Remedies-Final Examination

Winter 2006

Professor Martha Dragich Pearson

 

Instructions

This is a four-hour, closed book examination. The examination consists of one question with two parts and provides 16 pages of materials.

 

The two parts of the question may be answered in either order. They are not separately timed. You should read all the exam materials before answering either part of the question.

 

You are required to turn in the exam packet along with your answer at the end of the exam.

 

This examination involves the much-publicized lawsuit by CBS Radio against Howard Stern in connection with Stern's move to Sirius Satellite Radio. The bulk of the examination consists of the complaint filed by CBS Radio. No answer or other information is available at this time. You should assume that the facts alleged in the complaint are true and that the complaint accurately represents the contract between CBS Radio and Stern. You should assume that the contract is valid and binding. Specifically, assume that the contract obligates Stern, during the term of that contract,

- to provide on-air radio performances exclusively for CBS Radio, to serve the best interests of CBS Radio, and to avoid any act which impairs the relationship between CBS Radio and its advertisers

- to devote his best professional efforts to maximize the success of Stern's CBS Radio show

- to follow CBS Radio's policies with respect to conflicts of interest and other matters, and

- to provide CBS Radio with the first opportunity to discuss participation in other concepts or projects Stern might undertake related to radio.

 

I have modified these materials for purposes of this examination. Any contradictory knowledge you may have about the case is irrelevant for purposes of this examination. You may make additional assumptions, so long as they are not contradicted by the facts contained in the examination materials, provided that you clearly state these assumptions in your answer.

 

Your grade will be based on the quality of your analysis and the clarity of expression. Your answer will be based on your analysis of the remedies, not on the substantive law relating to the underlying causes of action.

 

Question

Part One (25 points)

Assume today's date is December 5, 2004. As of this date, CBS Radio has the following information:

-                     On October 4, 2004 Stern announced that he would move to Sirius on January 1, 2006, immediately after the expiration of his contract with CBS Radio on December 31, 2005. News reports indicated that Stern's direct compensation would be $500 million over five years.

 

-                     Beginning on October 4, 2004, Stern began to promote Sirius on his CBS Radio show. At the same time, Stern denigrated "terrestrial radio" and spoke of his desire to "destroy regular radio." CBS Radio complained to Stern and his attorney and demanded that Stern cease promoting Sirius on his CBS Radio show. In a reply letter dated October 15, 2004, Stern's attorney explained that "Howard is just talking about his life" as he always did on his show. CBS Radio then suspended Stern for one day, without pay.

 

-                     Press reports in November 2004 indicated that Sirius's signing of Stern and Stern's willingness to promote the service before the effective date of his contract with Sirius could boost Sirius's subscriber base faster than originally projected.

 

-                     On the December 1, 2004 program, Stern stated that he didn't care how many subscribers Sirius Satellite Radio attracted to its service.

 

Assume that Stern's activities were in breach of his contract, which is detailed in the attached complaint. Keep in mind that this complaint was filed after Stern's contract with CBS Radio had expired, and that CBS had little knowledge of the facts alleged, other than those relating to the contract itself, until January 2006. These later-learned facts are irrelevant to Part One.

 

What remedies, if any, should CBS Radio seek at this time (December 2004)? Your answer should consider at least the following issues:

-                     whether the remedy to be sought is appropriate

-                     how the remedy sought should be measured or tailored

-                     whether CBS Radio is vulnerable to any defense against the remedy

 

 

Part Two (75 points)

On February 28, 2006 CBS Radio filed a complaint against Stern and Sirius. The draft complaint and prayer for relief are attached. Assume that the complaint satisfies all procedural rules, including special pleading requirements.

 

As of today's date, the following information is known, in addition to the information revealed in the complaint:

-                     Advertising time for Stern's show on CBS Radio was sold out from the date he announced his departure through the last day of his contract with CBS Radio.

 

-                     During the 14 months between Stern's announcement and his departure for Sirius, CBS Radio booked him on CBS television shows such as 60 Minutes and the Letterman show to discuss the move.

