What Johnny Depp’s multi-million dollar lawsuit against his lawyer teaches about fee agreements

You’re going to think I’m crazy when I write this, but there are amazing lessons that we can learn from celebrities. Right now I’m working on a program called “Everything I know about attorney ethics I learned from the Kardashians.”  And while doing research for that program, I got a bonus— there was a connection to Johnny Depp…and attorney ethics.  According to papers that were filed in a recent lawsuit, Johnny Depp paid $7,000 for a couch that appeared on the TV show, “Keeping up with the Kardashians.” FN1  But it’s not that couch that provides the ethics lesson— it’s Depp’s underlying litigation. And the lesson is about the perils of failing to adhere to the requirements for our fee agreements. 

The Hollywood Reporter explained that Johnny Depp is suing his former management and legal team and he is seeking the return of some $30 million in fees paid to his lawyer over the years. FN2  The way he’s doing it is by attacking the fee agreement.  And that’s sort of the problem. You see, there wasn’t any fee agreement. More precisely, there wasn’t any written fee agreement. 

Apparently this is the sort of thing that happens in the entertainment industry.  The article quoted an agent who explained that, “There is a culture of informality in this world.”  In Depp’s case, he had an oral agreement with his lawyer that went back to 1999.  The problem is that the judge in this case found that the agreement between Depp and his lawyer was a contingency agreement…and contingency agreements need to be in writing.  The Hollywood Reporter stated,

…Judge Green found Depp’s deal is a contingency fee agreement because Bloom’s fees were “directly linked” to the actor’s success, which isn’t guaranteed. “That is the very definition of a performance-based incentive,” he wrote in his opinion…”This is a contingency fee agreement. There is nothing else it can be.”

Since the contingency agreement was not in writing, he ruled that the contract was voidable [Note: Even though the lawyer could still be entitled to a reasonable fee based on quantum meruit, that would mean that the court has to determine what is “reasonable.” Who knows how that will end up]. 

As you could imagine, this is causing a lot of lawyers to worry.  The Hollywood Reporter quoted an entertainment litigator at a major firm who confirmed that, “Everybody’s concerned because most people have handshake deals.” It seems that lawyers in that industry are now wondering whether they should be seeking retroactive written fee agreements from their clients.

Granted, the litigation involving Depp is at the trial level and the ruling was issued by a lower level state court. So one might argue that the opinion might not have much impact outside of the geographical area and industry where it was decided. But I think the article contains a cautionary tale for all lawyers — the formalities required for fee agreements must be taken seriously.  In that regard, let’s review the details of the relevant rule.

Rule 1.5(b) addresses the technical requirements of fee agreements. However, there is an important note here— that subsection applies to non-contingency cases. So if you charge a flat fee or an hourly fee, for instance, you’d need to comply with 1.5(b). That section requires…

Rule 1.5(b) The scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client.

Lawyers, therefore, have a mandate to communicate the fee and expenses and it must be done within a reasonable time after starting the representation.  But does a flat fee or hourly fee need to be communicated “in writing”?  If your jurisdiction follows the bargain struck in the ABA version of the rules, then no.  It’s preferred, but not required. Of course, one should consult the rules in your jurisdiction because that’s been changed in many states and a writing is often required, not just preferred.  Here’s my feeling: for the love of everything holy— do me a favor and put it in writing, okay? How else can you safely document that you communicated the necessary information?

The temporal requirement in 1.5(b) is also a dangerous formality.  What exactly is a “reasonable” time after the relationship has commenced? That invokes the two most often used words in the ethics world— it depends. It depends on the circumstances of your individual lawyer/client relationship. Practice note: if it seems that there is a relatively long period between the commencement of your relationship and the communication of your fee, make sure to memorialize/document the reason for that delay.  It might very well be a reasonable delay under the circumstances, but someone looking at the facts later might not appreciate why that’s so.  A memo to the file would go a long way in justifying your actions.

The requirements of our fee agreements take on a whole new level of formality when we get to contingency agreements.  There appears to be universal acceptance that a fee agreement in contingency matters must be in writing. The relevant rule is 1.5(c):

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

Did you catch how 1.5(c) said that the fee agreement “shall” be in writing? You’ll recall that the earlier section we reviewed Rule 1.5(b) which states that our fee agreements in hourly billing circumstances should “preferably” be in writing. But in contingency matters, the agreement is required to be in writing.  The reason? Conflicts.

