May 1 (Reuters) - A federal appeals court on Tuesday upheld the convictions of two Kentucky lawyers accused of bilking clients out of millions of dollars in a settlement over the diet drug fen-phen.

The Cincinnati-based U.S. Court of Appeals for the 6th Circuit rejected Shirley Cunningham and William Gallion's bid to overturn their convictions, finding the two lawyers received a fair trial.

The once-prominent attorneys from Lexington, Kentucky, were convicted in 2009 for allegedly defrauding over 400 clients out of their share of a $200 million settlement agreement with American Home Products, now Wyeth, over alleged injuries from the anti-obesity drug fen-phen.

Under their agreements with clients, the lawyers were supposed to receive one-third of any settlement amount. Instead, the clients received less than 37 percent of the settlement while their lawyers pocketed the rest, the court opinion said.

Prosecutors accused Cunningham and Gallion of lying to clients about the settlement negotiations, misleading the trial judge and funneling settlement funds into a foundation, the Kentucky Fund for Healthy Living, where they were paid directors.

A jury convicted the lawyers of nine counts of wire fraud and conspiracy. Gallion was sentenced to 25 years in prison while Cunningham received a 20-year term, and the men had to pay $127 million in restitution to their clients. The jury acquitted a third lawyer, Melbourne Mills, who had raised alcoholism as a defense.

Cunningham and Gallion appealed their convictions in 2009, contending they were deprived the right to a fair trial. They argued that they lacked the intent to defraud the clients but had little experience handling complex litigation and were in over their heads. They relied on the guidance of another lawyer, they said, and the fact that the judge approved their actions.

They also argued that their admissions in a parallel investigation by the Kentucky Bar Association should not have been admitted as evidence in the criminal case.

But a three-judge panel of the 6th Circuit rejected their arguments.

"The evidence of the defendants' guilt in this case was overwhelming and independently supported all the factual findings from the disbarment proceedings," Judge Ronald Gilman wrote for the unanimous three-judge panel.

H. Louis Sirkin, a lawyer for William Gallion, said he would likely request a hearing before the full 6th Circuit or appeal to the Supreme Court. He said the admissions before the Kentucky Bar Association were part of a compromise to avoid a hearing and should not have come into the criminal case.

"The prejudicial effect of allowing in those admissions was devastating," he said.

Cunningham is currently serving his sentence in West Virginia while Gallion is at a prison facility in Louisiana, Sirkin said.

T. Clifton Harviel, who represented Cunningham, was not immediately available for comment.

The Department of Justice did not immediately return a request for comment.

The cases in the 6th Circuit are USA v. Cunningham, No. 09-5987; USA v. Gallion, No. 09-5998.

For the government: Vijay Shanker of the Department of Justice.

For Cunningham: T. Clifton Harviel of the Harviel Law Offices.

For Gallion: H. Louis Sirkin of Sirkin Kinsley & Nazzarine.

(Reporting By Terry Baynes)

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