 

-                     CBS Radio took no further action to stop Stern from promoting Sirius on the CBS Radio show (after writing to Stern and his attorney once and suspending Stern for one day, as detailed in Part One above).

 

-                     In the first few months following Stern's move to Sirius, nearly 75% of his regular listeners stuck with regular radio; 42% of these listeners stayed tuned to the same station on which Stern had previously aired while 29% switched to another terrestrial radio station. The remaining 28% of Stern's regular listeners subscribed to Sirius.

 

-                     CBS Radio replaced Stern's show during morning drive time with a show by musician David Lee Roth. The show did not succeed even after several modifications, and Roth has already been fired.

 

-                     The value of 34.4 million Sirius shares was approximately $100 million in October 2004 and over $200 million in January 2006.

 

Evaluate the remedies sought, as listed in paragraphs A - E of the Prayer for Relief (found on page 16 of these materials). You should evaluate the remedies as objectively as possible and need not argue for or against either party. Your answer should consider at least the following issues:

-                     whether each remedy sought is appropriate

-                     whether each remedy sought uses the proper measurement approach (that is, that it is based on the right elements of harm, not that the specific dollar figure is correct)

-                     whether CBS Radio is vulnerable to any defense against each remedy

 

Your answer should provide a tentative conclusion as to the likelihood that CBS would prevail on each remedy sought.

 

You are not asked to evaluate the causes of action themselves or any defenses Stern might raise against these causes of action. You need not discuss the specific allocation of damages or other relief between Stern and Sirius. For Part Two, you should not discuss any causes of action or any remedies not mentioned in the complaint.

 

You may assume that all cases and other materials read or discussed in this course this semester would be included in the law of New York, which governs the Agreement between CBS Radio and Stern. You are not expected to have any independent knowledge of the law of New York.

 

You may assume that no provision of the Uniform Commercial Code is relevant to this examination, and that there is no question concerning attorney's fees. Assume further that CBS Radio's claims are not barred by any applicable statute of limitation.

 


SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

CBS Radio Inc.

Plaintiff,

v.

Howard Stern

and

Sirius Satellite Radio, Inc.

Defendants.

COMPLAINT

Plaintiff CBS Radio Inc., files this Complaint against Defendants Howard Stern ("Stern") and Sirius Satellite Radio, Inc. ("Sirius"), and alleges as follows:

THE PARTIES

Plaintiff CBS Radio Inc. is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in New York, New York.

Defendant Howard Stern is a resident of New York, New York.

Defendant Sirius Satellite Radio is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in New York, New York.

 

FACTS

Background

CBS Radio operates 179 radio stations located in 40 markets throughout the United States. The majority of those stations are in the nation's top 50 markets. Stern is a radio talk show host who provided services to CBS Radio as host of the Program. The terms of his service were governed by the Agreement which provides that it is to be interpreted according to the laws of New York.

Stern provided services to CBS Radio from November 1985 until the end of 2005. From the time Stern first began this work until the occurrence of the events which form the basis of this Complaint, CBS Radio actively and continuously promoted and supported Stern, facilitated Stern's efforts to syndicate the Program to other radio stations, encouraged other stations to carry the Program, and undertook various other efforts to enhance Stern's visibility, popularity and reputation. These efforts by CBS Radio facilitated Stern becoming a national celebrity with a substantial following and the ability to demand huge fees for appearances outside the scope of his employment by CBS Radio.

Under the Agreement, Stern was required to host the Program during morning weekday drive time hours and "to insure that the Programs [were] professionally presented and promoted in a manner which maximizes the prospects for the success of the Programs." Stern agreed that "[his] on-air radio announcing services shall be exclusive to [CBS Radio]." For the last five years under the Agreement, Stern's base compensation was over $58.8 million, bonus payments totaling $7.5 million over the 5 years, plus additional bonus payments provided that the program achieved certain audience ratings. Stern was also granted 849,806 stock options under CBS Radio's 1999 Long-Term Incentive Plan. All of the payments required under the Agreement were paid.

