Tentative ruling in talent boutique trial
EmptyA Los Angeles judge has tentatively awarded no damages in the heated litigation between the firms led by well-known talent dealmakers Barry Hirsch and Jim Jackoway, finding that absent a written agreement, it is "unconscionable" to require a client to pay a 5% commission to a firm once the representation has ended.
Judge Robert O'Brien made the conclusion in a detailed 27-page tentative ruling issued Wednesday. The decision follows a six-week bench trial before O'Brien in a case stemming from allegations that Jackoway and other lawyers conspired to force their partner Hirsch into retirement and that Hirsch then "stole" firm clients and files while defecting in the middle of the night.
Through a spokeswoman, Hirsch and his co-plaintiffs at Hirsch Wallerstein Hayum Matlof & Fishman declined to comment on the tentative decision.
In a statement, Jackoway Tyerman Wertheimer Austen Mandelbaum & Morris said, "We are pleased the court has finally disposed of all the claims made by Hirsch and his associates. Although Hirsch and his associates once maintained that they were entitled to many millions of dollars, the court yesterday decided that they were entitled to nothing."
Jackoway Tyerman added that it was disappointed it could not recover damages for legal fees stemming from deals for Hirsch clients that "we negotiated while he was at our firm."
Hirsch and partners Robert Wallerstein, Howard Fishman, David Matlof and George Hayum left Hirsch Jackoway Tyerman Wertheimer Austen Mandelbaum & Morris on Aug. 13, 2004, bringing 200 clients -- nearly all of whom had never signed written fee agreements with Hirsch or the firm. Hirsch had practiced with the firm for nearly 25 years.
That same day, Hirsch and his partners filed court papers asking a judge to dissolve the former firm. In a later amended complaint, they claimed breach of fiduciary duty based on the actions of partners Jackoway, Alan Wertheimer, Barry Tyerman and Geoffry Oblath.
The departure came at a time when Hirsch Jackoway was planning to move from a shareholder-based firm structure to a limited law partnership, which would have placed Jackoway in charge.
Jackoway and the co-defendants contended the clients who followed Hirsch were still obligated to pay their former firm 5% of their compensation "in perpetuity" for deals the firm negotiated.
But Hirsch contended that his oral agreements with his clients included the understanding that clients would pay a 5% commission to the firm only until the client left the firm. At trial, some of those clients, including actor Sean Penn and directors Francis Ford Coppola and Richard Donner, confirmed Hirsch's contentions.
O'Brien wrote in the tentative decision that Jackoway Tyerman provided only one exhibit that specifically indicated a client was obligated to continue paying a 5% future fee after leaving the firm. Talk show host Sally Jessy Raphael testified on behalf of the defendants, confirming this agreement.
"It is highly questionable whether the entertainment clients who had an attorney-client relationship with defendant firm had a reasonable expectation that if they changed lawyers they would still be forever tethered to defendant firm," O'Brien wrote.
O'Brien said Jackoway's position on the 5% future fee arrangement was "unconscionable" and that an oral contract binding client and firm in perpetuity is "unreasonable" under California's Rules of Professional Conduct governing attorneys.
Reaction to Obrien's tentative decision from transaction specialists focused on the lack of a written fee agreement.
"Once again, it shows that lawyers need to define their client relationships in writing and manage client expectations accordingly," said Peter Dekom of Weissmann Wolff Bergman Coleman Grodin & Evall. "This case emphasizes that necessity."
"The philosophy of these (talent) firms has been to not get agreements signed," said another talent-side transaction attorney. "But no one will ever convince me not to insist on a fee agreement with my clients."
At trial, Hirsch Wallerstein detailed the reasons for its former firm's breakup.
With the plans to change to an LLP came a term sheet Hirsch Wallerstein claimed was used to threaten and intimidate the plaintiffs and force them to resign.
"Plaintiffs contend that although the general proposal of the conversion was to obtain a better tax position for the firm, it was a ruse and was merely a vehicle to force out plaintiffs," O'Brien wrote. "There is sufficient evidence to partially support this contention."
O'Brien noted that Jackoway Tyerman never continued with the plan to form an LLP after Hirsch and the other plaintiffs left, concluding that much of the conversion plan was targeted at Hirsch because Jackoway and others wanted him to retire and many of the shareholders felt Hirsch clients' needs drained the firm's resources. Wallerstein was also targeted for removal because he had "become difficult to deal with" after shareholders rejected his bid to become a name partner.
"This secret effort did not comport with the fiduciary duty owed to him," O'Brien wrote. "The threat (Wallerstein) felt was real and precipitated his leaving the firm." Regardless, O'Brien awarded no damages despite finding Jackoway Tyerman breached fiduciary duties to Hirsch and Wallerstein. On a similar counterclaim, O'Brien ruled Hirsch and his co-plaintiffs did not violate fiduciary duties by departing the firm secretly and taking certain client files they were working on.
The court trial before O'Brien, a retired judge sitting on assignment, concerned only the "equitable" causes of action in the complaint and cross-complaint, leaving for a later proceeding Jackoway Tyerman's remaining counterclaims.
Following a statement of decision, the court will hold a hearing to determine whether those remaining claims are still viable, according to the ruling.
A further hearing in the case is set for Jan. 16, according to the court docket.
Representing Hirsch Wallerstein are Folger Levin & Kahn's Thomas Laffey in Los Angeles and Douglas Sullivan in San Francisco.
Representing Jackoway Tyerman are Rita Haeusler and Michael Barbee of Los Angeles' Hughes Hubbard & Reed and Laurence Silverman, Mark Gimbel and Gary Rubman of New York's Covington & Burling.
The case is Hirsch Wallerstein Hayum Matlof & Fishman v. Hirsch Jackoway Tyerman Wertheimer Austin Mandelbaum & Morris, BC320128.