Monday, April 16, 2012

Howard Stern Lawsuit - DISMISSED

Earlier this week, New York Supreme Court[1] Judge Kapnick dismissed, with prejudice, Howard Stern’s lawsuit against SiriusXM Radio. Howard filed a lawsuit based on his belief that a performance-based payment clause in his 2004 contract with Sirius required them to pay him up to $300 million based on the company’s reaching certain subscriber numbers.  Howard’s case was predicated on the belief that once Sirius acquired XM, all XM subscribers must now count toward the performance standard because XM became part of Sirius, the company.  Not surprisingly, Sirius argued the opposite – only subscribers to the Sirius service, even after XM was acquired, counted. 

The dismissal, via summary judgment, was a bit of a surprise to me[2], but the judge’s opinion[3] made clear that she found the language of the contract unambiguous – for the purpose of the performance-based clause negotiated by Stern and his agent, Don Buchwald, only subscribers to the Sirius radio service, not the merged SiriusXM company could be counted.  Moreover, she pointed out that the parties included a separate provision that paid Stern $25 million when Sirius and XM merged[4], which, she held, evinced the parties “explicitly distinct treatment of subscribers acquired by merger[5].”  Taken together, the Court concluded that the understanding of the parties at the time the contract was signed and the plain language of the agreement precluded, as a matter of law, the interpretation Stern claimed. 

There’s no way to spin this decision as other than a complete and total win for Sirius.  Even though the Judge’s opinion was brief, just 11 pages, let me answer some questions that you might have and throw out a few random thoughts of my own:

What is Summary Judgment & Why Is It Important?  Summary judgment is often used at the beginning of a case by a party that thinks the lawsuit filed against it is frivolous. It is a concept that says, “even if every single fact the non-moving (i.e., the party that did not file the motion, in this case, Stern and Buchwald) party alleges is true, as a matter of law, you have to rule in our (i.e., the party that filed the motion, in this case, Sirius) favor.” Summary judgment affords the court the opportunity to dismiss meritless cases quickly, and without significant legal cost. 

In this case, to rule in Sirius’s favor required the Judge to look at the October 1, 2004 contract and essentially, nothing else, in making her determination.  That is, Judge Kapnick said that as a matter of law, the language in that Agreement was unambiguous and not subject to more than one interpretation. In fact, because the only interpretation that could be read into the Agreement was that “Sirius Subscribers” meant subscribers to that service, not a merged company that included XM subscribers, none of the performance-based awards Howard sought in the lawsuit were triggered and therefore, the case must be dismissed.

This decision is important for a couple of reasons.  First, in opposition to Sirius’s summary judgment motion, Stern argued that the motion must be denied because the terms of the contract were either plain (in his favor) or ambiguous.  By granting summary judgment to Sirius, Judge Kapnick not only said the terms were plain in Sirius’s favor, but that no fact-finding was necessary to reach her conclusion. In other words, Howard was denied what’s called “discovery,” the phase of a lawsuit where each side must produce non-privileged information and submit witnesses for depositions (sworn pre-trial testimony) to the other regarding the lawsuit and from which, each side constructs its case.  Second, by dismissing the case with prejudice, Howard is precluded from refiling the case utilizing different arguments. 

What Happens If Howard Appeals?  But Scary Lawyer Guy, you say, the case is not over!  Howard said on his radio show that he will appeal the judge’s ruling!  Victory is close at hand.  Not so.  Let’s be clear.  As of right, Howard can appeal; however, because the judge has dismissed Howard’s lawsuit, the best outcome for him at the appellate level is for the court to overturn the trial court’s decision to dismiss the case and allow it to proceed.  That is, the appellate court would be saying the contract’s terms are not unambiguous and discovery must occur.  Because Stern did not file his own motion for summary judgment, the appellate court cannot rule on the underlying merit of his complaint – i.e., that the contract is unambiguous in his favor.  On the other hand, if the appellate court upholds the trial court ruling, the dismissal with prejudice will hold and the case will go away forever. 

How Long Will The Appeal Take?  It will likely take a minimum of 9-12 months for the appellate process to unfold.  First, Howard’s team will file a notice of their intent to appeal, followed by submission of a legal brief explaining why the trial court erred.  Sirius will file its brief (court rules vary state-to-state, but I’m guessing 45 days after Howard’s brief is filed) explaining why the trial court should be upheld.  It is possible, though I do not know the New York court rules, that Howard’s team will get a chance to submit a reply (or rebuttal) brief within 10-15 days after Sirius’s submission. After all that is done, the Court will set an oral argument date, which is usually several months later.  Oral argument will occur and then, well, we wait.  Appellate courts do not issue rulings the same day as oral argument and they are under no time restriction for when an opinion must be issued.  It could take a few weeks, it could take a few months, it is totally up to them.

