Breaking Down Stern v. SiriusXM

Fans of The Howard Stern Show are well aware that Howard sued his employer, SiriusXM, earlier this year alleging breach of contract.  Stern has gone on several epic rants about the grave injustice that has been perpetrated against him by Sirius in its failure to pay him performance bonuses he thinks he is entitled to.  Thanks to the Internet, the filings in that lawsuit, One Twelve, Inc., et al. v. SiriusXM Radio Inc. are available through the State of New York's Court Website:

http://iapps.courts.state.ny.us/iscroll/SQLData.jsp?IndexNo=650762-2011.

This post looks at the legal arguments of both sides and predicts the likely outcome of the lawsuit.

Although the financial stakes in the case are quite high, the legal question posed by this lawsuit is narrow.  The parties disagree about a single term in the original deal struck between Stern and Sirius back in 2004.  The October 1, 2004 agreement (“Agreement”) Howard Stern and his agent, Don Buchwald, signed, provided a number of different forms of compensation for Howard[1]:

(1) a signing bonus;

(2) a regular salary paid out in bi-weekly installments during the course of the contract;

(3) a bonus stock compensation clause that would be triggered if Sirius either acquired (a) 1 million "Howard Stern generated[2]" subscribers or (b) the total number of subscribers to Sirius exceeded an internal target (more on that below) set by Sirius in any year by more than 1 million subscribers;

(4) a performance-based stock compensation clause that would be triggered if Sirius either acquired (a) 2 million "Howard Stern generated" new subscribers or (b) the total number of subscribers to Sirius exceeded an internal target set by Sirius (the “Sirius Internal Estimate[3]” or “SIE”) in any year by more than 2 million subscribers.  This clause had several ladder triggers, so that additional stock would be awarded if the "Howard Stern generated” subscribers or total number of Sirius subscribers exceeded the internal target by 4, 6, 8, or 10 million (each level triggered an additional stock award) at the end of any year;

(5) a percentage of advertising revenue, in the form of a lump sum cash payment each year, beginning after Sirius acquired 2 million new subscribers after the announcement date;

(6) a percentage of subscription revenue, in the form of a lump sum cash payment each year, beginning after Sirius acquired 2 million new subscribers, of which, 1 million were "Howard Stern generated," after the announcement date;

(7) a percentage of the revenue from a premium channel (which was never created); and

(8) a lump sum payment of $25 million in the event Sirius and XM Radio, Sirius’s lone competitor in the satellite radio market, merged[4].

In addition, Sirius paid to construct a studio for the show, agreed to provide a lump sum figure beginning in 2006 for The Howard Stern Show related marketing and publicity, allowed Howard to retain the rights to his show, agreed to provide private jet service, "deluxe accommodations," meals and limo service for Stern and his agent when traveling for "Sirius-related" activities, and to pay for full-time limo service for Stern "in the New York area." Finally, Stern was given a budget to pay for production costs of the show, a four-day work week and 10 weeks of vacation[5].

Pretty sweet deal, huh?  Of the eight ways Howard got paid under this contract, the only one he and the company are arguing about is the performance-based stock compensation.  That clause states:

"Performance Based Stock Compensation.  You shall receive a performance based stock award of [REDACTED] if this Agreement remains in effect and, on or before December 31, 2010, either (i) Sirius has acquired a total of 2,000,000 or more HS-[Howard Stern] Generated Subscribers; or (ii) the total number of Sirius subscribers at the end of any calendar year exceeds the 'Siri Internal Estimate' year-end target set forth on Exhibit A for such year by more than 2,000,000 subscribers."

As noted, the contract has escalator clauses that are verbatim to the above where the "HS-Generated" subscribers or total number of Sirius subscribers exceeds the SIE at year-end by 4 million, 6 million, 8 million or 10 million. 

So let's look at this legal squabble.  Both parties agree that the clause was triggered in 2006, when the total number of Sirius subscribers on December 31, 2006 was 6,024,555, or more than 2 million above the internal estimate the parties had agreed to, 3,707,000.  Indeed, even though the parties agreed to redact all financial information related to the contract, a quick Google search (apparently, the lawyers in this case don't realize that just because you black something out does not mean it cannot be found) confirms that Howard and his agent received 22.1 million shares[6] of Sirius's common stock on or around January 10, 2007 based on meeting the performance-based clause.  This roughly $83 million windfall was on top of nearly $200 million (based on 34.4 million shares) Stern collected thanks to meeting the bonus stock compensation clause before the show even aired.  The difference in the value had to do with Sirius's stock price, which was lower when the performance-based compensation was paid in early 2007 than when the bonus payment was made in early 2006.

It is after the January 2007 performance-based bonus was paid that the sides diverge.  About a month after doling out those 22 million plus shares of stock, Sirius announced that it was acquiring XM Radio.  Although regulatory delays slowed final approval, the Federal Communications Commission signed off on the merger in mid-2008, which was formalized on July 28, 2008.  The merged company had more than 18.5 million subscribers the day it was formed and, by year's end, eclipsed 19 million subscribers.  The total subscriber numbers for the merged company dropped slightly the following year to close to 18.8 million but rebounded by the end of 2010 to pass 20 million.

Stern, through his agent, sought to enforce the performance-based compensation clause at various times in 2009 and 2010, arguing that the benchmarks set in the Agreement had been triggered based on the total number of subscribers to the merged company. According to the Plaintiffs, Sirius rejected this argument and refused to discuss the matter[7].  Having been rebuffed by Sirius, One Twelve (Stern) and Buchwald filed a lawsuit in the Supreme Court of New York[8] alleging that Sirius breached its contract to them by failing to pay out on the performance-based compensation clause[9].  According to the lawsuit, once Sirius acquired XM, XM’s subscribers became Sirius subscribers, thus triggering the escalator clauses in the Agreement[10]. According to Stern and Buchwald, the contract did not define "Sirius subscribers" as subscribers to the Sirius *service* but rather, to Sirius, *the company[11].* Under their interpretation, subscribers should count, without regard for whether they pay money for the Sirius service or XM service (which are different), because once the two became one, everyone was paying money to what was now a single entity.  It follows, according to them, that when the XM subscribers covered by the merged company are added to the Sirius subscribers, the escalator clauses up to 10 million were triggered in 2008[12] and the escalators up to 8 million were triggered in 2009[13] and 2010[14].

After answering the complaint, Sirius filed a motion for summary judgment, a common litigation tactic often used in one of two instances: (1) for nuisance cases and (2) where one side, in a financially advantageous position, wants to ‘bleed’ the other side by forcing them into costly motion practice at the beginning of the case.  I know, in theory, SJ motions are beneficial and help unclog our court system by removing spurious cases and no doubt there is some merit to the Sirius argument, but in reality, a corporation is almost always going to be in a better financial position to litigate than a private complainant.  If it gets lucky and the court grants the motion, the case goes away.  If the motion is denied, it can either appeal the ruling (adding legal fees) or launch a lengthy discovery process that includes document production, depositions and (potentially) pre-trial motion practice, all of which serve its interest in not having to pay and, potentially, making the case so financially burdensome for the Plaintiffs that they look to settle for pennies on the dollar[15]. 

Summary judgment essentially says to a court that even when every factual inference is accepted in favor of the non-moving party (in this case One Twelve and Buchwald), the court must, as a matter of law, rule in favor of the moving party (in this case Sirius).  In other words, Sirius is saying to the Court that even if everything Howard and Don are saying is true, there is no legal basis for their case and it must be dismissed.  Summary judgment is a high bar, and in support of its motion, Sirius is relying on the argument that the terms of the Agreement are clear, making appropriate a determination on motion for summary judgment that Stern and Buchwald’s claim is without merit and furthermore, that there are no genuine factual matters in dispute such that advancing the case past the summary judgment stage is necessary[16]. 

