Category Archives: Survival Tips

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.
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How are lawyers STILL making this mistake?

I watched an ethics violation unfold right next to me today. So, of course, I had to vlog about it.  Scroll below for the transcript if you don’t want to watch the video.

I’m on the road, minding my own business in my usual breakfast joint, enjoying my Spinach Feta Egg White Wrap and Grande Non-Fat Latte.  The breakfast of Champions.  Three guys sit down next to me and start to talk.  Here’s what I know: these guys are lawyers and they are involved in a suit about a particular kitchen accessory. The guy against the wall flew in from Washington DC this morning and he appears to be an expert or specialized legal counsel of some sort.

It appears that the expert (that’s what I’ll call him) is going to give testimony today and these guys are talking about the best approach.  They’ve talked about statistics and the design of the product at issue. The expert is laying out the various ways the team could approach the matter and he’s giving examples of testimony that’s been given in previous cases.

The reason I know the case is about a kitchen appliance [[arrow]]  is because one of the lawyers brought one into the coffee shop and it’s sitting on the table next to them. The expert keeps putting his hand on it and talking about it. You don’t have to be Sherlock Holes to figure this stuff out. I heard the name of one of the the Judges involved in the case, I heard that they’ve submitted mediation statements, and I heard a whole lot of substance that this expert is going to be addressing.

The reason I know all of this is because I COULD HEAR EVERYTHING THEY WERE SAYING. I wasn’t eavesdropping, I was just sitting about 24 inches away from them at the next table in a public coffee shop.

This, people, is why I continue to have a job.

The very first thing we teach in law school about confidentiality is that you shouldn’t be talking about your clients’ matters in public places. I mean, the hypos we use talk about actually include restaurants in the fact pattern.   It’s so basic, that if I were to mention this at the ethics program I’m delivering tomorrow, the lawyers in the firm would roll their eyes at me. “Who would be so stupid to do something like that?” they’d say.  “Come on- talk to us about a more sophisticated issue.” But this is real life.  And this happens all the time.  Most of us who get into trouble don’t do something outlandish like steal from a trust account or forge a document.  We make stupid mistakes because we let our guard down in every day situations.

Do you think those lawyers knew that they were sitting next to someone who investigates ethics grievances? Do you think they had any idea at all that I was sitting right next to them tearing them to ethical pieces? NO. Do you know why? Because they suffer from a malady that we all have at one time or another.  “Little old me” syndrome. Do you really think that someone is listening to what I have to say? Little old me? Who really cares about listening to little old me?

The answer is everyone is listening to everything you say and everything you write.  You have GOT to have a heightened state of awareness about these things.  There is no such thing as “little old me.” It’s BIG OLD YOU and you’re a constant target.

Even though I’m going on about this for a while, this entire escapade actually happened very quickly. And I was just going to leave well enough alone because it seemed as if they were going to leave.  But then, another guy showed up and he started speaking louder, which prompted one of the first guys to stand up and basically shout.

I couldn’t take it anymore.  I packed my bag up, threw on my jacket and as I walked out I tapped the standing guy on the shoulder and said, “Could I steal you for a minute?” We walked a few feet away from the tables and I said, “I teach professional responsibility for a living. Stop talking about your client’s files in a public place like this. Someone’s going to overhear you and you’re gonna get smacked for it.  I’m just trying to help you out.”  He replied, “Oh, fair point.” And I left.

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Shut Your Mouth on Twitter. It’s only going to cause problems for you and the firm

Every day this month I’m going to post a short message called, “Something Smart & Safe.” They’re short video messages that will give lawyers a drop of good direction. My first installment is begging lawyers to stop tweeting about politics — its got problems written all over it.

Want to see the rest of the Smart & Safe posts? Subscribe to my YouTube Channel here.

 

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Chinese Security Cameras, Russian Software, and Attorney Ethics

What happened in the news today should make all lawyers pause and look at the manufacturers of the hardware and software they’re using in their offices. Listen to this video for the info.  Also, the post below has a bit more detail.

For years, the United States has been concerned that the Russians were using technology purchased by average consumers to steal secrets from the NSA.  United States officials have been concerned that a popular anti-virus software product commonly sold in the US that’s developed by a a Moscow-based company called “Kapersky” is being used by the Russians to steal NSA technology.  These past few months a series of newspaper reports made the concerns far more real. And today additional information was released that makes the matter even more concerning.

“The Wall Street Journal reported on Oct. 5 that hackers working for the Russian government appeared to have targeted an NSA worker by using Kaspersky software to identify classified files. The New York Times reported on Oct. 10 that Israeli officials reported the operation to the United States after they hacked into Kaspersky’s network.”1

The US is concerned that Russians Intelligence deliberately used the Kapersky software in it’s spying activities.  These articles revealed that on October 25th Kapersky admitted that it’s software took the source code for an American hacking tool from someone’s personal computer.  But they deny that it was part of a larger spying scheme. “Kaspersky said in the statement that it had stumbled on the code in 2014, a year earlier than the newspaper reports had stated…The company said logs showed that the consumer version of Kaspersky’s popular product had been analyzing questionable software from a U.S. computer and found a zip file that was flagged as malicious…While reviewing the file’s contents, an analyst discovered it contained the source code for a hacking tool later attributed to what Kaspersky calls the Equation Group. The analyst reported the matter to Chief Executive Eugene Kaspersky, who ordered that the company’s copy of the code be destroyed, the company said…It said no third parties saw the code, though the media reports said the spy tool had ended up in the hands of the Russian government.”2

In today’s Fortune magazine (November 13, 2017), we learn that UK officials are worried as well.  The first line of that article reads, “The British spy agency GCHQ is concerned about Kaspersky Lab’s antivirus software being used to spy on people in the UK…”3  The magazine explains why UK officials are concerned: “Barclays has given millions of its banking customers free Kaspersky subscriptions. If those customers happen to work for the British military or government, the spooks fear, Kaspersky’s software might help the Russian intelligence services gain access to their information.”

