A Lesson from Howard Stern: Say What You Mean and Mean What You Say

Andrew Pearce

April 23, 2012

A New York court has dismissed a lawsuit filed by Howard Stern against Sirius in which Stern claimed that the satellite radio broadcaster failed to pay him $300 million in stock awards. In doing so, the court’s decision serves as a cautionary tale for any person that enters into an agreement without fully understanding its terms, or believing it is okay for an agreement to say one thing, but mean something else.

When Howard Stern left traditional radio to join Sirius, Stern and Sirius entered into an agreement that provided, among other things, a “Performance Based Compensation” clause. This clause enabled Stern to receive up to five separate common stock awards valued at $75 million each, which would be triggered by certain Sirius subscriptions totals.

In 2006, Stern received $75 million in common stock based on Sirius subscribers for that year, but the number of Sirius subscribers in 2007 did not reach the total necessary to trigger any bonus. The dispute arose in 2008, when Sirius merged with XM Radio. If only Sirius subscribers were counted, the bonus would not be triggered. However, if the more than 9 million XM Radio subscribers were counted, the Performance Based Compensation clause would be triggered and Stern would receive an additional $300 million.

Sirius filed a motion for summary judgment, seeking dismissal of Stern’s lawsuit because the “Performance Based Compensation” clause did not include subscribers obtained through the XM merger. In an affidavit opposing Sirius’ motion, Stern stated that:

There was no doubt in my mind that all of these subscribers were supposed to be counted for the purpose of determining if the stock awards were payable. When we were negotiating the Agreement, it was clear to everyone that the stock award was based on all of the company’s subscribers. Sirius did not ask us to exclude any subscribers from these awards.

Stern further stated that he understood that Sirius was now saying that it did not have to pay because half of its subscribers came in through the acquisition of XM, rather than through the company’s own internal growth. According to Stern, this position made no sense because the parties “never discussed or agreed to any such distinction.” Stern stated:

Our Agreement is clear — the stock awards are based upon the total number of subscribers that the company has at the end of any given year. When we were negotiating the agreement, Don [Buchwald, Stern’s agent] raised with Sirius the possibility that Sirius and XM might combine. Sirius never said that if that happened, it would not count the new subscribers for purposes of the stock awards.

The court disagreed with Stern, noting that while it may be true that Stern hoped and expected to reap the benefits from any significant growth experienced by Sirius, such a subjective expectation did not override the clear, unambiguous language of the parties’ agreement.

Further, according to the court, the parties contemplated the relevance of new subscribers acquired by a merger in a separate section of the agreement entitled “XM Merger,” which provided specific compensation to Stern in the event of a merger with XM Radio. Thus, the court held that “the plain language of the agreement is inconsistent with any reading that the parties intended subscribers acquired by merger with XM to be considered when calculating plaintiffs’ ‘Performance Based Stock Compensation.’”

All too often, I meet with individuals that are facing the same dilemma as Howard Stern. Parties may verbally agree to certain terms intended to have certain results, but the terms of the agreement that they sign lead to an entirely different outcome. It is critically important that parties to an agreement understand the agreement’s terms and conditions. If the agreement is unclear, contains incomprehensible legalese, fails to convey the parties’ actual intentions, or says something different from what the parties verbally agreed to, then you must protect yourself and refuse to sign the document until it says what you mean.