A contingency agreement, at its heart, contains an inherent conflict of interest.  The idea that a lawyer’s fee will be dependent upon the amount of the award received by the client pits the lawyer’s interest against that of the client.  Sure, those interests could be aligned, but they aren’t always.  A lawyer might be compelled to advise the client to make some tactical decision that is more likely to benefit the lawyer, rather than serving the best interest of the client.  In that situation the lawyer’s loyalty to the client is compromised. And that’s the main issue in conflicts of interest. The drafters imposed more formalities on fee agreements in contingency situations specifically because of that danger.

Back to the Johnny Depp case…

The question you might have asked yourself earlier is, “How did the industry develop this culture of not getting a writing?”  I’m sure there’s a complicated answer, but at least one motivating factor is clear.  The Hollywood Reporter article quoted a top talent lawyer who said, “You sign the client and it’s an uncomfortable moment to thrust a legal agreement in front of them when you’re the person who’s supposed to be advising them on whether it’s appropriate to sign legal agreements…A lot of people make the decision it’s not worth the effort.” But that excuse isn’t going to cut it.  

The fact that it might be uncomfortable to ask the client to sign a fee agreement does not absolve you of the responsibility to get that fee agreement in writing. And it doesn’t matter if that’s how it’s been done for generations. The common practice is in violation of the rules. 

Of course, one might wonder— how did lawyers get away with doing it this way for so long? It’s simple — there was never a matter worth enough money to litigate. Usually what happens in these type of cases is that some “way of doing business” evolves in a particular area of law.  That way of doing business doesn’t comply with the rules, but lawyers nonetheless continue to engage in that behavior because “it’s always been done that way.” The conflict between the behavior and the rules never gets tested because there’s usually not a case that’s worth enough to justify litigating. The reality is that whenever there is an argument between a lawyer and client that raises the troubling issue, the matter gets settled and the issue is never explored in court.  As a result, the troubling behavior becomes part of the way of doing business. Lawyers get comfortable with the behavior and it becomes part of the culture of the industry. But then a case comes along that is worth enough money to justify litigation. The conflict between the behavior and the rules is then considered in court and that’s when we learn the lesson. 

That’s what seems to have happened here. It appears that Johnny Depp is in some serious financial straits. He apparently made some very bad financial decisions and now he’s trying to recoup money wherever he can. In this case he’s making a $30 million claim against his former lawyer — and that’s a lot of money. He’s seeking so much money that there was no way the parties could settle…and that ensured that the legal issue would be explored in court. When the matter was, in fact, brought before the court, the age-old way of doing business was exposed for what it always was— behavior that violated the rules.

The lesson here is clear. Adhere to the technicalities of the rules. Forgo the temptation to comply with conventions in your industry that conflict with the rules. Because what we learn from Johnny Depp is that when the rules conflict with your culture, the rules will win.   

 

 


Footnotes:

  1.  https://www.vanityfair.com/hollywood/2017/07/johnny-depp-kim-kardashian, last checked by the author on June 5, 2019.
  2.  https://www.hollywoodreporter.com/thr-esq/johnny-depps-court-win-lawyers-question-handshake-contracts-1139459, last checked by the author on June 5, 2019.

LAWYERS CAN’T ETHICALLY USE AMAZON ALEXA ANYMORE

A short while ago I told lawyers that we had to stop using gmail. I said that because Google is allowing its contractors to read through users’ messages for the purpose of software improvement.  According to a 2008 ethics opinion out of New York, that meant that  lawyers no longer had a reasonable expectation of privacy in the gmail system.  The same problem now applies to Amazon Alexa.

Recently Bloomberg reported that Amazon is recording some peoples’ use of Alexa-powered devices and it’s providing those recordings to employees and contractors.  Those personnel are then reviewing the recordings for the purposes of improving the algorithms and correcting software errors. But if lawyers are now aware that human beings are listening to recordings from these devices, then it follows that we no longer have a reasonable expectation of privacy in the product. 

Watch the video for the full explanation. And when you’re on YouTube, subscribe to my channel if you want to see more of these videos. Click the “bell” icon to get notifications when they’re posted!

