Business Musings: Attorneys

As I’ve mentioned in previous blog posts, I’ve been taking a pretty extensive Entertainment Law class. Initially, I took it to learn about industries related to mine, as I get back to licensing. But I found the first semester fascinating, because it filled in a lot of gaps in my learning.

It also filled in a few gaps in my teaching.

For years now, I’ve told you not to hire agents. Hire an attorney. Many of you balk, thinking attorneys are expensive, never thinking about the cost of giving someone 15% of a deal or worse, 15% of the copyright for any work they represent.

I know some of you think you would never hire an agent because you’re indie, and yet I get letters all the time from indie writers who believe they need an agent for a movie deal or a foreign rights sale. No, you don’t.

Those same people are reluctant to hire an attorney, maybe even scared of it. So…for them (and for the rest of you), here goes:

The prof did an entire unit on people who assist “talent,” which we writers are. I have to tell you: that unit made me soooooo happy I’m not an actor or a musician. Apparently, they can spend up to 42% of their gross earnings to pay their “army” of managers and agents and accountants.

Shudder. When she taught this part, I actually raised my hand and asked what kind of escape clauses some of these agreements had. Um…let’s put it this way: I didn’t like her answer.

Because we’re not actors or musicians, I’m not going to elaborate further. I’m going to focus now on writers.

First, let me get to the handful of things that I learned that I did not know.

New York and California regulate agents much more than most states. Talent agents. Not literary agents.

In New York, these regulations come out of the theater. Talent agents would help their clients book acting gigs or other work in the theater.

In California, these regulations came out of the movie industry. Talent agents would help their clients book acting gigs or other creative work in the movies (or TV).

In other words, talent agents procured employment.  And as such, they often ran afoul of labor laws. Early on, the labor laws they ran afoul of concerned managing a minor child. Then the laws got more complex. Now, if you’re hiring an agent to procure actual work for you, you have quite a bit of protection—in those states.

Literary agents and agents who handle artwork, not so much. Because those agents aren’t procuring employment. They are, in theory, selling an existing commodity. They’re more like brokers than talent agents, and as such, are unregulated in New York and California.

In theory, though, because they call themselves an agent, they are subject to the same kinds of laws that regulate other agents…like real estate agents. Agents (the general category) have a fiduciary duty to their clients. That means the agent must put the client first…and must handle the money earned for the client in a prescribed manner, usually involving escrow accounts and other regulations.

I say in theory, because many literary agencies ignore all of that, and to my knowledge, no client has taken literary agencies to court over their fiduciary duties.

My prof, who is a working entertainment lawyer, was very deliberate during this unit. She discussed all of the different kinds of agents and managers, and then she discussed attorneys. She did not say that artists/musicians/actors/writers should hire attorneys, but anyone who heard the lecture should have gotten the message.

She talked about the benefits of hiring each of these managers, accountants, agents, and attorneys, and then she listed the standard ways that these groups got paid.

Managers and agents received a percentage of the gross. Accountants and attorneys were generally paid by the hour.

I’m not going to discuss accountants here.

Let me just regurgitate some of what she said about attorneys.

Payment: Entertainment attorneys can be hired on a contingency basis or on an hourly basis. A lawyer paid on contingency gets paid by taking a percentage of your money on the project they worked on only as the fee.

Got that? If you have them negotiate a movie contract, you will give them a percentage of the earnings for that deal only.

Or you can hire the lawyer on an hourly basis. This is particularly good if you need them to examine a contract or give advice on what they might consider an easy project. It might take an hour of their time.

If they bill $500 per hour, then your cost is $500. And that’s it.

You’ll know how much you’re going to pay. You can also tell the attorney that you’d like them to work on a project, but you only have $1000 to spend. If they charge $200 per hour, you get five hours of work and no more. If they charge $500 per hour, you get two hours of work.

Many attorneys will come up with a payment plan for a client who can’t pay in total up front. My divorce attorney, back in the day—the highest paid, biggest name attorney in Wisconsin at the time—let me pay her a ridiculously low amount, something like $20 per month—for more than a year for her handful of hours on my divorce. I struggled to pay her, but pay her I did. And she was great about giving me the time.

