6 set 2018 ano - FORBES The Next Round Of Johnny Depp v. Jake Bloom

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The Next Round Of Johnny Depp v. Jake Bloom

By Schuyler Moore

Here is what we know so far from the recent case of Johnny Depp v. Jake Bloom, where Johnny Depp appears to have won one battle by the court holding that a talent lawyer’s standard fee of 5% of the client’s income is a “contingent fee” under the relevant statute:

Contingent fees to lawyers have to be agreed to in a writing that is signed by both the lawyer and the client and that complies with a number of provisions set out in California Business & Professions Code section 6147(a) (a “Valid Agreement”).

If the agreement for a contingent fee is not a Valid Agreement, the agreement is voidable at the option of the client pursuant to California Business & Professions Code section 6147(b).
If the client voids a contingent fee agreement for lack of a Valid Agreement, the lawyer is entitled to be paid a “reasonable fee” pursuant to California Business & Professions Code section 6147(b).

If the client has already paid a contingent fee without a Valid Agreement, the client is entitled to recover the excess of the contingent fee over a reasonable fee from the lawyer.

The judge in the Johnny Depp v. Jake Bloom case held that the standard 5% fee that talent lawyers charge is a contingent fee under the statute, notwithstanding that the statute requires the contingent fee agreement to deal with costs relating to “the claim,” and the reference to “the claim” suggests that the statute was intended to apply to contingent fees based on a percentage of the recovery on a claim, like a lawsuit.

But more importantly, here are some of the things we don’t know:

What is the statute of limitations on Johnny Depp’s claim for a refund? It is not clear what the relevant statute of limitations is, but it seems unlikely that he can go back eighteen years.

What is the statute of limitations on Jake Bloom’s claim to be paid a reasonable fee? Presumably it is the same as the time limit on Johnny Depp’s claim, or at least there should be a right of offset.

What is a “reasonable fee” for Jake Bloom? Is it based on a deemed hourly rate, and if so, what is it? Instead of hourly, can it be based on what he charges other clients or on what other talent lawyer’s charge, which by the way is the same 5%?

If Jake Bloom has to pay anything to Johnny Depp, is he stuck trying to deduct it for tax purposes in the year of payment (which may result in not all of it being deductible), or can he amend prior returns and get a refund of prior taxes paid? There is a special tax code section that permits the second approach if amounts that are refunded were initially received under a “claim of right.”

Is Johnny Depp taxed on any payment he receives? What if he could not deduct all of the prior payments for any reason? Can he claim it as a return of capital?

Can the client retroactively ratify the contingent fee arrangement by signing an agreement later? Does the client need to be advised by independent counsel? If the client does later ratify the fee arrangement, the agreement needs to comply with California Business & Professions Code 6147(a). One of those requirements, which is often overlooked, is that the writing needs to state that the fee is not set by law and is negotiable.

So stay tuned for round two in this fight, since it ain’t over ‘til it’s over.

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