Shock Jock Loses NY Business Lawsuit Over Key Contract Term

Howard Stern recently suffered another legal setback in his lawsuit against Sirius XM Radio Inc. A New York state appeals court affirmed the dismissal of his $330 million breach of contract lawsuit.

The disputes centered on the terms of a 2004 employment agreement under which Stern agreed move his radio program to Sirius XM. The two sides disagreed over whether subscribers to former XM Satellite Radio Inc., which is now owned by Sirius, should be counted when calculating performance incentives.

Stern’s production company, One Twelve Inc., and his agent, Don Buchwald, maintained that they exceeded the subscriber targets set under the agreement by at least 2 million. However, Sirius argued that XM subscribers should not be taken into account, noting that the only contractual provision that pertained to XM subscribers involved one-time payments to be made if the XM merger took place. These obligations were satisfied.

Last year, a New York judge agreed that with Sirius that XM subscribers should not be counted. “While it may be true that Stern and Buchwald hoped and expected to reap the benefits from any significant growth that Sirius experienced after they entered into the agreement, that subjective expectation cannot suffice to override the clear, unambiguous language of the agreement,” New York State Supreme Court Justice Barbara Kapnick wrote last year.

Most recently, New York’s First Appellate Division confirmed the decision. As explained by the court, “We agree with the motion court that plaintiffs are not entitled to additional performance-based compensation under the unambiguous agreement between plaintiffs and defendant’s predecessor, Sirius Satellite Radio Inc. Looking solely to the plain language used by the parties within the four corners of the agreement … the disputed term ‘Sirius subscribers,’ by which plaintiffs’ performance-based compensation was measured, did not include subscribers to XM Radio, a wholly owned subsidiary which defendant acquired by merger, even though the merger had been anticipated within the agreement.”

As this case highlights, courts are bound by the terms of the agreement when deciding a contractual dispute. Therefore, when negotiating an agreement, parties should be prepared to live with the terms, even after a change in circumstances.

If you have any questions about this case or would like to discuss the legal issues involved, please contact me, Robert Levy, or the Scarinci Hollenbeck attorney with whom you work.