Legal work is highly regulated in every state. Let’s look at the requirements for being an attorney.

An attorney must:

1. Go to law school
2. Pass the bar exam
3. Attend continuing education classes every year
4. Have a client trust account.

Other things to consider:

5. Lawyers have a license. It can be suspended if the lawyer violates laws, rules, or norms. It can be revoked if the lawyer’s behavior is particularly egregious.
6. Lawyers have fiduciary duty to their clients—one that is regulated by law.
7. A lawyer can’t take on a new client without first checking to see if their work for that client will interfere with their work for an existing client. Because, hey, the attorney must put the client first (see fiduciary responsibility, above).
8. Most law firms have errors and omissions insurance policies, so if they screw up a writer’s payments, the firm can financially cover the screw up.
9. I saved the biggest for last: You can fire your lawyer at any point for any reason.

Let’s look at all of these things separately—and, as we do so, compare them to book agents.

1. Law school. Lawyers have to graduate from an accredited law school in most states. In California, Virginia, Vermont, and Washington State, a lawyer doesn’t need law degree to take the bar, but must apprentice with a practicing attorney or a judge. In other words, lawyers get an actual education in the field in which they are going to practice. Agents don’t need a college degree at all to hang out a shingle. They don’t need to apprentice either. They can just declare themselves book agents, and that’s that.
2. The Bar Exam. Some states have a separate exam that would-be lawyers Other states allow graduates of particular law schools to pass the bar if they graduate with a certain grade point average.

The bar exam is difficult. According to Law.com, roughly a quarter of everyone who took a bar exam in 2017 failed it and did not become practicing attorneys.

There is no such examination that agents need to take. Again, they just need to print up some business cards, and voilà! they are an agent.

3. Continuing Education Classes. Every year, lawyers have to take a certain number of credits in continuing education classes or they will lose their license (see below).

Agents and continuing education? Don’t make me laugh. They’re not even required to have an education, so what would they be continuing?

4. Client trust accounts. Lawyers often take retainers, money up front. It must be put into a separate account, which is highly regulated. Any payment the lawyer receives on behalf of a client goes into that account. The lawyer cannot use that money to pay rent if they’re short that month. They can’t use it to buy a car. They can’t use it for anything except work performed.

The lawyer must give the client an exact accounting of what is going on with that money. If the lawyer does two hours of work at $500, then the lawyer can remove $1000 from the client trust account—provided the client gets exact paperwork detailing hours spent, work done, and when the money is pulled.

Lawyers learn how to divide their time into segments, and keep track of it, so that they can properly bill their clients. Again, this is highly regulated, and any attorney who takes too much money or doesn’t provide an accounting can be disciplined by the bar.

Agents technically should have a client escrow account. The bigger agencies do. The smaller ones do not. I personally know of three agents (one who had her own firm, one who had a small firm, and one who had a medium-sized firm) who would spend every penny that came in, and then use one client’s money to pay another client. And let’s not talk about all the embezzling that goes on, even in the large agencies. Any law firm that did what book agencies do routinely would not only be out of business, but their employees would be in jail.

5. License. A lawyer needs a license to practice law in any state. That license is state-specific, so a lawyer cannot (generally speaking) get a law license in one state and then set up practice in another state. The lawyer must be licensed in both states to do that.

This license is highly regulated. If a lawyer violates anything mentioned in this post, then that lawyer can be reported to the state bar. The bar will investigate, and the lawyer can be sanctioned. Their license can be suspended or revoked, in the case of egregious behavior.

A book agent doesn’t need a license. Nor is a book agent regulated by any organization. Have trouble with a book agent? You can’t report them to the bar. You can report to the Better Business Bureau, which has no teeth. Or you can file a civil suit against them, if the problem is bad. If the problem is criminal, you can report them to state. Good luck getting the agent sanctioned, though. Hasn’t happened that I know of, and I doubt it ever will.

6. Fiduciary duty. Lawyers have a fiduciary duty to their clients. Meaning the lawyer by law must act in the best interest of their client. They must avoid self-dealing and conflicts of interest. They must handle money properly.