Throughout the term of the Agreement, CBS Radio faithfully supported Stern's programming, notwithstanding enforcement actions by the FCC stemming from numerous complaints filed with it alleging that Stern's programming was indecent. CBS Radio devoted significant resources responding to these complaints. CBS Radio ultimately contributed to the U. S. Treasury over two million dollars in settlement payments in connection with conduct that was attributable to Stern.

Stern's Failure to Notify CBS Radio of his Proposed Radio Project with Sirius or to Reveal His Interest in Sirius

Through the term of the Agreement until October 6, 2004, Stern gave CBS Radio the impression that Stern would renew the Agreement and continue to host the Program on CBS Radio. Indeed, during the summer of 2004, after Clear Channel Communications, Inc., a major national broadcast station owner, precipitously dropped the Program on six of its stations, CBS Radio, in reliance on the terms of the Agreement that Stern would give it notice of any other radio idea Stern was exploring, acceded to Stern's requests for extraordinary actions to support Stern. In response to his requests, CBS Radio commenced carrying the Program in July 2004 on CBS Radio stations in the five Clear Channel markets where CBS Radio had stations. It also agreed to carry the Program in four other additional markets to show support for Stern and to allay his concern that other broadcasters might drop him if CBS Radio did not demonstrate its confidence in him.

During this period, Stern never advised CBS Radio that Stern was considering a satellite radio program, much less actually negotiating a contract with Sirius, but rather gave CBS Radio the clear impression that he would renew his contract. Indeed, Stern made comments in response to Clear Channel's decision to drop the Program that renewal was likely. Given those comments, the historical relationship and course of dealing between the parties, and the lack of any notice by Stern that Stern was negotiating with Sirius, CBS Radio reasonably believed that Stern would renew.

Stern had been with CBS Radio for twenty years and had renewed his contract with CBS Radio four times. In each case, the agreements between Stern and CBS Radio had been negotiated only a few months before the earlier agreement was scheduled to expire. CBS Radio was therefore not particularly concerned that formal renewal negotiations had not commenced fifteen months before the expiration of the Agreement.

Unknown to CBS Radio, Stern was at the time secretly discussing with Sirius the development of a satellite radio project in blatant and intentional disregard of Stern's obligations under the Agreement. The Agreement explicitly obligates Stern to provide CBS Radio with "the first opportunity to discuss participation" in other "concepts or projects" related to radio. This provision applies to any "concepts or projects relating to radio involving [Stern]," a broad obligation that encompasses virtually any innovation or new idea involving Stern's career in radio. Satellite radio is clearly within the scope of this provision.

Under the Agreement, the obligation to give CBS Radio the first opportunity to discuss participation in radio projects applies to concepts or projects that are conceived during the term of the Agreement, even if the concept or project is launched or implemented after the term. The Agreement defines the rights and obligations of the parties with respect to new radio projects. Paragraph 35(b) covers projects relating to radio in which the parties jointly engaged during the Term, with CBS Radio entitled to 40% of the net profits from "such ventures." Paragraph 35(c), which conspicuously lacks any temporal limit, applies to activities conceived during the term but which may be pursued after the Term. If an agreement were reached as to a new joint radio project to be performed after the Term, but the parties were unable to agree on a distribution of proceeds, then CBS Radio would be entitled to 40% of the net profits of such a venture. Stern and senior officials of CBS Radio were well aware at the time the Agreement was negotiated that Paragraph 35(c) was intended to cover such future concepts or projects, and that CBS Radio was to be given the "first opportunity" to discuss participation in any such projects.

Stern knowingly violated the detailed provisions of the Agreement concerning the procedures that he was required to follow whenever he developed concepts or projects relating to radio. Under those provisions, Stern was obligated to "first consult with CBS Radio concerning whether CBS Radio may be interested in participating" when Stern conceived of any radio project. If CBS Radio indicated that it was interested in participating in such a project, Stern was then obligated to negotiate with CBS Radio "in good faith in an effort to agree upon mutually acceptable terms." Stern could negotiate new radio projects with other entities only after CBS Radio was "first" consulted and indicated that it was not interested in participating, or the parties were unable to agree upon mutually acceptable terms notwithstanding good faith negotiations, other than CBS Radio's pre-agreed equity interest.

