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