Facts

Plaintiff Randall Smith and Gary Schlessinger were co-counsel in a Los Angeles Superior Court case, Murphey v. BDO Seidman, which involved 70 plaintiffs in 17 states regarding alleged malfeasance of two accounting firms. In that case, Smith was successful in reversing a motion for summary judgment in favor the defendants. As a result, the defendants settled the case for significant amounts of money.

Under their agreement, Schlessinger would pay Smith $100 an hour for the time spent on the Murphy case, regardless of the outcome; if the Murphy plaintiffs received a recovery, Schlessinger would pay Smith $400 an hour; the payment would not affect the case's total attorney fees and was to come out of Schlessinger's pocket.

In February 2005, Schlessinger died and Smith succeeded him as the attorney of record on the case. At Schlessinger's request, Smith brought defendant John Frye on as co-counsel and they agreed to split the contingency fee fifty-fifty, although they did not obtain their clients' written consent. The case settled for approximately $10 million and Frye and Smith received $2.6 million in fees.

Frye deposited the funds in his trust account and disbursed them pursuant to his understanding of the fee-splitting arrangement. However, Smith disputed Frye's division disbursement of the attorney fees.

Smith sued Frye and Schlessinger's daughter and executor of the decedent's estate, defendant Jill Schlessinger, alleging breach of contract, conversion, and quantum meruit for his services in the Murphy case.

Jill Schlessinger settled and was dismissed prior to trial.

Frye cross-complained against Smith for declaratory relief.

PLAINTIFF'S CONTENTIONS:
Smith claimed that the case settled based on his efforts in reversing the summary judgment, so he was entitled to a greater share of the attorney fees. Since the client had not consented to the fee-splitting agreement, Smith contended that was entitled to this reasonable fee and not a contingent fee. Smith further contended that, since the funds had been paid to Frye's client trust account initially, Frye paid himself $100,000 in overhead costs, which was not authorized by their agreement on the case.

DEFENDANT'S CONTENTIONS:
Frye denied all claims and filed a cross-complaint, arguing that the parties had entered into a written agreement for the division of costs and fees. Frye contended that this agreement allowed for the payment of overhead expenses.

Settlement Discussions

Smith demanded $600,000; Frye offered $10,000.

Damages

Smith claimed attorney fees in excess of the $1.05 million, as well as costs for the Murphy case. Fry sought declaratory relief.

Result

A defense verdict was returned, based upon successful pre-trial motions. Although the fee-split agreement was void and unenforceable, the court found that Smith had already received his share of the fees. Since Smith did not advise the clients, he could not take advantage of his failure in order to claim a greater recovery. The court also held that Frye's cost reimbursements were severable from the invalid fee-splitting arrangement and upheld them as reasonable.