                        Notwithstanding these clear obligations to provide notice and give CBS Radio the first opportunity to participate, Stern engaged from March until October 2004 in clandestine negotiations with Sirius to host a program for Sirius and to engage in other radio-related activities for Sirius to the exclusion of CBS Radio. And, on October 6, 2004, without giving CBS Radio the notice required under the Agreement, Stern announced on the Program and Sirius issued a press release announcing that they had signed a contract that would commence in 2006, after Stern's contract with CBS Radio expired. Nothing in these announcements indicated that Stern could benefit by receiving accelerated payments for promotional activities Stern might take on the Program before the end of his Agreement with CBS Radio. Rather, the announcements stated that he would earn $500 million in cash and stock over the 5 years of the contract, which would begin in 2006.

By announcing Stern's contract with Sirius fifteen months before his contract with CBS Radio was scheduled to expire, Stern was able to, and did, use the Programs on CBS Radio to promote and advance his undisclosed financial stake in Sirius as well as the interests of Sirius. That promotional activity violated his obligation under the Agreement to promote the Programs "in a manner which maximizes the prospects for the success of the Programs." Stern not only engaged in such promotional activity on the air and in other venues, hyping the alleged benefits of satellite radio, but also disparaged terrestrial radio, which competes for an audience with satellite radio. His promotional activities also violated his obligations under the Agreement requiring him to disclose any financial interest in an entity promoted on the air.

Stern's failure to give CBS Radio the required notice of his negotiations with Sirius caused CBS Radio to incur extraordinary expenses to satisfy his extra-contractual requests. As noted, CBS Radio added the Program to nine of its stations in July 2004 to address Stern's concerns over Clear Channel's decision to drop the Program. To address Stern's concerns, CBS Radio incurred over eight million dollars in direct expenses, including restructuring the format of several of its stations, incurring increased license fees, and making severance payments to employees discharged to make room for him.

These increased expenses were incurred by CBS Radio as a long-term investment based on the belief that Stern would renew his contract. These expenses were not offset by a corresponding increase in revenue. To the contrary, from the time Stern was added to the stations in the nine markets through December 2005, as compared to the previous seventeen-month period, CBS Radio's cash flow for those stations declined by approximately $11 million. CBS Radio would never have assumed the extraordinary risks associated with introducing the Program in these markets if it had known that Stern was actively engaged in negotiating a satellite radio deal with Sirius to the exclusion of CBS Radio, particularly a deal that gave Stern a hidden interest in promoting Sirius as soon as possible to as wide an audience as possible.

Had CBS Radio been given notice and its "first opportunity for discussion," it would have, as Stern well knew, pursued a satellite radio project jointly with him. CBS Radio highly valued its relationship with Stern, and had advised Stern's agent that any renewal with CBS Radio would include a substantial increase in Stern's compensation. CBS Radio had also told Stern's agent that it was very interested in pursuing any satellite opportunity Stern might be considering.

Had CBS Radio been brought into the discussions of Stern's move to satellite radio, CBS Radio would have worked diligently with Stern to develop an arrangement that would have been beneficial to all parties. CBS Radio had previously demonstrated its willingness to participate with Stern in new ventures that would enhance his exposure and improve both parties' financial position by entering into the agreement with E! to create a cable television program from Stern's radio Programs. In the satellite radio arena, CBS Radio demonstrated its flexibility and interest in expanding its business opportunities by agreeing with the NFL to allow Sirius to share CBS Radio's exclusive rights to air certain NFL games. CBS Radio was willing to and interested in participating in a comparable or different arrangement in connection with any move by Stern to satellite radio.

Stern violated his contractual obligation to provide CBS Radio with notice of his plans to launch a satellite radio project and the first opportunity to participate in any satellite radio project because Stern did not want to share the profits with CBS Radio, not because a three-party arrangement was unattainable.