Sirius's argument, as you would expect, is that "Sirius subscribers" were understood to be subscribers to the Sirius radio service that was exclusively airing The Howard Stern Show and not to a cumulative number of subscribers the merged satellite company had.  Its briefs outline a number of points, beginning with a common argument of plain construction, the dictionary definition of a word, here, “subscribers” defined as “one that subscribes, as in ‘one that signs something (as a letter, document, agreement)[17].’” Under this meaning, Defendant argues, at the time of the Agreement, the only person who would qualify as a “subscriber” would be one who received the Sirius service, not XM[18].

Further, Defendant points to the SIE, which also included subscriber estimates produced by analysts in 2004 who tracked the company but notably, according to Sirius, did not include estimates of growth for XM, its competitor.  This absence, according to Sirius, shows that the parties did not contemplate the impact of a potential merger on the triggering of the performance-based compensation clause[19].

Turning to the merger provision, Defendant asserts that the lump sum payment to Stern under this section is the sole form of compensation he is due based on the joining of the two companies.  Sirius cites the use of the term “all subscribers of the surviving company” in the merger clause as proof that in the Agreement, the parties intentionally used language in that specific sub-section to refer to hypothetical post-merger subscribers and had they wanted to, would have used the same language in regards to the performance-based compensation clause.  Moreover, Defendant notes before and after the parties signed the Agreement, and (according to Sirius) more importantly, before and after the merger, Sirius and XM were two separate companies[20].  Sirius also points out that the merger provision would have been superfluous under Plaintiffs’ reading because there would have been no reason to pay a lump sum amount to Stern when the performance-based compensation would trigger a far greater payout and that consent would not be needed to broadcast Stern’s show to XM subscribers if they were now all “Sirius subscribers[21].” 

Sirius also points out that the SIE was based on internal growth numbers produced in 2004, well before anyone contemplated the possibility of a merger and therefore, represent models for predicted “organic” growth of Sirius through its own marketing and expansion efforts, not those that would include simply adding its competitor’s listeners to a lump sum total in the event the two merged[22].  Sirius points out that XM subscriber numbers were not included in the internal projections, which, in its view, support its argument that the parties viewed Sirius subscribers as those of the service and not the company. 

Finally, Sirius argues that if the Court accepts the idea that XM subscribers should be counted, it would lead to an absurd reading of the contract, specifically, that hypothetically, had the companies merged the day after the Agreement was signed, all of the performance-based triggers would have been met, something the contract could not have intended to happen[23].

In opposition to Sirius’s SJ motion, Plaintiffs argue that the contract is not plain on its face but rather, “is subject to at least two reasonable interpretations or the parties’ intent must be gleaned from disputed extrinsic evidence[24].”  For the purposes of avoiding dismissal on summary judgment, this point is critical.  As noted above, if the contract is clear, (i.e., that XM subscribers do not count toward the performance-based incentive), there is no case, and it will be dismissed.  Secondly, Plaintiffs argue that there are material facts in dispute that require disclosure (discovery).  In other words, the facts are in dispute and need to be fleshed out through the reciprocal exchange of information by the parties.

With regard to the first point, One Twelve and Buchwald made several arguments[25].  First, they claimed that reference to “Sirius” in the contract is to the company, Sirius Satellite Radio, Inc., not the radio service it provides. Further, Sirius, in other places such as its “terms and conditions” document for subscribers, uses the term “radio service,” showing it knows how to distinguish between the company and the service it provides.  It follows therefore, that Sirius is able to write contracts that reference the service versus the company, and, having not made that distinction here, the contract language should cover subscribers to the company, not to the service.

Second, Plaintiffs say that the XM Merger clause shows that the parties contemplated the possibility of a merger and that in the event it happened; the clause refers to subscribers as ones of the “surviving company,” which is most logically read as meaning all subscribers to whichever company remained.  Also, Plaintiffs refute Defendant’s claim that the merger bonus was the only form of compensation due Stern, but rather, was a separate award negotiated as part of the overall package.  Finally, the Plaintiffs point to a number of public statements by the company that speak of the total number of subscribers to SiriusXM without qualifying that total in any way.  That is, Sirius, in public, and in its filings with the government, refers to the company singularly, not as two separate entities with two different subscriber bases.

Third, Plaintiffs hammered on the narrative theme of the initial negotiation.  In Stern’s affidavit, he reflects on the time period in 2004 as one where he was ambivalent about continuing to work after his contract expired at the end of 2005 because “[I] was keeping a grueling schedule, waking up at 4 a.m. so that I could be on the air by 6 a.m., and I was very often on the air for more than five hours daily[26].” He was unwilling to sign with Sirius unless he was made a partner in the endeavor and that the terms of his agreement were structured in such a way that as the company expanded and profited from that growth, so did he[27]. In this way, Stern and Buchwald frame the performance-based compensation as part of the larger narrative – Sirius would have never survived without Howard, Howard’s signing with Sirius first made it competitive with XM and then financially strong enough to acquire it – and therefore, the performance-based compensation is properly framed as not only a reward for a job well done, but consistent with the overall tenor of the pre-agreement negotiation wherein Stern and Buchwald wanted contract terms that enriched them if Stern’s presence on Sirius accrued to the company’s benefit[28]. 

As to the question of whether there are disputes about the facts in the case, Plaintiffs made two points[29]. First, the parties have a dispute over whether “Sirius Subscribers” was a term intended to be limited to subscribers to the Sirius service or was meant to include all subscribers to any service offered by the company (including XM).  Plaintiffs submitted affidavits from Stern and Buchwald confirming their view that the term was not so limited and point to the fact that Sirius did not provide an affidavit from any Sirius employee directly involved in the initial negotiations to counter that assertion[30].  Second, that discovery is needed to confirm Sirius’s claim that after the merger, XM and Sirius were “wholly separate” entities until the integration of XM was completed in early 2011.  Plaintiffs also seek discovery to elucidate the “negotiation, drafting, execution and interpretation of the Agreement; Sirius’s acquisition of XM, including the way in which the acquisition was structured and its effect on the parties’ Agreement; and how Sirius counted its ‘subscribers’ both before and after the XM acquisition.[31]” Lastly, even without that discovery, Plaintiffs point to the fact that many of the companies’ operations were integrated before 2011, such as human resources, investor relations, general management and others, that there was significant programming overlap between the companies and that a “Best of” Sirius service was offered to XM subscribers who, for an additional fee, were able to receive the Stern Show[32].  This, they argue, points to the company’s view of itself as a single entity even before the formal integration, something it should not be able to pick and choose when it serves its needs.

So where does all of this legal back and forth lead us and what is the likely outcome of the case? In the short-term, the court will, at some point, hear oral argument on Sirius’s SJ motion[33] and issue a ruling.  If Sirius prevails, the case is over unless Stern and Buchwald decide to appeal, in which case, the appeal would not be on the merits of the lawsuit, but rather, whether dismissing it at the summary judgment stage was appropriate.  This would not foreclose a settlement because it is possible the appellate court would reverse the trial court, but any offer from Sirius with a granted summary judgment motion in its back pocket would probably be very modest. 

In my view, the more likely short-term scenario is that the court denies the summary judgment motion and allows the case to continue.  I do not think, having read the briefs submitted to court, that it will find, as a matter of law, that the contract term in question is clear on its face and that both parties understood it to mean only those persons who subscribed to Sirius, the service, not Sirius, the company.  I say this for several reasons.  First, and tellingly to me, is a passing line in Sirius’s Memorandum in Support of its Motion for Summary Judgment: “Although ‘Sirius’ is a defined term, the words ‘Sirius subscribers’ are not expressly defined[34].”  If you are conceding at the outset that the term in question was not expressly defined, in my view, you are basically conceding that there are likely to be, at least at the summary judgment stage, two colorable definitions of that term such that your motion is going to get denied.  You are also acknowledging that the contract was not “clear and unambiguous on its face[35]” if you are resorting to dictionary definitions, nuanced arguments about internal estimates and spinning hypotheticals about day after agreement mergers.

