Legal Ethics

Federal judge feels tricked into 'chicanery, duplicity and mendacity' in Stan Chesley matter

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A federal judge in Toledo, Ohio, has ordered disbarred tort lawyer Stan Chesley and his lawyers to appear before him next month to explain whether they committed a fraud on the court.

U.S. District Judge James Carr said he was unaware that Chesley had allegedly failed to comply with a state court order to turn over money to plaintiffs who overpaid lawyers’ fees in fen-phen litigation. WCPO covered Carr’s order (PDF) to show cause.

Carr had encouraged settlement in a federal suit by Chesley’s former firm against an ex-client for unpaid fees, and then dismissed the case after an agreement was reached. “Had I known but a fraction of what I did not know before dismissal, I would have acted differently,” Carr wrote.

“Under no circumstances would I have accepted a settlement that enabled Chesley—or others acting on his behalf of in concert with him—to evade the obligation to pay over the settlement proceeds in accordance with the command” of a state court judge in Boone County, Kentucky, Carr said.

Chesley had been disbarred for charging an unreasonable fee to negotiate a $200 million settlement in the fen-phen diet drug case. He and several other lawyers were found jointly and severally liable for $42 million, the total amount of fee overcharges in the fen-phen case; Chesley himself was found to have overcharged $7 million, Carr said.

The Boone County judge had ordered all distributions from Chesley’s interest in Waite, Schneider, Bayless & Chesley be turned over to the fen-phen plaintiffs. Under a wind-up agreement, Chesley was to turn over shares in his law firm to a trustee who would liquidate the corporate assets and pay off the creditors.

In September, the Boone County judge found that the wind-up agreement was a “sham” and Chesley continued to control and direct his law firm, Carr said. The Boone County judge also found Chesley was taking steps to make himself insolvent while directing assets to the law firm, including litigation fees and $59 million from his personal accounts.

Carr said he had been aware that Chesley was disbarred in Kentucky, but he refrained from learning anything more to maintain his impartiality. Carr also said he does not usually ask about the terms of a settlement and did not know terms of the confidential settlement in the case before him.

One of the fen-phen plaintiffs moved to disclose the settlement and to turn over the proceeds to her lawyer. The motion alleged that Carr’s court was serving as a forum for the avoidance of another court’s orders.

“That appears so,” Carr wrote. “In a word, at this point, I feel tricked, and complicit, albeit unwittingly so, in chicanery, duplicity, and mendacity. No judge should ever find himself in that situation.”

In a footnote, Carr cautioned that he was not finding in his order that a fraud on the court had occurred. “But what I have outlined in this show cause order compels me, in my view, to conduct a full and fair inquiry to determine one way or the other.”

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