Mardirossian & Associates, Inc. v. Seth Ersoff

Seth Ersoff appeals from the judgment entered in this action in quantum meruit
filed by his former legal counsel, Mardirossian & Associates, Inc. (M&A), to recover
attorney fees. Ersoff asserts the trial court committed multiple errors before, during and
after trial and contends the jury's special verdict is not supported by substantial evidence.

Ersoff and his trial counsel also challenge an order imposing monetary sanctions against
each of them "jointly and severally" in the amount of $3,500. We affirm.1

FACTUAL AND PROCEDURAL BACKGROUND

1. The Infomercial Deal

Ersoff managed the careers of Sugar Ray Leonard, the former Olympic boxing
gold medalist and world champion, and Billy Blanks, a physical trainer who had
developed an exercise program called Tae Bo. In March 1998 Ersoff entered a written
agreement with Universal Management Services, Inc. (UMSI), an infomercial production
company, and its president, Paul Monea, to create an infomercial marketing Blanks's Tae
Bo program. After Leonard gave Ersoff a videotaped testimonial for the Tae Bo tapes,
Ersoff, purportedly on Leonard's behalf, signed Leonard's name to a testimonial release
authorizing UMSI's use of the videotape for the infomercial under certain conditions.
Under the terms of Ersoff's own agreement with UMSI, Ersoff would receive five
percent of adjusted gross revenue from the Tae Bo infomercial. Within a few days of
Ersoff's execution of the agreement with Monea and UMSI, Leonard notified UMSI that
he did not wish the videotaped testimonial or his name to be used in connection with the
infomercial.

2. Ersoff Retains M&A To Prosecute His Claim in the Tae Bo Litigation

Ersoff became concerned UMSI did not intend to honor its agreement to pay him a
percentage of the profits generated by the infomercial sales. Accordingly, in August
1998 Ersoff asked M&A and, specifically Garo Mardirossian, the firm's named partner, to represent him in an action he wished to file against UMSI potentially involving, among
other things, breach of contract, fraud and related tort claims. Ersoff, a law school
graduate, told Mardirossian that Leonard wished to participate in the action and to sue
UMSI for the unauthorized use of his name and likeness and to seek a temporary
restraining order enjoining the broadcast of the infomercial. Ersoff suggested to M&A
that Leonard's celebrity status would add value to the action by generating publicity and
that a temporary restraining order prohibiting UMSI's use of Leonard's name and
likeness would help forge a quick settlement, which Ersoff repeatedly informed M&A
was his main objective in bringing the lawsuit.

M&A initially declined to take the case, concerned about a number of things,
including the solvency of UMSI and Monea and the difficulty of obtaining any recovery
even if Ersoff were to prevail. However, at Ersoff's repeated insistence, M&A agreed it
would represent Ersoff at a 50 percent contingency fee if Mardirossian determined, after
meeting with Leonard, that he could fairly represent both Ersoff and Leonard in the
action. During a personal meeting with Leonard, Mardirossian advised Leonard that
Leonard's involvement would generate publicity with Ersoff likely being the main
beneficiary. Leonard replied he was participating in the action to assist Ersoff, he wished
to pursue the action and the temporary restraining order primarily to help Ersoff and
further communications to him about the case should be directed to Ersoff.

In November 1998 Ersoff signed a retainer agreement that provided M&A would
take the matter on a contingency-fee basis and retain or claim "50% of any and all sums
recovered on behalf of Client from any defendant and/or insurance company which may
be paid or become due in settlement, or by judgment or otherwise. [] . . . If recovery is
not obtained, the Attorney will receive no fee." The retainer agreement further provided,
"The Client hereby grants Attorney a lien upon the cause of action, and upon any
document, records, or papers in connection therewith and upon any sum received to the
extent of the foregoing fees and costs incurred or advanced. Said lien is based upon the
reasonable value of Attorney's services valued at $400.00 per hour for Garo Mardirossian
and $220.00 per hour for other attorneys of [M&A]. Or, Attorney may elect compensation based upon the agreed contingency for any offer to Client to settle the
matter prior to the Attorney's discharge. . . . In the event Client discharges Attorney
and/or chooses to terminate the claim, Client agrees to compensate Attorney pursuant to
the hourly fee schedule set forth above for efforts expended by Attorney plus all costs
advanced by Attorney on Client's behalf. If another attorney assumes responsibility for
the file thereafter upon discharge, Client agrees to pay Attorney upon settlement or
verdict the reasonable value of services performed by [M&A]. Attorney may elect
compensation based upon the agreed contingency for any offer to Client received prior to
attorney's discharge." Both Ersoff and Leonard signed separate documents expressly
consenting to M&A's representation of them notwithstanding any conflicts of interest.2

3. Ersoff Terminates M&A and Nine Days Later Settles the Tae Bo Litigation

On April 12, 1999, after M&A had filed a complaint against Monea and UMSI,
worked on the case for seven months and prepared for Blanks's deposition scheduled for
April 13, 1999 and for a mediation scheduled for April 21, 1999, Ersoff terminated
M&A's representation and replaced it with the law firm of Wood, Smith Henning &
Berman, where Ersoff's wife is a partner. At the April 21, 1999 mediation Ersoff
received his first settlement offer from Monea and UMSI. Ersoff's case settled that day,
with UMSI and Monea agreeing to pay Ersoff $3.7 million.