Second, the Plaintiffs will undoubtedly focus on the nature of the 2004 negotiation, Sirius’s comparatively weak market position viz a viz XM Radio at the time and the fact that incentives were placed in the contract as both recognition of Stern’s potential drawing power and a way to encourage promotion of the service.  In that way, Plaintiffs will gain support for their view that the language of the contract was not plain and that the parties have a dispute about the material fact at issue – namely, the definition of who each understood to be a “subscriber” for the purposes of the Agreement[36].  Moreover, Plaintiffs could also point to their own hypothetical (not mentioned in their papers) of a situation where XM would have folded or went bankrupt – if Sirius had acquired listeners in that way, would anyone dispute that they could count as “subscribers” for the purpose of the Agreement?  Finally, while I think a court will understand that Sirius relied on Stern’s drawing power to generate subscriptions, the incentives in the contract were not solely based on Stern’s ability to generate new subscribers.  Sirius negotiated a weaker deal because they had other marketing schemes (primarily directed at new car buyers) that might have goosed their overall subscription numbers without Stern’s direct influence. 

In Sirius’s favor, there is a point to be made that the insertion of a “merger clause” and lump sum payout suggests that the parties were aware of the possibility of a merger (although the vague language of the clause does not indicate that it would necessarily be Sirius buying XM necessarily) and that the significantly larger performance-based compensation clause would obviate the need for a lump sum payout if subscribers to another service were intended to be counted for the purposes of this contract.  Further, had the merger gone the other way, that is, XM had acquired Sirius, and the merged company termed “XM Radio, Inc.” based on Stern’s reading of the Agreement, he would have no case because all the Sirius subscribers would be XM Radio subscribers.

Sirius could also turn Stern’s arrogance against him by showing that the performance-based compensation was a product of Stern’s expectation that his move to Sirius would spike subscriptions and therefore, subscribers should be understood to include people who were attracted to Sirius by Stern.  Sirius would argue that the intent of the parties was to count people who would have access to the exclusive content Sirius was offering – specifically, The Howard Stern Show, which was not available anywhere else and therefore, only those subscribers who had access to Stern’s show were intended to be counted.  Indeed, both parties would likely agree that the point of hiring Stern was so that Sirius, which was lagging well behind XM, could become more competitive with it.  But in arguing for its weakness, Sirius might move to strength by pointing out that when XM subscribers were offered an enhanced package of Sirius programming, only 9 percent of their listeners chose to purchase it. 

Of course, this discussion just points to the general weakness in Sirius’s SJ motion.  Namely, that the term “Sirius subscribers” is not plain on its face and therefore, a court cannot rule, as a matter of law, that the clause was not triggered by the merger with XM. It does not, however, mean that the ultimate outcome of the case will be unfavorable to Sirius.  Denial of Sirius’s motion would simply allow the case to move forward and discovery to begin. Discovery would be particularly illuminating because the notes, memos, emails and recollections of the parties involved in the negotiation are largely absent from the pleadings and even where present, are unsubstantiated representations that beg to be challenged by contemporaneous information that discovery was created to produce[37].  A denial of the summary judgment motion will not be fatal to Sirius or a full triumph for Stern and Buchwald, but it will alter the litigation calculus each considers when deciding how they want the case to proceed. 

The dirty little secret of the court system, both criminal and civil, is that it barely functions even though the overwhelming majority (the figure is between 90 and 95 percent) of all cases in both parts of the system settle before trial.  This is because litigation is time consuming, labor intensive and, when cases do go to trial, completely take over a court’s docket from anywhere from a few hours to many months. In the civil context, there is a strong incentive to settle largely because cases are rarely so open and shut that you are confident enough in your position to take the matter to trial.  What lawyers (and their clients) must measure is not only the strengths and weaknesses of their legal arguments, but the more amorphous “litigation risk” that lingers in the background of any case.  Litigation risk could include fear of disclosure of embarrassing (but not legally damaging) information, the costs associated with litigating a case, the tax on corporate resources (not just financial but human), the potential downside risk to an adverse judgment versus the cost of a reasonable settlement and, where publicly traded corporations are involved, the potential threat to share price, institutional shareholder desire for avoiding protracted legal matters and stories in the press when the case bubbles up to the surface in the form of publicly available court filings or appearances. 

In this case, the first question Stern and Buchwald will look at is the likelihood of success on the merits and the possibility that taking the case to trial and losing will mean not only incurring enormous legal fees, but having nothing to show for those efforts.  To me, this case is 50/50 at best.  On the one hand, Plaintiffs are right that the term “Sirius subscribers” was not limited and could be read to include subscribers of another service who merged with Sirius but did not receive the Sirius service.  On the other hand, there was a merger clause in the contract that paid Stern a handsome fee in the event a merger happened and the overall tenor of the negotiation in 2004 did not contemplate a merger but rather, focused on structuring a contract so that if Sirius grew its business based on accumulating listeners who bought the product to listen to Stern he too would profit from that growth.  Stern and Buchwald will have the burden of proof (preponderance of the evidence, i.e., more likely than not) that, without knowing what smoking gun might pop up in discovery, is iffy at best. 

Taking into account that uncertainty, One Twelve and Buchwald’s primary non-legal litigation risks are likely to be monetary and publicity related.  While Howard is a very wealthy man and Buchwald runs a successful talent agency, their funds are not unlimited, even if they have insurance coverage or some other form of money to assist in offsetting their costs.  The small army of lawyers, paraprofessionals and assistants that must be mobilized during discovery costs a lot of money and, at some point, there may be a cost/benefit loss to them by continuing to litigate[38].  Further, both Stern and Buchwald would be obvious deponents, the transcripts of which would likely be available if the case went to trial.  Such public airing of dirty laundry is anathema to Stern, who is notoriously private, and Buchwald, who also keeps a very low profile. 

When you combine these two, settlement, from Plaintiffs’ perspective, seems the more prudent course.  As small businesses with limited resources, it will not be in either Stern’s or Buchwald’s financial interest to litigate a mediocre case to completion.  Moreover, the discovery phase could produce embarrassment to them and result in public disclosure of information they prefer remain private.  Finally, while their case may not be a slam dunk, if it survives summary judgment, it will put them in a position to negotiate a settlement that at least allows each to recoup some of what they think is owed to them.

With regard to Sirius, its downside financial risk is largely unknown because the terms of what Sirius agreed to pay Stern if the higher subscriber numbers were achieved are redacted; however, we do know that upon reaching the 2 million subscriber threshold, Stern was rewarded with 20 million shares of stock.  It is fair to assume that additional awards, which were predicated on reaching harder, not easier, subscriber targets, would be no less than what was awarded previously, and could, quite possibly, be greater.  Fortunately for Sirius, their stock price is far lower than it was when the contract was negotiated in 2004.  Currently, Sirius trades at less than $2 a share and even then, the value of the stock is diluted as compared to 2004 because XM shareholders were given 4.6 shares of Sirius stock in exchange for 1 share of XM stock when the companies merged.  This fact notwithstanding, triggering multiple 20 million share escalator clauses would still be an enormous financial burden to Sirius, even more so if the higher escalator clauses require Sirius to pay out more than the 20 million shares given to Stern at the 2 million subscriber level.  Even with a stock trading at less than $2 a share, if the incentive clauses are consistent, Sirius’s financial exposure could reach well over $100 million.

A potential $100 million hit is significant enough that settlement would also be in Sirius’s interest.  Compounding that fact is that a 50/50 case does not speak particularly well of Sirius’s chances of success either.  This is particularly true because little if anything is known (or has been disclosed) about the negotiation in 2004.  As noted, none of the corporate personnel involved in negotiating with Buchwald filed affidavits in the case, they will in all likelihood be deposed and their non-privileged notes, memos, emails and other information produced.  There may very well be a smoking gun that affirms Sirius’s position that XM subscribers were specifically excluded from any future count of Sirius subscribers, but if so, such a document would have already been produced to support its case, leaving two other options – either no such documents exist (in which case the lawsuit will boil down to one judge’s interpretation of the Agreement’s language based on the recollections of the parties and the relevant case law) or documents exist that are unfavorable to Sirius (something that is also unlikely if only because with knowledge of such documents, Sirius would have engaged in more meaningful settlement discussions with Stern and Buchwald before the lawsuit was filed).