 

 

 

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The Hidden, but Fixable Danger with PDFs

Imagine this hypo: You’re working on a transaction for a client, and the lending institution needs to send money to your trust account on your client’s behalf.  

— Stay with me — this is not going where you think —  

The lender sends you a fillable PDF form where you’re supposed to provide your wiring information (routing number, account number, etc). You open the document, type all of the information in the fields as required, and email it to the lender.  Obviously there’s the danger of someone intercepting these types of messages so a host of precautionary measures have been put into place and you comply with each.  Let’s say that such precautions even include that the lending representatives call you after receiving the document and read back the wiring instructions to ensure that everything’s kosher.  Despite all of these efforts, you were still scammed — the money never made it to your trust account and no one knows why.  Here’s how it happened: 

Remember that I said the document was a “fillable” PDF? You opened the PDF on your computer, typed in the required information in the fields, then sent the file as a “document” to the lender.  Well, when you sent the document that way, you left all of those “fillable” sections as, well…”fillable.”  Those fields could still be changed by someone because you didn’t lock the document.  

So here’s what happened in the hypo above: after making the call to you and confirming the account information, someone in the bank opened the file, changed that account number/routing number and diverted the money into some other account.  They were able to do that because the document you filled out was a “fillable” PDF and you simply emailed it as a document to the other party.  By emailing it as a “document” the information in the fields could still be changed.  So even after all of the protocols at the lending institution were adhered to, there was still an opportunity for someone with access to the document to change the numbers on the PDF.

The good news? There is a way to avoid this.   

Instead of sending the form as a “document” you should have “flattened” the document. Flattening a document basically locks all of those fillable sections. There are a few ways you could do that.  First, if you get a drop down menu when you try to send the file you might have the option to mail the attachment as a “flattened” document. Another alternative is to save the document as flattened before you email it (you may have to “Print” the document to a PDF then save a “flattened” version of the form). Disclaimer: I’m no tech expert— my job is to point out the dangers, but I don’t claim to be an expert on how to fix them.  I think the procedures I outlined above are correct, but talk to your IT people to ensure that I’m right in that regard.  

Obviously this goes beyond just bank account information.  People can modify any fields in a fillable PDF if the document isn’t locked before transmitting.  That’s why every time you send a fillable PDF you need to flatten it or otherwise lock it to ensure that no one else can change it’s contents after emailing.  

This sort of knowledge is the type of thing that our ethics rules demand. Specifically, it’s about competence.  Rule 1.1 requires that lawyers have the, “legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” The commentary to that rule explains that, “Competent handling of a particular matter includes…[the] use of methods and procedures meeting the standards of competent practitioners. Rule 1.1, Comment [5]. In addition, the new California Rule on Competence requires that lawyers apply the learning and skill that is reasonably necessary for the performance of the legal service. CA RPC 1.1(b) 

Is understanding the dangers of fillable PDFs considered to be part of the “methods and procedures,” or part of the skill that is “reasonably necessary for performance” of the legal services?  It is now. Maybe it wasn’t last year, but it is today. That’s because our duty of competence evolves. We are required to understand the ethical implications of technology as these new technologies become integrated with the practice. See, State Bar of California, Standing Committee on Professional Responsibility and Conduct, Formal Opinion 2015-193. I don’t think there’s any question that PDFs are integrated with the practice of law. Of course, if my opinion doesn’t convince you, also consider that the issue of fillable PDFs was recently part of a best practices update that was sent to attorneys who work for the federal government.  And you know what I always say about the government…if they’re thinking about it, you need to be thinking about it.  

Lawyers Need to Stop Using Gmail Immediately

Lawyers need to stop using gmail for their practice right now.  An article in the Wall Street Journal made it very clear that lawyers who use the system are doing so at their ethical peril.

(Watch the video, or continue reading below)

To understand why I feel this way you need a slight history lesson. Go back to the 90s when email first became popular.  For those of use who are old enough to recall, lawyers couldn’t use email in their practice because it was unencrypted. Our duty to safeguard client confidences per Rules 1.1 and 1.6 prohibited us from using the tool.  The ABA and state bars across the country deemed that unencrypted email was too insecure and that lawyers who used it weren’t taking the necessary steps to fulfill their duty of protecting clients’ confidential information.  So what changed? Today email is generally still unencrypted, but lawyers use it every day (yes, there have been recent opinions which question whether we should continue to use unencrypted email, but it is permitted in a variety of instances). Here’s the change— Congress criminalized the interception of email.  

