Kentucky Bar Ass'n v. Chesley
2013 WL 1197510, 2013 Ky. LEXIS 44, 393 S.W.3d 584 (2013)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An attorney acting as co-counsel in an aggregate settlement assumes a non-delegable ethical duty to all clients in the case. This duty includes ensuring fees are reasonable, clients are properly informed of settlement terms and fee-sharing arrangements, and representations to the court are candid, and the attorney may be held responsible for ratifying the misconduct of co-counsel.
Facts:
- Attorneys William Gallion, Shirley Cunningham, and Melbourne Mills had contingent fee contracts with approximately 431 clients injured by the diet drug 'fen-phen', providing for fees of 30-33.3% of any recovery.
- Stanley M. Chesley, an attorney with a national reputation, joined the case as 'lead negotiator' under a co-counsel agreement that granted him 21% of the total attorneys' fees earned.
- The co-counsel agreement expressly required that all clients be advised of the fee-sharing arrangement, but none of the clients were ever informed.
- Chesley negotiated a $200 million aggregate settlement with the defendant, American Home Products, which required the decertification of the case as a class action.
- After the settlement, Chesley's co-counsel deceptively obtained releases by telling clients their individual settlement 'offers' were far less than the amounts actually allocated to them, resulting in the clients receiving only $46 million of the $200 million fund.
- Chesley personally received over $20 million in fees, substantially more than his contractual share of approximately $14 million (21% of the maximum 33.3% total fee).
- When investigations began, Chesley participated in an off-the-record meeting with a judge to retroactively approve an excessive 49% total attorney fee and create a charitable trust to hide the misappropriated funds, failing to disclose the existence of the original contingent fee contracts to the court.
- Chesley paid $500,000 to settle a separate lawsuit between his co-counsel and that co-counsel's law partner specifically to avoid being deposed about the fee distribution scheme.
Procedural Posture:
- The Kentucky Bar Association (KBA) Inquiry Commission began an investigation into Stanley Chesley's conduct related to the 'Guard' case settlement.
- The Inquiry Commission issued a formal Complaint of Misconduct against Chesley, alleging numerous violations of the Kentucky Rules of Professional Conduct.
- A Trial Commissioner conducted an extensive hearing, taking testimony from forty-three witnesses.
- The Trial Commissioner issued a report finding Chesley had committed nine violations and recommended permanent disbarment and payment of over $7.5 million in restitution.
- The KBA Board of Governors, by a vote of 18-0, adopted the Trial Commissioner's report and recommendations.
- Chesley filed a notice of review with the Supreme Court of Kentucky, the highest court in the state.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an attorney who acts as lead negotiator and co-counsel in an aggregate settlement violate multiple professional conduct rules when he accepts a fee far exceeding contractual limits, fails to ensure clients are properly informed of the settlement and fee-sharing agreements, misleads a tribunal about the appropriate fee, and actively helps conceal the misconduct of his co-counsel?
Opinions:
Majority - Chief Justice Minton
Yes, the attorney's conduct violates multiple professional conduct rules. An attorney cannot disavow ethical responsibilities to clients by claiming he was only employed by co-counsel; upon joining the case, he assumed the same duties as all other attorneys for the plaintiffs. The court found Chesley violated eight distinct rules. The fee of over $20 million was per se unreasonable because it grossly exceeded the amounts permitted under the clients' contingent fee contracts, which governed the settlement of their individual claims. Chesley had an independent, non-delegable duty to ensure clients were provided with proper written settlement statements and were informed of the fee-sharing agreement. By participating in an aggregate settlement without ensuring each client consented after full disclosure, he violated his duties. Furthermore, he violated the duty of candor to the tribunal by advocating for a 49% fee based on class-action principles while failing to disclose the controlling, lower contingent fee agreements. Finally, the court found Chesley knowingly ratified his co-counsels' fraud through his active efforts to conceal it, including orchestrating the meeting with the judge, paying to avoid a deposition, and reviewing falsified documents.
Analysis:
This case establishes a stringent standard of accountability for attorneys acting as co-counsel, particularly in complex, multi-party litigation. The court firmly rejected the argument that an attorney can limit their ethical duties by narrowly defining their role as a 'negotiator' hired by other lawyers rather than by the clients themselves. The decision makes clear that once an attorney becomes co-counsel, they assume full ethical responsibility to the clients and cannot use 'willful blindness' as a defense against knowledge of co-counsel's misconduct. This precedent significantly impacts how attorneys in joint representations must oversee fee arrangements, client communications, and settlement distributions, reinforcing that each lawyer is independently responsible for upholding the rules of professional conduct.
Unlock the full brief for Kentucky Bar Ass'n v. Chesley