Johnny Depp Sues Lawyer for $30 Million in Damages

 

Summary

Depp's lawyer and business managers were alleged to work together to provide Depp a predatory loan for $12.5 million with high interest rates, severe prepayment penalties, and other onerous terms that ultimately cost Depp more than $32 million.

 

Depp relied upon the guidance of these advisors, seemingly the only professionals involved in the handling of his finances, with no oversight by himself or a third-party without an inherent conflict of interest or control over his money. This led to allegations of breach of fiduciary duty, self-dealing, legal malpractice, failures to disclose material conflicts of interest, and unjust enrichment.



Another one of the professionals managing Johnny Depp’s business affairs, this time a lawyer, is alleged to have

breached his fiduciary duty, failed to disclose material conflicts of interest, and unjustly enriched himself. The lawsuit claims the lawyer and his law firm collected more than $30 million in fees over 18 years without a written contract, and Depp is seeking more than $30 million in damages.

 

As always, these are only allegations and have yet to be proven in court (or ever be proven given the likelihood the case will settle), so take these charges with a grain of salt. Nonetheless, if the allegations are accurate, this may end in a large settlement.

Public Enemies

Earlier this year, Johnny Depp sued his business managers, TMG, alleging fraud and a host of other improprieties. I detailed the specific allegations and lessons learned in this blog post. Now, Depp is claiming that his lawyer worked with TMG to bilk him out of millions.

 

These allegations against his lawyer coupled with those against TMG paint the picture of an artist taken advantage by the professionals responsible for his finances. When a person as rich as Depp leaves the oversight of his finances to the same ones who control them, it creates the opportunity to defraud and long odds of being caught.

 

Usually the fraudster gets caught because he gets too greedy and/or the victim runs out of money, sometimes years later. Depp’s reported spending of $2 million per month (which for him, is roughly $48 million pre-tax in earnings per year, assuming 50% taxes and agent fees) should have been cause for concern for those taking advantage of him because a financial implosion was imminent. Financial implosions bring outside auditors or lawyers into the mix who are going to ask lots of questions, which is exactly why TMG was eventually sued for fraud.

 

The smart fraudsters slowly bleed people’s money over time without accomplices. They ensure that their victim’s finances stay solid, thereby making it more difficult to detect by the victim with no red flags present to involve a third party for review. The unknown frauds are much scarier than the known.

When It All Hits the Fan

In this recent lawsuit, Depp was relying on these individuals to act in his best interest ahead of their own. Millions and millions of dollars later, Depp failed to manage the financial risks of providing so much power to the few.

 

Years prior to his finances being in shambles, Depp could have hired an outsider like BrightLights, a company without inherent conflicts like the ability to access Depp’s bank accounts, structure loans with onerous terms, or collateralize his residuals with a loan. Depp needed to ensure those with competing interests were actually working as fiduciaries of Depp. Depp chose, as most do, to wait until the house was on fire to look under the covers.

Foxes Guarding the Hen House

In the complaint dated October 17, 2017 (published by Deadline), Depp alleged that his lawyer engaged with TMG to provide Depp a $12.5 million predatory loan “subject to high fees, double digit interest rates” which lined the pockets of TMG, his lawyer, and the lender, Grosvenor Park, with millions of dollars in fees.  

 

The lawyer named in Depp’s complaint, Jake Bloom, was alleged to have had professional relationships with Grosvenor Park and/or its founder and CEO. Bloom was ultimately given a position on the advisory board of Grosvenor Park. These relationships were not communicated to Depp.

IOU

“Defendants and TMG,” Depp’s lawyers allege in the complaint, “structured the loan - without the legally required disclosures to Mr. Depp - as a vehicle to provide themselves with immediate priority to millions of dollars of voidable contingency fees tied to the success for Mr. Depp’s film residuals...the purported contingent fees and preferred payment position provided Defendants and TMG with a right to fees superior to Mr. Depp’s own, creating additional serious conflicts of interest.”

 

The terms of the loan were so onerous that Depp was left providing millions of dollars from his residuals while facing substantial prepayment penalties. If Depp had attempted to pay the loan in full shortly after entering, “it would have cost Mr. Depp approximately $1.5 million in origination fees and prepayment fees to pay off the loan, in addition to the entire principal.”

 

The loan terms included monthly accrued interest (and the complaint seems to allege that Depp’s lawyers knew Depp’s residuals were received less frequently than monthly so the payments would not be paid in time), meaning that if Depp didn’t pay the high rate each month, the unpaid amount would be added to the principal amount. This resulted in over $2 million of capitalized interest added to the principal balance of the loan.

 

Despite the loan being for $12.5 million (and later increased to $19 million), the film residuals pledged to secure the loan made $15.2 million during just the first twelve months, and “only eight days after the loan agreements were signed, the studio paying Mr. Depp’s residual rights paid $5.58 million that would have gone to Mr. Depp” had it not been for the loan.

 

Further, the complaint alleges that Bloom and his law firm negotiated Depp’s film deals and were the ones whom the studio provided notice of residual payments, including the $5.58 million. All of these residuals owed Mr. Depp, particularly one eight days after the loan was finalized, makes one wonder why the $12.5 million was ever necessary.

Pirates Booty

Over the three year period since the loan was initiated, Mr. Depp should have received approximately $32 million in residuals from six films (including Pirates of the Caribbean I - IV) pledged as collateral in the loan. Depp received nothing. A $12.5 million loan cost more than $32 million.

 

If these allegations weren’t enough, the complaint also alleges Depp’s lawyers submitted hundreds of thousands of dollars of unsubstantiated expenses for reimbursement, which TMG ultimately paid to the defendants out of Mr. Depp’s own funds.

 

“In the end, Mr. Depp was presented with only the signature pages of the loan documents, and, trusting that his advisors had his best interests in mind, signed the loan documents, not appreciating the devastating impact of the hard money loan, the product of brazen self-dealing and conflict of interest, would have on his financial condition.”

 

Depp’s situation is a drastic one, but it shows the need for third-party oversight like BrightLights provides and justifies the hourly cost of such a service. Too many times, we look at these scandals in hindsight instead of acting with foresight and protecting ourselves.

 

Contact BrightLights for a free risk consultation.