Rather v. CBS Appeal Denied

Brains rightly concentrated last week on the lively Conan O’Brien-NBC contract dispute (some of my thoughts are here and here) though not to be overlooked is the final resolution of the Dan Rather-CBS contract dispute. The New York Court of Appeals ended that litigation last week by declining to hear Rather’s appeal from an intermediate court denying claims for breach of contract, breach of fiduciary duty and fraud against CBS.

 A September 8, 2004 broadcast Rather narrated on CBS’s 60 Minutes concerned then-President George W. Bush’s service in the Texas Air National Guard. It turned out to be erroneous and some asserted Rather knew or should have known this. CBS disavowed the broadcast and Rather made a public apology—which he later retracted, saying CBS fraudulently induced him to do it.

CBS soon removed Rather as anchor of the CBS Evening News, gave him de minimus assignments on 60 Minutes, and paid him the balance due under the contract. In dispute was exactly what those 60 Minutes assignments were and whether they conformed to the contract, plus whether Rather was entitled to work elsewhere during the period. These issues implicated the Rather-CBS employment contract, dating back 40 years and amended many times.

All seem agreed that the Rather-CBS contract provided that if CBS removed Rather as news anchor it would give him some sort of correspondents’ job on 60 Minutes and in any event pay all amounts otherwise due under the contract. All also seem agreed it paid him those amounts (some $6 million). The dispute centered on whether CBS did reassign him and whether he was entitled to work elsewhere during the period.

No Breach of Contract. Rather said CBS gave him at best de minimus assignments and, yes, paid him, but also prevented him from pursuing other work, causing him damages for lost business opportunities. CBS said it wasn’t required to give any particular assignments and, so long as it paid him, was not responsible for amounts he could have earned elsewhere. The court sided with CBS, construing the contract as a pay-or-play arrangement, obliging CBS to pay no matter what, which it did, not requiring it to use him, as anchor, correspondent or anything else. So CBS was not in breach of contract.

No Breach (or Existence) of Fiduciary Duty. Rather tried to paint his relation with CBS as fiduciary, meaning CBS owed him duties beyond their contractual relationship. The primary basis for this assertion seemed to be the length of the relation, some 40 years. This was simply wrong: New York law is clear that employment relationships do not create fiduciary relationships. Employers do not owe employees any fiduciary duty.

Rather sought to analogize his situation to that of a new rock music band signing with a record producer, which has been held to owe fiduciary duties to the band. But that is entirely different. It is an exclusive dealing arrangement not an employment relationship. Plus, the fledgling band was unsophisticated and necessarily relied upon the producer’s skill and expertise, contra the sophisticated Rather. Nor did the Rather-CBS deal involve the employer in unusual transactions on behalf of the employee, like financial arrangements with third parties, that could justify imposing special duties beyond those expressed or implied by contract.

 No Fraud. Rather’s assertions of CBS fraud concerned various misrepresentations, like false promises to defend Rather’s reputation, investigate the broadcast, use Rather’s talents, release him or extend his contact, and so on. None of these was actionable. Any CBS statements to the general public about Rather’s broadcast or reputation were time-barred under the applicable statute of limitations, those about not using him elsewhere or releasing him were simply erroneous restatements of the breach of contract claims, and promises about contract extension were mere non-actionable statements of future intention.

No Fraud Damages. Even if a claim of fraud were made as a matter of liability, Rather misunderstood the nature of damages such a claim could entitle its victim to recover. Rather argued that his damages from fraud, like those that would arise from breach of contract, were essentially the benefit of the bargain. He wanted those measured as the difference between what he would have earned in the future, absent the fraud, and what he would earn as a result of it.

But damages for fraud under New York law are governed by its so-called out of pocket rule, not a contract measure, but a tort measure. They are measured by the difference in value between the fraud-induced bargain and the “value of the consideration exacted as the price of the bargain.” The issue is what Rather gave up when induced by fraud compared to what he got. He offered no evidence of such damages.

An Easy Case?  This ended up, after a few years of litigation, looking like a very easy case, though the opinion makes the construction of the contract’s pay-or-play clauses look easier than it is.  Still, there is a good chance that, despite the seeming legal uncertainty aroused by reported or probable facts in the Conan-NBC dispute, a judicial opinion a few years from now would make it look like an easy case to resolve too.   That’s an interesting thing about the judicial process.  Cases can tend to get or look easier as they wind their way through the grueling process.  Readers of opinions years later should not forget the angst.

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