Contract Law Issues in the Conan-NBC Affair

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16 Responses

  1. 1L says:

    Great issue spotter

  2. One wrinkle – covenants not to compete are absolutely forbidden in California. The exceptions are narrow and I don’t think this contract falls into them. As long as a competing show is shot there, NBC would likely have no recourse.

  3. Nate Oman says:

    Michael: I’m not so sure on the California issue. It seems to me that it would depend on three issues. First, where was the case litigated (this would matter for purposes of conflicts law). Second, what law governed the contract. Third, whether the California public policy was so strong as to override ordinary conflicts principles. IOW, suppose that the case is litigated in California, but California conflicts law instructs the court to apply NY law to the contract, and NY law allows covenants not to compete. Would the California policy against covenants not to compete over ride the ordinary conflicts analysis here?

  4. beachrat says:

    Re: Mitigation and different/inferior – I don’t think the time slot is the single factual difference or inferiority. NBC is planning to replace the “immediately following the news” time slot with the “very similar show led by the *previous* host of the 60-year franchise” time slot. It’s difficult to imagine NBC asserting with a straight face that if that had been the original offer, Conan would have taken the original contract.

    Would there be no consideration for the 6 years that Conan put himself in limbo on the expectation that the understood and as-originally instituted conditions of the contract would be honored?

    Re: non-compete clauses, note that local Fox affiliates air their news at 10:00. Arguing that a Conan show at 10:30 or 11 would compete with a new Leno show at 11:35 would seem unavoidably to support the argument that Conan’s Tonight show at 12:05 would be competing with the new Leno show (different/inferior offer), and also the argument that the relevant understanding of time slot is the “immediately following the news” slot, not the “specifically 11:35 pm” slot.

    Thanks for the overview and discussion.

  5. Nate: In my experience litigating these things (and following the cases), I would say yes, CA policy will override conflicts of law issues. I can’t see any CA court enforcing a non-compete injunction in CA. I’m aware of no case doing so (I could totally be wrong on that, so someone who knows otherwise should let us know), and one would think that we would have seen such a ruling by now if courts were willing to do so – there are plenty of out of state high-tech employees with non-competes.

  6. Lawrence Cunningham says:

    Re Michael-Nate: California’s competition policy is strong but its courts also value comity strongly so the place of litigation may be pivotal. Compare Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998) (denying effect to Maryland choice of law provision to evaluate covenant) with Advanced Bionics Corp. v. Medtronic, Inc., Cal. 4th 697 (2002) (refusing to enjoin threatened proceedings in Minnesota to enforce Minnesota choice of law provision and related covenant).

    [Thanks for the great comments.]

  7. A.J. Sutter says:

    Pervishing — really? I wish I’d learned that word decades ago. Could you please expand on meaning and etymology (e.g., does it come from a proper name, from “perverted”, etc.?), and if possible provide some real examples? A Google search wasn’t helpful for this usage, and Yahoo told me “we have included peevish results.”

  8. Anon says:

    Conan’s biggest risk is that a jury would agree with NBC and the general public that he failed to provide anything resembling funny material. He wasn’t funny when I was in law school and he’s even less funny 15 years later as a middle aged guy trying to act like a goofy kid. My assumption is that he succeeded in his former time slot because his viewers were frequently in altered states of consciousness. At 11:35, some viewers are actually awake and sober. He’s just horrifyingly weak at what he does.

  9. Lawrence –

    I agree with the importance of comity – the Medtronic case was big news at the time. But even if the Court lets the case go to judgment, barring competing work in other states (the right outcome), that doesn’t mean that a California court will enforce an injunction or levy based on the out of state judgment. I’m not aware of a case where that happened, though I would love to know if it has.

  10. Ken Rhodes says:

    Michael wrote >>One wrinkle – covenants not to compete are absolutely forbidden in California. The exceptions are narrow and I don’t think this contract falls into them. As long as a competing show is shot there, NBC would likely have no recourse.>>

    Michael, this puzzles me. Presumably, NBC was represented in their negotiation with Conan by some pretty experienced legal talent. Why, then, would they have put an unenforcable clause in his contract? My intuition tells me there’s something about the type of work, the type of contract, and the type of compensation, that makes it an exception to the general rule.

  11. Tom Joo says:

    Great post, Larry.
    WRT to the noncompete clause, it’s not clear that there is one in the contract, although the Fox guy quoted in the NYT article seems to imply there is one. But how would he know?

    In any case, the 9th Cir seems to apply the CA statute (Bus & Prof Code s16600) more loosely than CA courts seem to:

    Although the California statute does not except “reasonable” restraints of trade, it “only makes illegal those restraints which preclude one from engaging in a lawful profession, trade, or business.” …[The 9th Cir has] “required the plaintiff to prove that the contract ‘completely restrained’ him from pursuing his profession.”
    -IBM v. Bajorek, 191 F.3d 1033 (9th Cir 1999)

    Maybe Conan has a clause preventing him from doing a similar, directly competing show, but this wouldn’t necessarily “completely restrain him from pursuing his profession.” (indeed, what is his “profession”?)

  12. Sid DeLong says:

    Re: Mitigation. In his book, “Framing Contracts”, Victor Goldberg has argued forcefully that contracts such as Maclaine’s are “pay-or-play” agreements in which the salary figure is not awarded as compensation for breach but as the exercise price of an option to rescind. No mitigation is required nor will other earnings diminish the actor’s entitlement to the money. I don’t know what Conan’s contract provides, but the “different or inferior” standard may be irrelevant to his claim if it is a contract of that sort.

    Re Inducement: Although the ostensible claim in Texaco Pennzoil was Texaco’s inducement, two features made it a unusual case: Getty’s agent sought out Texaco and solicited the offer on Getty’s behalf, and Getty obtained an indemnification agreement from Texaco before it assented to the bid. The jury trial seemed more about the breach than the inducement, but Texaco was on the hook either way. So it might matter who entreated whom in this deal.

  13. TJ says:

    Michael’s point is really interesting. Has anyone seen a copy of the Conan-NBC contract? Presumably, since the Tonight Show is based in California, there is a strong case for applying California law to it under normal conflicts principles, but the contract itself might have chosen some other law. And even a choice of law clause, I would think that it would be hard to enforce the non-compete clause. Otherwise, you would have plenty of out-of-state companies enforcing non-compete provisions against their California employees, and you just don’t see that happening.

  14. Nancy Kim says:

    Great post! BTW, the “narrow constraints” exception that Tom refers to, and which the 9th Circuit followed, was expressly disapproved by a CA appellate court in 2006 (Edwards II v. Arthur Andersen, 142 Cal. App. 4th). The 2006 case seems to limit noncompetition clauses to situations where trade secrets are involved or to statutory exceptions, such as sales of businessness or partnerships. I’m inclined to think that if there is non-compete language, it is of the sort that is limited to the duration of the employment and not post-employment. I wonder, however, if NBC could have Conan agree to a post-employment non-compete as part of the settlement or make certain payments contingent upon his employment status (just as damages for breach of employment K by the employer are offset by new employment wages earned during the term of the K).

  15. Mark says:

    Anon wrote: “He wasn’t funny when I was in law school”

    Ipso facto

  16. Tom Joo – Nancy Kim is right – Bajorek is disavowed in state law, and the 9th Cir. would presumably follow it.

    Ken Rhodes – NBC would put such a provision in for two reasons: 1. Conan was in NY when the deal was made, and 2. even if he wasn’t why not, maybe it will fly, it’s boilerplate anyway.