Once Congress made the interception of email a crime, the powers that be agreed that lawyers had a reasonable expectation of privacy in using the medium. The key phrase is a “reasonable expectation of privacy.”  The ABA issued a formal opinion in 1999 confirming that idea:

“The Committee believes that e-mail communications, including those sent unencrypted over the Internet, pose no greater risk of interception or disclosure than other modes of communication commonly relied upon as having a reasonable expectation of privacy. The level of legal protection accorded e-mail transmissions, like that accorded other modes of electronic communication, also supports the reasonableness of an expectation of privacy for unencrypted e-mail transmissions. The risk of unauthorized interception and disclosure exists in every medium of communication, including e-mail. It is not, however, reasonable to require that a mode of communicating information must be avoided simply because interception is technologically possible, especially when unauthorized interception or dissemination of the information is a violation of law. The Committee concludes, based upon current technology and law as we are informed of it, that a lawyer sending confidential client information by unencrypted e-mail does not violate Model Rule 1.6(a) in choosing that mode to communicate. This is principally because there is a reasonable expectation of privacy in its use.”

So what about the Gmail connection? Well, that standard — the reasonable expectation of privacy — was a key consideration for the New York State Bar Association when it opined about the permissibility of free email services like Gmail.  In its Opinion 820, the New York State Bar Association voiced concern about systems like Gmail because Google used advertising to keep the service free. In return for providing the email service, “the provider’s computers scan e-mails and send or display targeted advertising to the user of the service. The e-mail provider identifies the presumed interests of the service’s user by scanning for keywords in e-mails opened by the user. The provider’s computers then send advertising that reflects the keywords in the e-mail.”  The obvious problem is that if we’re using the email system for client work, then we’re allowing the provider to scan confidential information. 

The NY authorities, however, said that all of this was okay.  Even though the email messages are scanned humans don’t actually do the scanning.  Rather, only computers engage in that task.  Thus, they stated that “merely scanning the content of e-mails by computer to generate computer advertising…does not pose a threat to client confidentiality, because the practice does not increase the risk of others obtaining knowledge of the e-mails or access to the e-mails’ content.”  In other words, lawyers had a reasonable expectation of privacy when using the service.

Today there’s been a big change. 

Big.

On September 21, 2018 the Wall Street Journal reported that Google shares Gmail information with its app developers. But what’s important is the type of information that’s being shared and who view it (remember something— here we’re not worried about privacy issues related to data sharing…this is different…this is about the lawyer’s duty to protect confidential information).  The WSJ article revealed that:

Google Inc. told lawmakers it continues to allow other companies to scan and share data from Gmail accounts…the company allows app developers to scan Gmail accounts…outside app developers can access information about what products people buy, where they travel and which friends and colleagues they interact with the most. In some cases, employees at these app companies have read people’s actual emails in order to improve their software algorithms. [emphases added]

Did you get that last part? There are real human beings who are reading the contents of Gmail messages.  What we know from NY Opinion 780 is that if human beings are reading the lawyer emails, then lawyers no longer have a reasonable expectation of privacy in Gmail.  

Sure, we lack some specific data about which emails are read, but that doesn’t change the conclusion.  We might not know if lawyers’ messages in particular were included in the messages that were scanned.  But that’s sort of exactly the problem — we don’t know.  And we don’t have any way to control or restrict the app developers from reading anyone’s emails, including our practice-related emails.  Because of that reality I don’t think that lawyers have a reasonable expectation of privacy in using Gmail any more.  Our duty to protect client confidences set forth in Rule 1.6 precludes us from using the service.  I’ll tell you the truth, it actually looks like no one — lawyer or otherwise — has a reasonable expectation of privacy with the platform.  That’s why I think lawyers need to stop using Gmail for practice related matters immediately.

I have no idea why they wrote this opinion…

In 2018 there as was opinion issued by the American Bar Association and — for the life of me — I don’t understand why they wrote this opinion.

Formal Opinion 481 entitled, “A Lawyer’s Duty to Inform a Current or Former Client of the Lawyer’s Material Error” was issued on April 17, 2018.