While there’s no question Sirius is in a stronger financial position to fight this lawsuit, its deep pocket must be balanced against the possibility that the Plaintiffs will prevail at trial and collect an enormous financial windfall (not to mention potential legal fees on top of it).  In the cost/benefit analysis that any publicly traded company involved in litigation must make, I doubt Sirius will want to take the case to trial.  Settlement, while unpleasant, is a more prudent outcome.

But let’s assume the case does go to trial.  Who will prevail?  The short answer is, I don’t know.  In my own view, I think there is merit to the argument that the parties did not contemplate XM subscribers being folded into Sirius, although the fact that XM was a wholly-owned corporation even post-merger seems narrow and too legalistic.  Further, I think Stern and Buchwald inadvertently played into a weak hand by focusing on the great benefit Sirius achieved by hiring Stern.  To my mind, this speaks to the nature of the agreement as being one focused on generating subscriptions based on Howard’s presence on Sirius’s service, not as an employee of the company.  If the negotiation is looked at in this way, the fact that 8 million XM subscribers were merged into Sirius but opted against purchasing an additional “Best of” that gave them a qualified “Sirius subscription” would militate against Stern’s reading of his contract.  Had Sirius and XM merged their programming, that is, all subscribers to XM received Sirius programming (including Howard), I think he would have a stronger case, but essentially, Sirius acquired a huge number of subscribers to another service who now had the same corporate parent.   

This is not to say that a judge will rule in Sirius’s favor.  It is also possible that a judge might look at the plain language of the contract and say that there were no limitations on the acquisition of “Sirius subscribers.”  A judge may think it is appropriate to include any person who pays a fee to a subsidiary of Sirius and that the fact that Sirius’s subscriber number spiked so dramatically between late 2004 and the end of 2006 indicates that Stern did in fact drive sales and contribute to the acquisition of XM.  Moreover, a judge may decide that it was not Stern’s responsibility to make his program available to XM subscribers, so he should not be punished because Sirius chose to charge an additional $4 a month fee to XM subscribers who wanted the “Best of” package when they could have provided his show at no extra cost. 

On balance, and particularly because Stern and Buchwald carry the burden of proof in the case, I think it more likely than not that they would not prevail at trial.  I simply do not think, in light of the initial negotiation, the existence of the merger fee, the other financial enrichment Stern received under the contract (which is undisputed by either party) and the vagueness of the language regarding the performance-based compensation, that their interpretation of the contract meets the preponderance standard.  Further, the uncertainty of taking the case to trial for both sides militates against either one pushing in that direction.  I expect the case to settle, terms not disclosed, shortly after the denial of Sirius’s summary judgment motion. 

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[1]   Under the terms of the Agreement, Buchwald receives a “consulting fee” for all compensation paid to Stern.  Although the fee is redacted, ¶F of Sirius’s answer indicates the fee is 10% (One Twelve received $25 million when Sirius and XM merged and Buchwald received $2.5 million.)  See, SiriusXM Answer at 3.

[2]   The Howard-Stern generated subscribers were defined as individuals who signed up for Sirius in a way directly attributable to marketing done by Stern (e.g., by promotion code, 800-number, etc.).  See, Letter Agreement at 2. In the lawsuit neither One Twelve nor SiriusXM suggest that “HS-Generated” subscriptions triggered either the bonus clause or the performance-based compensation clause.

[3]   The SIEs were as follows: 2004: 1,084,000; 2005: 2,256,000; 2006: 3,707,000 2007: 5,291,000; 2008: 7,192,000; 2009: 9,264,600; 2010: 12,112,400.

[4]   See, Answer at 3.  In subsequent court filings, all financial terms related to Stern and Buchwald are redacted.

[5]   See, Letter Agreement dated October 1, 2004 to One Twelve, Inc. at 7-9. If you're doing the math at home, 4 shows a week for 42 weeks is 168 work days a year, less official holidays.  Nice work if you can get it.

[6]   If the Buchwald consulting fee is the same for the performance-based compensation as it is for the XM Merger fee (10 percent), it suggests Stern received 20 million shares and Buchwald 2 million shares.

[7]   Affidavit of Don Buchwald in Opposition to Defendant’s Motion for Summary Judgment at 13.

[8]   In the state court system in New York, the trial court level is referred to as the Supreme Court.

[9]    See generally, Summons at 19-21.

[10]   Id. at 19.

[11]   See, Plaintiffs’ Brief in Opposition to Defendant’s Motion for Summary Judgment at 12.

[12]    SIE: 7,192,000/Total Number of Sirius/XM Subscribers: 19,003,856.

[13]   SIE: 9,284,600/Total Number of Sirius/XM Subscribers: 18,772,758.

[14]   SIE: 12,112,400/Total Number of Sirius/XM Subscribers: 20,190,964.

[15]   Yes, this is the state of our legal system.  No, I have no good answers about how to fix it.

[16]   As Sirius notes, where the question before the court is the construction of an “unambiguous written contract, the dispute ‘is one of law, and therefore appropriately determined on a motion for summary judgment.’” Memorandum of Law in Support of Motion for Summary Judgment at 10, citing Benjamin Elec. Eng’g Works, Inc. v. Rampart Construction Associates, 173 A.D.2d 370, 379 (1^st Dep’t 1991)(internal citation omitted).

[17]   Id. at 13.

[18]   Ibid.

[19]   Id. at 15-16.

[20]   The merger was set up in such a way that XM merged with a subsidiary of Sirius but was “a separate corporation wholly owned by Sirius.” See, Affidavit of Thomas D. Berry ¶6.  It was not until January 12, 2011 (after the end date of the initial Agreement) that “XM Satellite Radio Inc. was rolled up into Sirius.” Ibid.

[21]   Reply Memorandum in Support of Motion for Summary Judgment at 6-7. 

[22]   Memorandum of Law in Support of Motion for Summary Judgment at 3.

[23]    Reply Memorandum in Support of Motion for Summary Judgment at 3-4 (“[I]t would be illogical to conclude that the parties – having agreed to Performance-Based Compensation provisions … intended that all XM subscribers be counted for Performance Based Compensation upon a merger without making an adjustment to the Siri Internal Estimates to factor in the projected number of XM subscribers over the term of the Agreement.”)

[24]   Plaintiffs’ Brief in Opposition at 10, citing Dermot Co. v. 200 Haven Co., 41 A.D.3d (1^st

Dep’t 2007

).

[25]   Id. at 12-20.

[26]   Affidavit of Howard A. Stern in Opposition to Motion for Summary Judgment at 2. Listeners to Stern’s Sirius show are all too familiar with this lament, although Stern should be far better rested now that he only works 3 days a week and is off the air no later than 10:30, and usually earlier, each day. 

[27]   See, e.g., Stern Affidavit at ¶¶7-10.

[28]   Plaintiffs’ filings are littered with encomiums to Stern’s radio success and quotes from Sirius executives, analysts and media reports about the overwhelming success of Stern’s move to Sirius.  See e.g., Summons at 3-4, 12-15, Affidavit of Don Buchwald in Opposition to Motion of Summary Judgment at 2 (“… Stern was the biggest star on radio.”)

[29]   Plaintiffs Brief in Opposition to Motion for Summary Judgment at 20-25.

[30]   Both Stern and Buchwald submitted affidavits in opposition to Sirius’s summary judgment motion and both contain statements reflecting their understanding that no limitation was being placed on the method in which Sirius subscribers were acquired.  See generally, Stern Affidavit at ¶¶18-19, Buchwald Affidavit at ¶¶23-24.

