## Facts

- An attorney-disciplinary proceeding was brought by the Kentucky Bar Association against Stanley M. Chesley based on misconduct connected to a Boone County fen-phen settlement involving 431 Kentucky clients.
- Chesley entered a written co-counsel/fee-sharing agreement with other attorneys in the litigation under which he would act as lead settlement negotiator and receive 21% of total attorney fees; clients were not informed of this arrangement.
- The lawyers obtained an aggregate settlement of $200 million and decertified the class and dismissed lawsuits without informing clients of the aggregate settlement, the decertification, or the dismissal.
- Clients received individual settlement offers allegedly below amounts listed for them on an internal distribution schedule used by counsel.
- Counsel obtained a 49% attorney-fee award; approximately $46 million went to clients while attorneys’ fees totaled about $99,220,500, including roughly $20 million to Chesley.
- During ensuing investigations and litigation, Chesley minimized or denied his co-counsel role and made statements the disciplinary authorities and court found misleading about his responsibility for the settlement structure and fee distributions.
- A Trial Commissioner found multiple violations and recommended permanent disbarment and restitution; the KBA Board of Governors concurred and recommended permanent disbarment and restitution to the Supreme Court of Kentucky.

## Issues

1. Whether Chesley’s participation in the aggregate settlement and fee arrangements, and his related conduct, violated the Kentucky Rules of Professional Conduct governing communication, aggregate settlements/conflicts, fees, and honesty to tribunals and regulators.
2. Whether permanent disbarment and restitution were appropriate sanctions.

## Decision

- The Supreme Court of Kentucky adopted the Board of Governors’ recommendation with limited modification and permanently disbarred Chesley from practicing law in Kentucky.
- The Court ordered Chesley to pay $7,000,000 in restitution into a fund for affected former clients, treating it as disgorgement of improper fees.
- The Court found Chesley was co-counsel/joint venturer with fiduciary duties to the 431 clients and could not avoid responsibility by characterizing himself as only a negotiator.
- The Court concluded the misconduct involved serious failures of disclosure and loyalty in an aggregate settlement, an excessive fee, and misrepresentations during subsequent scrutiny.

## Legal Principles

- A lawyer who enters a co-counsel/joint venture fee arrangement and receives fees from a client settlement assumes professional duties to the clients and responsibility for compliance with ethics rules.
- In an aggregate settlement, counsel must provide each client sufficient information about the total settlement, allocations, and attorney compensation, and must obtain each client’s informed consent (including under SCR 3.130-1.8(g) and related conflict/communication rules).
- An attorney fee may be disciplined as unreasonable or excessive under SCR 3.130-1.5, particularly where obtained through nondisclosure and conflicted settlement administration.
- Lack of candor and misrepresentation to courts and disciplinary authorities constitutes independent professional misconduct (including under SCR 3.130-8.3(c) and related provisions) and is a strong aggravating factor in sanction selection.
- Permanent disbarment may be imposed where misconduct causes large-scale client harm, yields substantial personal gain, reflects a pattern of dishonest conduct, and the lawyer refuses to accept responsibility; restitution may be ordered to disgorge improper fees and compensate victims.

## Conclusion

The Supreme Court of Kentucky permanently disbarred Chesley for his role in an aggregate fen-phen settlement that involved nondisclosure to clients, excessive fees, and later misrepresentations about his responsibilities, and it ordered $7 million restitution to a client fund as disgorgement of improper fees.


Ky. Bar Ass'n v. Chesley, 393 S.W.3d 584 (Ky. 2013)