Office of the United States Attorney
Eastern District of Kentucky

COVINGTON, Ky. — Three lawyers from Lexington, Ky., who represented over 400 plaintiffs in a civil suit over injuries sustained by the diet drug Fen-Phen, were indicted today by a federal grand jury for charges of conspiracy to commit wire fraud.

In July 1998, William J. Gallion, 56; Shirley A. Cunningham, Jr, 52.; and Melbourne Mills, Jr, 76, filed a civil action in Boone County Circuit Court on behalf of approximately 440 plaintiffs they represented against American Home Products (AHP), Bariatics, Inc., and Dr. Rex Duff.

As part of their representation, all three entered into contractual fee agreements with each of their clients. Gallion agreed to a fee of 33% of the total sum recovered by his clients before expenses; Cunningham agreed to 33 and 1/3 % of the total sum recovered by his clients before expenses; and Mills agreed to a fee of no more than 30% of his clients net recovery afer expenses.

In May 2001, the case was settled through mediation. AHP agreed to pay the plaintiffs $200 million. The indictment alleges that the three lawyers ignored both mandatory court rules and their contractual fee agreements, fraudulently convinced each plaintiff to accept a settlement without full disclosure, and defrauded the plaintiffs of approximately $65 million.

According to the contractual fee agreements, the plaintiffs should have received approximately two thirds of the amount, with the attorneys entitled to the remainder. Instead, by the end of 2001, the plaintiffs received a total of $45, 460,250. Of the remaining $154, 989,750, about $7.5 million was set aside as part of the settlement agreement and the rest went to the attorneys.

In February 2002, the Kentucky Bar Association Inquiry Commission conducted a hearing investigating the manner in which the civil settlement had been handled. During the hearing, the Commission applied for a subpoena for the Escrow Account used for the settlement. It is alleged that after this request was made, money that had already been diverted to the defendants’ personal accounts was used to pay a second distribution to the plaintiffs.

This second distribution was still below that to which the plaintiffs were entitled. During this second distribution, the plaintiffs were told that if there were any additional monies left over, they may seek to have those additional amounts donated to a trust for charity.

Subsequently, Gallion, Cunningham and Mills misrepresented to the court that the plaintiffs had approved this trust and were aware that they intended to fund it with $20 million dollars from the settlement. Thereafter the defendants became paid directors of the trust.

The indictment alleges that the wires were used to further this scheme to defraud the plaintiffs. The indictment further seeks restitution from the defendants in the amount of approximately $65 million.

If convicted, each face up to 20 years in prison, a maximum fine of $250,000, and up to three years supervised release. Any sentence following conviction will be imposed by the Court after consideration of the U.S. Sentencing Guidelines and applicable federal statutes.

Appearances before United States District Court have been scheduled for June 22, 2007 at 10:30 a.m. in Covington, Ky. The United States was represented in the case by Assistant United States Attorneys Laura K. Voorhees and E.J. Walbourn. The investigation preceding the Indictment was conducted by the Federal Bureau of Investigation.

The indictment of a person by a grand jury is an accusation only, that person is presumed innocent unless proven guilty.

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