 

Stern's Promotion of Sirius Satellite Radio in 2004 and 2005

Without the knowledge of CBS Radio, Sirius had agreed in October of 2004 to award Stern millions of shares of Sirius stock, which Stern could earn on an accelerated basis if the number of Sirius subscribers increased to certain target levels, including subscribers added during the period when Stern was under contract to CBS Radio. The October 2004 agreement was construed by the parties to mean that Stern would be awarded stock incentive payments as early as January 1, 2006, prior to the date that his Sirius program even began, if Sirius's subscriber levels hit these targets by December 31, 2005. In order to capitalize on the opportunity created by that provision and to accelerate the award of that stock, as well as to increase the value of Sirius stock, Stern engaged in a continuing campaign to promote satellite radio and Sirius in particular under the guise that Sirius subscription levels did not matter to him and that he was merely discussing details of his life.

Receipt of the stock-incentive payment in January 2006, rather than at the end of some later fiscal year, was worth a substantial amount of money to Stern. Stern was well aware that the long-term future of Sirius is in doubt and that Sirius stock to be paid in 2010 might be worth very little or even worthless by that time. Stern's concealment of that contract term from CBS Radio and the failure to disclose his substantial financial interest in increasing the number of Sirius subscribers while under employ by CBS Radio constituted a breach of his contractual obligations and fraudulent misrepresentation and concealment of information he was required to provide CBS Radio.

Stern's promotional activity on behalf of Sirius by using the valuable airtime of CBS Radio was undertaken with the knowledge, support and encouragement of Sirius in order to increase the number of subscribers to Sirius's satellite radio service as quickly as possible. Stern's incessant promotion of Sirius also included the denigration of terrestrial radio. For example, Stern boasted on that show that moving to Sirius satellite radio "is the only way I can destroy regular radio."

As Sirius's 8-K Form, filed on January 5, 2006, reports, Stern received 34,375,000 shares of common stock on January 9, 2006 because Sirius exceeded its subscriber targets for 2005 that the parties agreed upon in their October 2004 contract. The Wall Street Journal reported on January 5, 2006, that these Sirius shares were provided because Stern helped Sirius meet its targets, "reeling in" more than 1.14 million new subscribers in the fourth quarter of 2005. All of the "reeling" occurred while Stern, under contract to CBS Radio, was obliged to use his best efforts for CBS Radio, and without Sirius or Stern paying CBS Radio one cent for the extremely valuable air time Stern was co-opting. Stern's promotion of Sirius under these circumstances was also a clear violation of the letter and the spirit of the Agreement which obligated him to perform his duties under the Agreement "in a manner which maximizes the prospects for the success of the Programs" and which prohibits "any act which impairs the relationship between CBS Radio and its advertisers."

Stern's promotional efforts and the payment that he received from Sirius for these efforts constitute a breach of the Agreement. The Agreement provided that Stern would not "accept, solicit or agree to accept any money, service, gift, or favor or other thing of value whatsoever to influence any decision by me as to matters to be broadcast." Stern's agreement with Sirius to accept an accelerated payment of compensation for promotional and advertising services provided to Sirius during the term of his Agreement with CBS Radio clearly violated CBS Radio's conflict of interest policies as reflected in the Agreement.

Although Sirius disclosed in its Form 10-K, filed March 16, 2005, that it had agreed to pay Stern "substantial stock based incentive payments... if [Sirius] significantly exceed[s] agreed upon year-end subscriber targets during the term of the agreement, or acquire[s] material amounts of subscribers during the term directly and trackably through Stern's efforts" (emphasis added), this SEC filing did not put CBS Radio on notice that Stern could benefit through the award of stock earned while he was in CBS Radio's employ. Rather, the normal and reasonable reading of that statement was that Stern could receive stock from Sirius as a result of Sirius's reaching subscriber targets after January 1, 2006, when his contract with Sirius commenced. As Sirius's Form 8-K, filed on January 5, 2006 stated, Sirius awarded the stock to Stern because "[o]ur December 31, 2005 subscriber total exceeded the subscriber target we agreed upon with Stern in October 2004." (emphasis added.)

