Law Firms

Former law firm of disbarred lawyer Stan Chesley agrees to pay $19M for fee overcharges

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Briefcase of cash

A dissolved Ohio law firm once owned by mass-torts lawyer Stanley Chesley has agreed to pay fen-phen diet-drug litigants $19.1 million to resolve their unjust enrichment claims stemming from attorney fee overcharges in the mass-tort case.

The agreed judgment signed Oct. 3 by U.S. District Judge Robert Cleland is part of a larger $23.5 million settlement, according to Angela Ford, a lawyer for the plaintiffs. The Cincinnati Business Courier, the Cincinnati Enquirer and WCPO have coverage.

The law firm, Waite Schneider Bayless & Chesley, acknowledged unjust enrichment in the agreed judgment, which also bars the transfer of assets to Chesley, his agents and his family members.

The broader settlement releases from liability lawyer Thomas Rehme and Chesley’s wife, U.S. District Judge Susan Dlott, who was not a defendant in the litigation, Ford told the ABA Journal. Rehme oversees the trust governing the law firm’s assets. The liability release applies to any assets disclosed in the litigation. The broader agreement also releases from liability any lawyers who have represented Chesley.

Ford said Chesley himself is not a party to the settlement, and the litigation against him will continue.

Dlott took senior status in June, after a federal appeals court said in a footnote that she was involved in some “curious” transactions involving transfers from Chesley.

Ford told the ABA Journal in an email that the settlement “puts a large amount of money in my clients’ pockets after they waited years for their stolen funds to be repaid, and ends a significant part of the litigation.” The settlement will cover all 382 plaintiffs in the fen-phen litigation, and is in addition to $17.7 million previously collected for the plaintiffs.

The agreed judgment is part of a 2016 federal fraudulent conveyance suit that had alleged Chesley, with the assistance of Rehme, had fraudulently transferred his assets to his law firm as part of a wind-up agreement.

The case had reached the Cincinnati-based 6th U.S. Circuit Court of Appeals, which said in a May 31 opinion that Chesley “appears to have been orchestrating a high-stakes shell game in an effort to escape a long-overdue multi-million-dollar judgment.”

The appeals court affirmed an injunction freezing Chesley’s assets and traced the history of the case.

Chesley was disbarred in Kentucky in March 2013 for his role in the fen-phen case in which he earned $20 million to help negotiate a $200 million settlement. Two other lawyers in the fen-phen drug case went to prison for bilking clients out of settlement money.

A Kentucky judge ruled in 2014 that Chesley and other lawyers were jointly and severally liable for $42 million in fee overcharges in the case. Since then, the 6th Circuit said, “the plaintiffs have been trying to collect on that judgment and Chesley has been successfully evading them with the help of his confidantes.”

“Through it all,” the appeals court said, “Chesley has managed to transfer most of his assets elsewhere, rendering himself judgment-proof.”

Chesley retired from law practice in Ohio after his Kentucky disbarment. He then reached the wind-up agreement for his firm which “also served as a vessel through which Chesley could move his assets,” the appeals court said.

Chesley funneled $59 million of his personal funds into the firm, and transferred all of his law firm shares to Rehme for no consideration, the appeals court said. “This left Chesley with empty pockets to show his judgment creditors when they inevitably came knocking,” the 6th Circuit said.

The appeals court also said in footnote 9 that other transactions raised red flags because they appeared to lack economic substance. In one instance, Chesley wrote a $1 million check in 2014 to an entity owned by Chesley’s wife, the court said. In another, he transferred his ownership interest in a car dealership to his wife in 2011 for no consideration.

“These transactions are curious, as there appears to have been no exchange of economic benefit,” the appeals court said. “But because the record is not fully developed on these individual instances, we do not base our decision on them.”

A person who answered the phone at Dlott’s chambers said she had no comment.

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