Today there was another article that made me concerned for similar reasons.  It appears that the U.S. intelligence services are worried that certain security cameras could be used by the Chinese government to spy on U.S. targets.  The concern is about cameras made by Hangzhou Hikvision Digital Technology, a company owned in large part by the Chinese government. Their product, called, “Hikvision (pronounced “hike-vision”) was nurtured by Beijing to help keep watch on its 1.4 billion citizens, part of a vast expansion of its domestic-surveillance apparatus. In the process, the little-known company has become the world’s largest maker of surveillance cameras. It has sold equipment used to track French airports, an Irish port and sites in Brazil and Iran.”  They were also used by the Memphis police and the U.S. military.  Furthermore, “Consumer models hang in homes and businesses across the country. At one point, the cameras kept watch on the U.S. embassy in Kabul…Hikvision’s rapid rise, its ties to the Chinese government and a cybersecurity lapse flagged by the Department of Homeland Security have fanned concerns among officials in the U.S. and Italy about the security of Hikvision’s devices.”4

The report also notes that, “Some security vendors in the U.S. refuse to carry Hikvision cameras or place restrictions on their purchase, concerned they could be used by Beijing to spy on Americans. The General Services Administration, which oversees $66 billion of procurement for the U.S. government, has removed Hikvision from a list of automatically approved suppliers. In May, the Department of Homeland Security issued a cybersecurity warning saying some of Hikvision’s cameras contained a loophole making them easily exploitable by hackers. The department assigned its worst security rating to that vulnerability.”5

Hikvision, of course, denies that they are involved in any sort of inappropriate activity. “Hikvision says its equipment is safe and secure, that it follows the law wherever it does business and that it worked with Homeland Security to patch the flaws the agency cited.”6

The concern is that  “Last year, hackers took control of hundreds of thousands of cameras, including many made by a Chinese rival of Hikvision, to launch a huge “denial of service” attack that security experts said made sites run by Amazon.com Inc., PayPal Inc. and Twitter Inc. unavailable for hours.”7

If I’ve said it before, I’l say it again.  If they are worrying about it, you need to be worrying about it. If the government is worried that products like Kapersky and Hikvision can cause security risks, then you need to be conecnered as well.  Why? The government secrets are targeted by the bad guys and lawyers’ secrets are also targeted nay the bad guys.

The government is worried that the Russians and the Chinese will use these technologies to steal secrets from the US.  You need to worry that the Russians and the Chinese will steal secrets about your clients.  Lawyers are targets  That’s because the bad guys know that you are the gatekeeper for a lot of your client’s valuable information.

I believe that we have a three-part duty when it comes to these cyber concerns like this.  We must Understand, Anticipate, and Act.

First- Understand

Modern ethics concepts require that you understand these dangers. My reading of recent opinions reveals that we have an ethical duty to understand obvious, well known cyber traps.  What’s obvious and well known? You need to stay up to date on the latest concerns to know that.  We have an ethical duty to maintain our competence and opinions have acknowledged that that duty evolves as technology changes.

The issues with these cameras and software products may not be considered to be “obvious” today but what about in a month from now when people have read all of these articles?  The concern that these software and hardware developers could be using their products to steal information from valuable targets, including our clients, will soon be common knowledge.

Second- Anticipate

You need to consider how these concerns can manifest in your particular practice.  Do you use Kapersky as your anti-virus software? Are the security cameras in your office Hikvision products?  Are the security cameras installed by your landlord Hikvision products?  Did you even know that your landlord has cameras installed in your office? If they are not Hikvison or Kapersky, then what are you using? Who makes those products? I believe that the concept of Diligence (Rule 1.3) demands that you ask those kinds of questions so you could properly anticipate any potential traps.

Third, and Finally- Act

Here is where it gets dicey.  What, if anything must you do?  Listen, I don’t know if it’s time to stop using Kapersky or Hikvision. What I do know is that now is the time to start asking questions. Sit down with your IT people and discuss these issues with your cybersecurity consultants. Scrutinize the developers of the software and hardware that you’re using in your office and come to a decision.

But just as important as assessing the risk and determining if there is any action to take—  document your decision. Set forth the research you did and memorialize your diligence.  Make it clear that you gave this careful consideration and that you actually made an informed decision, rather than ignoring the problem.

Understand, Anticipate, and Act.

Now go look at your systems and talk to your people.

Stay safe.

 

1 http://fortune.com/2017/10/25/kaspersky-lab-security-software-nsa/

2 http://fortune.com/2017/10/25/kaspersky-lab-security-software-nsa/

3 http://fortune.com/2017/11/13/kaspersky-barclays-russia-gchq/

4 https://www.wsj.com/articles/surveillance-cameras-made-by-china-are-hanging-all-over-the-u-s-1510513949

5 https://www.wsj.com/articles/surveillance-cameras-made-by-china-are-hanging-all-over-the-u-s-1510513949

6 https://www.wsj.com/articles/surveillance-cameras-made-by-china-are-hanging-all-over-the-u-s-1510513949

7 https://www.wsj.com/articles/surveillance-cameras-made-by-china-are-hanging-all-over-the-u-s-1510513949

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