When Will This All Go Away & Allow Me To Stop Reading Your Blog? Good question. Howard could choose not to appeal and the lawsuit will be over.  If he does appeal, the parties could still hammer out a settlement under the theory that Sirius would carry some minor litigation risk if it lost at the appellate level and the case was remanded to the trial court; however, I do not think that is likely.  With a dismissal at the summary judgment stage in its hand, Sirius’s negotiating position is strong and they have little incentive to pay anything to Howard at this point.  If the parties go through the appellate process, see above.  Even if the appellate court rules in Sirius’s favor, that won’t happen until late this year or 2013. 

If Howard wins and the case is remanded, you may see more meaningful settlement discussion because we now know Sirius’s downside risk is more than $300 million.  Of course, the trial court has already tipped its hand on the merits of Howard’s lawsuit.  What is also important to note is that while Stern supporters may think discovery would unveil some “smoking gun” document, if such a document existed, it would have likely been produced by now.  That is to say, Howard’s team would have led with more persuasive documentary evidence for its case than some 10-K filings and press releases and/or Sirius would have done the same.  Moreover, if Sirius knew that documentary evidence existed supporting Howard’s position, they would not have stiffed him on the performance payment in the first place. In short, we can reasonably surmise that no contemporaneous notes, emails or documents exist showing the parties contemplated counting potential merged subscribers as part of the contract, leaving Howard, if he is able to resuscitate his case through a successful appeal, opting to continue spending a lot of money on lawyers on a case he is unlikely to win. At that point, he may take a slice of the loaf and hope that Sirius might agree to pay legal fees and some modest settlement amount, but I would not count on it (good thing he’s got that AGT money rolling in now!).

Anything Else?  I would still encourage people to get the facts about the lawsuit, which you can do be accessing all of the electronic records filed in this case.  I’ve listened to Howard for almost 25 years and enjoy him immensely as an entertainer; however, it’s also important to not get sucked in by the spin and slant he provides.  In his view, the Agreement is clear, but if you read it, as I did, you will find that not to be the case.  He never publicly mentioned the $25 million merger payment he received until after the court issued its ruling and then, as I mentioned above, gave an entirely different explanation for that clause than what his lawyers said in their court filings.  From an equity perspective, it is also difficult to feel sorry for Howard.  He was paid (literally) hundreds of millions of (well earned) dollars; however, if his agent inserted a bad, or inartfully written clause into his contract, he should blame his agent, not his employer. Howard is about to experience a mainstream rebirth when America’s Got Talent premieres with him as a judge.  If I were him, I would stop trying to squeeze money from my employer and be content with the riches that have already been showered on me and the acclaim from a whole new platform I am about to receive. 


[1]   In New York, state trial court is referred to as “the Supreme Court.”
[2]   My full analysis of the lawsuit can be found at: http://scarylawyerguy.blogspot.com/2011/11/breaking-down-stern-v-siriusxm.html)
https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=JIDUU1614fTcaMd0kHhotw==&system=prod
[4]   After the Judge rendered her decision, Howard claimed on his radio show that the merger provision was inserted for his protection in the event XM acquired Sirius and sought to terminate his employment.  In the legal filings, he argued that the purpose of the merger clause was to defer some of his compensation so the financial hit to Sirius was not as hard when he signed. Judge’s Opinion at 8.
[5]  Opinion at p. 11.

28 comments:

  1. Nice summary. Found it pretty useful and insightful.

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  2. duh, i knew this the day he filed. How could he count XM subscribers when they couldn't even hear the show without buying an additional package, which they did not.

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  3. It was obvious to me the minute I saw the "merger provision" in his contract. His explanation for that made no sense.

    $25 Million as a deferred payment on a $500 Million contract? On what planet does that make any sense?

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  4. Nice to see Howard lose. A well-needed blow to his image and ego, just in time for his big media push for mainstream acceptance on AGT. The King of All Hypocrites is opposed to free speech when it centers around his failures.

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  5. Which still leaves the question: why did stern do it?

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    1. Howard was jealous when John Malone Made over 5 billion dollars from a $500 million investment in Sirius when Sirius was on the verge of Bankruptcy...According to Howard, he should always be the highest paid individual in Sirius History...Jealousy...Jealousy...jealousy...