Stern fraudulently misrepresented the reason he was hyping Sirius when he told CBS Radio, in response to its demand that he cease talking about Sirius, that he was just "talking about his life." In response to CBS Radio's complaints about Stern's promotion of Sirius on air, Stern's attorney, in a letter dated October 15, 2004, stated, "Howard has been talking about events personal to him, a practice that is entirely consistent with his past practices relating to the Programs...."

Stern also fraudulently misrepresented the reason that he was discussing Sirius when he falsely stated on CBS Radio air that Sirius subscription levels did not matter to him. For example, on the December 1, 2004 Program, Stern stated that : "If three people sign up for satellite radio, I get paid the same amount of money. What do I care?" Likewise, on March 3, 2005, Stern said on the Program that : "I'm doing it [going to Sirius], and I don't give a rat's ass if three people [listeners] come with me, because it doesn't matter to me."

These statements were material misrepresentations of fact since Stern knew that his promotion of Sirius could result in a prompt receipt of hundreds of millions of dollars as a result of an acceleration of his stock payment from Sirius if its subscription rates increased to certain specified levels. Stern's omissions from these misleading representations also constituted fraudulent concealment because, under the Agreement and applicable CBS Radio policies, he had a duty to disclose his hidden financial interest to CBS Radio. Stern's refusal to adhere to CBS Radio's policies would have resulted in CBS Radio firing him for cause. His misrepresentations and omissions were made intentionally in order to mislead CBS Radio and to induce it to continue his employment, even though he was promoting a competitor. Had CBS Radio known that Stern would benefit directly, immediately and personally from his promotion of Sirius, it would have required him to disclose that interest on his Program whenever he engaged in any promotion of Sirius and to compensate CBS Radio for the use of its broadcast time.

Sirius tortiously interfered with CBS Radio's contract with Stern. Sirius knew that Stern and CBS Radio had a valid contract, that Stern was obligated to do all that he could to maximize the success of the Programs on CBS Radio, and that he generally had an obligation to fulfill that contract in good faith. Sirius intentionally induced Stern to breach the Agreement by offering him the opportunity to acquire millions of shares of Sirius stock on an accelerated basis by promoting their service in violation of these provisions of the Agreement. Sirius's actions resulted in Stern's actual breach of the Agreement which resulted in CBS Radio incurring substantial damages.

Stern's promotional activities resulted in his and Sirius's unjust enrichment, at the expense of CBS Radio. As a result of Stern's activities, Stern received an acceleration of the stock incentive payment of more than 34 million shares, with a value of more than $218 million. Sirius received at least one hundred million dollars of free advertising and a corresponding explosion in their number of subscribers, which is attributable to Stern's promotional activities. These actions constituted a misappropriation of CBS Radio's extremely valuable advertising time and damaged CBS Radio's relationship with its advertisers and affiliates.

 

COUNT ONE
MISAPPROPRIATION OF CBS RADIO'S AIRTIME AND THE UNJUST
ENRICHMENT BY STERN AND SIRIUS

Stern spent over fourteen months continually promoting and advertising Sirius's satellite radio service on CBS Radio's airwaves. CBS Radio received no compensation from Sirius or Stern for the airtime, which CBS Radio sells to commercial advertisers. CBS Radio never authorized Stern to use its airwaves to promote the interests of one of its competitors. Indeed, CBS Radio directed Stern to cease his promotions.

Stern's campaign to promote Sirius on the airtime of CBS Radio was undertaken with the knowledge, advice, support, and encouragement of and in collaboration with Sirius. Stern and Sirius were unjustly enriched by this unauthorized tortious conduct.

Pursuant to principles of equity and to prevent their unjust enrichment, Stern is liable for the misappropriation of CBS Radio's airtime and must compensate CBS Radio for the value of the benefits he received from Sirius for this promotional activity. CBS Radio seeks restitution and disgorgement from Stern in the amount of $218 million, which represents the amount that Sirius paid for Stern's promotion of Sirius from October 2004 through December 31, 2005.

Because Sirius knowingly participated with and paid Stern on an accelerated basis to undertake this promotional activity, Sirius is liable to CBS Radio for the misappropriation of CBS Radio's airtime. CBS Radio seeks damages from Sirius to compensate for the value of the broadcast time that Stern devoted to promoting Sirius and disgorgement of the subscription fees that were received as a result of the misappropriation of CBS Radio's assets that Sirius induced, encouraged and endorsed.

COUNT TWO
BREACH OF CONTRACT

Stern breached the Agreement by promoting Sinus on the Programs during the term of the Agreement without disclosing to CBS Radio that he had entered into a contract with Sirius which enabled Stern to receive an accelerated stock-incentive payment based on increases in the number of Sirius subscribers during the term of the Agreement. Stern also breached his obligations under the Agreement to insure that the programs were professionally presented and promoted in a manner which maximized the prospects for the success of the Programs.

As a result of Stern's promotion of Sirius on the Program, his violation of the obligation to disclose his interest to CBS Radio, his obligation to promote the best interests of the CBS Radio program, and his obligation to deal fairly and in good faith, Stern received an accelerated award of Sirius stock valued at approximately $218 million. CBS Radio is entitled to recover damages from Stern for this breach of contract equal to the amount of compensation and the value of the benefits that CBS Radio paid to Stern over the last fifteen months of the Agreement.

 

COUNT THREE
FRAUDULENT MISREPRESENTATION FRAUDULENT CONCEALMENT
AND AIDING AND ABETTING FRAUD

Stern engaged in fraudulent misrepresentation when he made misrepresentations of material fact by telling CBS Radio that he was not intentionally promoting Sirius on CBS Radio's air and that he did not have a personal interest in increased Sirius subscriptions, but was instead just talking about events in his life. Stern's statement of the alleged reason that he was promoting Sirius was false and was made intentionally with scienter in order to defraud and mislead CBS Radio. CBS Radio was deceived and reasonably relied on this misrepresentation and the material omission and allowed Stern to remain on the air. Stern's misrepresentation and material omission directly and proximately caused damage to CBS Radio because it allowed Stern to remain on the air, paid his substantial salary, incurred unnecessary expenses and suffered additional losses.

Sirius aided and abetted Stern in his fraud against CBS Radio by intentionally filing misleading statements with the SEC that omitted material information regarding the acceleration provision of the stock incentive payments that Stern could collect for promotional activity undertaken during the term of his CBS Radio contract.

CBS Radio is entitled to all the damages it sustained from this fraud, including all benefits that Stern and Sirius received from their perpetration of this fraud, and to an appropriate award of punitive damages.

COUNT FOUR
TORTIOUS INTERFERENCE WITH CONTRACT BY SIRIUS

Sirius is liable to CBS Radio for its tortious interference with the contract between Stern and CBS Radio. Sirius knew that Stern had a contract with CBS Radio and knew that he was obligated to produce a program devoted to CBS Radio's best interests, to follow policies of CBS Radio, and to comply with a general duty of good faith and fair dealing towards CBS Radio.

Sirius intentionally procured and induced Stern's breach of that Agreement, without justification, by offering Stern the opportunity to acquire stock worth hundreds of millions of dollars as early as January 2006 by promoting Sirius while he was under contract with CBS Radio, in clear violation of the Agreement. Stern would not have breached the Agreement in this manner but for Sirius's wrongful conduct. Sirius's actions resulted in Stern's actual breach of the contract and caused CBS Radio to incur substantial damages.

CBS Radio is entitled to recover as damages from Sirius the full pecuniary loss it suffered from Stern's breach of the Agreement and punitive damages in an amount to be determined by the Court.

COUNT FIVE
UNFAIR COMPETITION BY SIRIUS

By inducing Stern to use CBS Radio's airtime for its own benefit, Sirius misappropriated for its commercial advantage property rights that belonged to CBS Radio, its competitor. Specifically, Sirius misappropriated, for its own benefit and commercial advantage, CBS Radio's primary corporate asset, its airtime, by offering Stern substantial compensation to promote its service on his CBS Radio programs.

