retired from the bench in 2004 and could not be located for comment. Shortly before retiring, Bamberger's relationship to Modlin, a trustee of the Kentucky Fund for Healthy Living, became an issue in another well-publicized case. Lawyers for the Archdiocese of Covington asked Bamberger to recuse himself from a high-profile sexual abuse case against the archdiocese, because he was a close friend of Modlin, who was hired by the plaintiff's attorney in the class action. As a trial consultant, Modlin helps lawyers develop strategies for trial and consults about jury selection. Bamberger resigned before the state Supreme Court decided whether he should recuse himself in that case. But in a letter to the state Supreme Court, Bamberger pointed out that he was friends with many people who practiced before him and said that the archdiocese's recusal request was a form of "forum shopping."
For a while, fen-phen was the talk of the weight-loss world Jan. 29, 2005 - For a while in the mid-1990s, overweight Americans seemed to be going crazy over fen-phen. Fen-phen, actually a combination of the drugs fenfluramine and phentermine, exploded into national popularity with a promise of quick and effective weight loss. One drug suppressed appetite, the other prevented drowsiness, and the pounds melted away. People began rushing to buy fen-phen, particularly in Kentucky where relatively liberal prescription rules made the drug combination easy to get. New weight-loss clinics prescribing fen-phen began appearing almost overnight. Four opened in Lexington within a few months along a short stretch of Richmond Road. Weight-conscious residents from surrounding states, where fen-phen was unavailable, flocked to Kentucky to stock up on the drugs. Even stars from the Grand Ole Opry became regular Kentucky fen-phen customers. Health experts warned from the beginning that fen-phen was only for the seriously obese, not those who only wanted to lose a few pounds. But everybody wanted the drug cocktail. All that came to a crashing halt when scientific evidence surfaced showing that fen-phen caused serious heart-valve damage in some patients. The FDA pulled the drug combo off the market in 1997. Shortly afterward, lawyers around the country began lining up former fen-phen users for clas-action suits against American Home Products, the maker of fen-phen.
For a while, fen-phen was the talk of the weight-loss world |