[31]   Id. at 24.

[32]   According to Sirius, roughly 1 million XM subscribers purchased a “Best of” subscription, leaving more than 91 percent of XM subscribers without access to Stern. Memorandum of Law in Support of Motion for Summary Judgment at 8.

[33]   As of this writing, nothing on the Court’s website indicates that the matter has been docketed for oral argument.

[34]   Defendant’s Memorandum of Law in Support at 13.

[35]   Id. at 10, citing IDT Corp. v. Tyco Group, S.A.R.L., 13 N.Y.3d 209, 214 (2009)(internal quotation marks and citations omitted).

[36]   Plaintiffs’ argument is bolstered in this way by the absence of an affidavit from any Sirius executive directly involved in the 2004 negotiation.

[37]   See fn. 30 supra.

[38]   It is possible that the law firm representing Stern and Buchwald is working on contingency, but I doubt it.

You're Not A Fucking Unicorn

Reading the recent cover story Sucks to be Us in New York Magazine was enough to boil the blood of even the most jaded Gen Xer.  The article, written by 20-something journalist Noreen Malone begins with an extended "gchat" between the author and her sister, who is bemoaning the fact that she has moved back in with her parents and is also seeking gainful employment.  The narrative arc of the chat, written in that shorthand that anyone under 30 immediately recognizes and anyone over 30 finds annoying and grammatically embarrassing is a microcosm for the rest of the story, which essentially says that a generation raised to think that their shit did not stink, that merely showing up warranted a certificate and were so overscheduled with after-school activities and extra-curricular resume polishers entitled them to the American Dream the minute the ink dried on their diplomas but instead, they were slapped with the cold hand of life in the form of a tanking economy and a round trip ticket back into the nest from whence they sprung.

To which, on behalf of everyone else who has been there and done that, I quote the comedic genius Artie Lange: "WAAAAAAAAAAAAAAAAAAAAHHHHHHHHHHH".  Guess what millenials?  The universe is indifferent to the fact that you were the captain of the soccer team or spent a spring break feeding orphans in Somalia or that your mom and dad so coddled you that the mere whiff of criticism makes you break out into hives.  The world does not owe you anything except the same heaping pile of shit and aggravation that the rest of us have been dealing with since you were in diapers.  There are no guarantees in life, nothing is handed to you and not everyone is going to pucker up because you showed up to your job on time and did your work properly (it's the basic pre-requisite to *keeping* your job).  Put your head down, shut the fuck up, drop your cell phone and do work, menial work, meaningless work, but work, work that makes you value work qua work, and understand that just because you do work, or learned fencing during your semester abroad in France, does not mean you will get ahead. 

For a generation that reveres Palahniuk, you seem to have missed one of the key messages from Fight Club.  You are *not* a unique snowflake.  When you realize this, perhaps you will quit whining about the raw deal you were handed and go do something of value, or of complete meaninglessness (to you at least) because that's what people do.  Your grandparents lived through a Depression and fought World War II.  Do you think they were overly thrilled with the hand they were dealt?  I know it's not as bad as losing your cell phone while you were bar hopping or having someone say something mean about you on Facebook, but work with me.  Their grandparents (if they were black and living in the South) were not considered human beings, but chattel.  The rest didn't have it much better, what with the hundreds of thousands of them that died either defending or attempting to subvert our Constitution (who did what is predicated largely on which side of the Mason-Dixon line you lived). Not quite as bad as not having extra sockets in your childhood bedroom to plug your iPad2 into, but pretty awful nonetheless.  Your uncles and great uncles fought in a war that no one remembers (or commemorates), came back to a society that had passed them by and had to wear the label of the generation that "lost" a war (while wearing polyester leisure suits).  Admittedly, this might not be as damaging as having your mom fold your laundry or your dad take the car you didn't pay for to the Jiffy Lube, but a challenge nonetheless. 

Oh, and there's a whole segment of your own generation that has had limbs blown off, lost best friends and essentially been forgotten by the rest of us while they fought for our freedoms in far away lands for a cause that looks ever more murky and questionable the longer we are there.  They come home broken, emotionally, spiritually and physically, carry the scars of war in their bodies and their psyches; of course, they did not have to suffer the humiliation of getting ditched at Bonnaroo or snubbed on LinkedIn by the recruiter you met at your college job fair, but hey, re-learning how to walk with a prosthetic leg is no fun.

Overachieving millenials, I do feel your pain, but when I got out of college in the middle of the last recession and had 100 rejection letters thumbtacked on my wall, I didn't wrap a kafiyyah around my head and complain about my student loan debt or how I got hosed out of my dream job at the non-profit I wanted to work at, I worked - I worked in a dry cleaners, I worked in a retail store, and I worked for a catering company.  I hustled to make money while keeping my long-range focus of becoming a lawyer in mind. It sucked, I hated it, but I did it because mom and dad weren't letting me live rent free in my childhood bedroom and paying my cellphone bill. 

When I took out loans to go to law school, I knew full well what that meant and what my obligation would be.  Even so, the first job I had out of law school didn't even come with a paycheck- yes, I volunteered because I wanted a foot in the door in the office I was working, and eventually, I got in and even after I got in, I was paid peanuts, and scrimped and got by on nothing for a long time but I did it because I loved what I did and it had meaning.  Eventually, I got to a place where I earned enough to pay down that debt and ultimately retire it in 9 years, not 10.  But in between, I was unemployed, I did "temp work," I took jobs that were well below my level of education or ability because I was brought up to work, to pay my debt when I borrowed money and not complain about it. 

There seems to be a disconnect between outcomes and decision making that suggests these millenials had to do little of the former and never appreciated the latter.  For example, Ms. Malone tells us about "Sam," a high school classmate and high achiever who, now nearing 30, is deeply in debt, aimless and questioning whether he should have gone to college in the first place.  The story between high school and now answers all our questions.  Sam, who had an acumen for math, took out $50,000 in loans to attend college, but when faced with stiffer competition in the math department, opted for a poetry writing major instead.  After graduation, Sam took a flyer on being a woodworker's apprentice, a job that lasted "a couple of months" but ended because he got tired of vacuuming up wood chips. After bouncing around for a time, Sam took out another $25,000 in loans to take continuing-education classes in engineering.  His money didn't last long and we're told Sam is now toggling between his car and parents home, feeling worthless and regretful of, all things, his college education. Sam's tale of woe is supposed to illustrate the plight of the millenial but what it did for me was illustrate how one bad decision gave way to another and another until Sam ended up where he is.  Instead of say, sticking with something he was good at - math - that might have turned into a career, maybe not the career he dreamed of, but a career nonetheless, he bailed and chased a dream that lasted just a few months before he quit that too.  When that didn't work out, he dug his hole deeper to take continuing education classes.  Baffling.

To Sam's parents credit, they did try to steer him back to math and science at some point, but one wonders where they were when Sam was taking out that first loan and certainly the second.  If Sam was such a high achiever in high school, why didn't he go to a state school or a community college that might have offered him scholarship money.  And who is to blame for Sam's aimless shifting from poetry major (really?) to apprentice wood worker to "job working in urban education" to his current observation "I need to get a career, I need to make that move."  You think? Careers don't just fall into you lap, Sam.  The semesters you spent studying poetry are when you should have been laying the foundation for that career you now so desperately want.  If not then, perhaps instead of grousing about scooping up wood chips, you should have stuck it out and learned a trade.

We also learn about Yaphet, who had a $45,000 a year job as a taxi dispatcher.  Pretty good, right?  Not good enough for Yaphet, who decided to take out $50,000 in student loans to get a degree in marketing management.  Now don't get me wrong, I think education is an important and valuable thing, but if you need to take out that much money to get it, perhaps you need to rethink which school you attend, or attend part-time, or save some of that hard earned money until you can afford to go to school without having to take out loans.  Alternatively, Yaphet could have stuck with the taxi dispatching gig and made a life and career out of that, slowly accumulating experience, perhaps opening his own taxi or limo service and becoming a small businessman.

