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Block to Perpetual Attorney Fees

By Michael I. Rudell and Neil J. Rosini
Entertainment law firms in California commonly charge the talent they represent on a percentage basis, rather than an hourly one. The typical arrangement requires the client to pay 5% of gross income derived from contracts entered into during the course of the representation. Earlier this year, a Superior Court judge in Los Angeles addressed the enforceability of this fee structure in the context of an acrimonious dispute between two entertainment firms. The case involved a prominent attorney and allied partners who left one firm to create a new one, taking a large number of clients with them. The two firms then brought numerous claims against each other, invoking a long list of legal theories.

The principal issue in the case, and the focus of this article, is whether clients who had departed for the new firm had a continuing obligation to pay that 5% fee to the old firm as a matter of contract law. (Additional ethical questions that may be raised by such arrangements are beyond the scope of this article.) The case was subsequently settled, and the court's unpublished decision did not advance beyond the 'tentative' stage. Nevertheless, the rationale of this decision is of interest to any entertainment lawyer who has adopted, or even considered, this alternative to billing by the clock.

The Superior Court held that under the facts presented, contractual principles (and to a lesser degree, ethical rules) blocked the older firm from collecting because the arrangement was unenforceable. Hirsch Wallerstein Hayum Matlof & Fishman LLP v. Hirsch Jackoway Tyerman Wertheimer Austin Mandelbaum & Morris (L.A. Sup. Ct. BC 320128). Would the result be the same in New York? As discussed further below, a 56-year-old Court of Appeals decision seems to be the only reported appellate case with comparable facts, and a pure attorney-client relationship was not presented.

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