End of the Hollywood handshake deal

Stop us if you've heard this one before. A young actor, talented but unknown, is trying to break into the business. She is introduced to an entertainment lawyer who tells her he'll handle all of her modest legal work for "free" on the front end, and take a cut of whatever income she eventually earns. It's all done on a handshake basis. Nothing is put in writing.

Few if any lawyers do this outside of the entertainment industry. And indeed, California has long required that a lawyer who intends to take a percentage interest in a client's success to put it in a written contract -- containing very specific disclosures regarding, for example, expenses and the client's right to renegotiate percentages if her career takes off.

And yet many entertainment lawyers continue to strike oral agreements with burgeoning artists. The Hollywood old guard's justification for this peculiar and clearly illegal yet shockingly common practice is to point to the prevailing "culture of informality" in the entertainment business, which they claim makes it "uncomfortable" to ask their clients to sign agreements with the very attorneys who should be advising them on such contracts.

Nonsense. The law does not care a wit about a lawyer's comfort. And the truth is there's simply no legal or ethical justification for an attorney not to put their client agreements in writing -- especially when the client is agreeing to share her earnings in perpetuity.

A "culture of informality" may indeed exist in Hollywood. But there comes a moment when we should ask whose interests are served by that culture, and whether the entertainment industry has strayed so far from what is ethical and legal that its culture must change. Recent events make clear that entertainment lawyers continue to ignore the law at their peril.

In August a judge squarely addressed the legality of Hollywood's so-called oral percentage fee agreements for the first time. Judge Terry A. Green of the Los Angeles County Superior Court rejected an attempt by Bloom Hergott Diemer Rosenthal LaViolette Feldman Schenkman & Goodman, a prominent entertainment law firm, to enforce an alleged oral percentage fee agreement against its former client, and our current client, Johnny Depp. Judge Green held that lawyers, like Bloom Hergott, may not claim a percentage of their client's income without a written agreement that satisfies specified statutory criteria.

Speaking from the bench at the hearing, Judge Green sent a clear message to the legal industry: "There's not a special rule for entertainment people." California law, according to Judge Green, applies to Hollywood lawyers too: "I'm aware that show business people think they live in a separate universe, but they don't. Not a separate legal universe."

The common-sense consequences of this ruling cannot be overstated. The large number of entertainers (and other talent like writers and directors) who have been paying a percentage of their income to lawyers without a written agreement may have significant legal remedies, which may include the right to recover fees paid and/or prevent future payments. Further, artists may now have the leverage to renegotiate voidable deals they previously thought they were required to live by because they were told "that's just how the industry works." That may be how the industry has historically worked for lawyers, but as Judge Green ruled, it is not how California law works.

The statute in question -- California Business and Professions Code, Section 6147 -- exists to protect clients, including entertainers, from the very conflicts of interest that some entertainment lawyers apparently rely upon to rationalize their lapses. It is precisely because clients trust and rely on their lawyers for advice on legal matters that the law requires lawyers to explain things in writing when the lawyer may be taking a position against their client. Few positions are obviously more adverse to a client than when a lawyer takes for himself a perpetual cut of an entertainer's earnings. And that is why the law's penalty for non-compliance -- voiding the lawyer's fee agreement -- is harsh. The law is designed to uphold the integrity of the legal profession so that clients, including entertainers, can trust their lawyers.

As this newspaper has reported, in the wake of Judge Green's ruling some entertainment lawyers are debating whether to ask their clients to sign a written fee deal. If they do, it is unclear whether clients will also be advised to sign papers that purport to waive their rather substantial remedies for prior violations. It is also unclear whether the ask will come with a direction to seek independent legal advice or whether it will be accompanied by full disclosure regarding the potential remedies existing clients may have against these same lawyers. Without those elements, the deals won't be worth the paper they're printed on.

We cannot, and do not, purport to give any specific advice as to what any artist's legal rights may be under the circumstances, or what decision she should make if confronted with such a request. Those are highly personal and fact-specific decisions. Here's what we can say: Artists who have been living under these oral percentage fee agreements should consider fully researching their rights before they sign anything. If it makes their lawyers uncomfortable, so be it.

The authors represent Johnny Depp.