Ms. Malone quotes something posted on a Tumblr for Occupy Wall Street: "I worked hard (40 hours a week during most of my education), for what? Tell me what I need to do to get ahead, because I did everything right!"(emphasis in original). There, at its core, is what is wrong with the millennial attitude.  No one ever told them that just because you "do everything right" means that you get to live happily ever after.  Good things happen to bad people and bad things happen to good people.  Life is unfair, you get your degree and are thrust into a job market that is awful and no one is going to wipe your tears or blow your nose.  Get over it.  Use those finely honed skills and network with your parents friends, your own friends, get on that Internet thing you seem tethered to 24 hours a day already and figure it out.  It is discomfiting to think that a generation of children are being graduated from our educational institutions with this level of both entitlement and lack of coping skills to handle failure.  The world is not only an imperfect place but a cruel and hard one where things do not always go your way.  That this immutable truth was not shared with these young adults borders on parental malpractice.

Of course, generalizing all millenials as entitled crybabies would be no more accurate than saying all Baby Boomers were pot smoking hippies who fucked at Woodstock.  No doubt there are countless people between the ages of 20-30 who work for a living, without complaint and without being photographed for a magazine. One such person, Ms. Malone's friend Desi, dropped out of Georgetown and now makes a living delivering cloth diapers and doing wood working (must be a theme among Ms. Malone's friends?). Many others are raising families, gainfully employed and quietly going about the business of creating a life for themselves.  But let me clue Ms. Malone and the rest of those she speaks for into some of the realities that they will come to know - bills need to be paid, money needs to be earned, and it does not always happen from a job that is enriching and meaningful.  Sometimes work is just a means to an end - a way to make sure there is food on your table, hot water in your shower and gas in your tank.  Ideally, it is something much more, a way to make a difference in the world, to help others and express, through your labor, the value you place on yourself and what you do.  It is both naive and idealistic to think you will (or can) get these things 6 months or in many cases, 6 years, after graduating college, and it is laudable to want those things so quickly.  But like all the generations before you, dues must be paid, life lessons must be learned and trial and error is a fine way to drift so long as there's a north star you follow.

If Millenials want to see a cautionary tale, they should look at the real victims of the economic downturn. While it's unfortunate that 20somethings are struggling to find work, they have the greatest commodity at their disposal - time.  Sadly, people their parents age and older do not have that same luxury.  The market meltdown in 2008 destroyed hundreds of billions of dollars of savings that people in their 40s, 50s and 60s were relying on for their retirement and will never get back.  Older workers laid off or fired from their jobs will find it hard to make up the income and salary they earned and do not have the experience and in many cases, the technological savvy that young adults take for granted.  A middle aged man or woman is far worse equipped to compete in the global economy than a person two decades their junior. Moreover, unlike young people who can now be carried on their parents health plans until age 26, think about a 50 year old who has no job and no health insurance.  Medical bills, prescription drugs and basic screening for a variety of diseases from colon cancer to high blood pressure are far more critical in your 50s than your 20s.  Finally, while young people are hiding out in their parents homes, their parents friends are struggling to pay their mortgage and help get their own children through school.

When I graduated college, Generation X was tagged as a shiftless and cynical cohort, littering malls and shopping centers in low wage McJobs because the future we expected and had been promised to us was not there.  We were latch key kids who grew up in the shadow of the AIDS epidemic and a "say no to drugs" mentality that frowned on even the slightest bit of experimentation. Twelve years of Republican rule had expanded the gap between rich and poor, a savings and loan meltdown had cost taxpayers more than $100 billion and the future looked bleak.  If we had looked at our future through the narrow lens of the present day, it would have been just as depressing as it must seem to recent graduates and 20somethings who see a broken political system, an awful job market and a general lack of opportunity.  What I would tell all of you is that life is a marathon, not a sprint.  Within a few years of graduating college, our economy was going gangbusters, and classmates and friends were making more money and doing more creative things in the Internet boom of the 1990s than their parents could have possibly imagined.  Times change, for both good and bad, but if you have long-term goals in mind and are flexible in reaching them, you stand a good chance (no guarantees!) of making it.  Water tends to find its table, and if, as a group, you are as motivated, diverse in your experience and open minded in your attitude as you seem to be, things will work out just fine and the cycle will continue. You will be the home owning, leaf raking, snow shoveling bill payers and carpool drivers of the 2020s, eager to tell the next generation with the temerity to complain about their situation "you don't know how good you have it."

Follow me on Twitter @scarylawyerguy

How Occupy Can Avoid Losing The War

If the movement that is Occupy Wall Street, and its offshoots in dozens of other cities, are interested in avoiding the dustbin of history, the clearing of Zuccotti Park was the biggest favor the NYPD could have done for it.  While the NYPD and other police departments across the country are acting with brute force, pepper spray and hand saws, occupying public space without any organization, organizing principles or demands was going to drain the movement of its energy anyway.  That winter was quickly setting in, crime had been reported at various sites and the media was beginning to lose interest in the "occupy" storyline should be viewed as a boon to the movement, not its death knell.

Our country, whether the Occupy folks like it or not, is built on the political process, and the political process culminates at the ballot box, not in a park in New York City, Oakland or Seattle.  The Occupy movement must now direct its attention and energy to mobilizing at every level from local school boards to the election of our next President.  If Occupy wants to have its voice heard, it must define, through cogent policy, what "the 99%" stand for, what income equality should look like and how it can be achieved.  While the Zucotti Park demonstration stretched into its second month, tens of millions of dollars were being spent trying to impact the shape of the legislative compromise most people believe Congress will eventually reach to trim entitlements and (possibly) raise taxes.  Hard bitten political types understand how battles (and wars) are won, and while protest has its place, if you are not actively involved in the political and legislative process, your energy and effort will go for naught.

The sharp relief that governmental action toward the Occupy movement should show to the protesters is that the only way to make a difference is through the system.  Any legal advisor worth his or her salt would have told the Occupy folks a long time ago that the law is pretty well settled that overnight camping is not a form of expression that is entitled to unfettered protection.  The endgame should have been well known to decision makers some time ago and while the visuals associated with the clearing of these encampments has not been pretty, it was inevitable.  What should give people who support the general concept of highlighting income inequality is that there does not seem to be any intellectual underpinning or 2.0 strategic thinking that should have occurred before the protesters were shooed away.

Now, with the major protests essentially shut down, it is easy for the media to write the obituary for the movement.  Even before the final move was made by the NYPD, a subtle shift in the media narrative had occurred.  Crimes, both serious and petty, had been reported, little by little dissenters to the long-term presence of the protesters were voiced and, as is inevitable in our media, their eye began to wander, whether it was the awful child molestation allegations at Penn State or the re-appearance of Congresswoman Gabrielle Giffords, at some point, without a new angle, any story will be shunted aside and Occupy was no different. 

If the Occupy movement wants to outlive its ignominious ending in Zuccotti Park, it must mobilize, organize and become political, overtly, through the creation of an agenda that articulates its ideas, voter registration, and fundraising.  Further, Occupy must identify its leaders and have them out in the public consistently, on the television talking head shows that dominate cable news, radio and the Web, drilling home its message.  Finally, as unsavory as it may be (or sound), Occupy must take a page from the Tea Party and put up its own candidates in the primary season (or vocally support candidates who support their positions) and in general elections at both the state and federal level to increase the chances that the grievances they have aired and the attention they have given to the growing inequality in our country does not go unheard.  If they do not, their moment in the sun will quickly slip from our collective memory and nothing will change.

