In August, a superior court in Los Angeles threw out a claim in a dispute between Johnny Depp and his estranged law firm, Bloom Hergott Diemer Rosenthal La Viollette Feldman Schenkman & Goldman LLP, involving a contingency-fee contract that was made through an oral agreement between the parties.
In Depp, et al. v. Bloom Hergott Diemer Rosenthal La Viollette Feldman Schenkman & Goldman, LLP, et al. (L.A. Super. Ct., filed Oct. 17, 2018), the judge granted the actor’s motion for judgment on the pleadings, without leave to amend. Depp argued that the law firm failed to state facts sufficient to constitute a cause of action. Because it was contingency fee arrangement, Depp said, the contract must be in writing to be enforceable. See Business and Professions Code Section 6147. The court agreed with Depp and voided the agreement between the parties.
This decision is significant given the common practice in the entertainment industry of transactional attorneys agreeing to enter into percentage-based fee agreements — and often doing so with trusted long-standing clients pursuant to a “handshake deal” (e.g. an oral agreement).
Bloom Hergott alleged that, beginning in 1999, the law firm provided entertainment-related legal services to Depp, who orally agreed to pay the firm a fixed percent of his gross entertainment income whenever received. During this period, Bloom Hergott represented Depp on dozens of matters and spent thousands of hours working on his behalf. Depp paid the fixed percent of his gross entertainment income for many years, and continued to request and receive entertainment-related legal services from Bloom Hergott through July 2017. Since that time, Depp has allegedly failed and refused to pay Bloom Hergott.
Bloom Hergott argued (1) that the percentage-fee agreement was not a contingency-fee agreement; (2) that Depp ratified the agreement; and (3) that even if the agreement is voidable, Bloom Hergott still has a remedy in quantum meruit. The law firm even offered a test for identifying a contingency-fee agreement: “(1) whether the agreement contains clearly defined, limited goals for the representation, and (2) whether ‘failure is possible and success is not guaranteed.’” While the court noted that the proposed test “is a facially attractive mode of analysis,” it concluded that Bloom Hergott “can cite to no authority which employs or endorses such a test.”
The court instead relied upon the broader definition set forth in Arnall v. Superior Court, 190 Cal. App. 4th 360 (2010). Arnall said “[t]he term ‘contingency fee contract’ is ordinarily understood to encompass any arrangement that ties the attorney’s fee to successful performance, including those which incorporate a noncontingent fee based on a fixed rate of payment. … the term refers to a contract ‘providing for a fee the size or payment of which is conditioned on some measure of the client’s success’” (quoting 1 Witkin, Cal. Proc. (5th ed. 2008) Attorneys, Section 176, p. 245). Under this test, the court held that Depp’s contract with Bloom Hergott “is a contingency fee contract” as “it is tied entirely to [Depp’s] success in the entertainment business.”
Voided contract or not, there is nothing in this ruling (or any potential future ruling in this case) that would entitle Depp to recover any of his previously paid fees.
As to Depp’s continued payment of the bills — i.e., ratification — the court noted that “[a]s a general rule, ‘[a] voidable contract may be ratified.’” Hanley v. Murphy, 70 Cal.App. 157, 165 (1924). However, while Depp argued that “a contingency fee agreement that is voidable under Section 6147 cannot be ratified,” and that “the evidence is insufficient to establish a ratification,” the court held that it need not decide whether the subject agreement could be ratified because “[a]ssuming that it could have been ratified, ratification would have required knowledge by [Depp] of his right to void the agreement.” (Emphasis added.) Additionally, the court noted that “a modification of a compliant agreement must independently comply with Section 6147,” and thus, “a ratification of a non-compliant agreement must also comply with Section 6147, for the same reasons.” Accordingly, the court held that in order to establish ratification, Bloom Hergott must “(1) plead and prove the existence of a writing which complies with Section 6147, and (2) plead and prove that [Depp] signed said writing with full knowledge of [his] option to void,” and Bloom Hergott “has given no indication that it can do so.”
Finally, as to quantum meruit, the court agreed with the law firm, stating that Bloom Hergott “correctly points out that Section 6147(b) does not leave it without a remedy, even though its contract is unenforceable.” But because Bloom Hergott had already pled a separate claim for quantum meruit as an alternative theory, the court found no reason to convert the breach of contract cause of action to one for quantum meruit, or to otherwise retain its breach of contract cause of action. Accordingly, the court granted Depp’s motion.
While memorializing attorney fee agreements in writing, particularly percentage-based agreements, may seem like an obvious thing to do, handshake deals are still widely utilized by attorneys practicing in the entertainment industry, especially with long-standing clients. Going forward, in light of this ruling, it would certainly be a good idea for attorneys who utilize such percentage-based attorney fee agreements, without memorializing them in writing, to consider taking precautionary measures. Such measures should include having any such clients (even long-standing ones) sign fully informed ratification agreements, in compliance with Section 6147, and to put any future such retainer agreements in writing.
That being said, there are two important “so what?!” points that appear to get lost in most of the reporting of this decision, which make its overall effect much less dire. The first is that the court’s decision has no effect on the substantial fees previously paid by Depp to the firm over the prior 18 years. Voided contract or not, there is nothing in this ruling (or any potential future ruling in this case) that would entitle Depp to recover any of his previously paid fees.
The second point is that, in connection with Bloom Hergott’s unpaid fees, despite having its agreement with Depp voided, Bloom Hergott (and any law firm put in a similar position) will still be entitled to recover the reasonable value of its services under the remedy of quantum meruit. In the event that this matter proceeds all the way to trial on Bloom Hergott’s quantum meruit claim, it will be interesting to see how they establish and calculate the reasonable value of their services, and how much they are ultimately awarded by a jury.
In the end, it is very likely that this ruling will not have more than a negligible effect on the amount of Bloom Hergott’s inevitable recovery of its outstanding fees. Accordingly, while attorneys may take note of this decision, it is unlikely that this ruling will mark an end to the use of similar percentage based, oral attorney fee agreements in the future.