Sheen v. Warner: Loser under Non-Disparagement Clause

A contract dispute has erupted between Charlie Sheen, the actor wrestling his out-of-control personal life, and Warner Brothers, producer of the hit show “Two and a Half Men” starring Sheen and telecast by CBS. After Sheen recently disparaged the show and its creator, Chuck Lorre, Warner suspended production, and CBS concurred.

Sheen promptly retained a lawyer, Marty Singer, to cry foul. They say Sheen is entitled to be paid for the remaining scheduled episodes, produced or not. Whether Warner or Sheen will win the contract dispute depends on the terms of their contract; whether CBS would owe anything depends on that plus its role in the suspension decision. 

My Guess? The contract contains a non-disparagement clause; Sheen breached it; that entitles Warner to suspend production; it and  CBS owe Sheen nothing; still, Warner will offer Sheen a few million to go away.

Pay-or-Play Clause. Sheen would have a strong contract claim against Warner if the contract contains a “pay-or-play clause.” These clauses, common in entertainment contracts, require a studio to pay an actor an agreed sum whether the parties create teleplays or not.  (Famous examples include a contract with Shirley MacLaine in the 1960s and Dan Rather in the 2000s.)

Reports made when the Sheen-Warner contract was renewed last year do not support supposing the contract took that form.  Instead, the contact calls for Warner to pay Sheen a stated amount per episode, rumored to run from $1.5 to $2 million each. That supposition is supported by Mr. Singer’s assertion that Sheen is entitled to payment based on per episode contract amounts.

Morals Clause. Warner would be justified in suspending production, and free from obligation to pay Sheen, if their contract authorizes it to back out when Sheen’s public behavior could damage the reputational value of the show. It seems unlikely that the contract contains such a so-called “morals clause” however.

Though common in sports player contracts and in product endorsement deals, as Tiger Woods can tell you, and do appear in Hollywood contracts, as Mel Gibson can  attest, they are rarer in Hollywood, where bad behavior is widespread.  Indeed, Sheen’s behavior for several years would have violated even the most modest morals clauses, with the many accusations of abusing women, booze and drugs.   

Non-Disparagement Clause. Warner would be justified in suspending production, and free from payment duties, if their contract contains a non-disparagement clause. This prohibits creative artists from bad-mouthing productions in which they participate. Sheen’s disparaging comments about the show and its creator would almost certainly be a violation of any such clause that may be contained in the contract.

A similar clause appeared in the recent case of the novelist, Clive Cussler, and the making of a film based on his book, “Sahara.” The author disparaged the film, despite a non-disparagement clause, and was found to have breached his contract. In that case, however, the producer was also in breach for using an unapproved version of the screenplay.  Neither owed the other anything, though the two paid total legal fees exceeding $15 million fighting each other.

CBS. Sheen has no contract with CBS and therefore no breach of contract claim to make and no CBS defense to confront. The only way he could compel CBS to pay damages is if (a) Warner breached its contract with him and (b) he can prove that CBS intentionally induced that breach unlawfully and thus tortiously interfered with his contract.  Even if Warner is in breach, it is difficult to imagine Sheen being able to show such interference.

The Upshot? Sheen’s overture is a natural assertion of potential rights, seeking to grab some $16 million he stands to lose, though it would be surprising if the contract entitled him to a penny. Even so, to avoid paying millions in legal fees and eliminate the small risk of high damages, Warner likely will offer to buy the actor off for a fractional amount.

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