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. 

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[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)

[3] http://www.scribd.com/fullscreen/89702610?access_key=key-1hd80gybcqxz0jnwedj0 or

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.