In theory, under the law in most states, anyone who calls themselves an agent (be it an insurance agent, a real estate agent, or a literary agent) has a fiduciary responsibility as well. Again, I have never seen this pursued in court against a literary agent. Most literary agents do not act like they have a fiduciary duty to their clients. The literary agent will often put the interest of their big name clients over their small clients. Literary agents sometimes put the interests of publishers ahead of their clients.

Since there is no real regulation of literary agents, nothing exists beside criminal or civil law, to stop this behavior. Lawyers who fail in their fiduciary duty will have their license suspended or revoked.

7. Conflicts of interest. Part of that fiduciary duty that lawyers have includes this: the lawyer cannot put the needs of one client ahead of another. The lawyer cannot, for example, represent Penguin Random House and the writer suing them for back royalties. A lawyer can’t even take on a client without first scanning their own client list (or their firm’s list) to make sure that there is no conflict of interest.

This is so far out of the realm of what agents do that I have to chuckle just thinking about it. Literary agents thrive on conflicts of interest—and have as long as I’ve known them. They will make deals saying that they’ll take less money on Writer A’s book if Writer B can get more money. And, um, Writer B is the big name, because who the hell cares about some little no-name writer. If a lawyer did that…here’s the song and dance again. License will be suspended or revoked.

8. Errors and Omissions Insurance and other insurance policies. Most law firms, especially the big ones, have E&O insurance. It’s smart business. If someone screws up a client account, then the insurance company can repay the money owed. There’s also malpractice insurance if some stupid lawyer really goes down a rabbit hole and makes a huge error on behalf of a client. That client can sue, and that law firm’s insurance will cover the amount of the judgement.

If an agent fucks up…oh, well. Too bad. So sad. That one-woman literary agency I mentioned? She used her clients’ money to pay rent…and then she went bankrupt. Her clients lost all their money, and there was no insurance to cover the losses. Stuff like that happens with unregulated book agents all the time.

And malpractice? What’s malpractice in an unregulated industry? Answer me that one.

Let me give you one last thing to chew on.

The unauthorized practice of law is a felony in most states, with jail time and/or a massive fine. The line for crossing from giving advice to the unauthorized practice of law is a gray area. Can an agent recommend that a client sign a contract? Sure. Can the agent explain the contract in depth? Depends on the state. Can the agent negotiate the contract? Again, depends on the state.

Generally speaking, though, giving legal advice is considered an unauthorized practice of law. Supervising the execution of legal documents (like a book contract) without a licensed attorney involved is an unauthorized practice of law.

9. Firing your lawyer. As I said above, you can do it at any point, for any reason. The lawyer has to repay the unused portion of your retainer from the client account, no questions asked.

It’s damn near impossible to fire a literary agent. They’re like a turd stuck to your shoe, embedded so deeply in your business that getting rid of them is tough. They’ll get 15% of the book deals they negotiated for you until that deal expires, and most publishers are doing everything they can to make sure the contracts live on for decades.

So ask yourself this, as a business person, why would you hire someone without a proper education, who is not licensed, who has no understanding of fiduciary duty to make deals for you, negotiate contracts, and handle your money? Someone you can’t easily get rid of? Why?

Smart people hire lawyers who specialize in the area they need. You don’t need a local lawyer to handle your big movie option. You can hire an entertainment lawyer in California for that. If you don’t like that lawyer, you can fire them mid-deal and find a new lawyer. No questions asked.

There. I’ve done my lawyer post. I hope it’s convinced those of you who are on the fence to hire a lawyer when you need help with legal issues. And, ahem, a contract is a legal issue. So are terms of service. And movie deals. And…and…and…

Oh, and no. I won’t tell you who to hire. No, I won’t tell you if that person is a good lawyer. I also don’t to hear that you agree with me…except that you’re lucky because you have a good agent.

If you feel the need to tell me that, reread this whole thing. And then, maybe, do a credit check on your agent. Maybe hire someone to make sure they have no criminal complaints against them. See if they’re bonded.

Go ahead. I’ll wait.

Or really, I won’t. Because I’m done with this topic.

Again.

*****

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“Business Musings: Attorneys,” copyright © 2022 by Kristine Kathryn Rusch. Image at the top of the blog copyright © Can Stock Photo / AndreyPopov.