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A Breach of a Fiduciary Duty Did Not Occur Notwithstanding a Huge Windfall to One Spouse in the Divorce

The Appellate Court affirmed the divorce court’s finding that Husband did not breach his fiduciary duty by concealing the true value of a community asset where the asset was negotiated as part of the parties’ Marital Settlement Agreement (MSA).

Prior to divorce, Husband, an attorney, entered into an agreement with the law firm Milberg Weiss that entitled him to a referral fee of 10% in class action litigation in which Husband secured the plaintiff and the firm was designated lead counsel.  Milberg Weiss later entered into a contingency fee arrangement and was designated lead counsel in federal class action securities litigation.

Pursuant to their divorce, Husband and Wife entered into an MSA.  Before signing it, Wife knew of Husband’s referral fee agreement with the firm, and the fact that the firm had recovered $7.2 billion in settlement funds.  During the wife’s deposition of one of the firm’s partners, the partner stated that the firm hoped to obtain attorney fees substantially exceeding the largest securities class action award to date of $330 million.  He also stated that he could not imagine a scenario where Husband would get less than 3% of the total attorney fees awarded.

Based on this information, Wife claimed that Husband would receive between $9 and $33 million for his referral.  Subsequently, it was agreed to in the MSA that the referral fee would be divided unequally (90% to Husband; 10% to Wife) with the remainder of the community assets and debts divided to reflect this disparity. 

Later, Milber Weiss was awarded $688 million in fees and the firm negotiated a 9% referral fee with Husband.  Husband paid Wife $4 million for her 10% share of the fee, which caused her to realize Husband’s fee exceeded the top range of $33 million she anticipated when she entered into the MSA. 

Over 3 years after the MSA was incorporated into the divorce judgment, Wife’s divorce lawyer’s  filed a family law action against Husband for breach of his fiduciary duty of disclosure, alleging he deceived her into believing his potential referral fee would be between $9 and $33 million.

The divorce court found that Husband not only disclosed his prospective referral fee, but that it was a major factor during negotiations on the MSA, was the subject of discovery by Wife’s divorce attorneys, and the divorce judgment fully adjudicated the issue.  Thus, the divorce court found that since the relief requested by Wife would upset the divorce judgment, or at least a portion of it, her action was not authorized since the asset was not concealed.  The court also found that Wife’s’ exclusive remedy was a set-aside action that was barred by the one-year statute of limitations.

In re Marriage of Georgiou & Leslie (2013) 218 Cal.App.4th 561