      The funny thing is that Howard could have made the same investment as John Malone by deferring part of his salary or investing part of his own money when Sirius was in such financial straits...he did not...sour grapes..

      It also is amusing that Howard claims that he and only he "forced the merger", "Saved Sirius", blah, blah, blah...Hey douchebag, Sirius almost declared bankruptcy...are you responsible for that????

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  6. The judge basically said the case had NO merit, pretty damning. As for why Howard sued? Perhaps it was personal pique or feeling dissed at perceived slights by Sirius management. Goes to show that a lawyer will make a novel argument (counting XM subscribers toward the SIRI total). My only disappointment is that we didn't get any discovery. I would have enjoyed reading deposition transcripts in the case. Hand it to Howard on one level though - AGT is a nice consolation prize that will keep his name out there (and the payday probably makes up for whatever he lost in the most recent contract negotiation with SIRI).

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  7. I'm sure he sued because he counted on the case surviving until he could negotiate a nice settlement. One question--if the sj motion is overturned, does the case automatically go back to Judge Kapnick?
    If so, Howard isn't helping his cause by discussing his opinion of her ruling or her reversal rate on air. Even if it doesn't go back to her, judges don't like to hear disrespect for their brethren. H's lawyers may need to muzzle him, at least with regard to the bench's rulings, if they haven't already.

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  8. I don't know the court rules in NY, so I am speculating, but I assume cases are remanded to the court from which they originated (unless the judge has been moved to a different part of the system - i.e., civil to criminal or family). I agree that granting the SJ motion was probably not something Howard's lawyers (or he) expected, but it having happened, his options are narrower now.

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  9. I wonder if one calculation Howard made in taking the AGT job was that the NBC tv judge spot could rehabilitate his image with the general public AND the potential jury pool. This might allow Sirius to be more scared of a jury verdict and allow for a larger settlement. Howard mentioned again and again the other day that he wanted to put his case in front of a jury, but I suspect he would not have been displeased with a $100-150 million settlement plus legal fees.

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    1. Interesting theory. I would not put it past Howard to think three-dimensionally (he is a chess player after all).

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  10. Scary Lawyer Guy (much like Budweiser's Great American Hero!):

    --why do you think Stern's attorneys thought he had a case? Was it that they went, hey, the court could see it our way, or did they think he had a strong case?

    --I purchased a computer back in the 90s that offered "computer for a lifetime." Every 2 years, I could get a new computer at no cost. When I went to get my first new computer, the company told me they had been bought by another company and that company decided not to honor that agreement. They told me I could take them to court, but they felt they were within their legal right. So, I learned that mergers often can complicate previous agreements.

    Thank you for your insight on the case, Scary Lawyer Guy.

    Mark

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    1. Hi Mark: Thanks for reading my blog. To answer your question, if you look at the 10/1/04 contract, the term "subscribers" is not clearly defined, so an attorney may have said, in the absence of a clear definition, there were no prohibitions on who would be included as "subscribers." Obviously, the judge did not see it that way, but good lawyers (and I have to assume Howard didn't hire dummies) would point out the potential risks involved in litigation and their own view of what a likely outcome would be. Ultimately, it is up to the client to decide whether to move forward.

      As for mergers complicating warranties and what not, there's usually "fine print" that addresses such situations. Absent that, corporations can always rely on the fact that they have far deeper pockets than an ordinary citizen. Interestingly, one way this has been neutralized recently is the use of small claims court to sue (as was done by a woman who took Honda to court over (I think?) some sort of car issue).

      Thanks again for reading!
      SLG

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    2. Excellent reply. His attorneys let him know that there would be risks, as there are with any case that goes to court. Howard made it seem that the case was so cut and dried. My major experience in court was when my attorney told me, "It's a slam dunk case." 3 years and a bunch of money later, a satisfactory resolution for me was finalized. I guess that is what they mean when a 40 point underdog upsets a team: "that's why they play the game."

      I'm following you on twitter now. I just have to figure out how to get notified when your blog is updated. Good info! Thanks, Mark

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    3. I would always be cautious if a lawyer told me my case was a "slam dunk." (Not to mention my CIA Director, but that's another story). One of the reasons 90%+ of both civil and criminal cases settle is because rarely are matters that open and shut.

      My guess is that Howard's lawyers were probably taken by surprise that the SJ motion was granted and had planned on doing some limited discovery to angle Howard into a nice settlement. That has all been blown up at this point and now it's a question of whether Howard wants to double down on an appeal. I assume he will if only b/c he's already laid out "X" amount of money, the appeal will not meaningfully add to his litigation burden. If he loses, the case is over, but if he gets a remand, maybe he thinks he will be able to at least save face/recoup some of his outlay.