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Book Review: That Used To Be Us

For the better part of three decades, Thomas Friedman has written about foreign affairs and the global economy with a rare ability to take complex macro-level concepts and distill them down into catchy, basic ideas that are not only easily understandable to the average reader, but intelligible as well.  For example, not long after 9/11, he observed that our money funds both sides of the "war on terror" - with the dollars we spend fighting in Afghanistan and Iraq (more on the latter, later) and with the money we spend on gasoline, which Arab countries use to fund the madrassas that teach young, unemployable boys and men to hate America, which in turn fuels terrorism.  Friedman's initial focus was primarily the Middle East (his seminal work, From Beirut to Jerusalem, remains, in my view, the essential primer on the subject) but as the years passed, his lens broadened to look at globalization, the rise of third world economies and the post-9/11 world.  

For his most recent work, That Used To Be Us, he has a co-author, Michael Mandelbaum, a professor at Johns Hopkins University.  In 356 pages, the authors attempt to summarize how we, the United States of America, ended up in the deep fiscal and competitiveness hole we find ourselves in and propose some solutions for getting out.  Readers of Friedman's prior work will see his hand in the narrative flow and pithy asides (e.g., our need for an "ET" (energy technology) revolution) and use of anecdotal evidence to tease out broader themes.  Readers of Mandelbaum's work are on your own, I haven't read any of his books.  

If Mssrs. Friedman and Mandelbaum were doctors, I would say they do a far better job of diagnosing the illness than coming up with a cure.  In tracing our country's economic arc from agrarian to industrial, they rightly point to five areas - education, infrastructure, immigration, research and development and regulation - as the pillars upon which our competitive advantage in the world has rested and deconstruct how each has atrophied or been ignored in recent years.  For example, they note that the time to process immigration visas is long, our post-9/11 procedures disincentive people from seeking them and as other economies have risen, there is less reason for white-collar immigrants to stay in America if they moved here for an education.  By failing to attract (and keep) immigrants in the country who are interested in building businesses, conducting research and development and taking the education they received here and applying it in positive ways, we lose twice - we have given immigrants the tools (a good education) to take back to their home country to compete against us while losing their skill and ability.   

The book also makes a clear and compelling case for the connection between educational attainment and global competitiveness.  As the global economy "flattened," that is, access to capital markets became greater, technology leveled the ability of people throughout the world to access information and compete, America could no longer presume to be the world's leader, but we got, in the authors' words "fat and lazy."  In everything from the U.S. Army to the smallest start-up, no longer is a mere high school education sufficient.  The rapid development of technology and its utilization in everything from IED-detection in Iraq to health care requires greater *and* more sophisticated educational ability, something, the authors note, America is not doing nearly as well as it used to.  For example, they cite a math and science test administered to 15 year-olds throughout Western countries which is used to gauge problem solving skills.  American students finish in the middle of the pack and, more generally, when it comes to standardized testing, while our students are competitive at a younger age (4th grade), by high school, they fall behind peers in Finland, Korea and Singapore.  More depressing is a study cited in the book that almost half of all adults in Detroit are functionally illiterate, and comments by current Department of Education Secretary Arne Duncan that roughly 25 percent of 9th graders fail to graduate high school within four years and only 60 percent of students who enter a four-year college graduate within six years.  

The authors strongly support educational reform that recognizes the central role that teachers and principals play in the development of children; however, they note that the manner in which education is delivered in our country almost ensures that benefits received by a student by an above average teacher one year can be quickly erased if that student does not have a similarly high level of teacher in subsequent years.  Further, they talk about how the gap is not just between minority students and whites, but between whites and the students of the rest of the world.  In short, they argue, the challenge our educational system faces not only has to do with raising the educational standards of minority students so they are on a par with whites, but that all students must then rise to meet the challenges of their peers worldwide, who have relentlessly focused on improving teaching, critical thinking and access to technology as we have ignored them.  

With regard to research and development and infrastructure, Friedman and Mandelbaum correctly point out that both are critical to the long-term viability of our economy.  Some time ago, Friedman noted in one of his New York Times columns the dissonance he experienced in flying from China to the United States and how the airport he flew out of in China (I forget the city) was modern, well appointed and easy to navigate, while the terminal in (I believe) New York City was cramped and dated.  Here, the authors point out that things taken for granted in China, bullet trains that travel at near 200 miles per hour with perfect cell phone reception and Internet connectivity, are largely a pipe dream in America, where high speed rail is demonized as a government boondoggle, Republicans attempt to cut funding to Amtrak and one is lucky to have a cell phone call dropped less than a few times on the Acela between New York and Washington. They also note that Americans spend more on potato chips in a year than the federal government puts into research and development during that same time. Lastly, there is the gratuitous plug for energy independence and investment in green technology, an idea that has long animated Friedman's writing and is no less relevant today than it was 10 years ago.

While the book does a good job not only of framing our historical commitment to what they refer to as the "five pillars" of our economy, but also of noting where we are falling short in laboratories, schools and science fairs, the authors lost me in their overview of our political system and its failings.  The authors dub the Bush Era as the "Terrible Twos," a time where taxes were cut while we invested a trillion dollars in war and new prescription drug benefits while forgetting the needs of education, investment, infrastructure spending and research and development. This, according to the authors, has only carried over into the Obama Administration.   Their thesis is true so far as it goes but the premise is disingenuous.  First and foremost, while bemoaning the enormous fiscal calamity the Bush years were, Friedman mentions only in passing his prior, full-throttled support for the Iraq War without noting its enormous cost, in human life and general treasury.  Indeed, many of the prescriptions vaguely pointed to later in the book could have come to fruition (and then some) with the nearly trillion dollars poured into the Iraqi desert.  

Second, they rely on the odd mainstream media position that Republicans like Lindsey Graham, Robert Bennett and Bob Inglis somehow pass as moderates who just want to get things done.  A passage with Graham on pages 203-05 is particularly noxious.  The authors recite how Graham was working with Senators John Kerry and Joe Lieberman on an energy bill that would have imposed a carbon tax in an effort to encourage the use of clean energy, spur development and improve our environment.  In a true "profile in courage," Graham fretted more about leaks in the negotiation than the forward-thinking work that was being done.  The authors quote Graham as saying "[T]he second [the Fox newscasters] focus on us, it's gonna be all cap-and-tax all the time, and it's gonna become a disaster for me on the airwaves." (emphasis added).  Naturally, when the Fox spin machine started, Graham walked away from the discussion.  See, instead of standing on principle and defending the importance of legislation that would spur our economy, clean our air and punish polluters, Lindsey Graham was worried about being dinged by some talking heads on conservative cable television.  This point eludes the authors, who fail to mention that the House passed clean energy legislation and pin blame on President Obama for not spending "political capital" to help the process.  Moreover, the authors fail to note Graham's lockstep voting with his Senate Republican colleagues in setting a modern day record for the use of the filibuster, and in many situations, killing legislation passed by the House during President Obama's first two years in office.

So who else did Friedman and Mandelbaum interview to show the frustrations in our nation's capital?  Former Congressman Bob Inglis.  He was one of the managers of President Clinton's impeachment and served in the House of Representatives until last year, when he lost a primary contest to an even more conservative Republican challenger.  Inglis's insight into our nation's politics was captured by the authors thusly: "Democrats tend to concentrate on fairness.  Republicans excel at building meritocracies." Indeed they do, Congressman.  Savings and loans were wonderful institutions until they collapsed and cost us more than $100 billion to be bailed out.  The financial industry was deregulated and ultimately sunk the entire economy and oil and gas companies gorge on federal subsidies and corporate loopholes even as they collect record profits.  Similarly, former Senator Robert Bennett, he of the near 90% rating by the American Conservative Union before being ousted by a "Tea Party" challenger in a 2010 primary, bemoans the partisanship while the authors blithely ignore Bennett's own intransigence or his post-congressional career as a Washington lobbyist at a large D.C. law firm.  That all of these Republicans were in office and voted for the budget busting tax cuts, two wars and a prescription drug benefit plan under Medicare, all of which were put "on the credit card" goes entirely unmentioned.  

