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A Stern Warning: Words Do Matter

Apr 24, 2012
Jesse Saivar

This was a lesson recently learned the hard way by King of All Media Howard Stern – if you consider losing a $300 million bonus the “hard way”

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I think it’s pretty clear that the legal world does not always jibe with the real world (and especially not The Real World: Cancun). Take capitalization for instance. In the real world, it doesn’t mean much. In fact, based on what I’ve seen on Twitter and in hip wedding invitations, I believe the “art” of capitalization has been completely lost by our society (and, of course, neither of our presidential candidates is brave enough to tackle the topic). In the bizarro world of the law, however, capitalization is a detail that can prove to be of paramount importance. This was a lesson recently learned the hard way by King of All Media Howard Stern – if you consider losing a $300 million bonus the “hard way.”

Stern filed suit against his current employer Sirius XM Radio Inc. claiming that he was unjustly denied certain “performance based” compensation bonuses due under his employment agreement. At issue was the fact that, under his agreement, Stern could receive up to $375 million in bonuses based on the number of Sirius subscribers hitting certain figures. The thinking was that since Stern was going to be the key draw to get subscribers to Sirius, he would reap huge rewards if its subscriber numbers jumped significantly.

In 2008, Sirius won the satellite radio battle and essentially acquired its only competitor, XM Radio. No new entity was formed after this transaction. Stern’s original employer Sirius Satellite Radio, Inc. simply changed its name (to Sirius XM Radio Inc.) and kept XM Satellite Radio Inc. as its subsidiary. In the process, it roughly doubled its subscribers by acquiring all those of XM.

Stern’s argument in his suit was straight forward. The same entity that hired him (albeit with a different name) doubled its subscribers after the merger. Taking into account all these new subscribers, Stern argued that he hit certain performance-based thresholds and, thus, was due an additional $300 million in bonuses.

Of course, if it was that straightforward, I’d probably be spending my time re-watching Game of Thrones episodes instead of slaving away on this blog. As noted above, XM Radio continued to operate after the merger as a separate subsidiary of the parent company. Instead of combining the Sirius and XM services into one, they continued with separate services each having separate groups of subscribers – those receiving the Sirius channels and those receiving the XM channels (which did not include Stern’s channels).

Because of this, Sirius believed that Stern was not justified in getting bonuses based on XM subscribers because anyone who made the decision to choose XM over Sirius to begin with was clearly choosing a non-Stern package; thus, Stern’s popularity had no hand in bringing in such subscribers. In Stern’s eyes, on the other hand, his popularity helped Sirius build a level of success that allowed it to “win” the satellite radio war by acquiring its vanquished foe; without Stern, Sirius never would have had the ability to

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