By Carl Mueller, The Maloney Firm, APC
In our legal fee dispute practice, we have seen an uptick in cases involving contingent fee agreements. The vast majority of these disputes arise from written contingent fee agreements in litigation matters that suffer technical defects or contain ambiguous language concerning the manner of calculating the contingent fee. However, a recent case in the Los Angeles County Superior Court reveals a yet another issue – the failure to create any writing memorializing a contingent fee arrangement in a transactional matter.
In Los Angeles Superior Court Case No. BC680066, in which well-known actor Johnny Depp and his associated production entities faced off against Mr. Depp’s former attorneys, Bloom Hergott Deimer Rosenthal La Viollette Feldman Schenkman & Goldman, LLP (“Bloom”). A critical issue in that litigation was the contingent fee arrangement between Depp and Bloom.
According to Bloom’s cross-complaint, Bloom and Depp entered “[a]n oral agreement” whereby Mr. Depp “agreed to pay a fixed percent of their gross entertainment income” as it was received. Notably, the oral agreement was never reduced to writing. Bloom cross-complained for further fees, alleging causes of action for (1) breach of the oral contingent fee agreement; (2) quantum meruit, and (3) unjust enrichment. The allegations within the pleadings put approximately $9,000,000 of attorneys’ fees at issue. However, the case recently settled, only weeks before trial was set to begin.
What makes the case still relevant, even after it has settled, was the trial court’s ruling on a motion for judgment on the pleadings that Bloom could not pursue his claim for breach of oral contract because he had not reduced the contingent fee agreement with Depp to writing, as required by California Business & Professions Code § 6147.
Granting Depp’s motion for judgment on the pleadings, the trial court held that Bloom sought to enforce a contingent fee agreement that did not meet the statutory requirements.
First, the trial court found Bloom and Depp had entered into a contingent fee arrangement:
[T]he contract as pled is a contingency fee contract. It is tied entirely to Cross-Defendants’ success in the entertainment business. As Cross-Defendants put it, when they made money, Cross-Complainants made money. That is the very definition of a performance-based incentive. Even if the court employed Cross-Complainant’s proposed test, the success of Cross-Defendants in their business endeavors was not guaranteed. This is a contingency fee agreement. There is nothing else it can be.
Second, the trial court held that because the contingent fee agreement was never reduced to writing—which Bloom admitted in its pleadings—it was impossible for Mr. Depp to have ratified the oral contingent agreement prior to effectively voiding the agreement by filing his Complaint:
[I]n order to establish ratification of a contract which is voidable under Section 6147, Cross-Complainant must (1) plead and prove the existence of a writing which complies with section 6147, and (2) plead and prove that Cross-Defendants signed said writing with full knowledge of their option to void. Cross-Complainant has given no indication that it can do so. Its argument for ratification is based on Cross-Defendants’ continued payment of the bills Cross-Complainant issued. Therefore, it does not appear probable that Cross-Complainant can amend its pleading to state a valid cause of action.
Third, and finally, the trial court held that because the oral contingency agreement was voided, Bloom was left solely with a claim for quantum meruit, which already existed in his second cause of action. Therefore, there was no reason to grant leave to amend.
Because this case was settled and will not result in any appeal, it is not citable as precedent. However, the trial court’s reasoning was sound, and should be considered a bellwether for how other trial courts are likely to rule when facing similar scenarios. To that end, the lesson of the trial court’s ruling is that all lawyers should ensure that their fee agreements comply with the applicable statutes. Because in the event of a later dispute a court may later find that a fee structure constitutes a contingent fee, counsel should ensure that their fee agreements are (1) written and (2) comply with all elements of California Business & Professions Code § 6147.
About the Author: Carl Mueller
Mr. Mueller represents attorneys and clients in disputes over legal fees and legal malpractice. If you have questions regarding this article contact Carl Mueller at firstname.lastname@example.org.