To be fair, the authors do cite those fiscal errors on the Republican side of the ledger generally but, in a misguided attempt to be (pardon) "fair and balanced," pin state and local fiscal woes on (their opinion) profligate pension and raises given by Democrats to union workers.  This false equivalency is lazy journalism done in the service of attempting to frame a narrative of shared blame.  For example, in my home state of New Jersey, it was a Republican governor (Christie Whitman) who raided the pension fund of state workers to pay for a statewide tax cut and then failed to repay that debt, instead hoping that unrealistic stock market returns would fill the gap (they didn't).  When she left the Governor's mansion to become EPA Administrator, her successor (also a Republican) gave state workers a generous bump in their pension calculation and salary.  While it is true that some Democratic governors did the same thing, the problem with trying to conflate what one body (U.S. Congress) did with what 50 states and myriad localities and municipalities did, is that at the state and local level, the "blame" is not one sided, whereas by and large, a Republican President, aided by Republican majorities for much of his presidency, redistributed hundreds of billions of dollars into the coffers of the wealthy while spending hundreds of billions more on Iraq and Afghanistan and giving seniors a (mediocre) prescription drug benefit without paying for any of it.

The other main shortcoming of the book is that the "solutions" are buried 300 pages into the book and are elusive at best and unrealistic at worst.  They pull out the familiar refrain that we need to make the right investments in education, infrastructure and R&D, scale back entitlement spending and raise taxes.  Essentially, the point that President Obama has been making for some time with little to no reaction from Republicans.  Moreover, it is one thing to say that we should look at whether wealthier retirees should have their Social Security benefits trimmed (or done away with entirely), but it's quite another to say "[T]he national interest depends on everyone, including seniors, making some sacrifice so that the country can make the investments it needs in America's future."  Painting with such a broad brush implies that all seniors, including the millions that rely on Social Security as their sole (or primary) means of income, should have their benefits reduced.  


Moreover, while the authors point out that nearly 30 percent of Medicare spending comes in the final months of a person's life, they say nothing of the demagoguery of Tea Party "death panel" rhetoric or the fact that Republicans in the Senate filibustered Donald Berwick, a respected leader in health care, as President Obama's choice to head the Centers for Medicare and Medicaid Services (he was ultimately given a recess appointment).  Actions of this sort make rational discussion about how to trim the cost of Medicare nearly impossible.  That more than half the state Attorneys General are suing the federal government to block implementation of a health care plan that was initially proposed by a Senate Republican (John Chafee) and would hand private insurers more than 30 million new customers speaks as clearly to the one note obstruction of Republicans every bit as much as the Affordable Care Act's passage without a single GOP vote in Congress.  


Similarly, the book cites the example of Delaware Governor Jack Markell using tax incentives to lure Fisker Automotive to his state and of Intel CEO Paul Otellini bragging that he can "build a factory anywhere on earth but here and get a $1 billion discount."  That's great for Intel, but $1 billion in lost tax revenue has to be made up somewhere and the authors don't come up with plausible explanations for where that gap can be filled or the fact that many U.S. corporations already manipulate our tax code to pay little or no federal tax each year.  


Finally, Friedman and Mandelbaum blow an enormous air kiss in the not-so-subtle direction of New York City Mayor Michael Bloomberg, who, while not named specifically, meets the description of the change agent our system, according to them, needs - a person who balances social responsibility with fiscal conservatism and an eye to the use of McKinseyean consulting efficiencies.  Indeed, were Mitt Romney not twisting himself into a pretzel to be on every side of every hot button issue near and dear to the GOP base, he too might be what the authors think our system needs.  The authors cite prior third party Presidential candidates like H. Ross Perot and Teddy Roosevelt (as a Bull Moose in 1912) as examples of how a third party can give voice to the desires of the populace that are not being met due to the extremism of the two parties.  While there is some truth to this, the argument is not particularly persuasive.  With regard to Perot, while he did advocate tackling the deficit as a third party candidate, so too did Bill Clinton.  Indeed, the very tax increases Friedman and Mandelbaum give credit to helping move our budget toward balance in the 1990s were passed by President Bush and a Democratic Congress in 1990 and by Democratic-only majorities in both houses of Congress in 1993.  So while Perot may have echoed similar themes, it is not true to say he was advocating ideas that were foreign to the two major party candidates.  


Further, another third party candidate cited by the authors, George Wallace, race baited and helped Richard Nixon cleave the Democratic party in the 1960s. This "southern strategy" resulted in an enormous GOP landslide in 1972 and shifted the center of gravity for the GOP to the South, where it remains to this day. That Wallace gave voice to the fears and insecurities of whites during the civil rights era that were co-opted by Nixon is nothing to be proud of and merely illustrates that third party candidates are not some panacea to what ails our political system.  In addition, while the broad strokes outlined in the book make sense - more public/private partnership, greater commitment to educational reform, and others, these ideas cost money, money the authors don't identify in terms of where (or how) taxes should be increased or entitlement programs cut.  Ultimately, this amounts to heckling from the bleachers, not driving for solutions.


Ironically, the "shock therapy" Friedman and Mandelbaum call for would be unnecessary had Republicans in Congress made an affirmative decision upon President Obama's inauguration to work with him instead of doing everything in their power to stop him.  Contrary to the right wing spin machine, Obama's inclination is toward compromise and solution.  What the right has done is pervert that tendency to bend Obama to their will in debt and budget fights and extract compromises that are contradictory to the GOP's rhetoric (extending tax cuts that add to the deficit and debt) or are largely symbolic (minuscule budget cuts that fail to make any meaningful dent in our deficit while shrinking aid to the infirm, poor and needy).  While doing a post-mortem on "how we got here" is beneficial only to a point, the idea that a third party candidate can come in and offer answers that are not already being offered is to ignore political reality. 


If the authors wanted to attack the root of political gridlock, they might have delved into the idea of non-partisan redistricting, public financing of elections or other "good government" ideas that are already widely circulated among the chattering class.  Banning former members of Congress or their staff from working for lobbying firms is another idea that might have been worth exploring.  They might have also looked into the track record of prior Administrations in working with Congress.  Unsurprisingly, the highest level of partisan gridlock has occurred under recent Democratic Administrations (Clinton and Obama) while prior Republican Presidents have not been stymied in that way. 


They could have also been more accurate in their assessment of entitlements.  For example, Social Security is fully "solvent" until the mid-2030s, that is, it can continue paying out full benefits to every retiree until that time.  The only reason that date is not further in the future is that every Congress (and President) for years has raided the surplus (that pesky "lock box" Al Gore wanted never came to fruition) to mask our deficits.  While the Chinese do hold nearly a trillion dollars of our debt, we, the people, hold far more than that in the form of IOUs to Social Security sitting in a vault somewhere in West Virginia (thank you Sen. Robert Byrd).  They also could have pointed out that tax rates in America do little to inhibit the wealth and income of the truly well off.  Tax rates have been as high as 91 percent and now top out at 35 percent, yet in times of exceedingly high taxation and modest taxation, the rich always do well, it is just a question of how well.  That $4 trillion in savings that is being searched for in vain is staring us right in the face -   rolling back all the tax cuts passed in 2001 and 2003 would get us just that amount, but that would require the expenditure of political capital that no one wants to use and the authors do not even mention.  

In sum, That Used To Be Us is a helpful primer in understanding where and how the United States has fallen behind its global competitors.  The book is at its strongest when discussing issues such as educational reform, the critical need for research and development, and innovation taking place in organizations from the armed forces to Silicon Valley.  Unfortunately, the authors stumble when they move beyond anecdotes from far flung parts of the American economy that show our innovation and ingenuity, offer little more than bromides and generalities for answers and completely misread and, in same ways, misrepresent, the current state of our politics.  This book feels like it was cobbled together from old essays and columns wrapped together with some overarching themes that have been circulating for some time and do not come across as particularly original.

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