      As for what he says on the radio, as I noted in my very first blog post, there's a reason he uses the circus motif as the opener for Howard TV. He's the ring leader constantly shifting your attention while never quite giving you exactly what he promised (that too, is another blogpost altogether).

      Thanks for reading and following me on twitter - which anyone can do @scarylawyerguy

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  11. Thanks so much, SLG! Well written and you explained the concepts so well that a moron like me could understand!

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    1. Anytime, though I'm sure you are not a moron. Thanks for reading.

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    2. dont be too sure, the link has been posted on sfn, which is filled with morons

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  12. Great analysis SLG - one question: the parties had redacted the dollar amounts of these bonuses in the earlier filings. Is it typical that the judgment would specify the amounts? Howard likes to keep the amount of his marbles secret (even though he bores what's left of his listeners by badgering guests about their net worth).

    I agree that Howard doesn't deserve the bonuses, but was surprised that SJ was granted. If he and his lawyers had tried to include the specifics of what he is now arguing, Sirius would have either flatly rejected it or countered by including language to adjust the Sirius subscriber targets to reflect the numbers added just by the merger.

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    1. Thanks, Scott. The judge dropped a footnote (page 3) stating "Although this document [the contract] may have originally been considered 'confidential,' the parties submitted it unredacted, so it does not appear to require confidential treatment here." I was a bit mystified too, b/c not only did Howard's original lawsuit have the contract terms redacted, I seem to recall the parties filing a mutual stipulation that financial terms would be redacted throughout. It definitely gives a different spin to the lawsuit, though in my original blog post on the lawsuit, I came up with a back of the envelope estimate based on the number of shares given to Howard for reaching that one performance metric to estimate the value of the lawsuit - turns out my guess ($100M) was on the low side!

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  13. Hey scary lawyer guy...great analysis...one additional question...I've seen on other blogs that Howard may have a legitimate case on appeal not because "XM subscribers" should be counted toward his Sirius Subscriber bonus, but because he was never paid a $75 million dollar bonus for meeting his Sirius subscriber target during 2007 (exceeded target by 2 million)..According to Howard, this should have been paid in early 2008 but was not pursued at the time because of the financial problems Sirius was facing at the time...


    ..My questions are

    1. was this claim in the original filing by Howard? (Because of its not then because howard's lawsuit was dismissed "with prejudice", this would appear to be a new argument or claim and thus invalid)

    2. Do you think Howard has a good chance of getting the judges ruling dismissed because the 2007 bonus not paid?

    (I realize that the Judge's ruling seem to imply that Howard was not entitled to any additional bonuses during 2007 because subscriber targets were not met)

    Thoughts?

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    1. Marathon Man: I went back and looked at the language of the "performance based compensation" clause in the contract. Howard got a first PB stock award at 2 million, a *second* at 4 million, a *third* at 6 million, etc. I did not read that as indicating that every time the benchmark exceeded 2 million he was to be awarded $75 million in stock, but rather, that once the 2 million benchmark was met (and it was, and paid out in early 2007), he would receive a *second* award if, at the end of any calendar year, he beat the SIE by 4 million, a *third* at 6 million, etc.

      In reading the complaint, I understood Howard's decision not to demand payment as a more general demurral based on Sirius's shaky finances, not tied to his meeting any specific PB target. If you look at Paragraph 70 of the summons (complaint), Howard claimed that "the total number of Sirius subscribers exceeded the subscriber targets set forth in the Agreement in each year of the Agreement. Accordingly, under the terms of the Agreement, One Twelve is entitled to certain performance-based awards."

      Under that reading, Howard was looking for anything/everything he could get, so to answer your first question, I think that does rule out re-filing based on some reading of the contract as allowing him to get a second award based on hitting the 2 million subscriber plus threshold. As you note, Judge Kapnick's interpretation of the award ceilings is in accord (P. 4-5).

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    2. Wow thanks...and you didn't even charge me...now what is scary is your analysis reads like a real lawyer...

      :)

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    3. I should hope it does - I AM a real lawyer!

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  14. scary-mazegame.net website is not the for weak-hearted, do you have what it takes?

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  15. Check this out, not very scary but insane gameplay http://playhelicoptergame.org
    love retro games lol

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  16. I heard that Howard may settle for 50,000 bales of hay and free shoeing for life for a certain someone in his life.

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  17. This comment has been removed by a blog administrator.

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