Howard Stern’s Lawsuit Against Sirius Comes Down To Simple Contract Law

Sirius-XM-Logo 2Yesterday, a New York judge granted Sirius XM Radio Inc.’s motion for summary judgment in a $300 Million + case brought against it by Howard Stern. In the lawsuit, Howard Stern and agent Don Buchwald claimed that Sirius failed to honor its agreement to pay them “Sirius Subscriber” based bonuses totalling over $300 million.  Sirius took the position that the subscriber number “triggers” were only met after Sirius and XM Radio merged in 2008 and therefore did not trigger the “Sirius Subscriber” language in the contract.

The dispute ultimately boiled down to what a “Sirius Subscriber” was.  The agreement did not define “Sirius Subscriber” and Stern argued the term included all subscribers to the new Sirius XM Radio, regardless of whether they subscribed to Sirius Radio or XM Radio.  Siruis took the position that the contract terms were unambiguous and that Sirius and XM subscribers were not the same.  The New York court agreed with Sirius.

Perhaps the most relevant term of the agreement in favor of Sirius’ position was the “XM Merger” clause providing:

In the event Sirius merges with XM Satellite Radio, Sirius shall pay you [Howard Stern] a fee of $25,000,000 , whereupon the HS [Howard Stern ] Programs may be broadcast to all subscribers of the surviving company.

This term, Sirius argued, made clear that Sirius and XM subscribers were different and that the agreement contemplated as much.

Legally it makes sense.  When Howard Stern and Sirius were negotiating the agreement years ago, both sides were hedging their positions against the unknowns of the future – something we all try to do in any contract.  At the time, it was not clear whether Sirius and XM would merge or be permitted to merge.  The affect of a Sirius/XM merger, Sirius argued, was treated separately in the agreement as evidenced by the $25 million merger payout.  The court agreed – but look for an appeal of the decision by Stern in the near future.

The take away from the Stern v. Sirius case is that smart contract drafting is critical at any level.  In reality, when the agreement was drafted, Howard Stern and his team along with Sirius were not blind to the ambiguities upon which this lawsuit was based.  These types of “unknowns” provide wiggle room down the road, but are very risky.

Colorado Business Lawyers

The Colorado Business Lawyers at LaszloLaw, a Boulder, Colorado law firm, provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance.

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