Conan NBC Contract Issues II
posted by Lawrence Cunningham
My post on the Conan-NBC contract affair generated excellent comments, several gracious private emails, many cross-postings, including in the Washington Post, Conglomerate and Contracts Prof blog and, above all, lively discussion in my Contracts class. In light primarily of the latter, a few supplements follow.
Time Slot: Parol Evidence Rule. Concerning the contract’s asserted silence as to The Tonight Show’s time slot, I noted how silence could mean either NBC retained time slot discretion or how expression was unnecessary because The Tonight Show always aired at 11:30.
But a fundamental issue is what evidence a court would entertain to choose between such constructions. This raises a branch of the parol evidence rule, a complex doctrine barring the admission of certain kinds of evidence in the face of a complete and final written agreement.
This branch concerns whether a writing contains ambiguities that cannot be resolved without resort to evidence to aid its interpretation or construction. In some contexts, courts, appreciating that words have many uses rather than stable meanings, grant wide latitude in admitting explanatory evidence, perhaps especially amid contractual silence. In others, appreciating facing busy workloads and taking a pragmatic approach to contractual expression, it is prudent to adopt the “plain meaning rule,” disallowing evidence offered to explain contract terms, sometimes even as to omitted terms.
In Conan’s favor, because not requiring the admission of evidence but an assertion of logic and canons of contract interpretation, one could observe that if the parties intended for NBC to have time-slot discretion, the contract easily could have been written to say so. Contractual silence therefore warrants construing it to deny NBC that discretion. (Taking the plain meaning rule literally, if The Tonight Show airs at 12:05 am, it is not a show tonight but one this morning!)
NBC, in contrast, would benefit only by persuading a judge that this case warrants admiting evidence about the meaning of silence. If successful, it could adduce evidence showing that such time slot commitments appear in other network-host contracts, including with Jay Leno and David Letterman, according to reports widely available on the Internet. If so, silence here would support construing the contract to mean that no time slot commitment was intended and NBC retains discretion over that issue. On the parol evidence issue, then, advantage: Conan.
Third Parties. In addition to noted risks facing Fox for interfering with the NBC-Conan contract and Conan for interfering with the NBC-Jimmy Fallon contract, Jay Leno is another potentially relevant third party. He and his advisors must take care to avoid action that could expose him to liability for interfering with the Conan-NBC contract. Given Leno’s reported role in this affair, this is another advantage to Conan.
Covenant Not to Compete. The most extensive discussion in comments to my post concerned the issue of any covenant not to compete the NBC-Conan contract may contain (or that any settlement agreement between them might include). Two additional points are worthwhile, each with opposing implications for relative NBC-Conan bargaining power.
In NBC’s favor, even if such a covenant would be unenforceable under California law, that law does not prohibit covenants that restrict a person’s right to poach employees and other assets when departing an employment. If some of Conan’s team on the show, including his sidekick and band leader, are NBC employees, such a clause could impair Conan’s right to bring them with him to any competing program. Point for NBC.
On the other hand, aiding Conan, contract law generally provides that it is a constructive condition to one contract party’s duties that the other is not in breach. Subject to some qualifications generally designed to protect an exchange upon breach, if NBC is in material breach of contract, then Conan’s duties would be excused, including any arising under any otherwise enforceable covenant not to compete. Net gain for Conan.
Liquidated Damages. Reports around the Internet say the contract contains a clause obliging NBC to pay Conan a stipulated sum, reportedly in the $40 million range, if it breaches. If NBC is in breach, this attempt to liquidate damages for breach may be enforceable if actual damages are difficult to ascertain and the stipulated amount reasonable in relation to forecast or actual damages. To avoid overcompensating aggrieved parites, contract law provides that, if damages are ascertainable or the stipulated amount is designed to be punitive, to punish breach, they are unenforceable.
It is difficult without seeing the contract, particularly its economic terms, to say much about this clause, whether it is intended to be compensatory or punitive. Worth noting, however, is how some devoted fans of Conan, rooting for him to claim the award, repeatedly and emphatically call it a penalty. Though words like that do not determine legal interpretation of a clause, calling this one a penalty would not help but jeopardize Conan’s chances of recovering it.
Overall. Ongoing discussions between NBC and Conan illustrate the notion of bargaining in the shadow of the law, working out arrangements in light of known or probable legal claims and consequences. Non-legal forces of course are at work. Conan’s legal position, still incrementally weaker to me despite the foregoing, may play a role in his decision to communicate directly to the public. But his public relations gambit may also be deftly designed for other reasons. It paints NBC, and Jay Leno, as the bad guys, and portrays himselt as the guy in the white hat, a subtle bid to disaffect viewers from NBC, and Leno, a sort of blackmail, though not illegal.
Hat Tips: To my wonderful Contracts students at GW Law School.