4. M&A's Complaint Against Ersoff for Attorney Fees

On November 7, 2002 M&A filed a lawsuit in the Los Angeles Superior Court
(Case No. BC284854);3 its operative first amended complaint asserts a single cause of
action for quantum meruit seeking at least 50 percent of the $3.7 million settlement
amount.

5. The Bifurcated Trial: Phase One

In February 2004 the trial court granted Ersoff's motion to bifurcate two issues to
be decided by the court prior to a jury trial: (1) whether the retainer agreement provided
that the reasonable value of M&A's services in the event of a discharge prior to the
receipt of a settlement offer was to be measured solely by multiplying the hours the firm
spent on the case by the hourly billing rates of the attorneys who worked on the case
($400 for Mardirossian and $220 for his associates) and (2) whether an actual conflict of
interest existed between Ersoff and Leonard as to which Ersoff could not, as a matter of
law, give his informed consent; and if so, whether M&A's simultaneous representation of
both Ersoff and Leonard in the underlying action against UMSI and Monea violated
rule 3-310 of the California Rules of Professional Conduct (rule 3-310) and required
forfeiture of any right to attorney fees as a matter of law. (See, e.g., Huskinson & Brown
v. Wolf (2004) 32 Cal.4th 453, 463 [when attorney violates rules of professional conduct
by engaging in simultaneous and conflicting representation without obtaining sufficient informed consent, quantum meruit recovery to collect fees may be prohibited under
certain circumstances]; Goldstein v. Lees (1975) 46 Cal.App.3d 614, 618 [quantum
meruit recovery found inappropriate when former corporate counsel labored under a
conflict of interest in representing a minority shareholder and director of his former client
in a proxy battle in violation of predecessor rule to rule 3-310].)

Following the presentation of testimony and other evidence on the bifurcated
issues, the trial court ruled the retainer agreement was unambiguous: When, as here,
there had been no settlement offer prior to its discharge, the agreement contemplated
M&A would receive the reasonable value of its services as measured by multiplying a
reasonable number of hours spent on the case by the attorneys' hourly rates. The court
further ruled it was for the jury, as the finder of fact, to determine in the next phase of the
proceeding the number of hours Mardirossian and his associates actually worked on the
matter and whether that number of hours was reasonable.5

The trial court rejected Ersoff's contention that, by simultaneously representing
both Ersoff and Leonard in the underlying litigation against UMSI and Monea, M&A had
violated rule 3-310 and thus forfeited its right to attorney fees as a matter of law. The
court concluded there existed, at most, a potential conflict of interest between Ersoff's
and Leonard's interests in the litigation and the consent form Ersoff had executed was
sufficient and valid for the potential conflict that existed during the relevant period. The
court further found no prejudice to Ersoff as a result of the dual representation.

6. Ersoff's Motion To Dismiss M&A's Complaint and the Court's Imposition of
Sanctions

After the first phase of the trial had been completed, the court set an April 28,
2004 trial date for phase two. Ersoff sought and successfully obtained several continuances of the trial date. On July 7, 2004, days before the trial was scheduled to
begin, Ersoff sought and obtained an additional continuance to November 3, 2004, based
on representations by his counsel, the law firm of Riley & Reiner, that it had a scheduling
conflict. M&A did not oppose the request. Immediately after the hearing, Ersoff hand
served M&A with a "motion to dismiss the complaint" on the ground M&A was not a
corporation at the time it filed its action and thus lacked "standing to prosecute or
defend" the instant action.

One week later, on July 14, 2004, Ersoff replaced his trial counsel, Riley &
Reiner, with Philip Levy, whom Riley & Reiner had associated in as counsel on
January 27, 2004. M&A opposed the motion to dismiss and requested sanctions against
Ersoff and Levy in the amount of $7,000 pursuant to Code of Civil Procedure section
128.6, arguing the motion to dismiss was frivolous, designed to harass and delay the trial
and omitted pertinent case authority. M&A also argued the continuance that immediately
preceded the motion had been obtained under false pretenses and in violation of the local
rules of the superior court. The trial court denied Ersoff's motion to dismiss and imposed
sanctions against Ersoff and Levy "jointly and severally" in the amount of $3,500.

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