There’s nothing so earth shattering about requiring a lawyer to notify a client when there is material error. In fact, it’s obvious and basic. In fact, the drafters of this opinion go through a bunch of advisory opinions from across the country and confirm that the requirement has been around for a while. At one point they even admit that they’re really not presenting anything new.  In addressing those other opinions they state, “These opinions provide helpful guidance to lawyers, but they do not—just as we do not—purport to precisely define the scope of a lawyer’s disclosure obligations.” 

Um…okay. 

So why are you wasting this paper? 

The next sentence sorta tells us: “Still, the Committee believes that lawyers deserve more specific guidance in evaluating their duty to disclose errors to current clients than has previously been available.” ABA Op. 481 at 4

If there’s any value to the opinion, it’s in the definition of when an error is considered to be “material.”  They state, “…a lawyer must inform a current client of a material error committed by the lawyer in the representation. An error is material if a disinterested lawyer would conclude that it is (a) reasonably likely to harm or prejudice a client; or (b) of such a nature that it would reasonably cause a client to consider terminating the representation even in the absence of harm or prejudice.” ABA op. 481 at 4.

Oh, but this only applies if the client is a “current” client. That’s because even though a lawyer must inform a current client of a material error, “Rule 1.4 imposes no similar duty to former clients.” ABA Op. 481, at 7. 

Thanks for this guidance.  I think. 

Wait, so you’re saying zealous is bad??

 

Believe it or not, but there are critics of our ethics rules. I know what you’re thinking, “How could that be? They are PERFECT.”  I’m sorry to burst your bubble, but there really are scholars who have taken shots at the code.

One of the biggest complaints is that the current code amounts to nothing more than a how-to manual.  How-to stay away from a grievance.  Surely you’re wondering how that can be a bad thing!  Well, staying away from grievances is good, but is that all our ethics code is really supposed to be about? The critics contend that the current code is harsh and devoid of the aspirational goals and the statements of morality that could be found in the predecessor codes. It’s a valid point, but I understand why the code is written that way.  To get a real picture for what I mean, you need consider Watergate.  Yup, the actual Watergate fiasco.

After the fallout from that disaster, the powers that be realized that many of the people implicated in the scandal were lawyers.  Plus, many of the lawyers implicated— and many of their colleagues across the country — really didn’t take the ethics rules seriously.  As a result, the authorities had to reform the code and I believe that’s why they created such a harsh set of rules.  I believe that they took out the aspirational elements from the disciplinary rules because they had to reinforce the idea that there really would be disciplinary action if you acted inappropriately.  The problem? In doing so, they removed all of the morality from the code.

The current code tells us how we “could” act.  It tell us when our actions are subject us to discipline.  it does not, however, tells us how we “should” behave.  

That’s an important distinction.  In other words, just because we “could” do something, does it mean we “should” be doing it?  Just because some action taken in the course of our practice won’t subject us to discipline, is it still “right” to take that action?  That disconnect is something the drafters have been considering since the publication of the modern code in 1983.  And over the years you’ve started to see a flurry of new “professionalism documents” being adopted across the country.  Basically, these professionalism codes are trying to reinforce the need to behave in a morally acceptable way.  Though they are the product of individual states, the all seem to share the same sentiment— they are talking about how we “should” be behaving.  

One word that you don’t see in many of these new professionalism documents is “zealous.”  The reason is clear.  The word zealous has been used by many lawyers to cover up all manner of sins (yes, that was a Watergate shout-out)  I shudder to think about how many ethical violations have been committed in the name of zealous advocacy.  I believe that the drafters have the same concern.  I believe they know that lawyers push the edge too far, and try to cover it up by claiming to be “zealous.” Well, I believe that lawyers need to start thinking about behaving in a morally acceptable manner.  We need to voluntarily aspire to behave better.  And that might not be compatible with the old school definition of zealous (just for the record— I am old school age.  But I’d like to think that I’m learning some new tricks).

I explore the relationship between what we “could” do and what we “should” do a little more in a CLE program I recorded called “The Dirtiest Word in Ethics, Zealous.”  In that program I also provide my version of the optimal lawyer attitude (sorry, no spoilers!)  You can find that program by clicking here.