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Sirius XM Defeats Howard Stern's Lawsuit Over Stock Compensation

A New York judge dismisses the shock jock's claim that the satellite radio company breached his contract by failing to pay stock awards based upon subscriber growth.

Howard Stern

A New York judge Monday dismissed the lawsuit brought by Howard Stern against Sirius XM Radio for allegedly stiffing him on promised stock. The radio host's allegation that the satellite giant had breached his contract was soundly rejected by the judge, who found that the parties clearly never anticipated counting new subscribers via merger to trigger hundreds of millions of dollars in Stern's bonus compensation.

Stern joined Sirius Satellite Radio in 2004. He says he believed that he took a "significant risk" in making the move but did so because he would be more than just an employee.

In the lawsuit filed in March 2011, Stern claimed that Sirius had violated its promises to him by breaching a deal whereby his company, One Twelve, would be paid performance-based compensation based on escalating subscriber targets. Stern potentially could receive up to five separate common stock awards, valued at $75 million each, if certain subscriber thresholds were met.

According to the legal documents in the case, both parties agree that after Sirius exceeded its subscriber targets in 2006 by more than 2 million, Stern was given $75 million in stock the following year. (His manager and co-plaintiff Don Buchwald also got $7.5 million.)

But the parties disputed the next bonus cycle.

In 2008, Sirius merged with XM Radio, and the key controversy was whether to include XM's subscribers in the tally of subscribers for Stern's bonus.

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If XM's 9 million subscribers were counted, all five performance-based compensation provisions would be triggered and Stern would be owed an additional $300 million. But if XM's subscribers aren't counted, Sirius subscriber target projections aren't met, and Stern doesn't get his stock compensation.

Judge Barbara Kapnick says it's the "clear, unambiguous language of the Agreement" that leads her to dismiss Stern's lawsuit.

"At the time the parties entered into the Agreement, it is clear that the only subscribers that the parties considered part of the 'total number of Sirius subscribers' for purposes of calculating 'Performance Based Stock Compensation' were those individuals who subscribed to the Sirius radio system," writes the judge.

Kapnick is also impressed by another part of Stern's contract with Sirius.

In the deal, there's a provision that gave Stern $25 million "in the event Sirius merges with XM." It's a separate part of the contract, entitled "XM Merger," and Sirius argued that its separateness was confirmation of the parties' intent not to include XM subscribers as Sirius subscribers.

The judge agrees.

"Most importantly, to the extent the parties contemplated the relevance of new subscribers acquired by merger at all, they provided for their consideration under an entirely separate section entitled 'XM Merger,' " writes Kapnick in her decision. "To find in plaintiffs' favor, then, would require this Court to ignore this explicitly distinct treatment of subscribers acquired by merger."

Stern's claims have been dismissed with prejudice.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner