LEXINGTON, Ky., March 22 — W. L. Carter knew there was something fishy going on when he went to his lawyers’ office a few years ago to pick up his settlement check for the heart damage he had sustained from taking the diet drug combination fen-phen.
W. L. Carter, a fen-phen plaintiff, said he was angry about how he had been treated. “The greed got the best of them,” he said of his lawyers.
The check was, for starters, much smaller than he had expected. And his own lawyers threatened to retaliate against him if he ever told anyone, including his family, how much he had been paid. “You will be fined $100,000, you will go to jail and you will be sued,” Mr. Carter recalled them saying.
Mr. Carter was right to have been suspicious. The lawyers defrauded their clients, a state judge has ruled in a civil case, when they settled fen-phen lawsuits on behalf of 440 of them for $200 million but kept the bulk of the money for themselves. Legal experts said the fraud might be one of the biggest and most brazen in legal history.
This week, several clients testified before a federal grand jury that has begun to investigate potential criminal wrongdoing arising from the settlement.
“It enrages me,” said Sonja Pickett, a retail manager, who testified Thursday before the grand jury. “They robbed us.”
The settlement, paid by American Home Products Corporation in 2001, was meant to compensate the plaintiffs for claims of heart damage caused by the drug combination, which had been withdrawn from the market at the request of the Food and Drug Administration.
Lawyers for William J. Gallion and Shirley A. Cunningham Jr., two of the lawyers who handled the fen-phen settlement, said this week in court papers that their clients had been told by federal prosecutors that they were targets of the grand jury’s investigation. James A. Shuffett, who represents the third lawyer, Melbourne Mills Jr., said “you can assume” that his client had also received a target letter and that he would not be surprised if his client were indicted.
“Mills denies any criminal wrongdoing,” Mr. Shuffett said. “He may be liable for a little money if he was overpaid.” Lawyers for Mr. Gallion and Mr. Cunningham did not respond to requests for comment.
The basic facts are not in dispute. When the clients sued the drug maker, they agreed to pay the lawyers 30 percent to 33 percent of any money that was recovered, plus expenses. In this case, that would have left the 440 clients to divide perhaps $135 million.
But the clients received only $74 million. An additional $20 million went to a questionable “charitable fund.” The rest — $106 million — went to lawyers. Though amounts of the individual settlements remain sealed, court papers suggest they were from $100,000 to $5 million. On average, plaintiffs received less than 40 percent of what the settlement agreement specified, instead of the roughly 70 percent to which they were entitled.
Had the lawyers merely taken what they were contractually entitled to, they would have become very rich men, said Tracy Curtis, a mortgage loan officer who is also suing her former lawyers. “They could have taken the high road,” Ms. Curtis said. “They would have made plenty of money.”
In court papers, the three lawyers denied wrongdoing and defended accepting fees above their contingent-fee agreements as reasonable in the circumstances and approved by the court.
Their efforts resulted in, they said, what “may conceivably be the largest settlement in the history of this commonwealth.” At a hearing in 2002, they noted, the original judge in the case said they deserved the higher compensation “for their services and for the incredible risks they took” and for “the administrative headaches that came with that.”
But the judge who made that statement and who approved the settlement, Joseph F. Bamberger, received a financial benefit from the windfall. After retiring from the bench in 2004, Judge Bamberger became a director of the $20 million charity for a $5,000 monthly fee. He has since repaid what he received.
Judge Bamberger was reprimanded last year by the Judicial Conduct Commission in Kentucky. The commission said his actions were disturbing, inexcusable and shocking to the conscience.
Judge Bamberger acknowledged to the commission that he had approved fees and expenses of what he understood to be about 49 percent of the settlement but said he had not known about the contracts calling for payment of only 30 to 33 percent. He declined to comment for this article.
In August, the Kentucky Supreme Court suspended the three lawyers, finding that there was probable cause that they had misappropriated their clients’ money.
In all, said Monroe H. Freedman, an expert on legal ethics at Hofstra University, the conduct disclosed to date was egregious.
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