Sirius pursued this course of action willfully, deliberately, and in bad faith. Sirius undertook these measures in order to gain commercial advantage over CBS Radio. Sirius and CBS Radio are direct competitors and Sirius attempted to usurp the listening audience of CBS Radio by paying Stern to talk about all the benefits of Sirius satellite radio and to speak disparagingly about terrestrial radio, all the while concealing the financial interest that Stern had in promoting Sirius for over 14 months. CBS Radio and its listeners were deceived into believing that Stern was just discussing his life, when in fact he had a direct financial interest in increasing the number of Sirius's subscribers.

CBS Radio was damaged when it failed to receive just compensation for its air time, while its competitor reduced its costs by receiving millions of dollars of free advertising. In addition, Sirius's actions damaged CBS Radio because Sirius, a direct competitor of CBS Radio, received over one million new subscribers (each of whom will pay Sirius $12.95 per month) as a result of Stern's advertisements for Sirius on CBS Radio's airwaves, thereby reducing the potential audience for any competing CBS Radio programming. Since CBS Radio's revenues are related to its audience, Sirius's deceptive advertising practice of using Stern to promote Sirius has caused, and will continue to cause, CBS Radio damages for which it should be compensated.

                        To prevent the unjust enrichment of Sirius, CBS Radio seeks the disgorgement of the revenue from the subscription fees that Sirius received as a result of its misappropriation of CBS Radio's labor and assets. CBS Radio also seeks punitive damages for Sirius's unfair competition.

                         

COUNT SIX
BREACH OF CONTRACT

Stern breached the Agreement by entering into discussions and ultimately into a contract with Sirius Satellite Radio without first giving CBS Radio the required notice and a "first opportunity" to discuss participation in a radio concept or project. CBS Radio can show that if given its "first opportunity for discussion," CBS Radio would have agreed to participate in a similar satellite radio project. Therefore, under the Agreement, CBS Radio is entitled to 40% of the net profits that Stern derives from the contract with Sirius.

As a result of this breach of contract and in reliance on Stern's indications that he would renew his CBS Radio contract, CBS Radio suffered substantial damages when it restructured its radio programming and satisfied Stern's other extra-contractual demands in order to put the parties in a position for a successful extension of Stern's contract. CBS Radio seeks damages to compensate for these losses.

 

PRAYER FOR RELIEF

WHEREFORE, CBS Radio requests that this Court issue a judgment and order:

A. Requiring Stern and Sirius to disgorge to CBS Radio all of the benefits they unjustly received as a result of the misuse of CBS Radio's airtime to promote Sirius from October 2004 through December 31, 2005, including but not limited to, the value of the stock granted to Stern as a result of Sirius's exceeding the subscription target before December 31, 2005, and all of Sirius's revenues from the more than 1 million new subscribers that Sirius obtained between October 2004 and December 31, 2005 that Sirius attributed to the promotional efforts of Stern.

 

B. Requiring Defendants to pay CBS Radio for all damages directly and proximately caused by the fraudulent misrepresentation and fraudulent concealment, tortious interference with contract, misappropriation and unfair competition and ordering them to pay punitive damages for the fraud, tortious interference with the binding Agreement of CBS Radio, misappropriation and unfair competition.

 

C. Requiring Stern to repay to CBS Radio all of the compensation, including the value of the benefits he received from October 2004 through December 31, 2005, as damages for his repeated, numerous and material breaches of the Agreement and the breaches of his implied duties to CBS Radio as a result of his hidden financial arrangement with one of its competitors.

 

D. Requiring Stern and Sirius to pay to CBS Radio damages to compensate CBS Radio for the value of the broadcast time that Stern devoted to promoting Sirius.

 

E. Requiring Stern to pay CBS Radio for all damages directly and proximately caused by his breaches of the Agreement with CBS Radio, and requiring Sirius to pay for all damages caused by their inducing Stern's breaches of the Agreement, including the losses sustained by not receiving, as required by the Agreement, a "first opportunity" to negotiate a satellite radio contract with Sirius and Stern.

 

F. Ordering any further or additional relief that this Court deems just and proper under all the circumstances.