Law Firm’s End Reflects Trend of Hostile Breakups

It was once one of the state’s top law firms, and it made millions by defending doctors and hospitals against claims of botched medical care.

Today, however, O’Flaherty & Belgum has been dissolved in an acrimonious breakup, a schism that has turned partner against partner and resulted in a $7.5-million arbitration award to one of the players.

The case underscores what experts say is the increasingly hostile tone of law firm divorces and reflects the changing nature of law partnerships nationwide.

“When you joined a firm 20 years ago, it was a life commitment. Now, the idea of a stable law firm is pretty much a product of the past,” said Robert W. Hillman, a law professor at UC Davis.

In its heyday during the early 1990s, O’Flaherty & Belgum employed more than 75 lawyers in swank offices in Anaheim, Glendale, San Diego and Ventura. But now, former best friends and law partners Michael O’Flaherty and Stephen Belgum blame each other for their firm’s demise.

Belgum, 58, claims that O’Flaherty, 54, conspired with junior partners to oust him from the firm because he was getting old. O’Flaherty contends that Belgum was removed because he suffered a “midlife crisis” and threatened to sink the firm with his personal and financial troubles.

An arbitrator ruled last month that O’Flaherty and his allies owe Belgum and two other ousted firm members $7.5 million, agreeing with Belgum’s contention that the firm was “hijacked” from him.

A judge will soon decide whether to approve the award. The parties agreed to arbitration after Belgum filed suit against his old partner and others. If the $7.5-million award is upheld, Hillman said, it will be the largest judgment ever in a law firm breakup.

The partners’ honeymoon began in 1988, when former USC Law School classmates O’Flaherty and Belgum started the firm.

Over the next six years, the partnership found a lucrative niche in medical malpractice defense, swelling to 78 lawyers and earning as much as $4 million in profit a year. About a quarter of that amount was split between the partners, on top of their six-figure salaries. Emerson’s Directory of Leading U.S. Law Firms ranked O&B; as one of the top firms of its kind in the state.

By 1997, however, the partnership’s income had begun to slide as insurance companies were pushing firms to reduce costs. Although O&B; had hoped to eventually employ 100 lawyers, the partners began cutting positions to cope with reduced revenues.

They eventually fired dozens of lawyers. At the same time, O’Flaherty complained that Belgum went on a “permanent vacation,” handling very few cases and logging few billable hours.

O’Flaherty maintains in court records that Belgum was going through a nasty divorce, and that Belgum’s wife sometimes engaged him in disruptive screaming matches at work. O’Flaherty also said Belgum was spending increasing amounts of time operating a ranch in Colorado and using office resources for that purpose.

About that time, according to court documents, younger lawyers in the firm began to grow increasingly resentful of Belgum, who was still entitled to nearly 20% of the firm’s annual profit--a percentage equal only to O’Flaherty’s.

Belgum said the complaints were merely excuses to justify his expulsion at the hands of younger partners and associates.

“They’ve said a lot of things about me. It’s because they have to come up with something to excuse their conduct,” Belgum said. “Basically, we’re in a tough business, and there were younger people coming up who decided to put pressure on the older people. I knew exactly what was happening.”

According to documents, O’Flaherty and the younger lawyers began to meet privately on O’Flaherty’s yacht in San Pedro. They discussed the possibility of creating a new partnership, without Belgum, and of taking the firm’s clients with them.

“Basically, they felt he wasn’t pulling his weight,” said Stuart Jasper, Belgum’s lawyer. “They felt he had too little to do and they were paying him too much.”

Eventually, the group voted Belgum out of the firm. The group also notified O&B;’s associates that the firm was being dissolved and that all employees would be terminated unless they were asked to join a new firm--O’Flaherty, Cross, Martinez, Ovando & Hatton--court papers state. The employees were also told that the new firm would occupy O&B;’s offices.

Since the creation of the new firm, O&B; has not existed. However, its assets are being overseen for eventual distribution by a court-appointed receiver.

Far from a coup, O’Flaherty said, the actions were necessary for the survival of the practice, and he insists that the upstarts broke no contract conditions.

O’Flaherty is seeking to nullify the $7.5-million award as unreasonable, and claims that the arbitrator is biased because he too was ousted from a law firm years ago.

“Now this award means I am supposed to work for Mr. Belgum the rest of my life under the stress of a trial attorney, while he sits on his cattle ranch in Colorado musing about his good fortune,” O’Flaherty wrote in court papers.

No studies have been done to analyze discord among law partners. But several high-profile cases prompted the American Bar Assn. last year to produce a paper examining the subject.

Some legal observers say the increase in law partnership breakups is caused largely by law firms’ efforts to raise their profitability, either by luring highly productive attorneys from competing firms or by selectively eliminating their own partners to cut costs.