Depp v. Bloom: Hollywood Handshake Deals May Be on the Way Out; Belt-and-Suspenders a Possible New Trend in Percentage Fee Arrangements for Legal Services

While former Judge Alex Kozinski of the Ninth Circuit once noted that “[m]oviemakers do lunch, not contracts[,]”[1] Los Angeles Superior Court Judge Terry Green’s August 28, 2018 decision in Depp v. Bloom, 2018 WL 4344241 (Cal. Sup. Aug. 28, 2018), may force legal professionals in Hollywood to skip lunch in favor of properly executed fee agreements.

In granting actor Johnny Depp’s motion to dismiss a counter-claim for breach of contract by Depp’s longtime attorney Jake Bloom in a dispute over legal fees allegedly owed to Bloom under a percentage fee agreement with Depp, Judge Green answered the question vexing entertainment attorneys for years: are percentage-based fee arrangements considered contingency fee contracts, and thus required to be in writing under California law?  Answering in the affirmative, Judge Green ruled from the bench on August 28, 2018, and issued a written decision on August 30, 2018, available here.

Beginning in 1999, Bloom’s firm provided entertainment-related legal services to Depp, who, in return, orally agreed to pay Bloom’s firm 5% of his earnings.  Bloom represented Depp on dozens of matters and spent thousands of hours working on his behalf.  Depp paid the fixed percentage for many years, until July of 2017, when he filed a complaint against Bloom’s firm for allegedly mismanaging and misappropriating Depp’s finances for its own use.  Shortly thereafter, Bloom’s firm countersued for breach of contract, quantum meruit, and a declaratory judgment that the 1999 oral agreement was valid and binding.

The central issue in the parties’ briefing on Depp’s motion to dismiss was whether percentage fee deals, which have been pervasive in the entertainment industry for decades, constitute contingency fee arrangements, which are required to be in writing under California Business and Professions Code Section 6147 (“CBPC 6147”).  Traditional contingency fees arrangements, which are typical in the personal injury and copyright “troll” contexts, involve a lawyer’s collection of certain fees only if a case is won.  Percentage fee deals, on the other hand, are slightly different in that an attorney’s fees are not contingent on success or failure, but rather, constitute a fixed percentage of a client’s earnings.

This distinction served as the basis for Bloom’s argument that Depp breached an oral agreement entitling Bloom’s firm to a 5% cut of Depp’s earnings from 1999 through 2017.  Bloom, relying mostly on cases in the bankruptcy and probate contexts, argued that the agreement was not a contingency fee contract because contingency fee contracts are speculative and involve risk of failure, while percentage fees arrangements do not.

The court disagreed, opining that a “contingency fee contract” is ordinarily understood to encompass any arrangement that ties an attorney’s fee to a successful performance, or is somehow conditioned on – or tied entirely to – some measure of a client’s success.  Because Depp’s attorneys made money when Depp made money, and Depp’s attorneys did not make money when Depp did not make money, the contract at issue was a contingency fee agreement.

Bloom alternatively argued that, even if the contract was a contingency fee contract voidable at will by Depp, Depp effectively ratified the agreement by continuing to accept legal services after he became aware that there should have been a written agreement.

While the court agreed that voidable contingency fee contracts can be ratified under certain circumstances, it held that allowing an oral contingency fee agreement to be ratified would frustrate the purpose of CBPC 6147, which is meant to protect clients by forcing attorneys to fix certain terms and make specified disclosures.  Judge Green further opined that an oral contract cannot be ratified unless there is a subsequent written agreement, signed by a client who knew of the option to void the contract.

Having granted Depp’s motion to dismiss Bloom’s breach of contract and declaratory judgment claims, Bloom’s claim for quantum meruit still stands, which may allow Bloom to be paid “reasonable compensation” for his time spent working on matters for Depp.

This decision may encourage talent lawyers to revisit agreements that were not memorialized in writing in the past, and to change the way they do business in the future.  Clients who choose to void oral contingency agreements before putting pen to paper to ratify those agreements may cause headaches for talent attorneys who earn a living from the income of successful artists.  In the meantime, percentage-based engagement agreements should be reduced to writing to prevent the drama created by the Depp lawsuit.

 

[1] Effects Assoc., Inc. v. Cohen, 908 F.2d 555, 556 (9th Cir. 1990), cert. denied, 498 U.S. 1103 (1991).