Law360, New York (February 13, 2013, 6:57 PM ET) -- Howard Stern and his agent deserve $330 million in stock awards after the merger that created Sirius XM Radio Inc., the radio personality's attorney told a New York state appeals court Tuesday, saying a lower court judge wrongly interpreted a contract with the radio station that made Stern eligible for subscriber-based bonuses.
Seth D. Rothman of Hughes Hubbard & Reed LLP, who represents Stern's production company and agent, told a five-judge state appeals court panel that when satellite radio purveyor Sirius merged with rival XM Satellite Radio in 2006, the increased number of Sirius subscribers triggered contract provisions that allowed Stern to be rewarded when Sirius beat subscriber goals.
But Judge Barbara R. Kapnick, who ruled against Stern, had misinterpreted the phrase "Sirius subscribers" in the contract, Rothman argued, incorrectly finding that it meant only subscribers to the Sirius radio service and not to all the company's subscribers, which would include former XM subscribers after the merger.
"If you read this contract, you have to read that phrase to be the company's subscribers. ... The purpose is to count all the company's subscribers. Sirius company, not Sirius radio service," Rothman told the judges during the hearing in Manhattan.
Gary P. Naftalis of Kramer Levin Naftalis & Frankel LLP, who represents Sirius, said that that the lucrative contract, which paid Stern $500 million when he signed it to leave terrestrial radio for the then-fledgling satellite radio operator, had a separate provision that paid him $25 million in the event of a merger with XM and superseded the subscriber-target provisions.
"It doesn't have the provisions in there that they wish they had," Naftalis said.
Justice Judith J. Gische, however, noted that the contract was oddly unspecific for one dealing with so much money, and that not only was the term "subscribers" not defined in the contract but neither did a formal definition for Sirius exist outside the agreement's introduction.
Naftalis said the terms had to be read in the context of the overall contract, and that if the parties wanted XM subscribers to be included in the calculations of overall subscribers to trigger Stern's stock bonus they could have easily included them.
"You don't gain rights by a negative implication. You don't gain rights by something that isn't said, you gain rights by something that is said," Naftalis said.
The lower court's Judge Kapnick found in April that Stern couldn't argue that a merger triggered his stock awards for helping the company beat its targets because of the language in the separate XM merger provision that paid him $25 million after the merger and how it treated the term "subscribers."
"While it may be true that Stern and [his agent, Don] 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," Kapnick ruled in granting Sirius XM's motion for summary judgment.
Justices Rosalyn H. Richter, Angela M. Mazzarelli, Luis A. Gonzalez, Dianne T. Renwick and Judith J. Gische sat on the state appeals court panel.
Buchwald and the production company are represented by Seth D. Rothman of Hughes Hubbard & Reed LLP.
Sirius is represented by Gary P. Naftalis of Kramer Levin Naftalis & Frankel LLP.
The case is One Twelve Inc. et al. v. Sirius XM Radio Inc., case number 650762/2011, in the Appellate Division of the Supreme Court of the State of New York, First Judicial Department.
--Editing by Katherine Rautenberg.