sep 6, 2018 - HOLLYWOOD REPORTER After Johnny Depp’s Court Win, Showbiz Lawyers Question “Handshake” Contracts

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After Johnny Depp’s Court Win, Showbiz Lawyers Question “Handshake” Contracts

As Johnny Depp seeks a full refund for the estimated $30 million he paid Jake Bloom, more attorneys are weighing whether to seek a retroactive written agreement from clients.

BY ASHLEY CULLINS

Hollywood talent lawyers get 5 percent of their clients’ pay. Everyone knows this, and virtually no one puts it in writing. But decades of gentlemen’s agreements could haunt industry dealmakers after a California judge ruled Aug. 28 that Johnny Depp’s 1999 oral agreement with his former lawyer Jake Bloom is voidable at the actor’s discretion. Now, as Depp seeks a full refund for the estimated $30 million he paid Bloom, more attorneys are weighing whether to seek a retroactive written agreement from clients.

Depp sued Bloom not long after declaring legal war with his ex-business managers, claiming, among other allegations, that he represented him without a proper contract. A provision in the California Business and Professions Code mandates that lawyers get contingency fee agreements in writing. Section 6147 is well known to litigators who take cases with the expectation that they’ll get paid only if they win or settle, but Hollywood talent lawyers have operated for decades under the assumption that the rule doesn’t apply to them. “There is a culture of informality in this world,” says top talent lawyer Rick Genow, who reps Debra Messing and Henry Golding. “Do people use engagement letters? Most do not. Having fee disputes with clients is extremely rare.”

Lawyers aren’t allowed to have fixed-term contracts with clients, he says, so they’re forced to continually prove their value and foster relationships. Since talent can walk away at any point, many lawyers view a written contract as unnecessary.

“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,” says Genow. “A lot of people make the decision it’s not worth the effort.”

Given the proclivity for verbal agreements, Judge Terry Green’s ruling that Depp can void his deal with Bloom is raising eyebrows across the industry. “Everybody’s concerned because most people have handshake deals,” says an entertainment litigator at a major firm. He, like many attorneys consulted by THR, doesn’t think talent deals are contingency-based. “Usually by the time a transactional lawyer gets called a deal has been made, or is pretty close, and it’s a question of cranking out the paperwork,” he says. “It’s not a question of if they’re going to get paid, it’s when they’re going to get paid.”

But 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, which is posted below. “This is a contingency fee agreement. There is nothing else it can be.”

Bloom, one of Hollywood’s top dealmakers, had argued he provided “thousands of hours” of legal services for a variety of matters, not all of which resulted in income. “Some jobs are taken by a client to advance his or her artistic goals, and some jobs are taken to advance commercial goals,” states an Aug. 2 filing. “The amount of an actor’s revenue, viewed with no context, could not, should not, and is not used as the sole determinant of a client’s ‘success’ or ‘failure,’ nor, for that matter, the ‘success’ or ‘failure’ of the attorney who negotiated the deal.”

Matt Galsor, who reps A-list talent including Tom Cruise and James Cameron, agrees with Green’s assessment. “We don’t do a contingent deal ever without an engagement letter,” he says. “It’s just not enforceable.”

Contingency debate aside, Depp’s lawyers also point to Section 6148 of the statute, which mandates that any time an individual client’s legal expenses are expected to exceed $1,000 the contract must be in writing. The section doesn’t apply to corporations, so may be moot if an actor operates through a loan-out corporation, which is common in Hollywood. It also includes a carve out for when “the attorney’s services are of the same general kind as previously rendered to and paid for by the client” and, therefore, may not apply to longstanding relationships. Green didn’t reach this argument.

Although Depp estimates he paid Bloom about $30 million during the course of an 18-year relationship that included mega deals for the Pirates of the Caribbean franchise and several Tim Burton films, that doesn’t mean Bloom comes out empty-handed. Under the legal concept of quantum meruit, he’ll still likely be able to collect a “reasonable fee” for the services he provided. The big question is what the courts will consider to be “reasonable.” A trial to determine the remaining issues in the suit, including the quantum meruit claim, is set to begin May 6.

Depp presents a rare case in which someone who has been extremely successful for many years has an ugly falling-out with his longtime lawyer. Few people make Depp money, and few see a business relationship end with such fireworks. For much of Depp’s tenure with Bloom, he routinely earned $20 million up front plus a big share of backend profits — he got $55 million from his profit participation on Alice in Wonderland alone.

Talent that brings in a more typical Hollywood income might be getting a discount by paying a percentage instead of their lawyer’s billable rate — which can be upwards of $1000 an hour.

“Lawyers’ hourly fees are extraordinarily high these days,” argues Genow. “In most situations, quantum meruit might actually be worth as much or more than the 5 percent fee arrangement.”

If a star suspects he or she is paying more than a “reasonable” fee, it’s not cheap to invoke Section 6147 and seek confirmation from the court. “Even if the client prevails, it’s really the outside litigators who are getting enriched,” says Genow. “You might spend millions trying to prove that you should get an extra couple hundred thousand.”

Lawyers at several top firms say they are debating whether to ask clients to sign a written fee deal under the guidance of an independent attorney. Clients choosing to challenge an oral agreement under Section 6147 could spark litigation, create tax disasters for lawyers and possibly even bankrupt smaller law firms, Galsor says. “Of all of the people who have a percentage arrangement, I would say the absolute majority don’t have anything in writing,” he says. “This puts a spotlight on it. Is it going to explode? I think it might.”

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